Blog entry

Lack of transparency hindering Czech export agency

Although not an institution that typically receives much fanfare, the export credit agency (ECA) in the Czech Republic has a poor track record worthy of more scrutiny.

Its latest failure relates to a contract for the construction of a power plant in Turkey. The operator of the power plant, Adularya, alleges that the components and machines provided by a Czech exporter, the Vítkovice Machinery Group, are not suitable for the low quality coal that is used at its Yunus Emre power plant. Neither side wants to take responsibility for the dispute, so the future of the plant is now unclear. Since the beginning of 2017, the Czech government has sought a solution with its Turkish counterpart since the latter took over Adularya after the political purge in 2016. There is however currently no agreement among Czech politicians about how to resolve the situation, which is concerning in light of the ECA’s missteps in recent years.

The Czech ECA is made up of two institutions: the Czech Export Bank (CEB), which lends to Czech exporters or their customers, and the Export Guarantee and Insurance Corporation (EGAP), which insures these loans. Together they provide support to Czech companies that want to do business in areas with risky conditions.

As a response to the financial crisis and thus a desire to boost exports, the CEB and EGAP became more lenient in evaluating the financial and political risks of the projects and so a number of loans were made to projects that otherwise would not normally have received them. Without the proper safeguards in place, a number of problematic projects emerged. For example, a police investigation led to accusations that two EGAP managers falsified information about the construction of a cement factory in Vietnam. The project lost EUR 30 million when the construction failed.

CEB and EGAP have also supported the construction of a number of new coal power plants since then, several of which have failed, resulting in more losses for the state. The first such failure involved the Kolubara power plant in Serbia, which received a loan in 1999 following damage it sustained during the war in the former Yugoslovaia. Part of the loan was never repaid. EGAP also paid for power plants at Balloki and Muridke in Pakistan because the Czech supplier was not able to finish the construction.

Three other dubious projects backed by the ECA are located in Russia. A power plant in Kurganskaja had difficulties with paying back CEB, because of losses it incurred as a result of a devalued Ruble. The Krasavino power plant, which is already running, split into two divisions, neither of which is willing to pay for the loan from CEB. There is also an unfinished project at Poljarnaja.

CEB stopped project financing because its Russian counterpart did adhere to its contract. The gas-fired power plant is not going to be finished and therefore, CEB will lose a significant amount of money on the deal. Financial losses like these had to be paid by the state, by public money. It is estimated that this will cost the Czech state CZK 20 billion (over EUR 740 million).

In spite of these failures, CEB and EGAP were determined to build a second lignite power station in Pljevlja, Montenegro. From the beginning, the project was questioned by several NGOs, Bankwatch included. Škoda Praha – owned by the Czech state – was chosen for the project under dubious circumstances, for which the Montenegrin government had to adopt a special law. Experts and local NGOs doubt future energy demand scenarios and the real price of the power plant, which will be in fact much higher in the future. The operation of Pljevlja II can be feasible only with very creative accounting, and more likely this project will bring financial burden to the Montenegrin government.

These shortcomings are only exacerbated by the climate and health problems posed by the project. The present power plant, Pljevlja I, already causes significant air pollution in the Pljevlja valley. If both power plants were to operate, pollution would reach critical levels, greatly impacting the health of local residents and their environment.

CEB did eventually dodge a bullet with Pljevlja, announcing in October 2016 that the project was risky and thus refusing to participate.

Nevertheless, the unsuccessful projects financed by CEB and EGAP raise alarms about its decision-making and interest in fossil fuels, which does not correspond with the Paris Agreement. There is a need for more transparency within the Czech ECAs. Both CEB and EGAP operate with public finances, so the public has the right to actively participate in the environmental decision-making related to its operations.

As such, ECAs should actively disclose information about projects that they discuss at an early stage. In this way, NGOs can evaluate the potential environmental impacts and the public can express its views. This will go a long way to help avoiding the conflicts and criticisms that have arisen so far across the portfolios of CEB and EGAP.

Ukraine’s addiction to nuclear energy poses a decades-long threat to Europe

Despite an urgent need to rebuild and reshape its highly inefficient and outdated energy sector, Ukraine has recently presented a draft of its new energy strategy that looks more like of the same. While the strategy makes mention of modern renewable energy sources, targets for these are low, and nuclear energy still maintains its leading position in the mix. The country’s 15 Soviet-era reactors are expected to bridge the gap in the so-called energy transition until 2035, meaning that they would need to operate twenty years beyond their designed lifetime, posing a threat to neighbouring countries in Europe and beyond.

