The European Investment Bank headquarters. Photo by: EIB

Failure to adequately consult Indigenous peoples and subpar environmental assessments are among the criticisms leveled at the European Investment Bank in a recent review of its lending for an energy infrastructure project in Nepal.

The bank’s Complaints Mechanism findings relate to a power system expansion, including transmission lines, in the Lamjung district — for which EIB is lending Nepal’s Finance Ministry up to €95 million ($114 million). NGOs point out that the line passes through the Annapurna Conservation Area and will affect forests and biodiversity and Indigenous communities’ land use.

In its report released last month, the Complaints Mechanism found a series of problems, including environmental assessment shortcomings, no stakeholder engagement plan, poor outreach to local Indigenous people, and no evidence of that community’s endorsement for the project. It also expressed “serious concern” at construction having begun before land acquisition, resettlement, and compensation issues had been resolved.

The Complaints Mechanism will now monitor six recommendations it proposed to the bank, including ensuring that the local power utility’s progress under an updated corrective Environmental and Social Action Plan is a “major determinant” for disbursing further loan tranches.

EIB said in a press release that it is addressing the recommendations and that its services have “developed a corrective environmental and social action plan as part of their ongoing monitoring of the project.” That plan is not public, however, and the bank did not immediately share it.

Anirudha Nagar, communities director at Accountability Counsel, an organization supporting communities in the case, told Devex that the action plan has not been shared or consulted with the communities.

“If the Bank is genuine about its commitments to human rights and accountability, it must take urgent steps to suspend project construction and support a legally mandated [free, prior and informed consent] process," Nagar wrote in an email.

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The report comes at a salient moment as EIB tries to convince its shareholders to back a restructure in response to two studies that found it has too many staff in Luxembourg and not enough development expertise — a view that EIB President Werner Hoyer contests.

In the Nepal project, “one of the major shortcomings of the Bank is that it did not identify what resources and what technical support would be needed to close existing gaps between the national legislation and the EIB E&S [environmental and social] standards, and ensure full compliance of the Project with the EIB requirements,” the Complaints Mechanism found. “This question about the need for resources and support should be raised at appraisal stage.”

According to Xavier Sol, director at Counter Balance, an NGO that follows EIB, the Complaints Mechanism confirms his group’s earlier findings. “For the time being, the EIB is ill-equipped to operate as a genuine development bank,” Sol told Devex. “It simply lacks a meaningful presence on the ground, staff capacity, and the required expertise to conduct sound due diligence on the projects it finances.”

About the author

  • Vince Chadwick

    Vince Chadwick is the Brussels Correspondent for Devex. He covers the EU institutions, member states, and European civil society. A law graduate from Melbourne, Australia, he was social affairs reporter for The Age newspaper, before moving to Europe in 2013. He covered breaking news, the arts and public policy across the continent, including as a reporter and editor at POLITICO Europe.