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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.

Read more

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”.

The hefty health toll of coal burning in the Western Balkans – and what is not being done about it


I often hear that countries in the Western Balkans are too poor to invest in pollution reduction, environmental improvement, energy efficiency or renewable energy sources.

Less than three months after thousands protested in Bosnia and Herzegovina, Montenegro and Macedonia against intolerable air pollution and their governments’ inaction on the matter, a new report (pdf) by the Health and Environment Alliance (HEAL) puts a price tag of up to EUR 8.5 billion per year on the health impacts of coal plants in the Western Balkans. [1]

8.5 billion is a heavy toll for the already indebted countries of the Western Balkans, representing 13% of their collective GDPs (converted at inforeuro exchange rate).

For comparison, in the last 4 years the total amount of funds allocated to renewable energy, energy efficiency and climate change mitigation by European public banks (the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) and by EU pre-accession funds was 2.5 times less than the annual health bill, at approx. EUR 3.46 billion.

Balkan coal a major culprit, damages extend to EU countries

These countries’ energy sectors are heavily reliant on coal for electricity production, and this indeed shows in the health impacts: HEAL’s report finds that in Montenegro, for example, the Pljevlja coal plant was solely responsible for more than 90% of national SO2 and half of the NO2 emissions in 2011. Furthermore, this plant contributed 59% of PM10 emissions (coarse particulate matter) and 42% of PM2.5 emissions (fine particulate matter). Also, in Serbia, coal plants were responsible for more than 80 percent of national SO2 emissions and half of NO2 emissions in 2013. These plants were also contributing over 15 percent of PM emissions (PM2.5 and PM10). But neither of these is a match to Bosnia and Herzegovina’s Ugljevik power plant. With annual SO2 emissions at 154,380 tonnes, this is the most polluting coal plant in the whole of Europe.

An additional important finding of the report is the calculation of the health damage to neighbouring countries that is caused by coal burning in the Western Balkans. Air pollution is not limited to the proximity of the power plant. Some pollutants in exhaust clouds from the smokestack can be transported to neighbouring EU countries and beyond, thus plants in Serbia, for example, may cost the health of the local population up to 1.7 billion Euro, but add up to the health bill in the EU another 4 billion Euro.

Missed opportunities to improve air quality through Energy Community

Still, we see little progress being made in the direction of creating a level playing field between the electricity generation in the EU and that of the Western Balkans. The Energy Community, which aims to extend the EU internal energy market to South East Europe and beyond on the basis of a legally binding framework, has an opportunity to change the fate of air pollution in the Western Balkans, with strong support from affected communities and with legislative ease (see Bankwatch’s briefings on adopting the Air Quality Directive and Chapter II of the Industrial Emissions Directives). Yet, signs of progress are nowhere to be seen.

Yesterday’s meeting of the Permanent High Level Group of the Energy Community took into account a few new pieces of environmental legislation (pdf) to be adopted in the following year, unfortunately none of which tackle air quality directly.

Disappointingly enough, most governments in the region don’t seem to realise the gravity and urgency of the situation by themselves, either. The EU and Energy Community need to take a strong lead and make the Air Quality Directive and Industrial Emissions Directive (Chapter II) part of the Energy Community acquis as soon as practicably possible and provide support to governments in realising that air quality is more about health benefits than about legal burdens.

The harmonisation of the energy market cannot happen at the expense of health and environmental protection. EU decision-makers should show leadership and insist on the inclusion of all parts of EU air quality and industrial emissions legislation in the Energy Community’s requirements and closely follow its application, without further deadline extensions.

Notes

1. The report covers Bosnia and Herzegovina, Macedonia, Montenegro, Kosovo and Serbia. The EUR 8.5 billion figure consists of costs directly related to air pollution from coal-fired electricity plants, including from premature deaths, respiratory and cardiovascular hospital admissions, new cases of chronic bronchitis and lower respiratory problems, medication use and days of restricted activity due to ill-health, including lost working days.

Tensions are rising over hydropower and the lack of participation in Georgia’s mountains


The number of local communities pitted against hydropower developments in Georgia is steadily growing. Also during yesterday’s International Day of Action for Rivers, communities in Georgia protested against the sell-out of their rivers, livelihoods and lands.

One of the largest dams currently under development is the planned 135 m high Nenskra dam in the Upper Svaneti region that may receive substantial support from European development banks. Even though the 300 families in the affected town of Chuberi are facing the loss of communal land and impacts on their ability to do subsistence agriculture, almost no objective information is available to them.

