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Aid Transparency Index: improvements for Europe’s multilateral development banks but still a long way to go

As each year since 2010, the transparency watchdog Publish What You Fund (PWYF) went again knocking on the doors of the world’s major donor organisations to check how well they implement aid transparency standards.

The 2016 Aid Transparency Index (ATI) brings relatively good news for Europe’s two main development banks, the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). It notices an improvement that brought both the institutions to be finally labelled as “fair” (the highest categories being “good”, and “very good”), as opposed to the repeated “poor” scoring of the past few years.

This partially positive achievement represents first of all a success for civil society, whose tireless push for better transparency of the two European giant lenders is slowly bringing some results. Through campaigns, public consultations and formal complaints, Counter Balance, Bankwatch and their partners have advocated for public access to information for years.

The modest improvements in the Aid Transparency scoring should not blind us, though. Both banks have indeed a long way ahead to live up to their commitments. PWYF remarks about the ‘notable improvers’:

“[S]evere transparency issues become evident in the levels of reporting on the budget identifier, impact appraisals, results and Memoranda of Understanding (MoUs); none of the donors included in the ‘fair’ category scores on these indicators”.

Let’s look at their performance in more detail.

Murky waters for the EU’s house bank

Timidly jumping from a score of 46.3 per cent in 2014 to 53.5 per cent in 2016, the EIB’s progress appears quite disappointing. Even more so, if we consider that in March 2015 the bank approved its new Transparency Policy, supposed to promote strengthened transparency and accountability practices for the future. As already pointed out by civil society organisations and claimed by the European Parliament, the bank’s new transparency policy is not fit for purpose.

Among its many gaps, the bank still fails to comply with basic transparency practices concerning its governing bodies, such as disclosing the minutes of its Board of Directors meetings. In 2015 Counter Balance managed to obtain a redacted version of the minutes of one of those meetings, hopefully setting a precedent to turn this into a standard practice in the future.

It is not a coincidence that our requests were echoed in a letter sent last February by the European Ombudsman to the EIB’s President Werner Hoyer, inviting the bank to a more “proactive” implementation of its transparency policies.

In particular, the bank appears to be lagging behind with disclosing information that is relevant to its loans and projects, as well as its register of environmental information and the use of the result measurement systems. For instance, despite specific requests, the bank still refuses to actively publish its development impact assessment sheet for projects financed outside the EU. Such information would be key for assessing how well the bank is monitoring the development impact of its projects.

Last but not least, as we highlighted in a recent complaint to the EU Ombudsman, the EIB seems determined not to let information about internal investigations leak to the outside, concealing issues of public interest that could represent corruption and maladministration.

The European Bank for Reconstruction and Development

In the experience of those monitoring the EBRD, the bank often puts the interest of its clients before the public’s right to know, but also that it fails to demonstrate the results and real impacts of its investments.

The EBRD has made a notable improvement since the 2014 index moving from 24.5 to 49.7 per cent in the index, as it started publishing to the International Aid Transparency Initiative (IATI) on a quarterly basis in 2015. Still its commitment to aid transparency is rated at 3.52/10.

Particularly on project level, the responsibility for disclosure is often placed on the clients, but the failure of clients to respond adequately to disclosure requests does not prevent the bank from claiming that it raises transparency standards through its projects. For example last week an information request received the following answer: “Disclosure of third-party audit reports is neither a requirement of our Environment and Social Policy nor of our Public Information Policy.”

For years the EBRD has promised regular up-dates to Project Summary Documents, but progress is hardly visible, especially if compared to project disclosure of the IFC (which is in the Poor category of the Index). In the above mentioned case the EBRD has failed to up-date the PSD since 2012, although its board of directors approved the deal in 2015.

In the Aid Transparency Index, PWYF notes that all activity-related documents and performance information are not published to the IATI Registry.

“Information on allocation policies, country strategies, objectives, tenders and budgets are published but not in the IATI Standard while at the activity-level sub-national locations, evaluations, contracts, results and impact appraisals are not consistently published. MOUs, budget documents and conditions are not published at all.”

