European Bank for Reconstruction and Development

October 23, 2008

This section draws from the Bank Information Center website, the website of CEE Bankwatch network and from the EBRD’s website.

Background
The EBRD was established in 1991 with the aim of assisting countries of central and eastern Europe and Central Asia in their transition to market-oriented economies and democracy. As such it is the only development bank with an explicit mandate to promote democracy. It is based in London, England.

The EBRD says about itself that it is the largest single investor in the region and mobilises significant foreign direct investment beyond its own financing. It invests primarily in private enterprises, usually together with commercial partners.

Beneficiaries of its finances are banks, industries and businesses, both new ventures and investments in existing companies. It also works with publicly owned companies, supporting privatisation, restructuring of state-owned firms and the improvement of municipal services. The Bank works with governments in the region to promote policies bolstering the business environment.

As EBRD puts it:
Through its investments, the EBRD promotes

Structural and sectoral reforms
Competition, privatisation and entrepreneurship
Stronger financial institutions and legal systems
Infrastructure development needed to support the private sector
Adoption of strong corporate governance, including environmental sensitivity

Functioning as a catalyst of change, the EBRD

Promotes co-financing and foreign direct investment
Mobilises domestic capital
Provides technical assistance

The EBRD works in close cooperation with other international financial institutions such as the World Bank and the European Investment Bank.

NGOs like Bank Information Center and Central and Eastern Europe Bankwatch Network criticise that “during the years of its operation, the EBRD has become involved in a number of problematic projects. The EBRD is the only development bank currently opting to finance the construction of nuclear power plants, such as Mochovce in Slovakia and Khmelnitsky 2 and Rivne 4 (K2/R4) in Ukraine. Through its funding of oil projects, the EBRD not only contributes to climate change but also causes a number of local problems. Such projects, of course, mainly involve high profits for oil companies rather than bringing benefits to local inhabitants.” (CEE Bankwatch Network)

One infamous project EBRD is involved in is the Baku-Tbilisi-Ceyhan oil pipeline, which pumps vast amounts of Caspian oil to western market and got a lot of attention during the Georgian-Russian conflict in August 2008 as a potential strategic target. EBRD is active as well in the mining sector, being a key investor in gold mining in the region. One example there is the Kumtor Gold Mine in Kyrgyztan, an accident-ridden mine with one cyanide spill affecting several hundred people. You can find more information on this project on the website of CEE Bankwatch Network and the Bank Information Center.

Structure
The EBRD is owned by 61 countries and two intergovernmental institutions: the European Investment Bank (EIB) and the European Union (EU).
The Bank works in Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzogovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, FYR Macedonia, Moldova, Mongolia, Poland, Romania, Russia, Serbia and Montenegro, the Slovak Republic, Slovenia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. It has country offices in most of its countries of operation (EBRD website).

The main decision-making body of the EBRD is the Board of Governors. Each of the 63 shareholders appoints one Governor, which is typically the finance minister.

The Board of Governors appoints the Board of Executive Directors, which handles day-to-day operations at the institution. All policies, strategies, and loan agreements are presented to the Board for approval. There are 23 Executive Directors (EDs) with most EDs representing more than one shareholder. Only EIB, France, Japan, European Community, USA, Italy, UK and Germany have their own ED. The amount of voting power for each shareholder is proportional to the amount of shares held. The EDs are responsible to the countries they represent, and should therefore be open to civil society approaching them with their concerns.

The Board of Governors also elects a President who acts as the chief of staff and is responsible for the current business of the Bank under the direction of the Board of Executive Directors. Thomas Mirow has been the EBRD president since July 3, 2008.

Lending
In 2007, EBRD committed 5,6 billion Euro, the highest level to date. 353 projects were launched. In terms of regions, Russia got the biggest amount of commitments with 41%, followed by the Western Commonwealth of Independent States (CIS: Armenia, Azerbaijan, Belarus. Georgia, Moldova and Ukraine) with 20%, South-eastern Europe with 18%, Central Asia with 11% and Central Europe and the Baltic states with 10%.

In terms of sectors the major part (38%) went into the financial sector, followed by the corporate sector (comprising agribusiness, manufacturing, property and tourism, telecommunications and new media) with 34%. Infrastructure, comprising municipal infrastructure and transport, took 17% and energy financing, comprising natural resources and the power, made up 11% of the total lending.

EBRD works together with EIB especially on infrastructure for the Western Balkans. The annual report of 2007 sees a welcomed accelerating uptake of investments in energy efficiency with more and more companies understanding the enormous benefits of saving energy. (Annual report 2007: Review and Financial statements)

Trends
The EBRD is in a period of big changes as in 2007 the Czech Republic became the first country to graduate of the operations of the EBRD. It will no longer be an investee country but a donor and investor. The same will happen over the next few years to seven more central European countries.
This development leads to discussions about the EBRD’s future. As EBRD and EIB work together closely anyway and share some areas of investment, 2008 saw discussions about a potential merger of these two institutions. However, these discussions were dismissed as being nothing for the near future.

