ENVIRONMENTAL DEPOSIT

According to the Directive 2004/35/EC of the European Parliament and Council on the
Environmental Liability with regard to the Prevention and Remedying of Environmental
Damage, all members of the EU have to take the necessary measures to motivate the
economic operators to apply adequate insurance or other guarantee. Consequently, the
Hungarian Ministry for Environment Protection has drafted a government decree on the
environmental deposit. As environmental deposit has already been implemented in several
member states, e.g. in Spain, in the Netherlands, in Finland, the patterns could be used where
adequate.

Pursuant to Art. 101 (5) of Act LIII of 1995 on the Environment Protection, the user of the
environment has to provide an environmental deposit if displaying activities determined in the
respective governmental regulation; in addition, it can be obliged to arrange for an
environmental insurance policy concerning the elimination of unexpected damages that can be
resulted in by its activity. According to the Act, the form, amount, terms of use and
registration of the deposit should be regulated by a separate governmental regulation.

Although other norms like Act LIII of 1996 on the nature reserve or Act XLIII of 2000 on the
refuse collection, also prescribe the obligation of providing environmental deposit to be
regulated by a separate governmental regulation, the regulation has not yet been born;
however, the draft has already been prepared.

A brief outline of the scope of the draft of the Environmental Ministry follows below.

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1. Meaning of environmental deposit

Environmental deposit can be either a bank guarantee or a fixed, separated and blocked
deposit held at a financial institution as well as an insurance policy. The obliged person may
choose from between the above types of deposit when submitting the appeal for the decision
of the Ministry regarding the amount of the deposit. Environmental deposit may be provided
exclusively by credit institutions or insurance companies, whose national supervisory
authority permitted them to provide such services. A guarantee ensured by an institution,
which is non-resident in the European Economic Area (EEA), is to be accepted if it is
adequately reinsured by a resident institution.

2. Subjects falling under the force of the regulation

The following areas shall be covered by the new regulation:

• economic operators displaying activities that are significantly risky to the

environment;
• operators of establishments that are significantly risky to the environment;
• operators of waste yards;
• environment users obliged by law to recompensate for damages if such has been
incurred.

3. Activities to be covered by deposit, measurement of deposit

3.1 In case of economic operators displaying activities / having establishments that are
significantly risky to the environment and in case of operators of waste yards, the operator has
to provide environmental deposit at the beginning of the activity/operation. The scope of the
deposit is to help to eliminate unexpected damages that can be caused by the above activities
or operation and to help the execution of the environmental obligations in case of giving up
the activity/establishment. The minimum value of the deposit in this case, according to the
regulation draft, would be HUF 2 million. The amount of the deposit would depend on the
number of employees and the dangerous nature of the activity/establishment.

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3.2 In case of significant environmental damage determined by a final official decision, the
liable person/entity has to provide an environmental deposit to a certain extent in order to help
the reinstatement of the environment, or at least to minimize the harms. The environmental
damage is considered significant if the costs for the intervention reach at least HUF 100
million.

4. Procedural rules

Obligations regarding the provision of the deposit are determined by the decision of the
Environmental, Nature and Water Conservation Advisory Board granting the right to carry
out activities that are significantly risky to the environment. If the significant environmental
damage has already incurred, the authority may prescribe a deposit of an adequate extent in
his decision ordering the recultivation. The polluter may be allowed to use the deposit if it
fulfils certain criteria. This is the case if it has previously complied with the environmental
protection rules; in addition, he proceeds in full compliance with the act on public
procurement during the recultivation, or closing his site accordingly. For waste-yards,
exemption would be done to this rule.

The potential polluters should demonstrate the deposit by the contract with the bank or the
bond of the insurance company. The documentation should be submitted to the competent
supervisory authority prior to the commencement of the activity referred to in the decree.

All the changes relevant to the amount of the deposit are to be communicated to the authority
within 15 days unless it happened already pursuant to another act or decree.

If abandoning the activity or closing the site, the application of the deposit is controlled by the
authority. The use of the deposit will require the permission of the authority in all cases. If it
is not the polluter who applies the deposit, the authority or a third person in charge will do so.
In case of violation of these obligations, a penalty can be imposed and/or the activity can be
suspended.

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5. Termination of the duty to provide deposit

The duty to provide environmental deposit will terminate in the following cases.

a) The potentially pollutant activity has been abandoned or the site has been closed, and there
are no environmental harms to be eliminated pursuant to the final decision of the authority;
b) The potential polluter as an entity has been terminated, and the disposal over an appropriate
deposit is certified by its legal successor;
c) The amount of the deposit has exhausted in the course of recultivation underlaid by the
final decision of the authority.

The termination of the duty requires the official statement of the authority in all of the above
cases, as well as the use of the remaining amount of the deposit for other purposes.

6. Terms of application of the deposit

The deposit may be exclusively applied for the following purposes.

a) Fulfilling the environmental protection duties in course of abandoning the significantly

risky activity, or closing the site with the same attributes;
b) Carrying out the recultivation and after-care pursuant to the recultivation plan;
c) Indemnification measures pursuant to an approved intervention plan.

Through the institution of the environmental deposit, the personal responsibility for causing
damages and the polluter pays principle would be more effective as the environment users
would be obliged to separate an amount for the elimination of the possible damages that can
be caused by them.
It is a sad fact that, in consequence of the inadequate activities of the users of the
environment, numerous environmental damages arise that is financed from the state budget in
absence of security. Once the governmental regulation enters into force, the number of the
environmental damages, for which the state is responsible, will be decreased, which is a huge
step forward.

BALÁZS & HOLLÓ Law Firm