Bankwatch recently submitted the first information disclosure complaint to the EBRD’s Project Complaints Mechanism (PCM), after the bank failed to disclose on time a board document for a public sector project in Serbia, breaching its Public Information Policy. This is just one of many examples of the clumsy dialogue between the bank and civil society. Hands-on experience with monitoring the activities of the EBRD shows a daily struggle with delayed answers and begs more PCM complaints.

In conclusion, the progress on transparency of the two European public banks is welcome and credit should be given for their efforts to publish to the IATI. Still the culture of the institutions has yet to change to enable real transparency, meaningful public participation in decision-making, as well as accountability and a clear demonstration of the development impact of their activities.

Romanian city battles in court to protect its citizens’ health

If a city ensures citizen participation in local decisions it is usually understood as a positive step, specifically if said decisions impact the health of locals. The Romanian city of Reghin, however, is currently battling in court to allow its inhabitants to be asked before a new formaldehyde plant will be built in their vicinity.

Formaldehyde, used in resins to bind composite wood products, is a toxic compound known to cause cancer.

The facility is being planned by the Turkish wood-processing company Kastamonu Romania SA, a subsidiary of Kastamonu Entegre which operates plants in Turkey, Bosnia-Herzegovina, Bulgaria, Romania and Russia and is itself a member of the Turkish Hayat Holding, a global player in the construction, wood and energy industries.

In summer 2015 Kastamonu took the city of Reghin to court over a city council decision from April 2015 that makes the construction permit of any industrial activity with potentially significant environmental impacts subject to a local referendum. The council decree came at the time when Kastamonu Romania SA was in the process of obtaining environmental and construction permits for a formaldehyde plant to produce glue for its desks. About half of the planned output of 100 000 tonnes would be sold on the market.

A view of Reghin at night with Kastamonu’s factory dominating the scene. (Image (c) Nagy Lehel.

While the company regards the decree as a direct attack against its plans, the council counters that the act has no connection to the company and that it aims to give local communities a greater say on industrial activities that affect their health and the environment. Such decrees have been adopted over the past years by other local councils in the Mures county to which Reghin belongs. They might be seen as indirect consequences of recent widespread citizen engagement and solidarity against other harmful investments like the Rosia Montana gold mine or shale gas developments.

Kastamonu’s legal pressure against a local community’s participation comes despite the company being a recipient of a public loan from the Black Sea Trade Development Bank (BSTDB), a regional public finance institution whose shareholders are eleven countries in the Black Sea region, including Romania.[1] The bank obliges its clients to observe international requirements on environmental performance and engagement with affected communities.

While the Bank claims that its client has complied with its own standards and with Romanian legislation, the local communities have complained for the past three years [ro] about the environmental and health impacts of the company’s operations as well as the company’s lack of compliance with national regulations [ro] for obtaining environmental permits.

On April 22, 2015, the City Council of Reghin approved a decree on protecting the environment, human health and biodiversity of Reghin. The act requires that a referendum is held on any industrial activity with potential environmental impact included in the Annex 1 of the Aarhus Convention. The Aarhus Convention, an international treaty on public participation and accountability of public authorities, requires its parties, including Romania, to apply public participation in decision-making on activities listed in its Annex 1 (pg. 19).

On July 30, Kastamonu submitted a preliminary complaint with the Reghin City Hall and later the Mures district court asking to revoke the city council’s decision, arguing the city council had no right to decide on industrial activities. In a decisions from December 18 the court sided with the company and annulled the municipal act.

An appeal against the judgement filed by the Reghin municipality is currently pending.

Protests in Reghin against the new formaldehyde plant.

Justified concern of locals

Kastamonu entered the Romanian market by purchasing the door panels production facility in Reghin in 1998. The company’s activities in Reghin have been marred with problems since the company launched production on a particle board factory in June 2012. An inspection by national authorities conducted in 2014 revealed that the facility was functioning without an integrated environmental permit. Although, the company was granted a permit later that year, the Civic Initiative of Reghin, a civil society organisation that is supported by locals claims that the approval was issued on the basis of incomplete health impacts assessment.

