SIM REPORT: Southern Europe

issue 01, 25 september 2019

BALKANS: Growing opposition to hydropower projects likely to signal further scrutiny on new plants

Governments across the Balkans are facing growing calls from environmental groups to halt the development of hydropower plants. This poses important questions for the long-term sustainability of these projects and exposes political tensions about the future of energy security in the region. 

The surge in hydropower projects in the Balkans has been driven by efforts to increase energy generation through renewables amid rising demand and decreasing reliance on coal to meet environmental standards under the 2015 Paris climate agreement. For many countries in the Western Balkans, including Bosnia & Herzegovina, Kosovo, Serbia, and North Macedonia, coal accounts for over half of electricity generation. According to a survey conducted by the ‘Save the Blue Heart of Europe’ campaign, 2,796 hydropower projects will be built across the region over the next few years.  

However, local opposition to hydropower dams has grown across the region in recent years. This resistance was illustrated through a series of protests held in several countries, including Albania, Bosnia & Herzegovina, Greece, Kosovo, Montenegro, North Macedonia, Serbia, and Slovenia in July. Opponents argue that many of proposed dams pose a threat to sources of drinking water, arable land, local biodiversity, and a thriving eco-tourism sector. Activists opposing the dams also claim that there is a lack of legislation to safeguard free-flowing rivers, while the paucity media coverage has meant less scrutiny for many of these projects.

In Bosnia & Herzegovina, opposition to around 300 proposed hydropower projects has taken the form of direct-action protests and legal challenges. Activists have focussed particular attention on the construction of the Kruščica 1 and Kruščica 2 dams, located near Sarajevo. On 14 December 2018, a regional court ruled against renewing permits required for the plants on the basis that local residents had not been adequately informed about the project.

In some countries, public pressure has led to a direct policy shift. For instance, in January 2019 the Albanian government announced that it would be freezing the development of new plants and review existing licences. A month later, Kosovo’s government ordered to halt the construction of a hydropower plant spanning across seven different locations on the Lumbardhi/Bistrica River in the western Peć/Peja district. The decision was influenced by a protest attended by thousands of activists, who argued that the plant would pass through the Rugova national park. Hydropower is Kosovo’s main energy source and constitutes 97 per cent of domestically generated electricity in Albania. 

Because these projects  are designed to stop or restrict the flow of water from rivers, dams – even on a small-scale – they invariably alter the landscape around them. This also has implications for neighbouring countries where rivers flow into, which in turn can be a source of cross-border tensions over natural resources. This is especially the case in the Balkans, a region with a history of violent ethnic conflict, mutual suspicion, fragile bilateral relations, and where national sovereignty is a highly sensitive issue for some countries. While a country might raise legitimate concerns over the environmental impact a new dam will have on riverside communities on its side of the border, another will likely disregard such concerns as interference in domestic affairs. Indeed, in September 2019 Montenegro raised concerns over plans to build 14 small hydropower plants along the Cijevna river in Albania.


              Fierzë Hydroelectric Power Station, Albania (Shutterstock)

The dam construction boom in the region has been facilitated by financial incentives, including subsidies, and financing provided by organisations such as the European Bank for Reconstruction and Development (EBRD), which has financed a range of hydropower projects across the region through commercial banks. In response to growing local concerns and calls to stop funding for dams located in protected areas such as national parks, the intergovernmental financing institution announced in April that it would introduce tighter requirements before financing such projects by 2020. These include additional checks on projects that pose high environmental risks. Moreover, the EBRD will require that financial intermediaries publicly disclose information on any potential environmental and social risks associated with projects on their websites to improve transparency. The EBRD also published an ‘Environmental and social good practice note’ for smaller hydropower projects, which provides guidance on managing risks relating to plants that receive direct or indirect financing from the bank. It contains minimum requirements for developers and financiers, including assessing the social and environmental impact of a project in its location during the pre-construction phase.

Outlook

A more uncertain regulatory landscape coupled with increasing requirements from international financing organisations could mean that proposed projects will face difficulties in attracting new investments. Mounting resistance against many such projects and an increasingly negative public perception about hydropower projects will likely elevate the issue on the political agenda. Ultimately, recent developments in the region underscore the importance of ensuring full buy-in with local communities and other key stakeholders. Holding extensive public consultations, ensuring transparency, and conducting stakeholder outreach can help improve a project’s viability.

Diplomatic tensions will continue to worsen as countries begin to diverge on how to develop renewable sources of energy. This will be especially the case for dams that are planned for construction on transboundary rivers. While some countries will continue to intensify efforts to exploit existing natural resources through dam-building, in other Balkan states eroding political will due to local opposition could create uncertain conditions for planned projects. Indications of this will be a changing government narrative, either by ministers or senior officials, through statements raising concerns about specific plants or hydropower in general. In turn, this could mean the cancellation of proposed projects, launching reviews of existing contracts, or revoking building permits. A change in approach will largely depend on whether governments are able to identify alternative, cost-competitive sources of renewable energy such as wind and solar. Any shift in policy will be challenging, as national governments will need to strike a fragile balance between addressing local concerns and providing assurances to foreign investors.  


GREECE: Decision to issue permits for gold projects part of a key attempt to lure foreign investment

In September, the Ministry of Energy and Environment granted installation permits to Hellas Gold, a local subsidiary of Canadian mining company Eldorado Gold Corp, allowing it to install equipment in the Skouries mine, located in the northern Halkidiki Peninsula. In response to the decision, Eldorado Gold said it would be open to having discussions with the Greek government about revisiting royalty rates. A separate permit was also given to allow the installation of electrical and support facilities at Eldorado’s Olympias gold-silver-lead-zinc mine, also in the Halkidiki Peninsula. Last September, Eldorado announced that it would seek EUR750 million in damages from the Greek state for losses sustained due to delays in issuing permits.

