Bankwatch

Home > Archives for Blog entry

Blog entry

New damage to hydropower project a bleak reminder of development bank missteps in Georgia

On June 23 mudflows from the Devdoraki glacier again hit the Dariali gorge and washed away a road and infrastructure connected to two hydropower projects planned in the north of Georgia. The destruction included the water intake for the 19 megawatt Larsi hydropower plant and the derivation pipes for the Dariali hydropower plant.

The Tergi river, which flows through the Darliali gorge, has changed its course and is running on protection blocks constructed to protect the derivation pipes of the Dariali plant.

According to media reports, employees at the Kazbegi checkpoint – the only legal checkpoint between Georgia and Russia – were evacuated due to the disaster. Unlike in 2014, there were fortunately no casualties.

Mudflow from the glacier does not come as a surprise to those watching the project, including geologists and NGOs that have warned both the company and the EBRD, who remains committed to funding the project. Such flooding is to be expected in the future, as there are at least two additional rivers (Khuro and Chkhere) that threaten the water intake in place for the Dariali project that have not been taken into account by the company nor the EBRD in the project’s design.

Dariali is a clear example of how NOT to construct and implement a project and why it is important to ensure that the public participates in decisions about infrastructure projects. The project is also a reminder as to why it is imperative that all project related risks and proper alternatives are identified and assessed.

In addition to the Dariali case, another project slated for financing by the EBRD and two other international financiers, the Asian Development Bank and European Investment Bank, at which seismic risks have been identified is the 280 MW Nenskra hydropower plant in the country’s northwestern Upper Svaneti.

Svaneti is a geologically sensitive mountainous area prone to landslides and mudflows, and the situation around the planned reservoir and the village of Nakra is critical. Nakra has a history of mudflows that have washed out the local cemetery and agricultural fields. Locals have long called for a flood protection system for fear that the planned works on the Nakra river could inhibit its ability to carry away sediments, resulting in flooding from mudflows in their village.

Yet according to a review of the Nenskra Environmental and Social Impact Assessment (ESIA), the geological hazards and potential adverse impacts on locals have not been properly evaluated. In spite of this, the Ministry of Environment issued a positive ecological expertise report on the project, effectively giving it a green light.

The EBRD and other development banks should heed the lessons of Darliali and conduct a full geological assessment before any further consideration is given to Nenskra.

Guest post: Municipalities are crucial for citizen-owned renewable energy in the Czech Republic


There are many impressive numbers related to Germany’s Energiewende but this one is from my perspective nearly incredible (I’m a campaigner for renewable energy in the Czech Republic): 35 percent of the installed renewable capacity is owned by individuals (pdf) and an additional 11 percent by farmers. Small investors have the same importance as utilities, banks and industrial companies in the large German renewables fleet that produces 160 TWh electricity per year – approximately twice as much as all power plants in the Czech Republic. Germans do not only own solar panels on their rooftops (although there are more than million of installations), but many of them are shareholders in big projects.

Arguably, the success of Germany’s Energiewende is very much based on the citizens’ involvement. A new wind power plant project has a much better chance for realization when local inhabitants consider it „partly their turbine“. Yet unfortunately, this German model of citizen power cannot easily be transferred to the Czech Republic to boost end stagnating development of renewable energy.

The pooling of financial resources for project like wind power plants has no tradition for people who can actually invest money. Positive experiences with cooperatives are only from interwar times and have been largely forgotten.

There is one venue, however, that may indeed enable a more people-powered Czech renewables development: municipalities. Municipality-owned and coordinated renewable energy projects can be found in Sweden, Finland or Denmark and have the advantage, from a Czech perspective, that municipalities are trustworthy institutions for most of Czechs.

The challenge at the moment, and the main obstacle for new renewable power projects in the Czech Republic, is to make renewables projects profitable for municipalities in order for municipal councils to approve them. After the Parliament’s complete rejection of feed-in tariffs and a green premium system in 2013, new renewable power plants cannot compete with fossil fuels installations that, in 2015, received 1,522 euros per capita in subsidies in the Czech Republic (the third largest amount in the European Union) and don’t include externalities like environmental and health impacts into their costs. As a consequence, no new wind power plant was built in the Czech Republic in 2015.

Therefore, Bankwatch’s Czech member group Hnutí DUHA together with lawyers from Frank Bold Society prepared a legislation amendment which would enable the development of municipal wind power plants. The support scheme principle would be based on the green premium system (a guaranteed surcharge for each kilowatt-hour sold on the market) in the same way as it has been before 2013. Yet, projects would only be eligible for the green premium operational support if the investor offers a 30 percent ownership share to municipalities situated up to 10 kilometers from the wind power plant and citizens living in the area.