The initiative, which monitors Kastamonu’s compliance with national and international standards, achieved in 2015 that an investigation was launched in the wood procurement practices of Kastamonu. The investigation led to the confiscation of 29.000 cubic meters of undocumented wood by state authorities.

Concerning the new formaldehyde plant, Iulius Fagarasan from the Civic Initiative comments:

“Local communities have the right to judge what is suitable for their area. Building a formaldehyde plant in Reghin with a production capacity of 100.000 tons per year would aggravate the air pollution and have devastating impacts on the health of the community.”

And also the Black Sea Trade Development Bank, as a public lender, should ensure that Kastamonu observes laws and does not exert pressure on locals. As part of the BSTDB loan conditions, Kastamonu is expected to publish a stakeholder engagement plan this year (two years after the loan has been approved), but so far, people in Reghin have not been approached on the matter.

Reghin is not the only town in Romania where an industrial enterprise would have appealed against a state decision. In June 2015, in a town of Sebes, located 100km from Reghin , Austrian particle board company Kronospan has filed a court case against a decision of the Ministry of Environment to cancel the company’s revised environmental permit. Kronospan originally obtained the approval for increasing the production capacity of the formaldehyde without assessing how the change will impact public health and the environment.

Notes:

1. BSTDB’s member states and countries of operation are Russia, Turkey, Greece, Romania, Bulgaria, Ukraine, Azerbaijan, Albania, Armenia, Georgia, Moldova. Turkey, Russia and Greece are the biggest shareholders, controlling 49% of shares.

Since the start of its operation in 1999, BSTDB has approved nearly 300 projects to the tune of about EUR 3 billion. Russia, Turkey and Azerbaijan received the biggest share of the funding.

More details can be found in BSTDB’s 2014 annual report (pdf).

Ukraine needs European values and Europe’s solidarity

A shorter version of this article was first published in Dutch by the Laka Foundation.

Financial support provided to Ukraine by European institution is presented as a win-win project. In energy, EU projects are supposed to make Ukraine more independent and safe. The integration with the Energy Community is supposed to open new European market creating opportunities for Ukraine to export and thus improve its economy.

But no doubt, the European Union does many things wrong. In Ukraine, EU money is spent to extend the lifetime extensions of old Soviet nuclear reactors, extending the risk of a major nuclear accident for another decade or so.

In 2013, Bankwatch analysed (pdf) the EUR 1.2 billion invested by the European Bank for Reconstruction and Development (EBRD), a public institution 60% owned by the EU and its member states, into energy projects in Ukraine between 2006 and 2013. While the bank’s founding document require it to “promote in the full range of its activities environmentally sound and sustainable development” more than half of the bank’s energy investments in Ukraine for this period hardly served the purpose of sustainable development promotion. The EBRD has supported nuclear energy production and new output capacities for nuclear power plants, export-oriented infrastructure, as well as controversial initiatives in the renewable energy sector.

Ukrainian governments, one after another, fail to start reform of the energy sector away from the centralised energy system based on Russia-dependent nuclear energy and outdated dirty coal-fired power plants. Twelve reactors reach the end of their 30 year lifetime still in this decade. The operating company Energoatom plans to extend the lifetime of all units for at least another 10 years. Four units already received licences for their extended operation.

The plan requires investments to retrofit the reactors. The EBRD and Euratom have jointly provided Ukraine with EUR 600 million of European public money to enable the process in a project dubbed “nuclear safety upgrade programme”.

It is rather obvious, however, that keeping old reactors working longer is not the best way to improve nuclear safety. To achieve more safety, it makes far more sense to help Ukraine decommission these power plants, improve its energy efficiency and increase the country’s renewable energy share.

In the attempts to support Ukraine European institutions were not very critical of the projects presented by Ukrainian government for funding. The due diligence covered only the impacts of the project itself, without the reference to other initiatives or to the bigger picture in the sector. As a result, Ukrainian companies and the state continue proposing old projects, designed for the energy system during Soviet times which had a very different logic and different standards than today.

