EBRD soft on coal sector corruption, new analysis shows

The European Bank for Reconstruction and Development has been approving financing for coal projects over which corruption allegations loom, and in some cases even while official corruption investigations were underway, according to an analysis [1] published by CEE Bankwatch Network today.

The set of three case studies focuses on EBRD loans to the coal sector, which will be under scrutiny at the bank tomorrow as the Board of Directors approves a hotly-debated new Energy Strategy [2].

In three countries coal companies financed by the EBRD have been implicated in corruption scandals within the last few years, yet the bank has gone ahead with its projects in all three cases:

• Sostanj lignite power plant in Slovenia, for which a EUR 200 million loan was signed by the EBRD in 2011 and disbursed earlier this year in spite of an ongoing investigation into the project by the European Anti-Fraud Office OLAF.
• Kolubara lignite mines in Serbia, which were part of both the 2003 EPS Power II project in 2003 and the EUR 80 million Kolubara mine improvement project loan, signed in 2011 by the EBRD. Investigations are currently ongoing by the national authorities on multiple corruption scandals involving EPS management and practices.
• Turceni lignite power plant and mines in Romania, where an unsuccessful rehabilitation project approved by the EBRD in 2008 was resurrected and re-approved in 2013 in spite of the fact that a number of corruption allegations involving management of the project developer had come to light in the meantime. During autumn this year, five people including a Member of Parliament were sentenced to jail for up to seven years over one of the allegations.

“The EBRD is risking its reputation by repeatedly committing to financing projects while national and even European authorities are investigating corruption allegations,” comments Bankwatch’s Pippa Gallop, the coordinator of the study. “Under no circumstances can a public bank justify getting involved in projects where the risk of misuse of funds is big enough to spark criminal investigations.”

“In all of these cases well-founded corruption allegations were publicly revealed before the bank approved the projects, yet the bank still went ahead”, Gallop added. “The bank should behave in exactly the opposite way: pick up early signals about companies that could behave above the law and wait with committing to loans until all suspicion is cleared.”

“In the Kolubara case the situation is even more embarrassing as the EBRD was financing the company in a previous project during the years when the alleged corruption was actually being carried out, yet it has never given the public any explanation of what went wrong and instead in 2011 approved a further loan to that company”, said Zvezdan Kalmar of CEKOR in Serbia.

“Such practices by the EBRD make it very hard for us to believe that the bank is part of the solution and not of the problem”, Kalmar added. “In the case of EPS, it is crystal clear that EBRD involvement in EPS-managed projects did not contribute to eliminating mismanagement and corruption.”

Contacts:

Pippa Gallop
Bankwatch Research Coordinator
pippa.gallop at bankwatch.org
Tel.:+3855997559787

Inquiries about Sostanj specifically:

Lidija Zivcic, Focus, Slovenia
lidija at focus.si

About Kolubara:
Zvezdan Kalmar, CEKOR, Serbia
vodana at gmail.com

About Turceni:
Ionut Apostol, Bankwatch Romania
ionut at bankwatch.org

Notes for editors:

1. The case studies paper is available at:
http://bankwatch.org/sites/default/files/EBRD-coal-corruption.pdf

2. Coal is the main topic of debate in the strategy as the EBRD is the latest bank to reconsider its strategy after the Nordic Investment Bank, World Bank, European Investment Bank and US ExIm Bank all seriously limited lending for coal. At the EBRD, countries such as the UK, US and Scandinavian countries favour virtually halting public finance for coal projects, while some bank staff and shareholder countries are not ready to do so.