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For European development bank democracy is an afterthought


Twenty six years after the fall of communism, it seems democracy is under attack in a growing number of countries in the former Soviet bloc. Many of them are still struggling with economic reforms, and it is clear that both free markets and sustainable development hinge on the full application of democratic principles.

This was clear already to the founders of the European Bank for Reconstruction and Development (EBRD) when they penned down the bank’s mandate in the spirit of 1990.

Article 1 of the EBRD’s statutes defines the bank’s mandate as promoting market economies in countries committed to multiparty democracy and pluralism, and Article 2 entrusts the bank “to promote in the full range of its activities environmentally sound and sustainable development”.

As last Thursday, September 15, marked the International Day for Democracy under the theme of “Democracy and the 2030 Agenda for Sustainable Development,” it is increasingly evident that the bank has strayed away from this mandate.

EBRD countries & democracy database

Lending volumes and democracy scores for EBRD countries of operation.

Download excel sheet

Belarus is a case in point. The EBRD’s strategy for Belarus, approved last week, departs from previous ones in its assessment of the political context in the country. Among others, it cites ‘positive steps’ that supposedly provide an opportunity for enhanced engagement with the Belarusian authorities. The document mostly refers to the increased international openness in Belarus to discuss with its international partners the state of affairs regarding democracy and human rights, the release of political prisoners in August 2015, the restrictive yet lenient approach to the application of the legal framework for human rights, as well as the presidential election, which, according to the EBRD’s assessment, “while not meeting international democratic standards, was held in an environment free from violence”.

Indeed the democracy and human rights situation in the EBRD’s regions of operations has deteriorated so badly in the last couple of years that the bank capitalises on even the smallest improvements to support its engagement with countries like Belarus, widely dubbed “Europe’s last dictatorship.”

The bank has clearly decided to ignore its own mandate, or else it would have to considerably shrink its business.


Map: EBRD lending and countries’ scores in the Freedom House ‘Freedom in the World 2015’ report. In the last 25 years, the EBRD sent almost twice as much money to countries that were labelled authoritarian and partly free than to countries that were labelled free. Hover over a country to see how much money it received from the EBRD in 2015 and between 1991 and 2015, and to see its Freedom House score. The lower the number, the more authoritarian the country, the darker its colour on the map. (Country freedom rating: Freedom House; DLending data: EBRD; Map by New Internationalist)

For example, after the bank stopped approving projects in Russia following the annexation of Crimea, Turkey became the largest recipient of EBRD financing.

The Economist Intelligence Unit’s 2015 Democracy Index ranked Turkey at the 97th place. The severe crack-down on media and academia following the recent attempted coup further degrades the democratic credentials of Recep Erdogan’s government and should warrant a serious soul-searching at the EBRD about this level of engagement with the regime.

Furthermore, Libya, which fell no less than 34 places in this index and now ranks 153rd, has recently become a shareholder of the bank, and so did China, a country not really known for multiparty democracy.

The EBRD’s approach towards Article 1 of its statute has been very inconsistent. While the bank restricts investments in Turkmenistan and Uzbekistan, other authoritarian countries are not subject to the same treatment. Its approval of Egypt as a full country of operations in October 2015 does not exhibit a great deal of concern for compliance with Article 1 and raises concerns about the messages that the bank is sending to oppressive governments.

As a result, the EBRD’s failure to impose conditions for tangible improvements in the area of democracy and human rights casts doubt that it can ensure meaningful public participation in investment projects which may have adverse social impacts.

In fact, public participation in decision-making remains pitifully low even in many of the more advanced transition countries, and too often expansion of the private sector is prioritised over the rights of communities to protect their livelihoods.

Complaints to the EBRD’s accountability mechanism on energy projects in Serbia (coal), Georgia (hydropower) and Jordan (gas) are testimonies to the bank’s inability to enforce its own policies. At the same time, Bankwatch’s experience suggests that the lack of complaints from countries with an even worse track record on human rights could be the result of complainants’ concern for their safety being an insurmountable barrier to justice and practice of their fundamental rights.

There is a range of concrete measures that the EBRD needs to take. Human rights benchmarks in country strategies, specific commitments to improve human rights assessments, transparency and public participation in decision-making on the project level, and ensuring the safety of complainants are just some of such steps.

The bank has traditionally sought to improve the investment climate, and recently it has started attaching greater importance to its policy dialogue initiatives. These should hopefully enable transparency and participation, as well as access to justice for communities affected by the projects the bank finances.