The draft energy strategy released by Ukraine for consultations in January does not plan for the active development of renewables until 2025, with its share of the energy mix reaching 20 per cent by 2035. According to estimates by Bankwatch member in Kyiv the National Ecological Centre of Ukraine, the potential share of renewables by 2035 should be at least 60 per cent, in order to ensure that the long-term goals of the Paris Agreement are met. To reach this amount, the active development of renewables, distribution networks and energy storage systems should begin now. Yet instead of moving in this direction, Ukraine looks set to extend the lifetime of another aged reactor – unit three at the Zaporizhia nuclear power plant – whose licence expires after 30 years operations in February.

The shortcomings facing clean energy in the draft strategy should be no surprise, given that Ukraine has refused for the past five years to conduct a thorough environmental impact assessment (EIA) of its decisions to prolong its nuclear units. Such an assessment would provide an opportunity to discuss alternative energy scenarios, and would benefit from feedback after consultations with neighbouring countries and other EU member states, where solutions to phase out nuclear energy are being sought.

The threats presented by an absence of renewables in the draft energy strategy, along with a thorough EIA for Ukraine’s nuke extension, are compounded by the fact the safety upgrade measures meant to improve the conditions of these reactors are not being fully implemented by Ukrainian authorities. These measures are partially funded by European taxpayers via the EBRD and Euratom.

Fortunately these worrying decisions are not passing unnoticed, as international bodies have sounded alarms. In November 2016, the implementation committee of the Espoo convention on transboundary impact assessment opened an investigation into the extension of five Ukrainian reactors (South Ukraine 1 and 2, Zaporizhia 1 and 2, Khmelnitsky – point 3 in the pdf). Moreover, the Secretariat of the Energy Community has opened an infringement procedure against Ukraine for its failure to comply with the provisions of the Energy Community Treaty, specifically for not transposing the EU’s EIA directive. Such developments are indictment of Ukraine and its inability to develop sustainably its energy sector in line with its neighbours in Europe.

The draft energy strategy is a far cry from the progress in the sector expected by the European Commission and financiers as a condition of their lending programmes. The EBRD and Euratom, supporters of the nuclear safety upgrade program in Ukraine, should be alarmed by provisions in the draft strategy to keep units running for another 50 years, a timespan never once envisioned for the VVER-type nuclear unit. As such the EBRD and Euratom should suspend their financial assistance until Ukraine complies with its international obligations.

[Campaign update] Pljevlja residents protest against air pollution

Once again people from Pljevlja in northern Montenegro have taken to the streets to protest against the awful pollution that has been plaguing the town for years.

Supported by NGOs Ozon and Green Home, the protest aimed to put pressure on the authorities to take action to resolve the situation, which is caused by the nearby lignite power plant together with domestic burning of coal and wood.

See images from the action below >>

While the situation gets worse and worse, the only measures that the authorities have so far come up with are subsidised sales of wood pellets for stoves instead of coal. However two years in a row these have only been available once winter has already started and most people have already bought their fuel. And without incentivising the use of more efficient and appropriate stoves, such measures will achieve very little.

In the longer term, the authorities are claiming that the planned Pljevlja II coal power plant would include district heating that would alleviate the situation. However this claim is false. The power plant would generate heat, but without a separate project to construct the heating pipe network, this would be meaningless. Indeed, the existing plant that was opened in 1982 was also supposed to include district heating, but 34 years later, there is still no sign of it. In the meantime, technology has moved on, and it may well prove more economic to install individual heat pumps rather than district heating.

Rather than making fraudulent claims about non-existent benefits of Pljevlja II, the Montenegrin authorities need to finally admit that Pljevlja is at some point in the next few years going to have to undergo a transition away from its dependence on coal. Pljevlja desperately needs a comprehensive and inclusive plan to resolve its increasingly serious environmental and social problems and diversify its economy. Given the increasingly poor economics of coal, the town’s transition will happen anyway, but without a plan it could be a very painful one.

Images

All images by Green Home.

Call the chimney sweepers! Independent monitoring shows for first time true level of air pollution near coal plant in Serbia

“Ioana, look, the wind is blowing from the South today, all this is going over the Danube to Romania!” writes L. and sends me a photo as proof, one November morning.

