Industrial Privatization and the Environment in Poland

Ruth Greenspan Bell

Ruth Bell is Assistant General Counsel, Water (Effluent Guidelines), U.S. Environmental Protection Agency, Washington, D.C. (on leave of absence Feb. 1, 1991, through Aug. 1, 1991). From March 1991 to August 1991, Senior Fellow, Polish Representative, Regional Environmental Center (Budapest). The author assists the Ministry of Environmental Protection, Natural Resources and Forestry and Ministry of Privatization, Government of Poland. The views expressed here are the author's and do not necessarily represent EPA or the Regional Environmental Center. The author benefitted greatly from extended discussions with Thomas A. Kolaja, Manager, Chemical, Pharmaceutical and Environment, Polish Ministry of Privatization.

[22 ELR 10092]

Privatization — the transfer of state owned and managed enterprises into the hands of the private sector — is a central task for the emerging democracies of Central and Eastern Europe. This process, which requires the untangling of 45 years of state control and management, is even more difficult than was earlier imagined because of the parallel legacy of 45 or more years of environmental neglect.

Poland, the largest of the Central European countries, has embarked on an ambitious privatization program. Beginning just over 18 months ago, Polish authorities have leased an estimated 70 to 80 percent of the country's small retail and commercial businesses to private individuals. Any visitor to Poland is keenly aware of the explosion of private sector activity as existing shops that have moved into private hands adapt to consumer needs, and new shops open with an increasing variety of goods.

More difficult problems have surfaced as Poland moves to change the ownership of the industrial sector. Poland passed a law in July 1990 establishing procedures for privatization and a Ministry of Privatization.¹ This law provides the framework for moving more than 1,000 enterprises from state control and management into private hands. Enterprises cover the full range of light and heavy industrial activities, including producers of steel, chemicals, pharmaceuticals, and vehicles, as well as the refining and mining industries. The first five enterprises were privatized in December 1990.

The Ministry of Privatization is under considerable pressure from the Polish government, and in particular the Ministry of Finance, to expedite the process of privatization in view of its economic and political importance. Privatization is necessary to create within enterprises the profit seeking behavior necessary for market efficiency. Without privatization, firms continue to maximize other objectives, such as worker wages, management prerogatives, and political power. Recent slow downs in the Polish economy, due in part to market disruptions in the Soviet republics, have unexpectedly decreased tax revenues. As a result, there have been increased pressures to privatize in order to increase revenues. In addition, Poland's growing deficit is of special importance because it puts Poland out of compliance with its International Monetary Fund obligations. Accordingly, the Poles wish to greatly increase the pace of privatization in 1992.

While privatization has been a prominent and high profile goal of the Polish government, the task of addressing Poland's considerable environmental degradation has not, to date, received the same level of attention. Despite this, the leaders and people of Poland are well aware of the health risks and other threats to Polish well being that are linked to the many years of environmental neglect, particularly the uncontrolled discharges of pollutants into their air and water.²

The Polish government is starting to recognize the relationship between privatization and environmental liability and regulation. This connection is being drawn by western investors who bring to Poland a point of view that has been shaped and sharpened by the environmental requirements of property transfers in the United States, and by an increasing environmental consciousness in Western Europe.

Poland's experience illustrates how these issues have been joined, sets out the analytical and practical problems encountered, and provides some models for possible solutions. Although each country in the region differs in its approach to privatization and to environmental policy, an examination of Poland's progress to date can be useful in thinking about an issue that can be seen throughout the region as both a problem and an opportunity.

THE LEGAL FRAMEWORK FOR POLISH PRIVATIZATION

Privatization in post-communist countries, such as Poland, is like unscrambling a 45 year old omelette. While other nations have privatized enterprises, the scale of the effort in Poland and the other nations of Central and Eastern Europe is considerably greater than anything previously attempted. State property constitutes more than 90 percent of industrial capital in Central and Eastern European countries. Thus, while there may be analogies to the effort, including the periodic sale of federal facilities in the United States and the privatization of state companies in the United Kingdom under Mrs. Thatcher, there have been no other privatization efforts of this magnitude, nor any conducted under the same conditions.³

The Polish Privatization Act, which is managed by the Ministry of Privatization, sets out two processes for privatization: transformation and liquidation. Under transformation, a company remains an entity throughout the privatization process. The company is "transformed" from a state owned enterprise into a joint stock company 100 percent owned by the state treasury. The joint stock company is then sold. Under liquidation, the company is dissolved and the assets are handed over, in one form or another, to new owners.