Policies
The EBRD has a new Environmental and Social Policy, approved on May 12, 2008 by the Board of Directors. It replaces EBRD’s Environmental Policy from 2003. The review took place in 2007 and early 2008, encompassing important social provisions in addition to environmental standards that guide EBRD-financed projects. The policy lays out

EBRD’s commitments,
the principle of integrating environmental and social considerations into the project cycle,
the principle of public reporting and accountability,
the wish to promote investments with high environmental and social benefits,
Institutional and Implementation Arrangements.

It defines what the EBRD considers as “Category A” project and has an exclusion list, including the production of or trade in any product or activity forbidden in any form nationally or internationally, as well as activities prohibited for biodiversity or cultural heritage reasons. Production, use or trade in asbestos fibres or their products is excluded as much as shipment of oil or other hazardous substances in inadequate tankers.

Further, the policy includes “Performance Requirements” for several issues:
PR 1: Environmental and Social Appraisal and Management
PR 2: Labour and Working Conditions
PR 3: Pollution Prevention and Abatement
PR 4: Community Health, Safety and Security
PR 5: Land Acquisition, Involuntary Resettlement and Economic Displacement
PR 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources
PR 7: Indigenous Peoples
PR 8: Cultural Heritage
PR 9: Financial Intermediaries
PR 10: Information Disclosure and Stakeholder Engagement

Civil Society Organisations welcomed the broadening of the policy in several aspects. However, they expressed concerns as well during the review process about serious shortcomings in the policy with respect to social safeguards and public access to environmental information, as well as about an over-reliance on client-based disclosure, consultations and monitoring. They saw a lack of clear requirements for assessing and mitigating the adverse impacts of EBRD projects on the rights and living conditions of workers and local communities. They lobbied the EBRD to provide greater access to environmental assessments, particularly in the early stages of planning and development of its projects.
Another aspect NGO’s highlighted was the fact that EBRD’s sector policies do not specifically focus on social and environmental protections, therefore the Environmental and Social Policy should have sector-specific requirements to supplement and strengthen sector policies, especially for the extractive industries sector.

EBRD's Public Information Policy is the document on the Bank's information disclosure standards and procedures. A new policy was approved on May 12, 2008 and will become effective on November 12, 2008. This new policy is replacing EBRD's 2006 Public Information Policy. However, unlike the new Social and Environmental Policy, the new PIP has not changed significantly since the last review in 2006.
The policy as well as forms for requests can be found on the website of the EBRD.

Related to the topic of transparency is the “Extractive Industries Transparency Initiative” on which the EBRD says the following:

“The EBRD and the Extractive Industries Transparency Initiative share the values of transparency and sound business practice in order to foster the effective management of natural resource wealth. The particular focus of the EITI is to promote disclosure by the corporate interests involved in extraction and disclosure by the national authorities, or ‘publish what you pay and publish what you receive’.

In a spirit of collaboration, sharing experience and best practice, the EBRD will actively participate in the work of the EITI and will encourage adoption of the EITI principles in its countries of operations and by its corporate partners. The voluntary, country-by-country approach of the EITI is particularly appropriate, allowing all stake-holders to learn by doing.

Specifically, the EBRD will:

be actively involved in the EITI consultative process, including through providing input into the development of technical mechanisms for reporting (templates, aggregation of data, etc.);
promote transparent revenue reporting, as well as increased financial and organisational transparency, with the draft EITI reporting guidelines providing a useful starting point for even greater revenue transparency;
work in co-operation with other international financial institutions and the participating private financial institutions to promote governance and transparency initiatives in the financial community;
help to build capacity in countries of operations to enable them to implement the objectives of the EITI.”

Complaints
In 2004 the EBRD instituted an Independent Recourse Mechanism (IRM) that allows local groups affected by EBRD project to file complaints with the Bank. The IRM has two functions according to the Bank:

a compliance review function: to assess whether banking operations comply with Bank policies, specifically its Environmental Policy and project-specific provisions of the Public Information Policy, and
a problem-solving function: to restore dialogue between the parties, where possible, to try to resolve the underlying issues giving rise to the complaint or grievance. A problem-solving initiative might include: independent fact-finding, mediation, conciliation, dialogue facilitation, investigation or reporting.

The IRM is administered by the office of the Chief Compliance Officer and is independent from the banking operations. The guidelines for filing complaints as well as an inviatation to comment can be found on the EBRD website.

Many civil society organizations have expressed concerns about the independence and transparency of the mechanism, the limited scope of its application, and its accessibility to affected communities.

Corruption
The Office of the Chief Compliance Officer deals as well with the topic of corruption. It publishes the EBRD’s anti-corruption report, which describes the Bank’s strategy to promote integrity and prevent fraud and corruption, and highlights the most recent measures taken.

Civil society organisations working on the EBRD

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