He lives in the village of Drmno, in Serbia, only 15 kilometres away from the border with Romania, my home country. Drmno is sandwiched between the Kostolac B power plant and the open-cast lignite mine which supplies its fuel.

A few days a month, the black smoke which comes out of the plant’s chimney is blown northwards, but for all the other days, it looms over the Drmno village.

There is no official way for the locals to find how bad the pollution is, as the Environmental Protection Agency’s measurement station only monitors two types of pollutants: sulphur dioxide and carbon monoxide. But the black clouds are full of other types of pollutants too, including dust particles, PM10 and PM2.5, which enter the lungs and blood streams of those exposed.

Because of this lack of publicly available data, Bankwatch together with its Serbian member group CEKOR and local partner Zdravo Drmno have embarked on a month long continuous independent air monitoring activity.

Our measurements for the first time offer locals information on how polluted the air they breathe really is. The results are not short of alarming. Practically, only on 4 days of the entire 30 days of monitoring has the limit for PM2.5 not been breached. These are tiny particles that our eyes are not able to see, but our lungs for sure will feel, especially after prolonged exposure.

Graph: Daily average of PM 10 and PM 2.5 levels in Drmno on 30 days in November and December 2016. (Click on image to see higher resolution. See also a more detailed graph on Bankwatch’s air pollution page.)

And we are looking at exceedances of over 6 times the limit on some days. On December 9 the daily average stood at a soaring 123.56µg/m³. According to Serbian legislation, the maximum allowed annual average for this pollutant is 27.14µg/m³ per day in 2016. By 2024 this limit will be tightened to 20µg/m³ which is also the limit recommended by the World Health Organisation and the one used by the Institute for Public Health in Serbia in its communication.

Neither Serbian, nor EU or WHO guidelines allow breach the annual limit, but it is unclear who bears the responsibility of non-compliance or what concrete steps would be made as a remedy and whether that will ever be enforced in Serbia.

The PM10 monitoring results do not offer much relief either. In addition to the annual limit, PM10 also has a daily-average limit according to Serbian law. Only 35 exceedances of the daily average are allowed over the course of a year.

Our monitoring results, however, have shown that already on 16 of the 30 days observed the limit has been breached. While being fairly unremarkable at first, the PM10 curve has been going up and up since December 2.

Chances are that this indicates just the beginning of a heavily polluted winter season. There is a strong link between weather conditions and the measurement results. And every winter, locals from Drmno observe that the cloud ceiling stays low, trapping the air pollution in the town.

Instead of offering a solution to this problem or providing the local population access to air quality information, the Serbian Government is set to build yet another 350MW unit at the existing plant – the Kostolac B3 project – and for over two years it had an environmental permit which had been issued without consideration of the transboundary environmental impacts.

The Environmental Ministry will however soon be requested to renew this permit and it will have to consult neighbouring countries in the process of the environmental impact assessment. I look at the photos L. sends me every second day and wonder “how can this pass?”

[Campaign update] World Bank non-compliant with its own resettlement policies in Kosovo

The World Bank has this week published the Investigation Report of its Inspection Panel for the involuntary resettlement of residents in the village of Hade near Pristina in Kosovo. The investigation, undertaken following a complaint by current and former Hade residents and KOSID, confirms that considerable and un-repairable damage was caused to Hade residents during displacement, in order to open the way for the mines of the proposed “Kosova e Re” power plant.

Guest post by Dajana Berisha, Forum for Civic Initiatives/Kosovo Civil Society Consortium for Sustainable Development (KOSID).

The World Bank has been involved in Kosovo since 2001 and has acted as a prominent advisor to the Kosovo government. Back in 2004, UNMIK announced Hade village as an area of special economic interest due to open-cast mines. In 2004/5 many residents were displaced from their homes, some of them forcibly removed by police.

More than a decade later, many of these people are still living in temporary rented accommodation without adequate compensation for their agricultural land, and thus unable to make a living.

The Inspection Panel found that, while the World Bank did not make decisions on the resettlement and could not be held directly responsible, it could have provided specific advice on mitigating the impacts, but did not.

