How to spend it: CEE’s NextGenerationEU submissions reflect the past

Dorothy S. Bass

The supplicants

Poland’s proposals for spending the 57 billion euros in grants and loans available to it echo a common criticism of the various draft plans of member states – that the projects are comprised mostly of those the government was planning to do anyway.

In the 200-plus page document, the Polish government lists targets of spending in line with the breakdown indicated by Brussels: the bulk of the money will go towards green energy (each recovery has to include a minimum of 37 per cent of expenditure related to climate) and sustainable transport, with the rest split among measures to improve healthcare, build a resilient and competitive economy, and extend the digital transformation.

However, a closer look at how the money is planned to be spent within those areas shows the extent to which the government’s plans deviate from what the EU intends. As pointed out by a group of 40 Polish NGOs, “the reforms… do not combine a long-term strategy with a clear main objective, such as achieving climate neutrality by at the latest 2050, in line with EU efforts.”

Poland is the only EU country not to align with the EU 2050 climate neutrality goal and the draft plan implies the government is not going to use the opportunity that the RRF affords to get behind this objective.

The document also leaves the door open for the financing of gas-fired power plants and gas distribution networks, which the NGOs argue is a failing approach, as gas is just the next fossil fuel that will need to be phased out. The plan also allows for investment in burning municipal waste for heating and does not offer significant support for the development of decentralised renewable energy sources.

“There are some overarching ideas in this plan, but I wouldn’t say ‘green recovery’ or ‘building back better’ is one of them,” sums up Izabela Zygmunt, a senior analyst at think tank WISE Europa.

Zygmunt lists the three main shortcomings of the plan: the lack of climate criteria for the selection of projects; the lack of a comprehensive plan of action, including measures to improve the general investment climate, as required by the Commission; and the lack of interest in tapping the loan part of the plan, even though many of the projects envisaged for financing are mature enough from a business point of view to be financed via loans, which would free up grant money for other items.

Moreover, critics of the government worry that the ruling Law and Justice (PiS) party could try to feed cash into its network of cronies, especially those controlling major state companies who stand ready to implement PiS’s political objectives.

“What is very visible in the plan is the tendency to use this money for the benefit of the central administration and state-owned companies,” Zygmunt tells BIRN. “Generally, business groups were very dissatisfied with the fact that most money could go to big public enterprises and agencies, and little help is offered to small and medium-sized enterprises.”

Given the Hungarian government’s desperate need for the funds to stabilise the ailing economy and lure back voters a year before the parliamentary election in 2022, it came as little surprise that Budapest aims to be among the first to hand in its finalised recovery plan to Brussels, Gergely Gulyas, the minister who heads the prime minister’s office, promised in a radio interview on Sunday.

Hungary is entitled to 7 billion euros in grants and 9 billion euros in credits from the RRF. The Hungarian government recently published a 432-page program with details of 68 investments to be funded out of the RRF. The government boasts that it will devote 51 per cent of the total to climate-protection goals and direct 21 per cent rate towards the digitalisation of the economy. The only area where the government is aiming to use loans is climate-related, in the funding of green transport. According to the government’s calculations, the investments could raise per-capita GDP by over 2 per cent by 2026.

As usual with this government, the devil is the details. Looking at the specific areas, most money will be spent on healthcare (3.5 billion euros), on sustainable transport (4.0 billion euros) and on universities (3.3 billion euros).

It raised some eyebrows when the media revealed that the pay rise promised late last year to doctors and medical staff will be financed entirely out of EU money (almost 1 billion euros). That is raising doubts how sustainable the pay rise is. Interestingly, in the wording of the recovery plan the government admits what it tried to deny during the coronavirus pandemic: that the lack of medical staff is already risking patient care. Another 720 million euros will be spent on a new super hospital in Budapest, no doubt to be built by some government-loyal entrepreneurs.

Universities will enjoy a bonanza, according to Innovation and Technology Minister Laszlo Palkovics. However, Brussels does not see investments in universities as a high priority and is watching with concern the privatisation of Hungarian higher education, experts say. A BIRN investigation found that more than two-thirds of Hungary’s public universities have been handed to private asset management foundations, freeing them from state supervision and placing them under the control of boards stuffed with government allies, including ministers themselves. Critics see this as an attempt to create a Fidesz-controlled ‘deep state’ in case Orban’s party loses the election next year and to channel EU money to friends and family.

“The recovery fund is a one-in-a-lifetime opportunity for Hungary and all this money should not be invested in concrete and steel to finance Fidesz-allied oligarchs; it should be invested in people,” Istvan Ujhelyi, a socialist MEP, said in an online press conference.

Ujhelyi said the government’s plans lack any long-term vision, other than providing money and launching massive construction projects ahead of the 2022 election. He also criticised the government for failing to organise proper consultations with any trade unions, opposition parties or municipalities – a prerequisite of the Commission to approve the plans. There were some pseudo-consultations with the mayor of Budapest, Gergely Karacsony, but not a single suggestion of his was accepted by the government.