Background: Nenskra dam

Background, images and updates on the Nenskra hydropower plant.

See the project page

Just two weeks ago, as Chuberi residents gathered on February 28 to discuss the effects of the dam and the 280 MW hydropower plant, none of them expected the self-organised meeting would end in a protest. But when an unannounced government official continued the project promters‘ one-sided rhetoric of project benefits and failed to take the locals‘ concerns seriously, the villagers just had enough. Insisting on their right to be informed and involved, participants walked out of the meeting criticising the unconstructive dialogue and the lack of engagement.

With tensions rising in Chuberi, the Nenskra project adds to the already fierce opposition against large dams in the region. Only 20 km kilometres downstream, people in Khaishi are fighting for years against the 700 MW Khudoni dam that would flood their town and displace about 2000 people – one sixth of the populations in Upper Svaneti. Altogether, more than 30 hydropower plants are planned in an area the size of Mallorca that is inhabited by Svans, an ethnic subgroup of Georgia’s Caucasus mountains with their own language, laws and traditions. Nenskra is the largest one currently under development. [1]

Map: Hydro plans in Upper Svaneti

Interactive map of planned hydropower installations in Upper Svaneti

Explore the map

It has been nearly a year that the environmental impact assessment (EIA) report was released for the Nenskra hydropower plant. Yet the developers have undertaken minimum effort to consult the roughly 300 families living downstream, even though the dam will resettle an unclear number of families and flood communal lands that are the basis for the subsistence of livelihoods. So far project promoters organised only one official meeting (in May 2015) to discuss the EIA with people in Chuberi and the other affected community in the town of Nakra.

During a visit to Chuberi in June 2015, the participants of the consulation meetings told us that no project risks were presented during the May meeting and they received no explanation how the expected negative impacts will be tackled by the company.

Photo story

The community of Chuberi will lose part of its land should the Nenskra dam be built.

Read the photo story

International financial institutions including the European Bank for Reconstruction and Development, the European Investment Bank and the Asian Development Bank are considering financing the project, a joint venture between the Georgian state-owned investment fund JSC Partnership Fund and the Korea Water Resources Corporation.

Although each of the international financiers has a set of environmental and social requirements towards its corporate clients, the Svans have so far seen no credible social and environmental assessment. The Neskra EIA report, subject to the national permitting process, was of disturbingly poor quality and significant changes were recommended by an external reviewer. The German reviewer, commissioned by the Georgian Ministry of Environment and Natural Resources, found serious shortcomings in the assessment and handling of social impacts and natural risks such as mudflows. He even expressed doubt whether such a hydro power plant should be built due to the clash with nature conservation.

Regardless of the poor EIA, Nenskra was granted a permit in October 2015, a month after the works on access roads had started and without major changes to the EIA or subsequent meetings with the local population. The works are likely to recommence once the winter is over in the high mountainous valleys of South Caucasus, but the latest public meeting showed growing disagreement with the repetitive official rhetoric about the project‘s benefits, jobs in particular .

The lack of meaningul engagement of Svans over hydropower projects has created a very deep sense of exclusion and has polarised Georgia’s society. Whether in Nenskra, Khaishi or the rest of Upper Svaneti, investors should be prepared that Svans will defend their rights to livehood, land and a clean environment.

Notes

1. Khudoni still has no construction permit, but a new agreement between the project developer and the Georgian government seems to have cleared the way for the expropriation of land. More on this soon on the Bankwatch blog.

United Nations report highlights risks and failures of public-private partnerships


The United Nations Department of Economic and Social Affairs (UN/DESA) has just released a Working Paper called Public-Private Partnerships and the 2030 Agenda for Sustainable Development: Fit for purpose? [pdf]. The paper includes many of the concerns raised by civil society organisations during the last few years and identifies areas requiring better understanding and institutional innovation for ensuring value for money, minimising contingent fiscal risk and improving accountability. It also finds that there is a need for a common definition of PPPs and internationally accepted guidelines, including uniform accounting and reporting standards.

Perhaps most notably, the paper includes the following finding:

“… the evidence suggests that PPPs have often tended to be more expensive than the alternative of public procurement while in a number of instances they have failed to deliver the envisaged gains in quality of service provision, including its efficiency, coverage and development impact. In other words, they have failed to yield ‘value for money’ in its broadest sense taking into account not just the financial costs and efficiency gains deriving from a project but also its longer-term fiscal implications (including the risks of any contingency liabilities) as well as the broader welfare benefits for society such as the impact on poverty and sustainable development.”

