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Leaked document: Doubling of electricity tariffs in Ukraine, condition for EBRD nuclear safety loan

The project through which the life time of old Ukrainian nuclear reactors is being prolonged with EBRD financing would not be economically feasible without a doubling of electricity tariffs, shows a document leaked to EurActiv last week.

The document disclosed by EurActiv has been prepared for the Board of Directors of the EBRD and outlines the conditions under which a 300 million euros loan to be provided by the EBRD to Ukrainian company Energatom would be viable. Among the conditions is a state guarantee that Energoatom’s tariff would be sufficient to repay the loan. Financial assumptions in the EBRD document show that a doubling of Energoatom electricity tariffs would be needed for that.

“That the EBRD would consider it justifiable to ask Ukraine to practically double electricity tariffs without any elaboration of impacts of such a sharp increase is a shocking finding,” comments Bankwatch’s coordinator for Ukraine Iryna Holovko. “Environmental groups consider this EBRD loan to be an inappropriate investment as it is a direct support for the nuclear energy sector. But now we see that even the economic viability of the project is dubious as some key financial assumptions appear to be far from reality – it is hard to imagine this doubling of tariffs would be as smooth as assumed in this document.”

The financial analysis that the EBRD relied upon to decide in favor of this loan is based on some shaky assumptions: 1) a sharp and significant tariff increase for Energoatom’s electricity (to 27,1 kopeks/kWh in 2012 and 42,6 kopeks/kWh in 2013), 2) maintaining the current level of electricity generation and 3) whooping revenues of Energoatom. By the time this document was completed (March 2013), it was already clear that the nuclear electricity tariff in Ukraine was not increasing according to the projections made by the EBRD (it was 22,8 kopeks/kWh) and that Energoatom was not as profitable as the EBRD thinks (Energoatom closed the year 2012 with 2,73 billion UAH loses instead of profits). The assumptions on the basis of which the EBRD relied to make the decision about this loan are simply flawed.

„It is highly unikely that the Ukrainian government would go ahead with such a tariff increase as assumed by the bank – the raising of electricity tariff is historicaly a very sensitive issue in Ukraine,” says Holovko. „Demand for nuclear electricity in the contry is decreasing lately and a number of nuclear units are now facing the end of their technical lifetime. Instead of investing millions of euro in upgrades to all units, it would make more sense to close down expired units and utilize the remaining ones with higher load factor allowing for decreased nuclear risks and less financial burden.”

„The EBRD should have done a much more thorough analysis of the project’s economics and the issue of electricity affordability and of how the tariff increase would be implemented in practice should have been discussed publicly in Ukraine before the EBRD made any decision,” says Fidanka Bacheva-McGrath, Bankwatch EBRD coordinator. „Instead, the EBRD chose to keep the documents secret.”

Ukrainian NGO NECU, which has recently published an analysis of EBRD investments in the Ukrainian energy sector, argues that it is a feature of this bank’s activity in the energy sector of Ukraine that it does not manage to ensure either economic or environmental sustainability of projects.

According to a NECU analysis, of the 1.2 billion euros invested by the EBRD in Ukraine between 2006 and 2013, over 60 percent were invested in unsustainable energy sources, such as nuclear, oil and gas. Even more, the biggest chunk of the EBRD’s financial support to the Ukrainian energy sector was allocated to nuclear energy and supporting infrastructure (such as transmission lines) that would ensure electricity exports to the European Union, in line with both the EU’s and Ukraine’s long-term plans of making Ukraine a provider for Europe.

“Ukraine’s problem with energy is not a lack of resources – the real problem is the shameless wasting of these resources,” comments Fidanka Bacheva-McGrath. “Six to seven times more energy is consumed per square meter of residential and office areas in Ukraine than in EU. Why doesn’t the EBRD focus its efforts in Ukraine on the development and effective implementation of state or regional energy efficiency programs?”

For more information, contact:

Iryna Holovko
iryna at bankwatch.org
+38 050 647 67 00

UPDATED: Slovenia continues to fall into the economic abyss of the lignite plant at Sostanj


UPDATE (January 24, 2014, 14:49): The text has been modified to include a reference to the EBRD’s assessment of Slovenia’s economic outlook.

