It is another hot day in Kribi, a booming coastal city of 80,000 people that’s located 300 kilometres from the capital of Cameroon, Yaoundé. Kribi sits on a road that stretches along a rainforest, one of the largest in Africa, before it begins to follow the coastline. Off the coast lie the gas reserves of Sanaga South.
The coastal town draws most of its income from tourism but for several years now, it has been at the heart of a cluster of energy projects which involve the construction of a port and a gas-powered electricity station nine kilometres from the city. Locals initially greeted these projects with enthusiasm, expecting economic opportunities and more electricity for their homes. The construction of the electricity plant, which is connected to the offshore gas facility by an 18 km pipeline, began in 2012. Commercial operations started the following year.
Two years earlier the project promoter, Cameroon’s national electricity producer AES SONEL, had commissioned an environmental and social impact study of the future plant. In the meantime, the project’s financing plan had been finalized; the EIB joined a consortium of development financiers, which included the World Bank’s development arm (IFC), with a loan of almost thirty million Euros. Like the World Bank, the EIB’s decision to come on board was made after study of the impact assessment that the promoter provided.
“We thought it might be something temporary”
The gas processing plant was originally designed to use four gas turbines. But the project ended up with piston engines instead, a cheaper technology that is considered outdated.
People living near the station quickly realized that the plant was not the bargain they had envisaged. They did get a new primary school and free electricity, but a new hospital never materialized and access to water remained far from ideal. On top of this, the plant generates vibrations and a loud, persistent, humming. “We thought it might be something temporary”, says one woman who lives nearby, “and that at some point we would be free of the noise, but we live with it 24 hours a day. Even at night the machines do not stop working”.
The plant was built too close to many homes and its designers didn’t seem to have anticipated these side effects, especially as the city continues to expand and grow closer to the plant.
“We had seminars”, recalls a man who lives next to the plant and who, like most of the interviewees, doesn’t want to give his name, “but we were not told there would be so much noise. We were even told that you could live 100 metres away and you would be fine. But to our surprise, it’s a problem. I currently suffer from problems with nerves and if I stay here too long it causes me headaches”. Children and adults complain of hearing problems, but that risk was totally ignored by the impact report. Ironically, the noise risk assessment in the impact study was commissioned from the very company that supplied the piston engines, Wärtsilä.
“It only stops only when controllers come and visit the plant”
Today, most of the inhabitants have become experts in imitating this persistent whirring, which they describe as a kind of aural bombardment that causes a constant ripple of noise across the roofs of sheet metal.
“It only stops only when controllers come and visit the plant”, adds another inhabitant. Above their heads, the electric transmission line from the power station cuts through the forest, close to the roofs of some houses. According to Victorien Mba, director of a local NGO called APED (Support for the Protection of the Environment and Development), noise pollution is a daily reality: “When the turbines start, you feel these enormous vibrations. When it gets hot, the pylons that carry electricity whistle terribly. It’s as if your eardrums are going to crack, with these noises”.
A few kilometres from the power plant Simon Mvoum, a leader in Mpolongowe village, has a more acute problem: access to drinking water. The project has provided water wells, to help the community, but the well set up at the entrance to his house doesn’t produce drinkable water. He says that most of the time the well doesn’t work properly and calls to the company to have it repaired have fallen on deaf ears. “In fact, this well doesn’t exist”, he says. “The water is salty, almost like sea water, so we don’t drink it. The only available well is on the road near the entrance to the power station. But sometimes the water pumps stop and we have to wait up to a week for any drinking water”.
The Kribi inhabitants who live near the plant are resigned. Victorien Mba spent a long time trying to understand how the project works. But he cannot find the documents he needs: “To start with, we do not know how the [project] promoter planned to mitigate these effects. So there are problems, such as access to drinking water and the pollution of running water. Only a few families, living at the centre of the project, have received compensation. The other families, living more than 100 metres away, have been abandoned and continue to suffer the full impact of the power plant”.
Mba’s quest for the truth was further complicated when it appeared that the project’s financial backers were themselves sometimes lost in statistics. When in 2012, the World Bank was talking of 60 displaced families, the EIB cited about 680 while the study commissioned by the project promoter said there were 94. It was in these confusing circumstances that some residents said they received “envelopes” with money – but not enough to buy property elsewhere. The result was that they stayed where they were. On top of this, a substantial part of the affected population was left totally in the dark: local tribes (BaKola, BaGyeli, Baka). The electric transmission line cuts through part of their territory. “They did not receive any compensation and they were not consulted either”, insists Mba. It was clear the situation was problematic. In 2014, the World Bank acknowledged as much when it called for the establishment of a better grievance mechanism system for the indigenous communities in Kribi.