Fidesz MEP Eniko Gyori reacted angrily to the criticism and accused the opposition of undermining the government’s work to relaunch the economy. She claimed the government consulted with 15,000 experts, contacted over 500 organisations, and organised 150 online or personal meetings.

“In times of crisis, politicians everywhere are joining forces to save lives and secure as much development money as possible for their country to restart the economy. It is one thing if the Hungarian left does not want to take part in the work; but with their unfounded accusations, they even undermine our efforts on the international stage,” Gyori said in a television interview.

The Czech Republic will be another to miss the deadline to submit its plan to the Commission, but hopes to have it ready by mid-May, according to Silvana Jirotkova, deputy minister of industry and trade.

The delay comes despite the government using its economic strategy until 2030 as a basis for its plan on how to spend the approximately 6.5 billion euros in grants the Czechs are due from the RRF. Jirotkova says that Prague has simply added a “health and resilience pillar” to an original five pillars that were adapted to “respect the priorities given by the European Commission”.

“We will, of course, respect the green transition,” the deputy minister said with a grimace. “I guess we share the experience with other V4 countries that it will be difficult. We are industrialised countries so it will be very expensive. That is why we have put quite a lot of emphasis and money from the recovery fund into this pillar.”

With 3.1 billion euros due to be allocated, the “physical infrastructure and green transition” pillar is the biggest ticket item in the framework plan unveiled in March. The blueprint is now at the committee stage, after which it can go forward for government approval.

Even so, concerns persist that the plan is not as green as it could be. NGOs are unhappy with the level of support that biodiversity will receive, or that the use of gas by households will be encouraged. They also caution that most of the 1.1 billion euros headed for the digital transformation pillar has been erroneously earmarked “green” in order to meet the EU ratios.

Yet overall, environmental NGOs appear happier than first feared. CEE Bankwatch, a network that monitors public finance institutions, says that thanks to pressure from activists and the Commission, “several harmful investments in highways and gas infrastructure” have been junked from the plan.

Others remain unconvinced. NGOs in the social sphere or representatives of the cultural and creative sectors complain that while ministries, industry groups and unions have been lobbying hard to grab as big a slice of the pie as possible, they’ve been shut out of the process. Some question the need for the plan to be inaccessible to the public.

Opposition parties, meanwhile, say the plan lacks a clear strategy towards getting Czechia back on track in the wake of the pandemic. Reflecting that the pre-existing economic strategy formed its basis, they complain the plan consists of little more than random items the government was already looking at.

There’s little mention of significant and deep reform, the critics point out. Concerns have also been raised about how Prime Minister Andrej Babis’s well-documented conflicts of interest could affect distribution of the funds.

Responding to these complaints, the government says it has had to deal with vast and varied demands. Jirotkova referred to hundreds of hours of discussions with myriad groups. “The end result is no one is happy,” she smiled ruefully. “They all have their priorities, but we can’t cover them all. Our goal has been to make sure everyone is equally unhappy.”

Notwithstanding the competing demands for funds, Jirotkova says the government does not intend to take advantage of the 15.4 billion euros available to Czechia under the recovery fund in the form of loans.

That seems sensible given that Czechia, like its Central European neighbours, has struggled to spend EU funds since it joined the bloc in 2004. Of the 23.8 billion euros in EU funds available to Czechia in 2014-20, it had managed to spend no more than 62 per cent by the end of last year. On top of the recovery fund, Czechia will also have a further 16.8 billion euros from structural and cohesion funds to try to find a proper use for by 2027.

Slovakia’s biggest reform package in the last decade was spearheaded by former finance minister and now Prime Minister Eduard Heger, who continued to work on the draft even after he took over the premiership from Igor Matovic in early April following a month-long political crisis.

After receiving 2,500 comments incorporated into 700 pages of documentation, Slovakia’s remade government finalised its recovery plan, which is due to receive 6.6 billion euros in grants from the RRF.

The plan aims to revamp Slovakia’s economy and public services by focusing on six major areas. Alongside digitalisation, effective public administration, science and innovation, the onus will be on upgrading the capacities of preschools and educational institutions for minorities.

At least 1 billion euros will be poured into the modernisation of the country’s health system, which was on the brink of collapse in the darkest days of the pandemic. Thanks to the financial bonus, Slovakia could even be on track to build its second state-run hospital since becoming an independent republic in 1993, an analysis by Dennik N revealed.

Yet most of the money will be invested in the green transformation of the country’s economy that is one of the most industrialised and carbonised in the EU. Slovakia’s plan sets aside close to 3 billion euros for climate-friendly investments, a study by environmental NGO Bankwatch found. Measures will include the renovation of buildings, cleaning up dirty industries and providing more sustainable transport, among others.

Juraj Melichar, national coordinator for CEE Bankwatch, has noted a major problem of the plan is that it is based on outdated climate change targets, which only aim to achieve a 47 per cent cut in greenhouse gas emissions by 2030. As such, the proposed measures “are littered with false solutions” and are likely to miss the European Green Deal’s goal of reducing greenhouse emissions by at least 55 per cent in the following decade and achieving carbon neutrality by 2050.