Lack of regulatory clarity and delays in issuing environmental permits by the Syriza-led leftist government prompted the Canadian miner to halt construction at Skouries, which contains an estimated 3.7million ounces of gold and 1.7 billion pounds of copper in reserves, in November 2017. The move to grant permits forms part of concerted efforts by New Democracy, which emerged as the largest party following a general election in July, to improve Greece’s attractiveness as a destination for foreign investment. Political and economic instability arising from the 2015 sovereign-debt crisis had essentially frozen new investments in the country. The decision to issue the permits marks a clear shift from the previous government and offers a clearer indication of New Democracy’s approach towards foreign investment.


KOSOVO: Tariffs on goods from neighbouring countries challenges normalisation of ties, escalates risk of regional trade war 

In November 2018, Pristina introduced 100 per cent tariffs on imports from Serbia in response to Belgrade blocking Kosovo’s bid to join Interpol. Duties were also imposed on Bosnia & Herzegovina because it does not recognise Kosovo due to a veto by Republika Srpska, one of the two entities making up the country. Since being introduced, the duties have remained in place, damaging relations and forcing store owners in northern Kosovo, where a majority of ethnic Serbs live, to temporarily close their businesses on 1 July in protest. Serbia exports around EUR500 million worth of goods to neighbouring Kosovo each year and the move highlighted Pristina’s increasing willingness of using tariffs to apply political pressure.     

Despite EU and US pressure to withdraw the tariffs, Kosovo’s government has insisted on maintaining the duties until Belgrade recognises the country’s independence. The development comes amid heightened trade tensions among countries in the Balkans. On 16 August, Kosovo banned the imports of potatoes and honey from North Macedonia in what it described as a reciprocal measure after Skopje introduced tariffs on fish and roe from Kosovo in June. In September, seeking to defuse the row, both countries agreed to remove the barriers on food exports. 

The trade measures have worsened Serbia-Kosovo relations and there is also a risk that the dispute escalates beyond the region. This was evident after Czech President Miloš Zeman questioned Kosovo’s sovereignty, during an official visit to Belgrade in September, prompting outrage in Kosovo. Deteriorating bilateral relations with countries considering to revoke their recognition of its independence, could lead to Kosovo imposing tighter controls or duties on imports. For businesses operating in the region, restrictive trade measures will present new operational challenges and constraints, particularly for those with integrated supply chains.   


Open-Source Review of significant risk developments from August to September


CORRUPTION RISK

CZECH REPUBLIC

Czech attorneys drop fraud charges against billionaire PM Babis

13 September         

A criminal investigation into Prime Minister Andrej Babiš was halted by the Prague state attorney on 13 September. The probe was launched over allegations that a farm and conference belonging to the former businessman had illegally received EUR2 million in EU subsidies. Babiš repeatedly denied the allegations.

Source: Reuters

A2 Global comments: The fraud probe had turned Babiš into a highly polarising figure and led to a series of anti-government protests. For the Czech Prime Minister, the decision to halt the investigation will provide a reprieve for Babiš and alleviate, at least temporarily, political pressure on the government.

REGIONAL

Romania’s Kövesi poised to become EU public prosecutor

19 September 2019

Laura Codruța Kövesi, Romania’s former chief prosecutor, was voted as the EU’s chief public prosecutor to lead the newly-created European Public Prosecutor's Office (EPPO), a body comprising of 22 member states responsible for prosecuting crimes, including money laundering and VAT fraud. The Romanian government opposed her appointment.

Source: Politico

POLITICAL RISK

CROATIA

19 September

Croatian government backs down on later retirement age

Following widespread backlash over plans to increase the retirement age, the government announced that it will lower the retirement age back to 65 from 67. Trade unions opposing plans to increase the level, called for a referendum on the issue and threatened to stage protests unless their demands were met.  

Source: Reuters

EASTERN EUROPE

Poland and Lithuania see Nord Stream 2 as threat to energy security

17 September 

Mateusz Morawiecki, Poland’s Prime Minister, said on 17 September that Poland and Lithuania consider the Nord Stream 2 gas pipeline as a threat to the region’s energy security.

Source: Reuters

A2 Global comments: The statement highlights concern among several eastern European countries over the development of the Nord Stream 2 pipeline. Critics argue that the project, which will connect Russia to Germany bypassing several countries, will increase Europe’s reliance on energy imports from Russia. The US government has repeatedly threatened to impose sanctions in a bid to block the project. Friction among some EU countries over the pipeline will continue to grow, and likely deepen as the pipeline nears completion.

MONTENEGRO

Montenegro scraps plans for new coal-fired power unit

23 September

The government has scrapped plans to add a new unit at the Pljevlja coal-fired power plant. The move was reportedly prompted by changes on European regulations on industrial emissions, and international pressure against projects of this type.

Source: Emerging Europe

REGIONAL

10 September 2019

Margrethe Vestager gets second term in EU competition job

The Danish politician was re-appointed to serve as EU competition commissioner for a second term on 10 September. Vestager will hold an enlarged portfolio, overseeing cybersecurity, and lead efforts on how social media platforms tackle illegal content.

Source: The Guardian

A2 Global comments: Vestager’s re-appointment suggests that major technology firms will continue to face heightened regulatory scrutiny. This will be in the form of probes, which could result in considerable fines if companies are found to have breached EU rules.

RUSSIA

19 September 2019

Russia hands Google small fine for advert infraction

The Federal Antimonopoly Service confirmed on 19 September that it had fined Google USD1,560 for circulating adverts for a financial services company. The fine is part of a series of similar fines, usually involving small sums.

Source: Reuters


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