Meanwhile, in Kribi itself, the inhabitants complain of persistent power shortages. The electricity they expected from the project is diverted elsewhere in Cameroon and continues to elude them. As a new project to enlarge the Kribi power station is under consideration, some lenders have issued a kind of mea culpa: the noise may sometimes exceed the internationally-accepted limits, admits the World Bank. Wärtsilä took this opportunity to suggest the sale of silencers for the engines and the plant is trying to repair some of the homes which were damaged by vibrations. But there is no evidence that these measures will have a long-term effect, says the World Bank’s IFC.
“Since it is a state project, we have to accept it.”
In this development project, the EIB has seemed strangely absent. This is perhaps because most of the environment and social impact assessment and monitoring was in the hands of the IFC, operating from its Dakar office. Yet, the EIB insists it has been and still is a very active party in the project. Although the EIB is not part of the financing for the extension of the plant, its staff say it keeps visiting and assessing the Kribi 1 plant. Last year, the EIB opened a regional office in Yaoundé and its portfolio in Cameroon has now reached half a billion Euros. Meanwhile, the original promoter of the Kribi plant, AES Sonel, has left the running of the operation. The Kribi plant is now owned by Globeleq Africa, an entity owned by the Norwegian government’s development fund (Norfund) and the UK government’s financial development institution (the CDC group). It remains to be seen whether this will change anything for the inhabitants of Kribi.
There are signs that Globeleq Africa is not totally ignoring their situation: in a written reply to the issues raised by the inhabitants, Hans Francis Simb Nag, General Manager of Kribi Power Development Corporation (KPDC), said it was only after the plant became operational “that the vibration/noise issue was raised by the affected community members”.
“This was a new phenomenon, which had never been experienced in similar plants elsewhere in the world”, he said. KPDC commissioned an independent consultancy study which suggested either adding extra silencers or rehabilitating houses, all of which had been badly built. KPDC has opted for the second solution. “The vibration reduction program is ongoing around the power plant to ensure all affected community members are satisfied”, said Nag.
He acknowledged a water access problem, recalling that “over time it seems some of the wells began to malfunction due to lack of service” but stressed that “Kribi has implemented a maintenance programme to ensure the pumps remain in good working order”. Although people on the ground don’t seem to agree, KPDC describes its grievance mechanism as “functional and effective”.
Meanwhile, the inhabitants of Kribi remain unaware that international development money is financing the project and that the government of Cameroon has just a 44% stake in it. For them, the government is running it.
“Since it is a state project, we have to accept it. Still, they should take our opinion into account”, stresses one local. “When the project started, we were happy. We did not know that this project would hurt us”.
The Luxembourg home of the European Investment Bank, in a glass building that is fronted by a line of flagpoles, looks unassuming. Discretion has always been a highly-prized quality of Luxembourg’s financial industry and this seems to have suited the European Investment Bank: a quiet financial institution few people know about, and that some longtime staff members used to describe as “hidden in the Luxembourg woods”.
Inside the building’s glass front, busy young employees flow through the corridors and past visitors. With its corporate ambiance, the bank doesn’t look much like a member of the development community — more like a fund management business. “An invisible bank” is how one employee described it at an international Forum in Brussels last year. Still, since 2003 almost three and a half billion Euros of European taxpayers’ money has been channeled through this building into some of the world’s poorest countries, in Africa and the Caribbean.
The main tool for those loans is something called the Investment Facility (IF). This is a three billion Euro fund that pumps loan profits back into the facility and reinvests them in new operations. It’s designed to encourage the private sector to invest in development projects. The management of the fund was entrusted to the EIB by the European Council after a partnership agreement in 2003, called the Cotonou Agreement, between the European Union and the ACP countries (African, Caribbean and Pacific Group of States).
The mechanism of EIB lending in the ACP
The Investment Facility focuses on the private sector, most of the infrastructure projects are financed by EIB’s own resources
The IF comes from the huge European Development Fund, the EU’s fund for delivering aid. It lies outside the European Union budget and largely beyond the scrutiny of the European Parliament and the European Court of Auditors, the guardians of EU finances. These funds from member states are completed by the EIB’s own resources which are funds it has acquired on international money markets.
Not everyone is pleased with this arrangement. The ACP Group, which includes many recipient countries, has repeatedly complained that it is left out of the management of this money. “Once the decision was taken, we merely lost control over these funds, although according to the Cotonou Agreement, development funds are supposed to be co-managed”, said Viwanou Gnassounou, Assistant Secretary General of the ACP Group in charge of Economic Development and Trade when we spoke to him in his office earlier this year.