Among such dubious projects are large scale hydro pumped storage plants, designed to use energy during times of low consumption and to release it at moments of peak consumptions. Planned for an energy system that is based on a few big energy producers it had to compensate lack of flexibility of the nuclear power. Implemented today, these projects are freezing Ukraine’s energy system in the 1970th. Instead, the EU should be supporting projects that look into the future of the modern energy sector – decentralised with millions of players in the energy system which act as consumers and producers in the same time.

Does this mean that disengagement with Ukraine and an absence of EU institutions will improve the situation? I doubt it. Public pressure on the EU and the EBRD to turn Nuclear Safety Accounts into Decommissioning Funds and EU Accession process allowed making Europe a safer place by closing down high-risk reactors in Lithuania, Slovakia and Bulgaria.

But energy investments aside – human dignity, freedom, democracy, equality, the rule of law and respect for human rights – these values are embedded in the EU treaties. This is what EU means for Ukrainian citizens. This is the reason you have seen hundreds of thousands of people at Maidan Square in 2014. And these are the values that young men with wooden shields against machine guns died for in the streets of Kyiv. It will be fair for Dutch citizens to give Ukrainian society a chance to build society based on proclaimed EU values.

The alternative looks very grim. My work is about seeing the negative impacts of European financing in countries to the east of Europe all the way to Central Asia. I know very well how the alternative to the ‘European choice’ looks like. Those are states where human well-being and human rights have no space. Sometimes appealing to European representatives and politicians is the last hope locals have in their attempt to restore their rights in the conflict with a corrupt state. And sometime asylum in European countries is the last chance to save their life or freedom.

There is no civil society to raise social or environmental issues or to control the state. Obvious critical remarks towards the state or even local officials can cost your health and freedom. Just one well-known example is Evgen Vitishko, a Russian environmental activist who was punished with three years in a penal colony for presumably spray painting the fence of a local governor’s summer house – an illegally built house that local law-enforcement officials refuse to recognise.

But there are many more cases that never got any publicity and have to stay quiet to avoid jail. Twelve years ago I have visited Uzbekistan for the first time and started to cooperate with a dozen of human rights and environmental activists. Today there is no one I can work with there as people either flee the country or stop any activism because it became too risky. More than that, in today’s Tashkent you could get detained for showing up on a street with a bike.

No matter what criticism the European establishment faces these days, the limits to and abuse of citizens’ freedoms in Europe cannot be compared to those in the former Soviet Union.

Civil society in the EU should realise that preventing the Association Agreement between the EU and Ukraine will first of all destroy the effort of the most active and committed citizens in Ukraine that are fighting for European values of civil liberties and human rights. There is a need to accept the fact that without the Association agreement this active Ukrainian society will be suppressed and eventually our country will return to being a colony of Russia where no space for nonconformity exists. An association, on the contrary, will bring to Europe a lot of committed activists to cooperate in improving EU structures.

It is not the introduction of the EU’s legal requirements or free trade that has the main benefit for Ukrainian people. It is the feeling that they are part of building a fair society based on proclaimed European values and that Europe extends the European motto “united in diversity” to include them.

I have heard the argument that the EU is no better than Russia, but those who know what it means to live in Russia or Central Asia would not make such statements. But even if Ukrainians are wrong about the level of freedoms in Europe, association with the EU is just a symbol that for them means rule of law, human rights and power for citizens to influence their own life. It will be incredibly ironic if this wish to build a fair state will be destroyed by the ‘Nee’ of similarly minded people in the Netherlands.

New agreement for Georgian Khudoni dam signals expropriations and tariff hike

For the past nine years, the residents of Khaishi, a community of Svans, an ethnic group in north west Georgia with its own language, laws and traditions, have lived in uncertainty over their livelihoods, homes and lands that stand to be flooded by the planned 702 MW Khudoni dam. Their future looks grimmer than ever with the Georgian administration apparently agreeing to land expropriations for the project.

In a revised contract (pdf) with the developer, the British Virgin Islands-registered Trans Electrica Limited, the Georgian government apparently concurs that the company has exhausted the means for registering ownership of the private lands in Khaishi and hence these lands can be expropriated.

After Trans Electrica has taken years to apply for a construction permit, the Georgian administration, in an attempt to accelerate the permitting process, approved amendments to the agreement in September 2015. The amendments were not publicly consulted with the affected communities. Only an English version of the document was released a month after the new contract was signed, preventing the Georgian natives from understanding its content.

