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Press release: 12 March 2020
ClientEarth lawyers and Bankwatch Romania have raised the alarm after it was found that the state was funding coal evictions in Romania, to the tune of several million Euros. A complaint has been submitted to the European Commission.
According to the two organisations, the Romanian government had been unlawfully using taxpayers’ money to cover over €6 million in compensation owed by incumbent energy company Complexul Energetic Oltenia (CEO) for forcing villagers from their homes for coal mine expansions.
As the operator of the mines, CEO itself is responsible for compensating evicted villagers. However, as the Romanian authorities found the landowners’ compensations claims “excessive”, they decided that the mine expansions are “national interest public utility projects” and should therefore be fronted by the State.
But ClientEarth and Bankwatch argue that the government’s payments qualify as State aid and are therefore unlawful, as the Romanian government did not notify the European Commission, as EU law requires, before relieving CEO of its obligation to compensate the villagers.
According to the lawyers, the issue is not just procedural: they say the nature of the aid also goes against EU law and should never have been granted in the first place.
ClientEarth lawyer Juliette Delarue said: “The Romanian government claims that expropriating villagers is in the national public interest. But this is not justifiable when people are losing their homes for a climate-destructive product.
“Public money should be going to communities and regions to modernise the energy system and to help reshape local economies, especially in a country that has untapped renewable energy potential, instead of propping up an industry facing severe financial difficulty and that is subject to bankruptcy.”
Alexandru Mustaţă from Bankwatch Romania added: “There’s growing consensus in Romania that coal has no long term future, but there is also a complete lack of vision for a future without it. Ignoring opportunities to transition away from coal has become the rule. The only solutions taken into account are those prolonging the status quo – regardless of how polluting, expensive or illegal they are.”
Romania is not the only EU country attempting to use public money unlawfully to keep its fossil fuel industry afloat. Bulgarian authorities are trying to do the same.
State aid issues across the Balkans
ClientEarth has also worked with partners to submit an additional two State aid complaints to the European Commission: one with Za Zemiata, against Bulgaria, and another with Bankwatch CEE against Romania.
Romanian coal company CEO and Bulgarian power plant Maritsa East 2 had been unable to afford their mandatory EU Emission Trading System (EU ETS) allowances for several years and their respective national governments had bailed them out, granting the companies interest-free loans and guarantees.
The lawyers argue that this, too, constitutes unlawful State aid. Not only that, they directly contradict the purpose of the ETS, as they disincentive CEO and ME2 from turning to less polluting activities that would cost them less in emission allowances.
Genady Kondarev from Za Zemiata said: “Maritsa East 2 is the biggest power plant in the Balkans and one of the top 10 polluters in Europe. The type of State aid it is currently receiving is fuelling the climate and air pollution crises. The Bulgarian government needs to announce a coal phase out date now to kick start the restructuring of the Bulgarian energy system so that coal regions can make a smooth transition.”
The European Commission may decide to open investigations following the environmental groups’ complaints. If the Commission finds that the payouts violate EU law, it is free to force the Romanian and Bulgarian authorities to suspend future payments and recover the full amount paid out to date.
In 2015 and 2018, the Romanian government issued four decisions, approving payments via its State budget of the expropriation compensation that company Complexul Energetic Oltenia (CEO) owed to landowners in the way of four lignite mine expansions (Jilt North, Jilt South, Rosia and Rosiuta). A similar decision has been prepared for the expansion of the Valea Manastirii ash dump.
The EU ETS sets a cap on the total amount of greenhouse gases power-sector and industrial installations can emit. By obliging those installations to buy a certain volume of emissions allowances to meet their annual quota, it aims to increase the price of carbon to incentivise the power sector to reduce their emissions. Companies that fail to do so are heavily fined.
Each year, companies can meet their emissions quota by a combination of purchasing allowances on the market and receiving free allowances (under certain conditions). However, both CEO and ME2 are unable to cover the costs of purchasing their mandatory ETS allowances as both are facing bankruptcy.
In 2018, CEO took a €17 million loan from publically owned bank ExIm. The loans granted to ME2 are more difficult to calculate, but by the end of 2020, are estimated to exceed BGN 1 billion to owner company BEH.
In February 2020, the European Commission authorised a rescue loan of €251 million granted by the Romanian Treasury to CEO to finance the purchase of its ETS allowances. However, there is no credible scenario in which that rescue loan would be repaid. A restructuring of the company appears inevitable. Restructuring plans include converting coal units to gas, which would lock fossil fuels into Romania’s energy mix.
Last year, ClientEarth made a formal submission to the European Commission against the millions of Euros in unlawful State aid granted by the Romanian government to another coal incumbent, Complexul Energetic Hunedoara (CEH) under the pretence that the aid was granted to CEH to guarantee it would provide energy during times of high demand. In reality, Romania has just used this argument to guarantee continuous revenue to CEH and fix its financial difficulties.
The Commission has still not taken any decision regarding this complaint. In the meantime, the company enjoys continuous revenues for being part of the power reserve that provides energy during times of high demand at more favourable conditions than other Romanian energy producers.
ClientEarth is a charity that uses the power of the law to protect people and the planet. We are international lawyers finding practical solutions for the world’s biggest environmental challenges. We are fighting climate change, protecting oceans and wildlife, making forest governance stronger, greening energy, making business more responsible and pushing for government transparency. We believe the law is a tool for positive change. From our offices in London, Brussels, Warsaw, Berlin and Beijing, we work on laws throughout their lifetime, from the earliest stages to implementation. And when those laws are broken, we go to court to enforce them.