The Economist Intelligence Unit warns that democracy risks rollback in much of the EBRD region and beyond: “Eastern Europe’s score in the Democracy Index deteriorated in 2015, and, since we created the index in 2006, the region’s trajectory overall has been one of regression.”

Perhaps most striking is that no less than nine of the EBRD’s countries of operation are labelled by this index as authoritarian. And the bank’s financial support for these countries is simply astonishing: last year alone, the EBRD has granted these nine repressive regimes 2.26 billion euros – nearly a quarter of its total investment volume in 2015.

Turkey, not included in this group of countries in the index’s 2015 edition, received from the EBRD nearly EUR 2 billion last year.

If a quarter of the EBRD’s annual investments goes to countries who show little to no commitment to democracy and pluralism, the bank should seriously reconsider the operational approach to implementing its political mandate. Continuing with business as usual, investing in projects in countries ruled by dictators does not help these societies.

 

 

Guest post: Renewables kept in thrall in the Czech Republic


Power production from renewable energy sources in the Czech Republic stagnates since 2013 – the year when the support system based on feed-in tariffs was removed without any replacement. No single wind power plant was built in 2015 and only a negligible number of solar photovoltaic systems were installed on Czech roofs during the last months. While the Czech Republic reaches its (very low) EU 2020 renewable energy target in advance, the actual trend with regards to the transition to a low-carbon economy is negative.

Recently I discussed the possibility of revitalising the renewable energy sector with Dirk Vansintjan, chairman of Ecopower, a successful cooperative in Belgium that has 48,000 members and owns 13 wind turbines with an installed capacity of 23,2 MW. Dirk’s reaction to my description of the market conditions for renewables in the Czech Republic was simple and clear:

“We wouldn’t build any wind turbine under these conditions. And nobody would.”

Like in Belgium and the Czech Republic, wind power needs support schemes if external costs are not included in the price of energy produced from coal and lignite.

The first step to overcome the stagnation in the renewable energy sector in the Czech Republic must be the re-establishment of operational support for wind power plants, at least those owned by municipalities and citizens. Several mayors in the Czech Republic are considering investing into a municipality owned wind power plant, yet the last one was connected to the grid in 2009. A modern wind turbine with 3 MW of installed capacity costs around EUR 3.9 million. Such a large investment can only be approved by a municipality assembly when a reasonable rate of return can be expected. No wonder then that the last municipality-owned wind power plant was connected to the grid in 2009 even though several mayors in the Czech Republic are considering investing into one.

Considering its technical potential, roof solar photovoltaic is the second most important aspect for the renewable sector. The main obstacle for its development in the Czech Republic is an unclear set of conditions by the Energy Regulatory Office (ERO). The situation is so dire, that it isn’t possible to calculate the recovery of an investment into a new solar PV system. A proposal by ERO from January 2016 would have meant advantages for large-scale energy consumers while placing increasing costs on small consumers. A campaign led by Hnuti Duha, a Bankwatch member group in the Czech Republic, resulted in massive protests against and the withdrawal of the proposal.

Almost undeterred, the ERO office chief recently declared that they will establish an extra charge for owners of photovoltaic installations – a fixed payment, independent of the amount of electricity produced. She promised the charge won’t be high enough that owners of PV installations would have to disconnect from the grid. But for the transition to a low-carbon economy, such a promise is almost ironic. The important question is whether, with the new charge in place, it would be economically viable to install a new solar PV system. Representatives of solar PV companies should be consulted in this decision. While grid costs incurred by PV owners should be covered by them, their investments shouldn’t be disqualified even before their economic viability is being calculated.

To recover the green power sector in the Czech Republic, a lot needs to be done, most importantly the set-up of non-discriminatory conditions for renewable energy producers.

Ukraine’s nuclear energy fixation puts its European financiers to a test


Much remains unknown about the basis for the European Commission’s decision to contribute to Ukraine’s nuclear safety upgrade program, but Bankwatch will not give up until this crucial information is made public.

Earlier this year Bankwatch approached the Commission’s Directorate General for Economic and Financial Affairs, and made a request for documents related to the EUR 300 million Euratom loan for the project. Specifically, we asked for the evidence used by the Commission in making the first EUR 100 million disbursement from the loan.

According to our information, Ukraine has not met the loan conditions and has in fact been violating international environmental treaties – namely, the Espoo Convention and the Aarhus Convention.

But the response to our request (pdf) was insufficient, so we decided to take the case to the European Court of Justice. In our submission (pdf) we explain why we believe both conventions, as well as relevant EU legislation, apply to the Euratom Treaty and why transparency and improved nuclear safety are not mutually exclusive, as has been argued by the Commission.