Against this background of failure to ensure adequate consultation and to ensure that people could continue to make a living, the World Bank supported Kosovo to draw up a Resettlement Policy Framework for future resettlements as part of its Lignite Power Technical Assistance Project. A version of the document was ready in 2008 but was later amended in 2011. The Inspection Panel found this process to be non-compliant with the banks’ standards, as the document did not include principles and methods for the valuation of assets of affected people living under the restrictions of the Zone in the New Mining Field.

Between 2009 and 2011, the Kosovo government expanded the area of special economic interest. According to the Inspection Panel, setting Obilic municipality as an area of special economic interest is not in accordance with international practices, as it is far wider than the actual land needed for the mine expansion. While the World Bank was not directly responsible for the decision, the panel finds that it could have used its role as a prominent advisor to propose alterations to the zone.

In 2012 another round of resettlement took place, guided by another World Bank-financed document, the Resettlement Action Plan for the Shala neighbourhood of Hade village. This time, new housing was promised but materialised only with serious delays and technical shortcomings such as frequent sewerage pipe blockages in the new dwellings.

For a long time now, a large number of residents have been left without basic living conditions, to make room for mine expansion.

The remainder of Hade remains in total isolation, and with polluted air, while residents of other villages are also in limbo, unable to sell or invest in their land or houses.

For a long time now, a large number of residents have been left without basic living conditions, to make room for mine expansion.

The Inspection Panel has found the World Bank to be in non-compliance with its policy for the Shala resettlement action plan’s ambiguity regarding institutional arrangements and the absence of a detailed resettlement schedule – oversights which it believes contributed to the significant delays experienced during this resettlement. Community members remained in temporary housing for a prolonged period which caused harm by creating uncertainty about their future and disruption in their lives.

The Panel has also found that there was a lack of attention paid to livelihood strategies for the affected households, including the most vulnerable and poorest. The Livelihood Restoration and Community Development Program anticipated in the plan was not developed in subsequent years.

Moreover, dragging out the process of relocation over so many years and separating the community, is not in accordance with World Bank’s standards and policies.

For an institution with as much experience as the World Bank, it is worrying to see that it is still making such basic mistakes. In fifteen years of involvement in Kosovo it still has not managed to bring its projects into line with its own standards.

Nevertheless, we will continue to demand that the Kosovo government and World Bank find a solution for the inhabitants of the areas affected by lignite mining. Some of the remaining Hade inhabitants are asking for immediate resettlement since their agricultural lands have already been taken and life in the village has become unbearable, but so far they have heard only empty promises.

We strongly oppose the violation of their rights, and urge the relevant institutions to take concrete steps to ensure the remaining residents of Hade the dignified living that they deserve.

‘Southern Graft Corridor’ or the shady history of companies involved in Europe’s pet energy project

Note: The ‘Risky business’ report has been amended to correct several errors that have been idenfitied after publication.
Read a statement about those changes >>

The Southern Gas Corridor, a 3,500 kilometre system of pipelines meant to bring gas from Azerbaijan into Europe, is the pet project of the European Union in the energy sector. It is presented as a panacea for all ills: reducing Europe’s reliance on Russian gas, contributing to the move away from coal, and bringing energy and business to the poorer southeastern Europe. The USD 45 billion project is set to benefit from some of the biggest loans in the history of European public banks.

Whether this gargantuan fossil fuels project indeed serves the public interest – in Europe and beyond – is a major bone of contention. But, as a new Bankwatch report (pdf) reveals, this pipeline is set to benefit a host of companies and individuals with a particularly shady history.

The report “Risky business” looks at the companies contracted to build the sections of the Southern Gas Corridor in Italy, Greece and Turkey and finds a worrying track record of corruption. In several cases, construction companies and their executives have been convicted on different charges, or they are currently facing criminal investigation and prosecution.

If proponents and potential financiers of the project don’t see a problem in pumping billions of euros into a massive fossil fuel project that contradicts Europe’s committments under the Paris Agreement, they must at least realise that the mega-pipeline shapes up to be a breeding ground for corporate misbehaviour. Several companies involved so far have shown that they don’t shy away from dodgy deals.

Browse many details in an interactive presentation by clicking the image below or read some of the highlights at https://bankwatch.org/risky-business

Download the study at https://bankwatch.org/sites/default/files/risky-business.pdf

Find more background about the project at https://bankwatch.org/our-work/projects/southern-gas-corridor-euro-caspian-mega-pipeline