Ljubljana – The scandal-marred lignite plant TES 6 at Sostanj in Slovenia will likely cost 1.44 billion euros (2 billion US), more than double than what was initially predicted, and is due to produce annual losses of 50 million euros, show calculations recently revealed by Slovenian media (1). These cost escalations, predicted by NGOs critical of the project, should constitute a word of caution for other countries in South-Eastern Europe that are considering building new coal capacities.*

* READ OUR BRIEFING ON UPCOMING COAL PROJECTS IN THE BALKANS:
https://bankwatch.org/sites/default/files/briefing-WesternBalkans-Coal-24Jan2014.pdf

Today, the Slovenian parliament is meeting in an extraordinary session to address the risk of cashing tax payer’s money for the losses of the corruption infected project. Last year, Slovenian authorities agreed to offer a state guarantee for a half a billion euro loan from the European Investment Bank that was crucial to turn the project into reality (2).

The Slovenian government too, debated the issue of cost overruns this month, considering even the option of dropping the coal project altogether. Slovenian Prime Minister Alenka Bratusek was quoted by the national press agency on 15 January: “We don’t have the privilege to decide whether this project can still be stopped. The data we have show halting it would be more expensive than completion.”

When Slovenian authorities agreed to offer a state guarantee for the EIB loan last year, they posed several conditions: that Termoelektrarna Šoštanj manages to keep costs for the plant at below €1,3 billion and that the price of the lignite stays at a level of 2,25 €/GJ (otherwise the project would not be economically viable and the state would have to cover losses – precisely what seems set to happen now). None of these conditions are being met and, with electricity prices very low, the project is looking increasingly like a liability. If the plant runs at such a big loss, the state guarantee may have to be cashed in – a worrying prospect for a country in recession with bleak growth potential, as the EBRD’s own assessment from January 21 notes: “At the same time, growth remains well below potential and Slovenia is expected to remain in recession […]”. (3)

Slovenian media reported this month that the EIB too has sent a letter to the project promoter (HSE, which owns Termoelektrarna Šoštanj) asking for clarifications on the economics of the project and indicating that they could withdraw funding.

“NGOs have been for years warning about the dodgy economics of this project, appealing both to the government and to the EIB not to get into it, but to no avail,” says Lidija Živčič from Focus Slovenia. “Now it looks like Slovenian tax payers’ money will have to cover the damage of this project, in spite of an appeal to our coalition government to step out of the project now, before more losses accumulate, which was signed by a coalition of 17 NGOs.” (4)

“The amount of bad decision-making on this project, from Slovenian authorities and international financial institutions supporting it (the EIB and the EBRD), is staggering,” comments Bankwatch’s Pippa Gallop. “Although known as the ‘Switzerland of the Balkans’, Slovenia made a disastrous decision in regard to this project. While for the EIB and the EBRD a loss making coal plant in Slovenia won’t make a big difference – especially since it is state guaranteed – for Slovenia it can mean the difference between floating and sinking.

“Sostanj must serve as a lesson to its neighbours in the Western Balkans which are planning new lignite-fired power plants under the false impression that it is cheap. Lignite is dirty at the best of times, but plants such as Pljevlja II in Montenegro, Kostolac B3 in Serbia or Stanari in Bosnia and Herzegovina are not even planned to run in accordance with EU standards, which will run up additional costs in a few years’ time when they have to be upgraded.”

Notes

(1) Read the Slovenian government’s statement in response to a brief about the state of the project (15.7.2013):

http://www.vlada.si/medijsko_sredisce/sporocila_za_javnost/sporocilo_za_javnost/article/vlada_sprejela_mnenje_glede_tes_6_40357/

Point 2 of the conclusions states: “…the project does not ensure implementation within the time and financial framework set when the decision about this investment was made” (it also says that available data is insufficient to understand the reasons for such cost increase of the investment)

(2) TES 6 is estimated to cost around 1.44 billion euros at the moment, and estimates are rising all the time. Of this sum, the EIB has covered 550 million euros via a loan approved last year, of which 440 million are guaranteed by the Slovenian state. The EBRD too is supporting the project with 200 million euros, half a loan from the institution itself and another half as syndicated commercial banks loan.

(3) http://www.ebrd.com/pages/news/press/2014/140121.shtml

(4) Link to the NGO letter:
http://www.focus.si/files/pismo_koalicijske_stranke_TES6.pdf

EBRD set to backtrack on environmental and social safeguards

A draft released yesterday of the Environmental and Social Policy of the European Bank for Reconstruction and Development shows that, instead of strengthening the policy to provide for better implementation, the bank opens several loopholes which ensure that approval of financing is achievable for problematic projects.

The Bank often claims that its investments bring added value by ensuring that best standards are applied, however, the draft writes that these standards may not be ‘appropriate’ or ‘applicable’ for projects, for example if not required by national law. Considering the state of environmental legislation in the EBRD’s countries of operations, these exceptions constitute giant loopholes through which bad projects can pass.

