Fluid Regulations Keep Consultants on Their Toes

Environmental consultants must deal with constantly changing administrative structures and laws. For those who are ready to negotiate the legal maze, there is plenty of work.

In this special report piece in Budapest Business Journal, Eva Szerencses, Principal and Managing Director, was recently interviewed about the environmental permitting in Hungary and the complicated environmental concerns businesses has experienced in the last few years. Rapid regulation changes has made environmental issues even more complex and recent mergers of ministries mean that some decisions that were previously made at regional level are now being made at the municipal level, and vice versa.

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Environmental consultants must deal with constantly changing administrative structures and laws, which make their jobs harder and may intimidate investors. For those who are ready to negotiate the legal maze, there is plenty of work.

Businesses can find it complicated to deal with environmental concerns at the best of times, but in the last few years, rapid changes in Hungary’s regulations have made these issues even more complex.

Take, for example, the recent merging of the environmental ministry with the Ministry of Agriculture. Many observers note that it is unclear if one ministry can properly address both sectors, especially because they sometimes have conflicting interests. Another unusual administrative merger was that of water regulation and disaster/catastrophe relief – which many consider to be an unreasonable expansion of the responsibilities of disaster relief authorities. Other recent changes mean that some decisions that were previously made at the regional level are now being made at the municipal level, and vice versa.

The situation creates a need for environmental experts, who can help businesses navigate the legal maze in terms of accessing information, obtaining necessary permits and dealing with the appropriate authorities. These experts, who are essential for producing environmental impact assessments pertaining to investments, dealing with energy regulations, water quality and more, prove their value by keeping on top of the changes. But the fluid legal situation can have a negative impact on investors, who may be inconvenienced by slower processing times. Some worry that these lags could discourage investment and potentially affect Hungary’s competitive position as a manufacturing base in the region.

“The Hungarian environmental authorities are constantly under reorganization, and that is not helping the permitting process,” says Eva Szerencses, principal managing director of the consulting firm Golder Associates Hungary. “The permitting time is crucial to future business. Hungary could lose significant foreign investment if the permit process is too long and too complicated.” Consultants note that many of their clients come from the manufacturing industry, and they have many site options in the region.

“A transparent permit process and reliable permitting time is a must for attracting foreign investments. It is the timing and ease of entry that can make a difference in investors’ decisions,” says Szerencses.

Another solution may be to take a more holistic approach to the organization of these departments and the whole process, according to James Lenoci, environmental consultant at Lenoci Ltd. “Outside of Europe, I have seen more and more countries forming Ministries of Sustainable Development. This has resulted in an increased relevance of environmental issues, as they are seen more intrinsically connected to economic development priorities,” he says.

A big, busy market

Whatever the regulatory framework, businesses will always need assistance in complying with changing regulations. And there are plenty of consultants ready to help.

Hungary is home to large international environmental consultancies such as Golder Associates, which is based in Canada and was established in Hungary in 1992, and Denkstatt, a large Austrian consultancy established in Hungary in 1997 – as well as smaller, specialized local players such as Lenoci Associates founded in 1997. Many of these companies got their start in Hungary during the privatization wave of the 1990s that created a high demand for their services. This is because much of their business comes from global or international companies investing or divesting in Hungary.

An environmental analysis is oftentimes part of a thorough due diligence procedure performed before an M&A transaction. Environmental consultants often work with business consultants to provide environmental assessments and audits that complement the usual financial side of due diligence. Environmental information is vital if the transaction involves land that has been or will be used in industry or manufacturing. Environmental consultants in Hungary also experienced an increase in activity around the year 2004, when Hungary joined the EU and the country saw an increase in environmental infrastructure, specifically in concern to water and waste management.

But the services of environmental consultants are not always specific to a particular transaction or political event. Some companies require clean-up services. Furthermore, as Lenoci notes: “Many companies want to stay ahead of the enforcement or regulatory curve. They want to keep in line with local regulations.”

While manufacturing continues to generate a lot of work for environmental regulators and consultants, energy considerations have also become a priority, especially initiatives related to energy independence and alternative energy.

“The EU Energy Efficiency Directive has just been adopted and large-scale companies are already working on how to be compliant with the new regulation,” says Zsombor Ferjancsik, managing director of Denkstatt Hungary.

Nuclear and geothermal energy generation is producing plenty of work for environmental experts. Plans to expand the nuclear plant in Paks require environmental assessments and monitoring reports, and renewable energy initiatives also require expertise. Industry observers agree that these, and other issues, will remain relevant in the near future. “There is always competition to attract foreign direct investment and the cost and security of energy will remain important,” says Lenoci.

Other environmental considerations that are important in this market include water quality, waste management, pollution, increasing scarcity of natural resources – even current population and migration concerns could play a role in future environmental considerations.

As unused land becomes scarcer in Hungary, any development of manufacturing or other facilities can also create a need for consultants. Previously used “brownfield” sites are attractive to investors looking to develop here: They are less expensive than untouched “greenfield” sites and often offer existing connections to logistical infrastructure. On the other hand, brownfield developments generally require additional environmental services and upfront investment in a clean up. Consultants note that greenfield sites are getting rarer, so they expect the shift toward brownfield sites to open up demand for environmental consulting services, which are necessary for assessments prior to purchase of a site and also for clean-up to prepare the sites for their future use.

Given all these opportunities, environmental consultants in Hungary see a bright future, even if the legal environment continues to change.

For more information, contact:

Eva Szerencses (Budapest, Hungary)
Tel: + 36 209 393 650
Email: Eva_Szerencses@golder.hu

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