It’s not that the EIB is not playing by the rules of transparency. Every year, the ACP ambassadors make their way to Luxembourg where they attend a day of presentations on the projects being financed by the bank. European Parliament representatives say they encounter the same openness. Member of the European Parliament’s Budget Commission, Eider Gardiazabal Rubial says that “the EIB has improved considerably in its transparency, access to information and communication with the European Parliament.” Still, in its yearly report on EIB activity, the EU parliament repeatedly asks for more transparency. “The MEPs give us a hard time, and rightly so”, says Heike Rüttgers, the EIB Head of Division for Mandate Management, Development and Impact Finance.
“The EIB says they have a stringent mandate, while the Commission says the EIB acts as it wants.”
But the complexity of Brussels institutions has not been helpful for the monitoring of the Investment Facility. A representative of the European Commission, as well as all the EU’s finance ministers, sit on the EIB’s Board. These are officially consulted on every IF project, and are part of the decision process, whereas the role of the ACP Group is merely advisory.
Who is really in charge is anyone’s guess: it didn’t take long before Xavier Sol, a rare expert on the EIB and the director of the Brussels-based NGO Counter Balance, noticed “a game” between the European Commission and the EIB. “The EIB says it has a stringent mandate, that it is controlled by the European Commission and that it is fully in line with that mandate, while the Commission rather says that it tries to give instructions and the EIB ultimately acts as it wants. We think the truth is in the middle”, he adds.
Over the years, the EIB has built up an impressive loan portfolio in ACP countries. Its participation has proved invaluable in several areas, such as clean water projects. In the last ten years, almost a quarter of EIB projects provided credit to local financial institutions in order to create jobs.
The IF mandate is an ambitious one: to channel money into the private sector in order to boost developing economies, but its successes sometimes come at a painful human and environmental cost. This is particularly the case with the Bank’s largest projects, and half of the 765 million Euros which it signed off in 2016 went to these kinds of large infrastructure projects.
These are the 10% EIB’s biggest loans in the ACP in the last 10 years
60% of them are infrastructure projects (in red), three quarters of which are energy projects (bright red). 40% are credit to local financial institutions
The problem is that often these projects, particularly energy projects, require resettlement, a complex process which not only involves moving people’s homes physically but also changing their quality of life and inevitably interfering with their cultural heritage.
“I wouldn’t underwrite the idea that all our energy projects require resettlement and when they do we have very high requirements in terms of what needs to be achieved with the resettlement action plan”, says the EIB’s Heike Rüttgers. But in several countries, these requirements haven’t solved all the problems. “From a social perspective, resettlements are always problematic. Always. Even if you put more resources into it, you can do so many things wrongly, so people are later on very often worse off than before”, notes Jeanette Schade, a researcher with the University of Bielefeld’s Sociology department who has monitored a dispute between displaced people and the promoter of a Kenyan energy project which was co-financed by the EIB.
In the last 10 years, EIB energy sector projects triggered more resettlement than all other sectors combined
There are two kinds of resettlement. Physical Resettlement means that inhabitants have to move. If the capacity to generate income is even temporarily affected by the project, this is called economic resettlement. Such as fishermen who can not catch fish where they used to because of a new dam.
Over the years, the EIB loans portfolio has grown much faster than its resources to manage it and this has become a problem for the institution. Despite recent hiring, the bank remains very tight in terms of staff. “The EIB lends twice more than the World Bank Groups with three or four times less staff”, says Sol. This results in arrangements where the EIB “relies heavily on the clients to ensure that their standards, which are part of the financial contract, are really implemented”, says Schade.
The approach is common in development finance but calls for more scrutiny than the EIB can afford. Project promoters, the ones who borrow the money and are the customers of the bank, are hardly neutral parties. They hire the experts for social and environmental studies and they pay for the resettlement compensation packages. They may be tempted to sideline social and environmental issues. The EIB can get involved in the process but there is a risk that when it finally does, pollution has already occurred or communities have been left divided.
“The responsibility for the implementation and compliance with our standards rests with our clients.”
On the east coast of Madagascar the EIB helped finance Ambatovy, a huge mining project that is spread over 200 square kilometres of land and involves several multinational corporations. Since operations started in 2007, residents have complained of the negative effects of the project. “Erosion has ruined the paddy fields and the forest, the water streams have dried up and the project has had a negative effect on our health”, Abel, a local inhabitant told us. In extreme cases like these, the EIB is often left to manage the negative effects of a project with not much more than the threat of suspending or recalling loans. But no instance of this on IF-funded projects in recent years could be found in the information published by the bank.