According to the draft, even greenfield projects can be exempt from compliance with the environmental and social policy from the start, so in effect any project could be granted approval, if the client puts together a plan of how it will deal with the negative consequences of its operations.

“The draft of the new policy demonstrates an ill-founded belief that safeguarding the environment and the project-impacted communities can be done with action plans and management plans. Once the project is approved and money is disbursed, the bank’s leverage is extremely weak, and experience should have taught the EBRD that little can prevent these mitigation plans from failing,” said Fidanka Bacheva-McGrath.

She adds, “Considering that national laws and regulatory capacities are weak in many EBRD countries, the application of EU standards should have been clarified with more concrete and binding references to EU directives, but instead many references are deleted completely and additional language on possible exemptions is added.”

“Unfortunately the new draft of ESP suggests that there are no safeguards that can stop the implementation of any project despite, for example, the high ecological value of the site,” comments Dato Chipashvili from Green Alternative in Georgia. “Once the project is approved, construction work is over and technical parameters are already defined, additional studies and monitoring will not help avoid irreversible impacts on biodiversity, as it will be technically impossible to significantly change the design of the facility.”

The failure of the new policy to clarify requirements and standards that projects are expected to meet will inevitably lead to controversies and complaints to investigate and provide guidance on the flexible formulations of safeguards. Together with other European public banks, the EBRD is a signatory of the European Principles for the Environment [1] and one way or another projects that the bank finances will end up being assessed against these and found failing.

For more information, contact:

Fidanka Bacheva-McGrath,
EBRD campaign coordinator
fidankab at bankwatch.org

Notes:

[1] http://www.eib.org/attachments/strategies/european_principles_for_the_environment_en.pdf

The European Principles for the Environment (EPE) encompass the EC Treaty guiding environmental principles and the practices and standards of EU environmental legislation. To promote sustainable development and to protect and improve the environment, five European Multilateral Financing Institutions (MFIs) have agreed to a common approach to environmental management associated with the financing of projects. This approach to environmental management is based on the environmental principles, practices and standards of the European Union.

Bosnia and Herzegovina breaches Energy Community Treaty commitments, says official NGO complaint


Banja Luka – Bosnia and Herzegovina is failing on its Energy Community obligations by allowing Stanari lignite plant to pollute 2-3 times more than EU standards, shows an official complaint (1) submitted today by NGOs Center for Environment from Banja Luka and ClientEarth to the Vienna-based Energy Community Treaty secretariat.

The Energy Community serves as a bridge between the EU and aspiring countries, assisting the latter with implementing EU legislation related to energy and the environment and merging domestic markets with the European energy market.

According to the NGO complaint, pollution levels allowed for EFT’s 300 MW Stanari lignite power plant in Republika Srpska in its environmental permit are 2-3 times more than allowed by the EU’s Large Combustion Plants Directive (2001/80/EC) (2). Energy Community countries such as Bosnia and Herzegovina are bound to implement this Directive.

“This is not the first time that Bosnia is failing to meet its obligations under the Energy Community Treaty,” says Bankwatch’s Pippa Gallop. “At the end of last year, the Energy Community Ministerial Council said that Bosnia and Herzegovina was failing to implement required EU legislation in the gas sector (3). Such violations can have serious consequences for Bosnia and Herzegovina’s participation in the Energy Community.”

In today’s complaint, Center for Environment also argues that Bosnia and Herzegovina has breached its obligations relating to the environmental assessment of projects, since the changes in the project made since the Environmental Permit was issued are so large that they require a new Environmental Impact Assessment – and that never happened. Construction of the 300 MW Stanari power plant by Chinese contractor Dongfang started this year but the project has been under development for many years, and has undergone a capacity reduction from 410 MW to 300 MW and a change of technology (4) which results in an increase of SO2 emissions and significantly lower thermal efficiency.

“Bosnian authorities cannot afford to continue failing in implementation of EU Directives,” says Igor Kalaba of the Center for Environment. “Not only do we risk sanctions now, but, as pollution standards will be further tightened in the Energy Community in 2018, non-compliance even with today’s standards may mean that plants such as Stanari will be illegal by the time they even start to operate!” (5)

“Our authorities may think they can get away with such breaches, but this is wrong,” adds Kalaba. “They should be sure that both the EU and the NGO sector are keeping a close eye on projects such as Stanari and Ugljevik III (6). A Bosnia and Herzegovina fuelled by dirty coal and infringing the Energy Community Treaty cannot realistically aspire to join an EU that is by the day moving closer to decarbonisation.”