Melichar stresses that gaps in the draft could have been addressed during the planning stage, “had the government set out a transparent process for public engagement”. While the plan has been shared with the public, consultations on its draft were rather formal and not transparent or inclusive enough, much to the frustration of experts.

Prime Minister Heger maintains his plan has received “good feedback” in EU circles. Still, members of those sectors of the economy that were left out of the document’s scope are angry, among them agricultural workers already living off billions from other EU funds who have missed out on this funding opportunity, as their respective department sketched out plans at odds with the Commission’s environmental protection goals, Livia Vasakova, Slovakia’s recovery plan coordinator, told journalists.

In Romania, Minister of Investments and European Projects Cristian Ghinea on April 26 confirmed the government will have to delay submission of the finalised recovery plan until May 31. One of the main reasons for this postponement is the Commission’s reluctance to accept Romania’s emphasis on gas distribution networks when it comes to energy. “Romania wants to invest in gas networks, but the Commission is sceptical,” Ghinea was quoted as telling local news.

The Commission has rejected a proposed 600-million-euro project to develop infrastructure to extend and improve gas distribution across the country. This would have resulted in hundreds of Romanian towns being connected to the national gas grid – only 40 per cent of the Romanian population is connected to the network, a percentage that plunges to 22 per cent in rural areas; in countries like Hungary that figure is above 90 per cent. The project proposed by Romania also provides for the introduction of hydrogen into the network, which is currently being used exclusively for gas. The Romanian government sees the proposed improvement of gas infrastructure as a crucial step towards decarbonising the economy.

“I wish we can build these networks for gas using the RRF. From what I know, there have been some talks with my colleague, Mr Ghinea, the minister of EU Funds. Technical questions were put to him and we will explain to the Commission how Romania will build this network by 2026, and we will also show them that we have the capacity to produce hydrogen and to inject this into the mix,” Energy Minister Virgil Popescu told local news on April 27.

Another major bone of contention is a project to modernise the country’s irrigation systems, which are considered inefficient by the Commission because of the amount of water they waste.

Romania also wants more than 4 billion euros to build highways in the country – infrastructure the Commission considers “zero per cent green”, as opposed to railways, which are considered “100 per cent green”. To obtain this, however, Romania would have to readjust other areas in order to reach the required 37 per cent target of expenditure related to the climate, Ghinea said.

In Croatia, Prime Minister Andrej Plenkovic presented the draft recovery plan, which comprises 6.3 billion euros in grants plus 3.6 billion euros in loans, to parliament on April 14.

In a summary of the plan, he said 54 per cent of the funds would be invested in the economy to increase competitiveness, citing investments in green and energy transitions, transport, water management, and digital infrastructure. Another 15 per cent is intended for education, science and research, 12 per cent for the reconstruction of earthquake-devastated buildings, 10 per cent for public administration and the judiciary, 5 per cent for healthcare, and 4 per cent for labour and social welfare.

On the day Plenkovic presented the draft plan to parliament, a group of NGOs – Green Action, the Society for Sustainable Development and the Center for Peace Studies – held a protest “to point out once again the complete lack of public participation” in drafting it.

“The national recovery plan, a document that gives Croatia the opportunity to access a budget of 6.3 billion euros in grants, is perhaps the only opportunity for a real transition to a low-carbon society. However, it is evident from the published summary that such a plan will not take us through this crisis, nor will it make us more resilient to future crises,” Luka Tomac from Green Action said.

NGOs point out that the summary “does not show even the slightest ambition regarding measures in the field of energy”, nor to implement real reforms and measures. They also complain the government is “still hiding the entire document, which should be sent to Brussels in two weeks”.

Doubts about the transparency of the plan were echoed by President Zoran Milanovic. “I haven’t seen it, nobody has seen it. That is a problem because it erodes the little trust that exists between citizens and the EU, and that link – having information about what the money will be spent on – is very important,” Milanovic said in a statement on April 14.

In Bulgaria, the recovery plan has fallen victim to the political paralysis that has existed in the country since the inconclusive April 4 elections.

According to outgoing Prime Minister Boyko Borissov, after two edits Bulgaria’s draft recovery plan, which could receive financing of 10.4 billion euros including 6.3 billion euros in grants, will be submitted by the end of the month. However, the topic of the plan has been missing from the daily agenda at the National Assembly, which was preoccupied with two unsuccessful rounds of cobbling together of a coalition government.

No representatives from the ruling GERB party took part in a virtual discussion on “Competitiveness of the Bulgarian economy in the context of the European green deal”, organised by Sofia’s European Council on Foreign Relations on April 27. In attendance were opposition parties (including the Greens, as part of the Democratic Bulgaria alliance), which were all in favour of the gradual closing of coal mines and increasing solar energy.

CEE Bankwatch was scathing about the Bulgarian plan. “Recommendations from biodiversity experts in Bulgaria were rejected out of hand, with the government instead funding irrigation and dam infrastructure that would jeopardise wetland health, despite the country being one of the most biodiverse in the union. In the third version of the Bulgarian recovery plan even more public funds are dedicated to a megaproject for fossil gas transmission, while the number of beneficiaries of a residential renewables programme was reduced,” it said.

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