State Commission warns of corruption and illegality at Šoštanj
Bankwatch Mail | 13 March 2012
Fresh controversy hit the proposed 600 MW lignite power plant at Šoštanj in Slovenia in late February when the Slovenian State Commission for the Prevention of Corruption issued a report in which it says corruption conditions existed at the time of the awarding of the construction contract to French company Alstom and continue to exist today. The Commission report also states that Slovenian lobbying legislation has been breached by the goings-on at Šoštanj.
This article is from Issue 51 of our quarterly newsletter Bankwatch Mail
These findings confirm warnings that Bankwatch and Focus, our partner in Slovenia, gave to the EBRD and the EIB, the international public banks helping to finance Šoštanj, almost one year ago.
Piotr Trzaskowski, Bankwatch’s Energy and Climate Coordinator, commented: “In our long-term monitoring of the investments of the EIB and EBRD in central and eastern Europe, one of our main concerns has been that the banks rush into what seem to be profitable projects in the region, without properly assessing their social and environmental costs and also without conducting proper due diligence to make sure that they work with reliable partners in the region. Šoštanj is a case in point.
“We have repeatedly informed the banks about the problematic aspects of the project, both when it comes to its climate impact as well as the inappropriateness of putting European public money into a project tainted by allegations of corruption. To no avail thus far.”
Having signed off contracts for Šoštanj financing, the two banks are looking to provide EUR 750 million of the EUR 1.3 billion cost of the plant: EUR 550 million is the EIB’s contribution (and it has already disbursed EUR 110 million), while the EBRD’s share is EUR 200 million, half from its own resources and half from a syndicated loan from five western European commercial banks.
If and when it becomes operational, the new block at Šoštanj will prevent Slovenia from meeting 2050 climate targets set by the EU (when they are extrapolated from the EU level to Slovenia). The project is being pushed without a proper assessment of alternative investments into renewables and energy efficiency. Allegations of corruption within the management of the plant have been widely circulated in Slovenia for some time now, with members of the government calling for an investigation and the police opening a case to examine the accusations.
The controversy surrounding the proposed sixth block at Šoštanj has been in the public eye in Slovenia for over two years. Doubts about its high environmental costs, uncertain economic viability as well as the corruption allegations have repeatedly hit the headlines in the national media and many in the country do not support the construction of the new block. Even the authorities in the country have expressed reservations, the most prominent perhaps being the former minister of the economy, who in the beginning of 2011 openly questioned the economic viability of the project to construct the new block and called for a police investigation into corruption.
The concerns raised by the Slovenian State Commission for the Prevention of Corruption should compel the EBRD and the EIB to reassess their investment plans. In its report, the Commission concluded that “the project (the new block at Šoštanj) is designed and implemented in a non-transparent manner, lacks supervision and is burdened with political and lobbying influences, and as a result there has been (and still is) a high risk of corruption and conflict of interest.”
The Commission noted that both the technical commission implementing the public procurement for the plant and the group negotiating the contract included employees of CEE Inženiring za energetiko in ekologijo d.o.o., which has close business links with Alstom. As a consequence, “conditions for corruption” were created, as Alstom “could have had access to complete information about the offer of the competitive supplier”.
In addition, the official body declared that national lobbying legislation was breached as the law for state guarantee, required to be passed for the biggest chunk of the EIB loan to be cashed, was drafted by members of HSE, the owner of the Šoštanj complex. The Commission also noted that at the moment it cannot reveal any more details about the case as pre-trial processes have been initiated for the offenses described above.
The Commission went on further by calling on the Slovenian government to ensure that corruption allegations be properly checked before moving on with promoting the project. Unfortunately, this call fell on deaf ears: just two days after the Commission report was published, the Slovenian government confirmed that it supports the offering of a state guarantee for four fifths of the EIB loan.
Lidija Živčič, from the Slovenian NGO Focus, commented: “The Commission for the Prevention of Corruption sent a strong signal to our government not to continue promoting Šoštanj Block 6 until corruption and unlawful lobbying allegations are cleared up and proper safeguards are in place to avoid such practices in the future. If our government has acted disappointingly on this occasion, we at least hope that our parliament, expected to vote on the state guarantee law later this month, will act more responsibly and withhold the state guarantee law until the open investigations into corruption are completed.
“Regardless of what Slovenian authorities decide, though, we demand that the the EBRD and the EIB halt their loans for the project until the police completes the corruption investigation.
As public banks of the EU, they could serve as examplars of transparency and responsibility for our political leaders. The two banks have been informed about the recent findings of the Commission, so they have no excuse not to look into these concerns and respond properly to them.
“Not deferring their loans at this moment would mean that the EBRD and the EIB are not interested in checking whether the allegations of corruption are true. In fact, the two banks should use this opportunity to withdraw from a project that, apart from being based on possible unlawful actions, also stands squarely in contradiction to the EU’s long-term climate policy that both banks are supposed to support.”
Activists in Slovenia are planning to call for a referendum vote on the project if the parliament also chooses to support the state guarantee loan. The prospect of confrontation with the public should give the two European public banks further pause for thought when it comes to their troubled involvement in Šoštanj.