Contacts:

Igor Kalaba, Center for Environment, Banja Luka
igor.kalaba at czzs.org
Tel.: +387 65860796

Malgorzata Smolak, ClientEarth, Poland
msmolak at clientearth.org
Tel. +48 22 307 01 84

Pippa Gallop, CEE Bankwatch Network
pippa.gallop at bankwatch.org
Tel.: +385 99 755 9787

Notes for editors:

(1) The complaint is online at:
https://bankwatch.org/sites/default/files/complaint-ECS-Stanari-16Jan2014.pdf

(2) The Large Combustion Plants Directive (2001/80/EC) places limits on pollution from various installations including thermal power plants.

(3) For more information about the November 2013 Energy Community decision about Bosnia and Herzegovina’s failure to implement legislation in the gas sector see:
http://www.energy-community.org/portal/page/portal/ENC_HOME/AREAS_OF_WORK/Dispute_Settlement/2011/8_11

(4) After the first Stanari Environmental Permit was issued in 2008, the project was changed from 410 MWe to 300 MWe and from pulverised coal with supercritical steam parameters to subcritical steam parameters in a circulating fluidised boiler.

(5) The Industrial Emissions Directive (2010/75/EU) – will be binding for Bosnia and Herzegovina from 2018, including for the Stanari power plant.

(6) The 600 MW lignite power plant Ugljevik III, promoted by Russian billionaire Rashid Sardarov’s Comsar Energy and constructed by the China Power Engineering and Consulting Group Corporation (CPECC) is planned to be built near the site of the existing Ugljevik plant in the north-east of the Republika Srpska entity of Bosnia and Herzegovina. The plant has raised concerns as existing air pollution in the area is high, and it seems unlikely that the new plant will comply with the pollution limits stipulated in the EU Industrial Emissions Directive. Its net efficiency level is expected to be very low at only 34.1%.

EBRD environmental policy breaches on hydro plants confirmed by internal investigation

The EBRD has failed to properly assess 3 hydro projects it has approved for financing in Macedonia, Croatia and Georgia, according to bank internal investigations initiated after formal complaints by Bankwatch member groups. NGOs caution that, more than mere slips, these improper assessments are a symptom of what could be called bankers’ overconfidence – that is, a tendency to assume that all environmental damage can be ‘managed’, which from a business point of view is much more convenient than admitting that some projects simply should not go ahead.

A body inside the EBRD created to investigate to what extent decisions of the bank comply with the institution’s environmental and social policy, the Projects Complaints Mechanism (PCM), recently released three separate reports looking at the EBRD’s decisions to finance three hydropower plants: Boskov Most in Macedonia (1), Ombla in Croatia (2) and Paravani In Georgia (3). In all three cases, the EBRD was found to have violated its own policies by improperly assessing the projects’ impact on biodiversity before committing to them and by failing to implement procedures that would ensure meaningful public participation in the decisions about the future of the projects.

“What these internal reports of the bank itself confirm is what we knew all along: that the EBRD is on occasion pushing out of the way the serious environmental risks posed by some of the projects it wants to finance in order to be able to go ahead with them,” comments Bankwatch’s Macedonian coordinator Ana Colovic.

“Let us not be naïve about this,” continues Colovic. “These are not just repeated slips by the bank. On the contrary, the EBRD chooses to approve projects on the basis of project promoter promises that they would worry about the environment later, while constructing the plants. But what the project promoters do in the end amounts to little more than cosmetic works while the environment is seriously damaged.”

“In the Ombla and Boskov Most cases, the EBRD approved the projects on the basis of inadequate environmental assessments before it even had detailed information about the fauna living at the protected areas,” said Jagoda Munic of Zelena Akcja. “Such a rush to get projects out of the door is inexcusable. Approving projects first and carrying out additional studies later just doesn’t work. It denies the public the right to be involved in decision-making while there is still a chance to make an impact.”

The EBRD is expected to publish a new draft Environmental and Social Policy later this month. Bankwatch and its member groups call on the EBRD to tighten project assessment and public participation standards in the new policies and, most importantly, to ensure that what is stated on paper in the policies becomes the actual practice of the bank.

The closest test for checking whether the EBRD is improving its practices as a result of PCM warnings will be a new hydro plant in Georgia, Adjaristskali HPP, which the bank is currently considering for financing despite environmental risks.

“As it could be expected, the findings of the PCM were not accepted so easily by the bank departments that were found culpable of non-compliance,” comments Fidanka Bacheva-McGrath, “No wonder it took more than six months for the EBRD to make these documents public! What now remains to be seen is the consequences of these findings on the new Environmental and Social Policy and the PCM rules. Will they provide guidance for better implementation or shall we expect weakening of the safeguards and committments to highest standards as a result?”