Financial and economic analyses of the enterprise being privatized are required at several places in the law. For example, one step in the process leading to transformation includes a requirement for a financial and economic analysis [22 ELR 10093] of the enterprise to be transformed.⁴ The Act also requires the Minister of Ownership Changes to prepare an economic and financial study to establish the value of an enterprise's assets before stock shares are offered to third parties. The Minister is also called on to establish whether organizational, economic, or technical changes are required.⁵ Further, the Act requires the Minister to analyze the legal status of a company's assets, including which assets involve third party claims.⁶

In general, privatization that has taken place to date under this law has involved the sale of individual companies. In an effort to radically accelerate the privatization process, the Polish government has recently announced plans for mass privatization. A series of investment funds, much like mutual funds, will be created to hold the assets of groups of enterprises. The shares of the investment funds will then be distributed to the Polish population. As of this writing it is anticipated that initially about 200 medium to large state-owned enterprises will be subject to mass privatization. These industries, like enterprises privatized through transformation, are left intact.⁷ The funds will be directed by experienced managers, generally from the West, whose responsibilities will be broader than mere management of the portfolio. Managers may be authorized to take a broad range of actions to improve the enterprises' performances.

Most recently, in the summer of 1991 the Polish government announced plans for "sectoral privatization."⁸ In this plan, enterprises within the same industrial sector would be grouped and processed together for privatization. Because of common problems within an industry, it is hoped that sectoral privatization will not only speed up the process but will also provide a more systematic solution that includes both weak and strong firms within an industry.

POLISH ENVIRONMENTAL LAW AND PRACTICE

Poland's existing framework for environmental regulation is based on its constitution and several longstanding laws. The current constitution at several points references obligations to protect the natural environment. More importantly, three laws specifically address environmental protection. The 1949 Statute on the Protection of Nature governs natural resources, living and non-living elements, and landscape. The 1974 Water Resources Law governs surface waters and water uses, and provides regulation aimed at achieving an ambient, or water quality, goal. Finally, the 1980 Statute on the Protection and Shaping of the Environment, a so-called mother law, sets the framework for the current environmental policy. This law establishes a system of fees for using natural resources and fines for pollutant discharges. A portion of the monies collected from these fees and fines goes into the Environmental Protection Fund. The 1980 law also designates protected zones and establishes rules for future development in those zones.

Poland is currently engaged in extensive revision of its environmental laws. A draft written at the direction of the Ministry of Environment, with assistance from outside experts, including the Environmental Law Institute, has been circulated for comment within the government. After review, it will be sent to Poland's parliament, the Sejm. Moreover, the constitution is scheduled for revision in early 1992, which will presumably involve revision of environmental provisions. National environmental policies and issues are managed by the Ministry of Environment, Natural Resources and Forestry, located in Warsaw. In October, 1990, the Ministry issued a National Environmental Policy (NEP) that characterized Poland as a country confronted with ecological disaster. The NEP also acknowledged that Poland faces the very difficult task of reshaping its environmental policy during a time of radical change in the national economic system.

The NEP calls for a policy of sustainable development and establishes three sets of priorities. In the first three to four years, the Ministry commits itself to tasks that cannot be postponed because of the effects on human health or life that would result from their delay. Medium range priorities are estimated to take 10 years and will counter the unfavorable trends that the emission of pollutants into the environment causes to the air, water, land, and nature generally. The goal is to make practical progress that will move Poland closer to European standards and enable it to join the European Community (EC). For the long term (characterized as 25-30 years), Poland envisions introducing sustainable development principles into the entire economy and attaining a quality of environment that assures a safe public existence.

Despite Poland's longstanding environmental laws and ambitious goals, many pollution discharges are virtually uncontrolled. An example of this involves the major metropolitan area of Warsaw. There is no sewage treatment plant on the Warsaw side of the Vistula River to treat domestic and industrial discharges. A treatment plant on the Praga side of the river (directly across from Warsaw) was opened several years ago, but does not yet treat all discharges from that side of the river. In general, permits to discharge are written by 49 separate voivodas (districts), which also have primary responsibility for enforcement. Perhaps only one-half of all discharges in Poland are controlled by permits. Of equal concern, Poland lacks a system of energetic environmental enforcement. Enforcement against plants — with or without permits — is spotty, perhaps because of the inherent conflict of one arm of the state prosecuting another.

The main tools for enforcing violations are fines, criminal penalties, and the threat of facility shut-downs. However, shut-downs have rarely been imposed and fines have historically been either weak or ignored. There is considerable evidence that enterprises incorporate the costs of fines as a line item in their annual budgets. A fine for a state enterprise may simply be offset by an increased subsidy through the budget or by borrowing from state banks. Information gathered for a U.S. Environmental Protection Agency (EPA) report indicates that during the 1980s, the Polish Ministries of Metallurgy and Heavy Industry, Chemical and Light Industries, Construction and Public Works, and Agriculture were together assessed 72 percent of the fines for violations of pollution standards, but that the ratio of total fines paid [22 ELR 10094] to total fines imposed was 30 percent. The EPA report also reveals that the ratio per ministry varied widely. The Ministry of Mining and Power, which accounted for 30 percent of fines imposed, paid only 3 percent of the total it was assessed in 1987.⁹

One obvious impediment to enforcement is the difficulty involved in prosecuting a state enterprise. In one case, a pig farm discharged fecal matter into the water without treatment. The manager of the firm admitted the offense, but argued that he was fulfilling his economic requirements to the state, which demanded a high rate of pig production. This economic defense prevailed in the initial administrative proceeding and the first appeal. However, in a precedent-making decision, the highest appellate court rejected this defense.