We couldn’t have put it better ourselves, but for a more detailed argumentation and case studies illustrating these points, see our website Overpriced and underwritten: The hidden costs of public-private partnerships.

Europe’s false solutions for Ukraine’s energy woes


European decision makers had good intentions, but in their efforts to help ensure Ukraine’s energy security, especially in turbulent times like these, they have been continuously overlooking the far reaching implications of perpetuating the country’s dependence on outdated nuclear power.

Two years after the Euromaidan protest, the bond between Ukraine and the EU never seemed stronger, and recognising the poor state of the country’s nuclear power plants could not be more urgent.

The European Bank for Reconstruction and Development (EBRD) and Euratom – each extended EUR 300 million in loans for improving the safety of Ukraine’s 12 nuclear energy units – had also practically acknowledged, that in their current condition, these Soviet-era nuclear reactors are a serious risk for both Ukraine and its neighbours.

Over the next four years these ageing nuclear reactors will reach the end of their original lifespan, but the government in Kiev is as keen as ever to use the EU’s financial support to keep them going for at least ten extra years.

And indeed, rather than helping Ukraine to retire its nuclear fleet and chart a new, sustainable energy course, Europe is now knowingly helping perpetuate a profoundly precarious energy source.

Nearly a quarter of European public money invested in Ukraine’s energy sector between 2007 and 2014 has gone into nuclear energy generation, concentrated in the hands of state-owned operator Energoatom. The European financiers were hoping to be able to positively influence the nuclear regulatory framework in the country, but have so far failed to act on a governmental decree in effect since January 2015 that bars SNRIU, the state nuclear regulator, from initiating inspections in nuclear facilities. This decree was issued a mere month after the EBRD gave the green light for the disbursement of its loan’s first tranche.

One year on, the Ukrainian government’s irrational fixation on nuclear energy means it does not even stop to consider alternatives. And even worse, Ukraine is consistently overlooking its legal obligations under both international treaties and the conditions to the loans it has received.

In May, when unit 2 at the South Ukraine nuclear power plant exceeded its design lifetime, it was taken off the grid. Unit 1 in the same nuclear power plant has already been operating beyond its original operational deadline since 2013, even though an independent expert study released in April this year determined the nuclear reactor has critical vulnerabilities due to substantial wear. When the National Ecological Centre of Ukraine, a Bankwatch member organisation, commented on the news about unit 2, Energoatom filed a libel lawsuit against us.

And the Ukrainian authorities appear to be quite consistent. In early December, South Ukraine’s unit 2 became the fourth to have its expiry date rewritten and was swiftly switched on again. The fact it had at least ten safety issues of the highest priority still pending did not seem to bother the SNRIU’s board, and addressing them has been postponed for 2016-2017.

The day before last Christmas another nuclear unit reached its original expiry date and was shut down. This time it was unit 1 in the Zaporizhia nuclear power plant, Europe’s largest, barely 250 kilometres from the front lines of the ongoing fighting in eastern Ukraine. But in its meeting a week earlier the SNRIU’s board clarified that, once again, this is merely a technical intermission after which it will approve a similar lifetime extension. This could happen as soon as March 31, probably regardless of the state of safety improvements.

One might think that the Ukrainian authorities are equally in rush to guarantee the safety of these nuclear units, or that perhaps European involvement would help ensure that all safety upgrades are implemented fully and in a timely manner.

But, apparently, not if the Ukrainian government considers this a hurdle in its nuclear energy race. The deadline for the implementation of the European-financed program was agreed to be 2017. Yet, earlier this year the government decided to move this deadline to 2020 without the approval of the program’s financiers.

It is then no wonder that, even though the Ukrainian authorities receive support from EU taxpayer money for its hasty nuclear adventure, they blatantly ignore international treaties. The Aarhus and Espoo Conventions oblige Ukraine to carry out transboundary environmental impact assessments and consult neighbouring countries which could be affected by projects of this kind before permitting lifetime extension. In fact, several EU governments and the European Commission have already expressed their concerns to their Ukrainian counterparts.

The current government has been elected primarily with the mandate of fostering tighter relations with the EU. Keeping these outdated nuclear reactors at once condemns Ukraine to decades of unsustainable energy, and jeopardises the safety of both Ukrainians and their neighbours. The ball is now in Ukraine’s court because real solidarity is based on mutuality.

 

Read more about Europe’s support for Ukraine’s nuclear lifetime extensions on the Bankwatch website.