A decision in this case can take some time, but old nuclear power plants could soon see their lifetimes extended, not only in Ukraine but across the EU. Yet, as we argued in a recent letter to the Espoo Convention’s Implementation Committee, any decision on prolonging the operations of nuclear power units beyond their design lifespan should be subject to a transboundary environmental impact assessment (EIA) and transboundary public consultations.

The Committee is the only body with the power to rule on violations of the Espoo Convention. It is currently preparing a report for the June 2017 Meeting of the Parties on Ukraine’s adherence to the convention and will meet today, Monday, September 5, in Geneva to discuss the Ukrainian government’s progress (or lack thereof) with implementing the Committee’s requests.

And there is reason to worry. In April 2013 the Committee ruled that Ukraine’s decision to extend the lifetime of its two oldest nuclear units in the Rivne power plant was in breach of the convention and, as argued in our letter, this decision should be considered a precedent applicable to similar cases for the sake of legal certainty and equal treatment.

Unmet loan conditions

International treaties on their own are not the only reason Ukraine is expected to carry out transboundary EIAs before rewriting the expiry dates of its Soviet-era nuclear reactors. Each of the two EUR 300 million loans Ukraine’s nuclear safety upgrade program has received, from Euratom and from the European Bank for Reconstruction and Development, is explicitly conditioned on full compliance with international environmental law, include the Espoo Convention that obliges the engagement with neighbouring countries in decisions on matters related to nuclear energy, such as nuclear units’ lifetime extensions. The European Commission has reiterated this obligation on several occasions.

Nevertheless, so far neither the Espoo Convention ruling in the Rivne case, nor the conditions to the European loans, have stopped Kiev from going ahead with lifetime extensions for two more nuclear units in the South Ukraine station without applying international requirements.

One other nuclear unit, in the Zaporizhia power plant, could see its lifetime extended as early as next week, and the state nuclear regulator contends these decisions fall outside the jurisdiction of the Espoo Convention.

In fact, Ukraine does not even have proper legislation on EIAs at national level. This has allowed Energoatom to release an “EIA report” for the Zaporizhia nuclear power plant which ruled out any significant transboundary impacts from the plant’s operations.

Yet, Energoatom’s claims look even more invalid with the latest Espoo Implementation Committee’s ruling on the planned nuclear power plant Hinkley Point C in the UK, stating that a worst-case scenario should be taken into account when considering transboundary impacts.

Moreover, a recent incident in the 29 years old Khmelnitski nuclear power plant is but the latest reminder for the risks in Ukraine. Following a leak of radioactive water, the power station’s unit 1 was shut down for two months. This unit will reach the end of its projected lifetime next year.

According to the state nuclear regulator, the reason for the leak might have been a micro-crack in a tube in the heat exchanger. An expert report released in March 2015 by Bankwatch’s Ukrainian member group NECU has warned of the possible appearance of micro-cracks in the reactor vessel of unit 1 of the South Ukraine nuclear power plant which has been granted a lifetime extension earlier.

The dire financial troubles facing Ukraine’s nuclear operator Energoatom raise additional questions about the government’s blind reliance on this source of energy, and should be another warning sign for Ukraine’s European allies in Brussels and across its borders.

Guest post: Realities in the Czech renewable sector defy the ideas of the Paris Agreement


The Paris Agreement, sealed 8 months and signed by more than 175 states by now certainly is a landmark deal in the effort to limit the rise in global temperatures to 1.5 degrees Celsius and achieving a carbon neutral economy in the second half of this century.

I have doubts, however, how many of the world’s leaders understand and are fully committed to the practical meaning of the Agreement. The end of using coal (and lignite) for electricity and heat production will only be the first step. Natural gas and oil consumption need to be reduced drastically as well, not only in the energy sector. But such a radical transition away from fossil fuels is most likely not to be found in the energy strategies of many countries.

It is politically much easier to support the Paris Agreement than a particular wind power plant project or to propose a support scheme for renewables which would lead to a higher price for electricity.

For example the government of the Czech Republic plans that 56 percent of energy demand in 2040 will be covered by fossil fuels. A carbon neutral economy is nowhere to be seen here.

Even worse, the Czech government is effectively fighting against the deployment of renewable energy sources. Renewable power production stagnates since 2013 because the government rejected the renewables support scheme.

Without a strong renewable energy sector, a carbon neutral economy is not possible. Even proponents of nuclear power have to admit that a complete replacement of fossil fuels by new reactors is not feasible. And despite the large potential of energy efficiency measures, these won’t bring us to carbon neutrality when electricity comes from fossil fuels.