This proposal could help to restart stagnated clean energy sector and involve municipalities in positive development projects. In the next months, our organisations will work to gain political support for the proposal.

For more information (in Czech) see www.hnutiduha.cz/vitr.

MEP Pirinski: “The EIB should pay more attention to economic, social and territorial cohesion”


This article first appeared on the Counter Balance blog

Georgi Pirinski started his first term at the European Parliament in July 2014 where he represents the Bulgarian Socialist Party. As rapporteur of the annual report on the European Investment Bank (EIB) for 2014 he shares his views on how to improve the way the bank operates, with a special emphasis on the need to contribute more to the cohesion objectives of the European Union.

How did the EIB – historically not the most visible of EU institution – catch your attention?

I gladly applied for the rapporteur’s position because clearly the EIB has a very substantial role to play in getting growth back on track, making a contribution to overcoming the so-called „investment gap“, as Europe has still not recovered its investment level from pre-crisis times. Besides, the European Fund for Strategic Investment (EFSI) was of particular interest – as an opportunity to bring investments in Europe – up to Bulgaria.

What are the most striking issues you came across as rapporteur on the EIB?

Firstly, the way the bank reports its activities is not quite satisfactory. While some reports are put together almost as a public relation presentation, others have a highly technical bend. There is a lack of a comprehensive annual report which would, in a substantive way, make an overall assessment of the annual activities of the bank. For this purpose, from this year on the Parliament has asked a new harmonised annual report to be prepared. We will monitor how it works.

The second issue is that there is room for greater transparency and accountability at the EIB. The bank needs to take commitments to address concerns that NGOs like Counter Balance have been putting forward. This includes concerns on projects‘ selection and the attention paid to irregular activities, corruption, even criminal activities, as well as the very sensitive issue of tax evasion. While the bank repeats that it is aware of the seriousness of these issues and committed to tackling them, the fact that those questions keep arising means that the EIB has to pursue its efforts and even do more.

The report adopted in April recognises the key role such public bank should play in Europe. But it also featured several critical assessments. What would be your overall assessment of the role the EIB currently plays in Europe?

I strongly believe that the bank should pay more attention to the part of its mandate concerning economic, social and territorial cohesion. In the Parliament, this was one of the most hotly debated issues. Indeed, in my report I highlighted the fact that the business plan signed in 2014 was implemented with quite an imbalanced distribution: roughly 60% of signatures went to the five largest economies in Europe, while 30% went to the other 23 member states (while 10% goes outside of Europe). The bank’s justification is that these 5 economies account for roughly 60% of the EU population, so they produce the same proportion of gross product.

The same tendency occurs in the functioning of EFSI: newer member states are less prepared to put forward comprehensively prepared investment projects. I think there has to be a much more hands-on approach by the bank. Instead of waiting for these countries to come along with a project, it should go there, sit down with the relevant authorities and discuss how their plans for developing their economies would fit into the overall EU development strategy, and how they can work together to make a sufficient impact so that things start changing.

What is the potential of a European public bank such as the EIB for economic recovery in the EU?

For this specific role, the intention of the Investment Plan for Europe was to unblock capital which was remaining in the financial sector. I don’t think this has really taken off so far. Overall, the EFSI is financing projects that stand more or less within the framework of usual commercial criteria. This is clearly unacceptable, because precisely if we want to generate growth throughout Europe there has to be a very perceptible additional inflow. This is a major challenge for Europe. I don’t think that there is sufficient awareness of whether the approach so far, even with the Investment Plan, has generated the necessary change for a vigorous recovery. I find it worrying and disappointing that the major spokesman of the Commission, the Vice-president, claims that things are difficult, but getting better, and we are on the right track. I don’t think that’s really where we are at.

As a member of the Budgetary Control Committee (CONT), how do you see the role the Parliament should play towards the EIB?

The report explicitly mentions that we should generate an on-going and in-depth debate with the EIB management. This should be a regular exercise of hearings that could have joint committee participation. This would be essential to really try and reinforce an accurate analysis of where we are, what the current deficiencies are, and what the Parliament, together with the Council and the EIB management can do to create the necessary framework for achieving this investment boost.

I think the plenary debate around this report showed such a readiness on a very broad scale. I was surprised to see this extent of very committed participation in the debate.

The report mentions that the EIB has quite some potential to do more and better. Why can the EIB not realise that potential currently?