Contacts:

Fidanka Bacheva McGrath
EBRD coordinator, Bankwatch
fidankab at bankwatch.org

Ombla:
Jagoda Munic, Zelena akcija/Friends of the Earth Croatia
jagoda at zelena-akcija.hr
Tel.: +385 1 4813 096
Mob.: +385 (0)981 795 690

Boskov Most:
Ana Colovic, Eko-Svest
ana at bankwatch.org

Georgian HPPs:
Dato Chipashvili, Green Alternative
dchipashvili at greenalt.org

Notes for editors:

The 3 PCM reports are available here:
http://www.ebrd.com/pages/project/pcm/register.shtml

About the three hydro projects:

(1) The 70 MW Boskov Most hydropower plant in the Mavrovo National Park, Macedonia, approved by the EBRD in 2011, is to be located on the Bistra mountain, the core reproduction area of the critically endangered Balkan lynx. A complaint was submitted to the PCM by environmental organisation Eko-svest in 2011 alleging that the Bank failed to undertake adequate research before project approval and that it failed to recognise the site as a critical habitat. The PCM report found that the assessment of the Project’s potential impacts on biodiversity was not sufficient to satisfy the biodiversity protection requirements of the EBRD’s 2008 Environmental and Social Policy, and that this automatically led to a violation of the policy’s provisions on public participation.

(2) The 68 MW Ombla underground hydropower plant near Dubrovnik in Croatia was approved in 2011, on condition that an additional nature impact assessment would be carried out. The plant was planned to be built in a cave complex in a future Natura 2000 area that had not been fully researched but was known to contain endemic species. Zelena akcija/Friends of the Earth Croatia submitted a complaint to the PCM stating that the EBRD had failed to ensure adequate environmental assessment prior to project approval; that the project would damage critical habitat without due justification, and that there had been inadequate public consultation. The PCM report agrees that according to the EBRD’s environmental policy, the biodiversity assessment should have been done before the Bank approved the project and that failure to do so also led to inadequate public consultation. In May 2013 the EBRD loan for the Ombla plant was cancelled.

(3) The 87 MW Paravani derivative hydropower plant in Georgia was approved by the EBRD in July 2011. It includes a 14 km derivation tunnel to divert water from the Paravani river to the Mtkvari river upstream of the village of Khertvisi. In some periods this would leave only 10 percent of water in the Paravani river – inadequate to ensure the survival of downstream flora and fauna – while at the same time, the project creates a significant risk of flooding Khertvisi. Environmental group Green Alternative submitted a complaint in December 2011 and the Project Complaint Mechanism has now confirmed violations of three sections of the EBRD’s Environmental and Social Policy relating to biodiversity and public participation.

EBRD joins other financial institutions in restricting coal lending

The European Bank for Reconstruction and Development (EBRD) approved today during a vote of its Board of Directors a new Energy Strategy. The document is meant to give guidance on how to strategically use the bank’s resources over the next years to promote energy security and affordability and avoid dangerous climate change.

Fidanka Bacheva-McGrath, CEE Bankwatch Network:

„The EBRD has made a positive step forward in restricting investments in coal power plants and introducing a shadow carbon price for all fossil fuels, which can be a powerful tool for internalising their hidden costs.

“The strategy approved today makes it clear that everyone in the bank and in many of its shareholders’ capitals is now tiptoeing around coal. This should serve as one more warning for the coal industry that it can no longer ignore our health and our climate.

“The bank’s criteria can be used to exclude almost any greenfield project. But it will be only with real investment proposals, such as the upcoming Kosovo C, that we will see whether the EBRD is ready to not just tiptoe around coal but to walk boldly towards a coal-free future.”

Visar Azemi, KOSID:

“We are heartened to see that the EBRD is moving in the right direction and has approved criteria which will exclude the financing of the unnecessary Kosovo C plant near Pristina. The bank must now make publicly clear to the Kosovar government that it cannot consider financing this project.”

Tim Ratcliffe, 350.org:

“If the systemic risk that climate change poses is being taken seriously by the bank, it should immediately take steps to ensure its lending is entirely fossil free by canceling its involvement in misguided infrastructure projects such as the Euro-Caspian mega pipeline, and divert its efforts towards community interest renewable energy projects likely to benefit people rather than entrenched corporate interests.”

For more information, contact:

Fidanka Bacheva-McGrath
CEE Bankwatch Network
fidankab at bankwatch.org

Ionut Apostol
CEE Bankwatch Network
ionut at bankwatch.org
Te.: 0040721251207