It is politically much easier to support the Paris Agreement than a particular wind power plant project. It is much easier to talk about a carbon neutral future than to propose a support scheme for renewables which would lead to a higher price for electricity. But the Paris aim of keeping temperature growth below 1.5 degrees can be fulfilled only if renewables are developed quickly.

Renewable energy sources, in particular decentralised installations, have one additional positive element that could influence consumers’ behavior. The owner of a house with photovoltaic panels on its roof, designed for his own consumption, knows very well that this energy source is limited. He will be more likely to optimise his consumption than a consumer who is connected to the grid and has the illusion of an infinite amount of electricity. Optimising our energy consumption is a precondition for the much needed change in our energy systems towards carbon neutrality.

Read also

Guest post: Municipalities are crucial for citizen-owned renewable energy in the Czech Republic
Blog post | June 21, 2016

‘We have no other option’ – Albanian communities face unjust resettlement process for Trans-Adriatic Pipeline


The Trans Adriatic Pipeline (TAP), the most western part of the Southern Gas Corridor, a pipeline project to bring gas from Azerbaijan to Europe is promoted by the European Commission as a strategic asset for Europe’s energy security.

Yet, leaving aside Europe’s falling gas demand and doubts about the level security the project really offers, a July visit to over 30 Albanian villages and the resulting report ‘We have no other option’ (pdf) reveal the high level of dissatisfaction and confusion for people impacted by the construction of the TAP gas pipeline.

The pipeline will cut an 8 to 40 metre wide corridor through Albania, requiring involuntary resettlement and compensation for loss of land and properties. Villages along the 200 kilometers long pipeline route are marked by scores of olive trees, orchards, pastures and fields providing the basis for people’s existence.


Orchards and olive trees along the TAP pipeline route in Albania.

But even though TAP is considered to be a priority infrastructure project by and for the European Union, and despite record loans promised by European public banks, the resettlement and compensation process is controlled by a private company, the TAP AG, and its representative, consulting company ABKons, without involvement of any European public authority to ensure the fair treatment of affected communities.

Download the report

“We have no other option” was the most common sentence we heard in those villages across Albania when people expressed their perception of the project and the resettlement process. Knowledge of their rights and options to appeal was almost nowhere to be found among the people we met. Most prefer to remain silent even though they consider the compensation offered to them as unfair and unjust, even though they are hopeless about a future without their orchards and olive trees.

According to statements from locals, the company seems to exploit this lack of knowledge and the high level of mistrust in the Albanian state by threatening villagers with even worse conditions if they rejected the company’s compensation and turned to state authorities.

Being forced to use a bank imposed by TAP and to pay additional fees for withdrawing their compensation even becomes a secondary problem in this situation.

The European Investment Bank and the European Bank for Reconstruction and Development are currently considering loans worth EUR 3.5 billion for TAP. The resettlement and compensation currently in progress will most likely be in breach with the banks’ policies on involuntary resettlement. Should they get involved nonetheless, it will be their responsibility to ensure that those affected are aware of the banks’ involvement and their own rights and that they have received sufficient compensation. A thorough review of the process in Albania will have to show where corrective actions are necessary.

Read more

‘We have no other option’ – Preparation of the Trans-Adriatic Pipeline in Albania (pdf)
Study | August 4, 2016

Southern Gas Corridor / Euro-Caspian Mega Pipeline
Campaign page with background, updates, documents

[Campaign update] Impact Assessment of Serbian Kostolac B3 coal plant nullified, two investigative reports published


Bankwatch has reported time and again about controversies in the Serbian coal sector. While the Kolubara lignite mine has been the most visible in the past, Chinese-backed plans for a new unit at the Kostolac lignite power plant have increasingly come under scrutiny for a possible breach of state-aid rules and undemocratic decision-making over a loan agreement with the China Export-Import Bank among others.

The most recent confirmation of the government’s preference for murky waters is a court decision from June nullifying the Environmental Impact Assessment for failing to inform and consult neighbouring Romania about the potential transboundary impacts of the Kostolac B3 lignite unit – an obligation that is part of the international Convention on Environmental Impact Assessment in a Transboundary Context (Espoo Convention).

In the end of July, the Serbian Center for Investigative Journalism (CINS) took a close look at the Kostolac B3 lignite power plant. The two resulting articles offer an overview of the range of issues surrounding the project. See them here:

Kostolac: Chinese loan, Serb rule-breaking – July 21
Serbia promisses clean, while investing into dirty energy – July 22

 

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