Eastern European Industry Pays Steep Price for Contamination ENVIRONMENTAL LIABILITY

Article excerpt

IT is not easy to sell a factory in Eastern Europe. Many of the industrial enterprises still in state hands are too big, outdated, or wasteful to attract investors. Even the privatization of those enterprises that could be competitive is often complicated by investor concerns over earlier environmental contamination.

"It's very dangerous for investors to underestimate potential environmental liabilities," says Stephen Stec, an environmental lawyer with the Central and East European Law Initiative in Budapest. "There are plenty of pitfalls out there for the unwary."

It is no secret that Eastern Europe has serious environmental problems. And former Communist-run industries, with their emphasis on production, take a large share of the blame.

Outdated equipment and practices, poor maintenance, and state subsidies on energy and other resources together created an inefficient and dirty industrial sector. Toxic slag and airborne dust from smelters and steel plants have contaminated rivers, soil, and groundwater supplies in cities such as Plodiv in Bulgaria, Copsa Mica in Romania, and Kosice in Slovakia. Illegal hazardous waste deposits, leaking lines and fuel tanks, and poor storage of potential contaminants are commonplace.

"At most sites there's likely to be contamination due to careless operations, poorly maintained equipment, and improper waste handling," says Tibor Sarlos, who manages cleanup projects in Hungary for Comco-Martech Europe, a Swiss-American joint venture.

Cleaning up site contamination can be extremely expensive as the Electrolux company, the Swedish vacuum cleaning manufacturer, discovered firsthand. While negotiating the 1991 purchase of Hungarian appliance maker Lehel Kft., Electrolux conducted an environmental audit revealing serious soil and groundwater contamination from solvents, oils, and heavy metals. The cleanup costs were estimated at $270 million, nearly one-half of Lehel's total purchase price. Electrolux successfully negotiated with Hungary's State Property Agency to have the cleanup costs deducted from the purchase price, but not all investors have been so fortunate. …