Background After the fall of communism in 1989, Zavody SNP, an aluminium company established “in close international cooperation” at the beginning of the country’s post-war economic development, faced profound economic and financial problems (leading to an “export strike” in 1990 and a full strike in 1991). In response, the company sought help, including a loan from the EBRD. The request was approved by the Board of Directors at the beginning of September 1993. According to the EBRD’s 1st vice-president, Noreen Doyle, “In 1993, no institution other than the EBRD was willing to provide the company with a loan”. The EBRD conditioned the loan on the establishment of a new joint stock company specialised in the production of aluminium. As a result, Slovalco, a.s. was established, into which the EBRD invested USD 15 million and became a holder of 10% of the company’s shares (20% of the company’s equity shares). Since April 2001, the EBRD has owned 33% of Slovalco’s shares (40% of equity shares and 26,3% of preference shares). Discussed below are some examples of how the EBRD strongly nurtured this project in spite of its questionable long-term justification. Economic aspect The fact that aluminium production made little economic sense in Slovakia was pointed out even during the communist era by the “Comprehensive Prognosis of the Czechoslovak Socialist Republic until 2010”, a study of the Prognostic Department of the Czechoslovak Academy of Science from 1988. The same arguments remain valid today – aluminium production requires high demands for electricity (but Slovakia has no comparative advantage in energy production and more or less relies on fossil fuels and the import of nuclear fuel from Russia) and raw material needs to be imported (originally bauxite from Hungary, now clay oxide from Sicily). Although the factory is currently profitable, this is mainly thanks to the subsidised price of energy that Slovalco currently buys under special terms from the Slovak electric monopoly, Slovenske elektrarne, under special terms pre-set in a long-term contract. In fact, Slovenske elektrarne received a loan from the EBRD on the condition that it sign this special contract to provide Slovalco with electricity. Influence on the Energy sector Slovalco is one of the biggest consumers of electricity in Slovakia. After the EBRD increased its share of equity stocks in the company, two major expansion projects were started aimed at increasing aluminium production from 109 000 tons a year (in January 2002) to 155 000 tons a year (in 2004). This increase will result in a profound increase of the factory’s electric energy needs. As mentioned above, Slovenske elektrarne (as a condition for an EBRD loan) made a long-term commitment to provide Slovalco with electricity under special conditions, which we can assume would include a price set below market rate. This commitment has led to financial problems for Slovenske elektrarne, putting it under even more pressure to decrease its costs of electricity production. This pressure might easily result in a request for the prolonged operation of the Nuclear Power Plant V1 in Bohunice, which officially produces electricity at substantially lower costs than the other power plants operated by Slovenske elektrarne (the high costs of future decommissioning and nuclear waste treatment are still not included into the price calculation). Ironically, this would happen while at the same time the EBRD is administering a decommissioning fund for the same power plant and together with the European Commission is asking for it to be shut down as early as possible. Environmental aspects The aluminium industry is one of the most polluting and contaminating industries in Slovakia, not only on site but also indirectly, as aluminium production is an extremely electricity-demanding activity and Slovakia produces most of its electricity either in nuclear or coal-fired power plants. In sharp contrast with the EBRD’s environmental mandate, the project to support the aluminium company was rushed through and was thus to a great extent in breach of the bank’s own environmental procedures. No proper environmental impact assessment was done and procedures which should have involved public participation were reduced to one meeting with selected environmentalists shortly before the project was presented to the Board of Directors. Regional aspect The study “Gift for Slovakia”, prepared by environmental groups in 1990, not only criticised the company’s negative impact on the environment, but also showed the region’s economic dependency on one aluminium company (artificially created in the 1950s) and explained the importance of development programs that would introduce new business activities and thus help the region develop a sustainable economy. Not only were none of the study’s recommendations accepted or implemented, but the ongoing expansion projects are deepening the region’s dependency on the aluminium giant and thus make the whole region dependent on the unstable international aluminium market. (When Russia started to export cheap aluminium, prices fell and Slovak aluminium production was threatened). Indirectly, the region is dependent on the equally unstable international automobile market, while in 2001 car sales started to decline. Conclusion The fact that the EBRD considers Slovalco one of the most excellent projects in the Bank’s history proves that the EBRD, just like any commercial bank, is focused more on profit than on its overall impact on a country’s economy, its energy sector, regional development or the environment. Aluminium production in Slovakia is a good example of a long-term unsustainable industry, with profound direct and indirect harmful impacts on the environment. Sadly, the EBRD encourages the same industrial model that the Soviet Union did 50 years ago. The Slovalco project proves that under certain circumstances (in this case when the Bank was under financial pressure) the EBRD is willing to circumvent its own environmental procedures and its own commitment to promoting sustainable development. Recommendations for the EBRD - The EBRD needs strict policies on sustainable development that it would be obliged to implement in every single project it is considering. Otherwise the Bank’s commitment to fostering sustainable development will fail. - The EBRD needs stricter and more effective environmental procedures that would ensure that it can resist various pressures to finance environmentally harmful projects. The EBRD must be obliged to perform an environmental impact analysis on every project that might have harmful effects on the environment, regardless of the previous state of the project or company. - Transparency and public involvement. It is crucial that the Bank work in a fully transparent manner and be accountable to the public. Not only should project descriptions and full texts of the environmental impact analysis be available to the public in the local languages, but also the Bank’s evaluations at all phases of a project should be made public. - Considering the overall impact of all of the EBRD’s activities. The EBRD must take into account not only the economic impact of a project, but also the impact on the energy sector (the project should be in compliance with the country’s energy strategies) and the impact on regional development (the Bank should avoid increasing a region’s dependency on unstable international markets).
For more information:
Peter Mihok, Center for Environmental Public Advocacy, Táto e-mailová adresa je chránená pred spamovacími robotmi. Na jej zobrazenie potrebujete mať nainštalovaný JavaScript., (+421) 905 746 884,
www.bankwatch.org During the EBRD AGM in Tashkent
Petr Hlobil, CEE Bankwatch Network, mobile: (+420) 603 154 349