More questions than answers - the EBRD's new country strategy for Russia

The new EBRD country strategy for Russia that will apply for 2013-2015 attracted input and comments from several human rights and environmental watchdogs, among them Human Rights Watch, WWF, Greenpeace and Bankwatch. As part of the consultation on the new strategy, NGOs expressed concerns about the current political and social situation in Russia as well as the dangers of natural resource development. The comments were incorporated into the strategy document but it remains unclear if NGOs were able to influence actual decision-making.

One of the pressing issues outlined in the EBRD’s new Russia strategy is the country’s oil and gas dependency. EBRD president Suma Chakrabarti has described Russia as the country with the most urgent need to move away from fossil fuels. “Russia is so dominated by oil and gas, more than in the Soviet Union era,” Chakrabarti said in an interview on Bloomberg television last month. “So it really needs to diversify. And the government is absolutely committed to diversify, EBRD is helping them to do that”.

Yet, for the EBRD, this stated goal will not in fact prevent the bank from funding Russia’s fossil fuels sector. According to the strategy, the EBRD still intends to sponsor “small and medium regional independent oil and gas producers” to ensure transparent access to the allocation of licenses for mineral resources. Another reason to fund oil and gas companies, it appears, is climate change adaptation. The logic, though, is elusive – the EBRD strategy assumes that pipelines in permafrost regions may be at risk as a result of melting ice.

The EBRD’s apparent willingness to continue to support Russia’s oil and gas sector has provoked criticism from environmental NGOs. According to Vladimir Chuprov of Greenpeace Russia, “Indeed, permafrost melting will make oil and gas pipelines more vulnerable and lead to more accidents. It is supposed that the EBRD may invest in the sustainability of oil pipelines. But it’s difficult to argue that Russian oil and gas companies are too poor or unprofitable to pay these costs themselves.”

Russia’s Gazprom and Lukoil have been listed by Forbes as having annual net profits of more than USD 40 billion, Rosneft stands at USD 11.2 billion in profits and TNK-BP stands at over USD 7 billion.

Chuprov argues that the Russian oil giants are merely taking advantage of a situation where oil leakages are cost efficient. “What the EBRD could do,” he says, “is help the Russian government amend the legislation so that leakages would become unprofitable, and fixing pipelines in permafrost regions becomes the responsibility of the oil companies themselves, not of a third party bank.”

More widely, legislative gaps and lack of political will is one of the key challenges facing the EBRD in Russia. For instance, very little progress has been made in renewable energy since 2011. EBRD investments into renewables have been restricted to the renovation of old Soviet-era hydropower plants. For 2013-15, the bank is aiming to continue assisting the Russian government with the necessary legislation and institutional framework, an arduous process that has been going on for years.

When it comes to urgently needed investments for energy efficiency measures across the whole range of the Russian economy, arguably more progress has been made as a result of energy efficiency being deemed to be a cross-sectoral objective incorporated into all EBRD projects as far as is possible. For the next two years, the EBRD plan is to help introduce international best practice in energy efficiency in power generation and in the housing sector, as well as to consult further with the government on legislative issues.

However, as in other countries in the region, the ‘energy efficiency’ label attached to some EBRD projects can be highly misleading, not least in climate terms. As Tatyana Skrodenis from the Save Yuntolovo environmental group points out, “Our concern about energy efficiency is that it can be used as a justification for very dubious projects, such as the Kuzbasskaya coal mining company loan in western Siberia that the EBRD is considering at the moment.”

The Russian Arctic must be a no-go zone

Russia’s Arctic shelf, currently a hot spot for extractive industry speculation, is another major concern for environmentalists. A key focus of comments submitted to the draft strategy, NGOs suggested that the EBRD establish no-go zones and refrain from investing in the Arctic shelf and protected areas.

The EBRD did not reject these comments but suggested that they be addressed to the review of the bank’s Environmental and Social policy during 2013.

PPPs

Public-private partnerships (PPPs) are one of the investment vehicles in which the Russian government is willing to cooperate with the EBRD – yet such schemes have been the focus of major public concern in recent years. In the 2011-2013 period the EBRD approved several PPPs, including the Western High Speed Diameter (WHSD) motorway in Saint Petersburg. The project was promoted as a flagship PPP for Russia, and although it is too early to make any conclusions about its financial success, the EBRD is clear about its intention to invest in more PPPs in the future.

However, as Tatyana Skrodenis from Save Yuntolovo points out: “The possible failures of PPPs will be covered by taxpayers.” As evidence she cites the fact that Saint Petersburg has guaranteed yearly income of 9.7 billion rubles to the WHSD concessionaire. If profits from the motorway project fail to materialise, the concessionaire will be compensated from the city budget.

Human rights on the line

The new EBRD strategy takes a very optimistic view of the present human rights situation in Russia. Referring to the most recent parliamentary and presidential elections that were marred by numerous legal violations, the strategy notes that at the same time they “have created some momentum for reforms”.

The political context section of the strategy was however significantly extended as a result of input from NGOs during the public consultations. The comments accepted by the EBRD described the unprecedented pressure on public organisations: the requirement to register as ‘foreign agents’, amendments to the legislation regarding state treason, the ongoing highly intrusive checks and revisions, and criminal charges against activists. A further aggravating factor is that over the last five years the legal framework for public participation in Russia has been destroyed.

An underlying issue presented by human rights activists is that the strategy does not lay out what impact the political and democratic situation will have on EBRD investments in the coming period, nor does it deal clearly with how the bank intends to ensure that its investments contribute to a deepening of democracy and human rights.