To deal with these issues, the EIB has over three hundred experts in a wide range of fields, including the staff of its Environmental, Climate and Social Office. “Their work is to make sure that we translate EU environmental and social legislation and other best practices into the methodologies, approaches, policies and standards that we apply from an operational perspective and especially that we require our clients to apply”, says Monica Scatasta, the EIB’s Head of Environment, Climate & Social Policy. “That is very, very important: the responsibility for the implementation and compliance with our standards rests with our clients”, she says.
Meanwhile, however, fragile communities feel excluded. In Kribi, Cameroon, the EIB co-financed a gas-fired power plant meant to reduce the electricity shortage in the country. The inhabitants now complain of noise and water pollution and criticize the resettlement plan for having ignored those risks. “They should take our opinion into account”, complained one local. But people don’t know who to turn to.
In spite of EIB due diligence, ultimate responsibility for the impact on the ground appears blurred. More often than not in Africa, the institution is not even the main lender; it tends to help with financing gaps on big projects where commercial banks can’t or won’t provide all the money. Also, the EIB is not always a direct lender: it often provides credit to financial intermediaries which in turn give out the loans. Alternatively, it uses its Investment Facility to buy a stake in funds, such as the African Lion Mining Fund, which in turn invests in mining projects in Africa. At the end of the line, the people affected don’t even know the EIB is involved and few of them write to the institution’s Complaints Mechanism, the independent body which assesses and investigates complaints related to the bank’s actions.
Recently there have been voices inside the EIB suggesting the bank should aim to detect a project’s weaknesses at an early stage: “There is an urgent need to find appropriate ways, during project preparation and as early as possible to deal with and try to resolve the existing conflicts between the communities, between the community with the government, and between the communities and the company involved”, says Felismino Alcarpe, the head of the EIB’s Complaints Mechanism. “They need more staff, more social experts, also locally in countries, accompanying these projects”, says Schade, “From a human perspective, it is certainly also the Bank’s task to ensure that the safeguards are implemented well”.
This would certainly require more from the EIB than making occasional visits (once a year) and reviewing reports at headquarters. Schade says the problem is that, in terms of monitoring, the EIB relies predominantly on the clients’ own reporting. “If the bank’s monitoring is primarily based on information, over which the operator exercises considerable control, the bank risks not to get the whole picture of the situation, and the bank’s monitoring risks to fail its purpose”.
“We need to pay more attention to the EIB.”
Will the EIB management take the time to listen to its critics? There are signs of change: the institution has a fresh half a billion Euros to be invested in ACP countries by 2020 (the “Impact Financing Envelope”) and with this it appears to be moving towards agriculture investments and smaller loans, something the ACP group has long requested.
But at the same time, increased migration into Europe has caused panic in the European Union and given the EIB’s development financing mandate a new sense of urgency. The European Commission is now working on an ambitious new External Investment Plan that could involve up to 88 billion Euros. It aims to encourage investors, make technical expertise available and make it easier to do business in developing countries. This is likely to increase the financing capacities of the EIB. The institution wants to expand its role as one of Africa’s bankers and the Dutch Green MEP Bas Eickhout believes that “we need to pay more attention to the EIB. While the World Bank changed under pressure, the EIB is still too much under the radar”.
The question however is who is prepared to challenge an “invisible bank”?
What is The European Investment Bank (EIB)?
The bank presents itself as the “European Union’s bank”. It doesn’t manage monetary policy like the European Central Bank (ECB), but provides money and expertise for projects that “contribute to EU policy objectives”. Essentially, it lends money for projects – in areas like energy, transport, health or education – to develop EU countries. However ten percent of the EIB portfolio is invested outside Europe.
After the Second World War, the bank started by issuing loans to projects that would rebuild Europe. The institution has more than 3300 staff and had grown into the largest multinational borrower and lender in the world with capital of 275 billion Euros in 2014. It funds projects from its own resources, mainly by debt issuance, and by managing facilities entrusted to it by the EU, such as the fund for countries in the African and Caribbean Group known as the Investment Facility.
In 2016, EIB financing was 76 billion Euros and it raised another 66 billion on the global bonds markets. The institution enjoys an excellent credit rating thanks to its strong capitalization, with over 66 billion Euros of its own funds, the low level of non-performing loans (0.3%) and its 83 billion Euros liquidity. In a funding crisis, the EIB could call on fresh money: 221 billion Euros in callable capital has been pledged by the EU member countries. Last year, the EIB approved the lending of almost 800 million Euros via its Investment Facility fund.