I think it has to do with the bank’s culture. Throughout the year the bank has been striving to finance major projects that are of significant value and importance for the economies of the most advanced member states, and focusing on maintaining the highest possible credit rating. Overall, this is a cautious behaviour. Of course, there have been developments regarding support to SMEs and activities in the neighbourhood region, but basically the EIB has kept its bankers‘ culture. Such culture should not be forgotten, but clearly it constrains the bank in how it faces current challenges for the European Union. Realising the bank’s full potential means endorsing an overall cohesion, integration and investment driving role.

If you could change one thing in the bank what would that be?

I’m not in a position to bring it down to one silver-bullet solution. But perhaps there has to be a rethinking of the way the Board of Directors functions. While the Board gathers several times a year, it is not sufficiently functional as a body that truly guides the bank. There has to be a substantive assessment of the situation in each member state and of how they all fit together. There has to be a more regular and substantive work from the Directors’ teams, because now the members of the Ministries of Finance get a file on projects to be approved just a few days before the meeting and they only go rapidly through them.

Financial trouble of Ukraine’s nuclear operator calls Europe’s financial support into question


Difficulties are piling up for Ukraine’s state nuclear operator Energoatom whose accounts remain frozen since April this year due to a pending case at the national court over outstanding debt payments.

The case over an allegedly unpaid USD 5 million debt was filed by Ukrelektrovat, an energy investment company, after president Poroshenko decided in March to not extend a moratorium on the ability to sue strategic energy companies such as Energoatom.

Now that the company’s free ride is over, Energoatom is unable to pay for nuclear fuel and other needs. Yet, its economic difficulties will likely not impact its international lenders, Euratom and the European Bank for Reconstruction and Development (EBRD), who have each provided Energoatom with EUR 300 million loans. Instead, it is Ukrainian tax payers – already under stress by an economic downturn and the devaluation of their currency – who have to foot the bill.

Energoatom’s president Y.Nedashkovsky said recently that Ukrainian taxpayers have already had to jump in with 1.2 million euro for paying back interest rates and installments of Euratom’s loan. The loan was provided under state guarantees for Energoatom’s so-called nuclear safety upgrade programme, that has been presented as a way to bring Ukraine’s 15 ageing nuclear reactors in line with international standards but that is at the same time necessary to keep them working 10 to 20 years longer than they were designed to.

Credit worthiness tested by European Commission

Energoatom’s financial dilemma is but one element of deeper, structural difficulties that also become manifest in repeated delays in implementing safety measures at Ukraine’s nuclear reactors.

These continued troubles must raise questions over the viability of the loans granted to the company by European institutions. But a feasibility study (pdf, censored version), requested by the European Commission prior to approving the Euratom loan in 2014, positively evaluated Energoatom’s ability to repay the loans:

The Borrower (Energoatom) should be in a position to service and to reimburse the proposed EURATOM loan, its former and foreseen loans provided the regulated tariff is adjusted to allow full coverage of these expenses.

How could the Commission’s evaluation be so wrong? Did it not properly consider the risks in Ukraine or did it put too much trust in the immunity that their client Energoatom enjoyed as a result of the moratorium for strategic energy companies?

Because of the constant delays, Ukraine’s government has moved the deadline for implementing the safety upgrade programme from 2017 to 2020. As result of the postponement, Energoatom’s financial difficulties and the mounting pressure from Ukraine’s neighbours and civil society, Ukraine’s state nuclear regulator, SNRIU, postponed decisions scheduled for May on the lifetime extensions of yet another two units, Zaporizhia 1 and 2.

Meanwhile, nuclear energy is still being portrayed in Ukraine as a cheap and the only alternative for securing energy supply. But Energoatom’s troubles on taxpayers’ expense are just one more sign for the mismanagement of Ukraine’s nuclear energy sector.

Energoatom’s financial backers, the EBRD and, via Euratom, the European Commission, must re-assess the viability of their support. If not because of the numerous safety concerns, then now in light of their client’s financial vulnerabilities and the financial burden this brings to Ukrainian citizens.

Slovakia’s EU presidency: a chance to improve European biomass regulations

In its EU funds spending plans, Slovakia has shown commendable dedication to making bioenergy more sustainable. Taking over the EU presidency in June, it will have a unique chance to apply its expertise to improve European regulations on biomass.

After pressure from Slovak non-governmental organisations, including Bankwatch’s member CEPA, the Ministry of Environment agreed in 2014 to include biomass sustainability as a principle for project selection for EU funding into the new Operational Programme Quality Environment. The ministry also made a commitment to define what a sustainable use of biomass is.

