On a damp winter morning, in the small eastern European town of Stanari, locals watch Chinese workers build a 300-megawatt coal power plant. For some residents, the view from the front door consists of soft, rolling hills, sleepy farms and a sprawling open pit coal mine where giant machines excavate lignite, one of the dirtiest types of coal.
The lignite is to feed the coal plant in Bosnia and Herzegovina. China Development Bank has provided a 350 million euro loan to construct the facility, while China’s Dongfang Electric Corporation has been hired by the owner, EFT, to build it.
The Stanari project is the first of many Chinese-funded and built thermal power plants in the region, and is a bellwether case for Chinese investment in the Balkans. Recently, a Dongfang manager was quoted as saying that Chinese companies must do a “good job” in Bosnia to prove their ability on “European soil”.
But far from doing a good job, the Stanari project has been riddled with environmental and approval problems. Once complete, it is set to emit two to 10 times more pollution than is allowed under EU limits, and also fall far short of EU thermal efficiency standards. Despite urging from civil society groups, the Bosnia and Herzegovina authorities, EFT, the China Development Bank and Dongfang Electric have all failed to address these major problems.
However, China’s landmark Green Credit Directive, which celebrated its two-year anniversary two weeks ago, can potentially change that. The Green Credit Directive is one of the only government policies in the world which requires banks to evaluate loans based on environmental and social risks; if major environmental or public health hazards are found, lending can be withdrawn or terminated. For Chinese banks’ overseas lending, it requires borrowers not only to abide by local laws, but also international norms.
Given the high standards of the Green Credit Directive, implementation is no easy task, particularly abroad. But sadly, the China Banking Regulatory Commission has not shown a serious intention to enforce it. For example, the CBRC does not appear to have a department responsible for monitoring the overseas application of the Directive.
Likewise, Chinese banks are failing to implement the Directive by carefully monitoring their clients’ environmental performance and compliance with local laws and international norms. For example, the Stanari project, which is financed by China Development Bank, breaches several Bosnian and European regulations. Major design changes, such as capacity reduction (420 MW to 300 MW) and technology downgrades, warrant a newenvironmental impact assessment, but one has not yet been done.
In fact, the Stanari coal plant fails to comply with four pieces of EU legislation, according to a report commissioned by Bosnia and Herzegovina’s Center for Environment. Clearly, there is a disconnect between EFT’s claims that it follows EU directives and minimises “harmful impacts on the environment”, and on- the-ground reports to the contrary.
When it comes to the Green Credit Directive’s poor implementation, the Stanari project is not an exception. Civil society groups from Australia,Poland, Ecuador and other countries have encountered a deafening silence from Chinese banks when it comes to requests for information on how the Green Credit Directive is being implemented overseas. Moreover, local groups often struggle to identify where to send their complaints to Chinese banks, and rarely do financiers formally respond to concerns on the environmental performance of specific loans.
As part of its “Going Global” policy, last year China pledged a US$10 billion line of credit to expand investment and trade in central and eastern Europe, and Chinese investments in the Balkans have been seen as a move toaccess the European Union. Already, a slew of Chinese backed projects have cropped up in the region, in sectors ranging from infrastructure, transportation and hydropower to, of course, coal.
But Chinese investments in the region do not need to be dirty; indeed, last year seven central and eastern European NGOs addressed a letter to premier Li Keqiang encouraging China to invest in renewable technology instead of fossil fuels. Dirty power projects like Stanari may not have much of a future in the region anyway. As part of the European Energy Community (which assists EU-aspiring countries with implementing EU energy and environmental regulations), Balkan countries must implement stronger pollution standards As a result, Stanari could be illegal by the time it comes online.
As China’s home grown pollution has proven, investment decisions can lock a country onto a clean development path or a dirty one. If China is serious in its commitment to sustainable development, it should take action to enforce innovative policies like the Green Credit Directive, or risk jeopardising its international reputation and future investment opportunities in Europe.
Originally published in China Dialogue.