Part of the area to be flooded for the Khudoni dam. Find out more about the project on our website.

Visit our campaign pages with background, publications, updates:

Khudoni hydropower plant, Georgia

Hydropower development in Georgia

Already after the original agreement was signed in 2007, 1500 ha of land customarily owned by the Svans, yet not officially registered, were sold to the developer for a symbolic price of one USD. For generations, the Svans used the land for subsistence agriculture and grazing.

In addition to land rights issues, the amended agreement has further deepened concerns that the project will result in a tariff hike for domestic electricity consumers.

With the contract, the Georgian government commits to guarantee the purchase of the electricity generated by Khudoni at the rate of 10.5 US cents per kilowatt hour – a rate 26 times higher than at the state-operated Enguri dam. Considering the capacity of Khudoni this would be a heavy hit for household budgets in Georgia. (David Mirtskhulava, Technical Director of Trans Electrica predicted that Khudoni will increase Georgia’s power generation by 15%.) Inhabitants of rural areas, like the Svans, would suffer disproportionately as their incomes will likely not keep up with the incomes in cities.

Protests and complaints

While the company claims it has made its best effort to resolve land ownership issues, the Khaishians argue they have not been consulted on land rights, property registration or resettlement that threatens to displace 2000 people.

On March 9, in response to the company’s faulty rhetoric and the neglect of their rights, the community of Khaishi collectively issued a declaration (pdf) calling for the cancellation of the contract, the recognition of customary land rights and the inclusion of Svans into the decision-making over the project. The historic failure of the company to establish a dialogue with Svans has been the subject of numerous complaints [1] and triggered an intervention by the Georgian Ombudsman.

The Svans’ complaints have fallen on deaf ears with the Georgian government which claims that the development of large dams, including Khudoni, is of utmost strategic and economic importance for the country. Yet, these views are not shared by our colleague Dato Chiapashivili, a hydro campaigner from Green Alternative who is in close contact with several affected communities:

“With each new dam the Georgian government argues that the project is essential to the energy security of the country and the welfare of its people. But there is no energy strategy that would substantiate that so many hydros are needed to meet the energy needs of our country. The dams are being built to export the energy to Turkey and Western Europe. At the same time there are no calculations that would determine the social and environmental cost and benefits of these plants for Georgia, in particular for the rural areas where people are most vulnerable.”

The locals themselves are skeptical that Khudoni will raise the living standard and contribute to the development of the region:

“If we resettle and even if we get cash compensation, we will move to the city, and what will be of us once the money runs out and we have no farmland? And how will Svanetia profit of the damming?” asks Zura Nizharadze, a Khaishi teacher.

The local residents have negotiated with the government, held demonstrations and the community elders have taken an oath on an icon to manifest their united stance concerning the plant. The project has dragged on since then. The developer has failed to comply with requirements for the environmental assessment, raising funds and meeting contract conditions, including the provisions for resettlement. The terms of the agreement have changed repeatedly – usually outside of public scrutiny and likely without the company having been charged for delays.

Khaishi residents read these as signs that the central administration is using the means to give a construction permit to the Khudoni developer prior to parliamentary elections in October this year. The continued disregard for social impacts has forced the Khaishi community to reach to the ultimate recourse and declare it would block the dam construction should the project get that far.

Background

Khudoni is one of over 30 hydropower plants planned in Upper Svaneti, a region renowned for pristine mountain nature and UNESCO-protected medieval architecture.

Five out of these plants are large dams exceeding 200 MW of capacity each. Yet, no analysis is available that would assess the joint impacts these projects will have on the welfare of the local Svan population and on the economic development of a region the size of Mallorca.

The 280 MW Nenskra hydropower plant, the most advanced of the Svaneti hydro projects with preparatory works ongoing, will be built in the vicinity of two Svan communities. The developer has not explained how the company will tackle the impacts on their livehoods.

