ENVIRONMENTAL PROBLEMS IN THE HUNGARIAN PRIVATIZATION 

ISTVAN MÁNDOKI

Officer-in-Charge, State Property Agency, P.O. Box 708, 1399 Budapest, Hungary

The Hungarian State Property Agency is responsible for Privatization in Hungary. In addition to the procedure of selling companies we have to decide what to do about environmental damages.

Solving environmental problems is one of the main objects of the State Property Agency. this decision is not absolutely voluntary as it was partly forced upon us by foreign investors, but now we can claim that the SPA is very eager to solve environmental problems in the process of privatizing state-owned companies.

There are disclosed and undisclosed problems, and the second is the more significant.

In the case of known problems, there can be an environmental audit. the question then is only whether the audit is accurate or not. This situation causes a smaller problem, as both the seller and the purchaser know what they want to sell or buy. they can agree on a purchase price that includes the price of the cleaning, or they can agree on a warranty structure that achieves the same goal.

If the pollution is on the surface, it is fairly easy to conduct a good audit of it. It is the same if the company causes noise or water pollution. Everybody knows what the pollution activity is and what its effect is.

Real problems start when nobody knows what is the nature or the dimension of the environmental problem. In this case the environmental problem can jeopardize even the most promising transaction, as the investor is not willing to undertake burdens resulting from the time before its activity.

It is not easy to make a contract and to agree who will pay the cost when neither the buyer nor the seller knows what the cost of the clean up will be. In most cases the SPA is ready to do its best to solve environmental problems partly or sometimes totally at the cost of the seller but the SPA can not undertake unlimited liability. The SPA's primary duty is to sell companies and to generate income for the state and not to solve all the environmental problems.

Aid is needed if we want to solve all the environmental problems: The help of the domestic government and the help of international organizations. Today the SPA can handle the problems of environmental pollution only if the company still has a positive value after taking the pollution into account.

Which are the areas where domestic governments can help?

  • to give preferences for investors in areas of environmental disabilities.

  • to give preferences for investors undertaking fixing of damages.

  • to give preferences for investors introducing technologies that do not harm the environment or manufacturing such goods.

    •

    Which are the areas where international assistance is needed?

    There is a third worry for foreign investors in connection with their deals. This is the question of future environmental legislation. As it is more strict throughout Europe they have fears that the same will happen in Hungary. Even a different way of applying the same law can be very confusing.

    If the environmental law changes or if the standards of the environmental regulations change it could affect the profitability of an investment very considerably. This is an area where the SPA can not give any guarantee. we can only suggest making new laws as soon as possible to reduce uncertainly in Hungarian privatization.

    The first step was taken by a new Act on Privatization which states that if a State Company wants to be transformed into a commercial company it must to include in its transformation plan a program for solving its environmental problems.

    To summarize our experiences, I can say that the SPA tries to do its best in solving the environmental problems of its companies. Where help is needed is in environmental auditing, which is often not sufficiently accurate. The other area where help is needed is the problem of companies with negative value (whether or not the reason is environmental pollution) where is SPA's only answer may be liquidation.

    I apologize for not providing you with interesting case studies, but the details of our transactions are confidential.