In 2015 the ministry established an expert working group (including NGOs and independent experts) and postponed all calls for biomass projects until the sustainability criteria are defined. The process is one of the biggest successes of our campaign for the sustainable use of EU funds.

Slovakia, in this case, went beyond existing legal requirements as the European Union itself did not create any binding conditions to ensure the sustainability of energy generation from solid biomass.

Showcase Slovakia

That biomass can be sustainable has been shown by a local initiative in Slovakia that transformed the local energy system from imported coal to locally sourced biomass.

Read their story

During a meeting with environmental organisations on April 1, the new Minister of Environment László Solymos acknowledged the importance of biomass sustainability. On EU level, however, Slovakia still stands in opposition to EU-wide sustainability regulations on solid and liquid biomass as these sources are key to achieving Slovakia’s 2020 renewables targets. (The only area where Slovakia accepts regulation is forest management, which, however, does not solve issues with other forested areas such as river bank growths, unused agricultural land, roadside growths, etc.)

Taking on the EU presidency in June, with energy and climate as one of the key topics, Slovakia will host the process of creating new policy on bioenergy.

Its brave and promising step to guide EU funds supported bioenergy projects along sustainability criteria could and should be an inspiration for improving general biomass management regulations at a national and eventually European level.

Taking the debate over sustainable bioenergy out of its small EU funds niche and into the bigger context of energy policy will require more bravery.

The next months will show if Slovakia’s new Minister for Environment will have this courage or if he will bow to the pressure of the bioenergy industry.

In contrast to the EU, Western Balkans’ coal investments still heavily outweigh wind – but for how long?

Last year in the EU, 12.8 GW of wind power capacity was installed – more than any other electricity generation source. This means that wind can now generate 11.4% of the EU electricity consumption in a normal wind year, according to Wind Europe. At the same time Belgium and Scotland have shut down their last coal plants, signalling the golden days of coal are far behind them.

Yet these developments are nowhere near matched in the aspiring EU members in the Western Balkans, several of which still have zero percent of electricity generated by wind. In 2012, countries in the region committed to increase their share of renewable energy by 2020 to between 25 and 40 percent of energy under the Energy Community Treaty, yet most of them are quite far from reaching their targets.

After years of painful permitting processes, legislative changes and project preparations, there is some progress to report in wind investments in the region, but the investments being planned are heavily outweighed by the countries’ investments in coal plants.

The only significant plants operating so far in the region, not counting Croatia, are the 9.9 MW Kula plant in Serbia and the 36.1 MW Bogdanci 1 plant in Macedonia. There is a relatively high level of investor interest in new plants, and willingness from public financing institutions such as the EBRD and KfW to provide loans, but even for those projects which have managed to obtain the relevant permits, conservatively set quotas on grid connections mean that they may have to wait for several years to become reality.

Taking this into account, we’ve estimated that up to 1166 MW of wind power projects could potentially come online by around 2020. This would be a good start, except that the region’s governments are actively planning 2800 MW of new coal plants. This would mean the continued marginalisation of wind, not to mention rooftop solar photovoltaics, which are even more of a rarity in the region in spite of its massive potential.

The new planned coal plants would cost a minimum of EUR 4.5 billion – and this doesn’t include mine expansion, resettlement, new ash landfills or other associated facilities, not to mention health costs. The projects are heavily promoted by governments and public utilities – meaning that if it all goes wrong, the public will pay. In contrast, the wind plants would cost around EUR 1.89 billion, and are mainly planned by private sector investors – partly a reflection of the lack of interest by the region’s state-owned companies.

However, despite governments’ overt preference for coal, it would be wrong to assume that the plans are a fait accompli. All seven of the region’s actively planned coal plants are on shaky ground, from legal to economic aspects.

Only one, Kostolac B3 in Serbia, has a financing contract signed – with China Exim Bank. Four do not have valid environmental permits, either because the environmental impact assessments have not been carried out yet (Pljevlja in Montenegro and Kosova e Re, Kosovo) or because the project preparations have taken so long that the environmental impact assessment decisions have already expired (Tuzla 7, Bosnia and Herzegovina and Kostolac B3, Serbia). The environmental permits for Stanari, Banovići, Ugljevik III and the expired permit for Kostolac B3 are subject to court challenges by local civil society groups.

The delays have so far been portrayed by government spokespeople as the usual kind of hiccups that occur in large and complex projects, but they should be taken as much more than that. They open up an opportunity to stop and re-think the Western Balkans’ energy systems. Energy efficiency improvements, solar and wind projects can all be delivered more quickly than new coal power plants. They are also likely to turn out better value for money, as the costs of wind and solar are falling fast.

The analysis and background data are available here.