Notes

1. For example this letter (pdf, [ge]) from the Khaishi community from 19 December 2011, signed by almost 400 inhabitants of the village, stressed that on 4 November 2012 at a scoping scoping meeting the Khaishi villagers received brochures that stated that Translectrica would start work in the first quarter of 2012, in accordance with the Memorandum of Understanding signed by the company and government in December 2009. The villagers pointed out that it is “an unfortunate and unaceptable fact that during the decision-making process on the renewal of Khudoni HPP, neither the authorities nor the project sponsor had any contact with the local population, and we received information only about a final proposal.”

Six arrested in suspected corruption around EBRD-financed Zagreb wastewater PPP

The Zagreb wastewater plant public-private partnership (PPP), financed by the European Bank for Reconstruction and Development (EBRD), has for years been highlighted by Bankwatch and its member group Zelena akcija/Friends of the Earth Croatia as a harmful project allowing the private sector enormous profits at the expense of the City of Zagreb and the public.

Now finally the Croatian public prosecutor has begun to catch up. Last week, anti-corruption agency USKOK arrested and began an investigation against six people and one company suspected of criminal activities connected to this project. The cases involve alleged bribery for works contracts and payment for works that were never carried out.

The arrests are a positive step forward in uncovering what is behind various untransparent deals connected with the wastewater plant, however as yet no-one has been charged in connection with the main harm done by this project: excessive profit for the concessionaire at the expense of the public.

The concessionaire, Zagrebacke Otpadne Vode (ZOV), constructed and operates the plant, and receives a fee from the city for doing so. According to the state auditor, between April 2004 and the end of 2006 the City of Zagreb had already paid ZOV 75.5 percent of the basic fixed costs of the plant’s construction. This raises the question of why a PPP was needed at all if the city had enough money to pay off the construction cost so quickly. It also suggests that the concessionaire is making massive profits on the project, as the monthly payments will continue until 2028.

Exposing the myth

Public-private partnerships are not a silver bullet for public infrastructure. Our website Overpriced and underwritten exposes the hidden costs of PPPs.

The cost of the project also rose from EUR 176 million to EUR 326.7 million without any convincing explanation, and the plant is designed for 1.5 million inhabitants even though Zagreb only has around 800 000. An expert commission proposing a cheaper solution was dismissed without taking its concerns into account.

In spite of clear deficiencies with the project, in 2001 the EBRD approved a EUR 55 million loan for the project, with a further EUR 115 loan from the German Kreditanstalt für Wiederaufbau (KfW ).

Even with the high costs involved, the technical solution used does not result in fully stabilised sewerage sludge – a fact used by the city authorities as an excuse for their unpopular plan to build a waste incinerator to burn both the sludge and Zagreb’s largely unsorted communal waste. For the last ten years the city has – thankfully – failed to build the oversized facility, but it has used it as an excuse not to do almost anything else to improve waste management.

Let’s hope this arrest is just the first instalment by the Croatian public prosecutor and that further investigations will look into the role of former Zagreb Mayor Marina Matulović Dropulić and current Mayor Milan Bandić in signing the massively harmful contract for the wastewater plant.

[Campaign update] Romanian government sued over unlawful expropriation of mining community

Today, Greenpeace Romania and Bankwatch Romania are suing the Romanian government over a decision to allow the state-owned energy company Oltenia Energy Complex (OEC) to expropriate villagers to make way for a lignite mine’s expansion.

Together with 18 land owners from the village of Runcurel in Gorj County, the two organisations request the government to annul a decision from 2015 that allows the company to take villagers’ properties without prior negotiation and an average level of compensation of only one euro per square metre.

The decision is based on the status of a public utility – i.e. being of national importance – that was granted to the mining project. Yet as the lawsuit argues:

The project is incompatible with Romania’s national energy strategy.
The company is being offered state aid that is illegal due to the mixed ownership of the company.
The project lacks a valid urban planning permit.
The project is in breach of the environmental permit for the mine expansion.
The public was excluded in the decision making process.

In their efforts to help the affected families, the two organisations have requested a meeting with the prime minister, as well as sending him a petition signed by over 3800 Romanians.

More in our photo story

More on the recent history of land disputes and locals’ protests can be found in the photo story “A village disappearing”.

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