Poland also lacks effective procedures for citizens to seek enforcement of environmental requirements. Thus, when the state does not enforce, there is generally no one to step into its shoes to ensure that environmental requirements are met. An informed observer has summarized the rules governing public participation:

There is statutory opportunity to file a direct action in the case of pollution caused health damage to an individual or property damage to an owner. In other cases, individual citizens were prevented from taking actions against polluters before administrative authorities and courts. This right was only given to ecological associations … legislative bodies at different levels of government, trade unions, workers and local self-governments. All these institutions have rights to challenge both polluters and environmental administrative agencies, including the right to sue them in courts. This is, of course, a hypothetical opportunity, which is to say that it has not been very often executed in Polish practice.¹⁰

RESPONSE OF POTENTIAL INVESTORS

Western investors who have shown interest in investing in Polish enterprises are expressing considerable concern about the potential liability for existing environmental damage. Without resolution of these issues, investors cannot fully evaluate the real costs of investment.¹¹

These concerns are particularly acute for investors who have experience in the United States, where property transfers (including transfers by or to government entities) are strongly influenced by laws that can impose potentially significant liability for the remediation of contaminated sites. These investors are thoroughly familiar with the web of legislation, litigation, and controversy that accompanies the transfer of property on which hazardous waste is found, and with the idea that an important element of any property transfer negotiation involves its environmental aspects. American investors, and Europeans with investment experience in the United States, are familiar with the 1986 Superfund Amendments and Reauthorization Act (SARA).¹² SARA imposes significant burdens on purchasers of property to show that they conducted "all appropriate inquiry" into the environmental condition of the property before purchasing it. Investors are also aware that public opinion in the United States gives hazardous waste high priority and ranks it as a serious environmental problem. Whether or not the Polish population currently shares these perceptions, investors seem to be concerned that they soon might. Certainly, a growth in Polish concern about these issues would be consistent with the European experience, where observers have noted at the end of the 1980s "a higher level of awareness among the [European] public and the beginnings of a political response that foreshadow[s] more stringent and more comprehensive environmental legislation across the continent."¹³

A second cost of doing business, which is of great importance to investors, is meeting environmental requirements for discharges to air and water, and for the disposal of wastes. Although Poland and its Central and Eastern European neighbors have not consistently implemented or enforced their strict environmental requirements, there are various indications that this situation will not be tolerated much longer. The Polish NEP draws explicit attention to this anomaly, providing that:

One of the basic principles of the new environmental policy shall be the principle of [law-abidingness]. This, under our conditions, means the necessity of reconstruction of the legal system and the system of enforcement in such a way that each regulation will be strictly abided, and that no opportunities will exist for circumvention of the law for reasons of "circumstances outside one's control," "public interest" or "impossibility."¹⁴

Moreover, Poland has made a strong commitment to environmental progress in a mid-1991 government initiative establishing an Environmental Protection Fund. The Fund, established through debt forgiveness by governmental creditors, is being designed to channel resources to projects that address international and global environmental problems. In establishing this program, Poland expressed the desire to reestablish Poland as a responsible global citizen that meets its international obligations.

At the heart of the Environmental Protection Fund is Poland's commitment to its European neighbors that it will make real progress in conquering its environmental problems. Poland has not yet explicitly connected this commitment to its privatization effort, although relatively oblique references in early documents discussing the Fund indicate that some in the government may see this connection. The concept paper for the Fund provides a number of objectives, including the stimulation of greater efficiency and cost effectiveness in executing agencies concerned with the environment. The concept paper also provides for the stimulation of the private sector, including support for pollution abatement investment. Finally, interest in EC membership will require Poland and the other countries of the region to [22 ELR 10095] practice a more rigorous observance of environmental regulation than is the current norm.

CONNECTING PRIVATIZATION AND THE ENVIRONMENT

Although investors engaged in property transactions in the United States, and increasingly in Western Europe, routinely consider the environmental aspects of sales, this connection is not so easily understood in Poland. In retrospect, it is easy to understand that nothing in Polish privatization officials' past experiences would cause them to anticipate that privatization would raise environmental questions. Poland has had relatively close ties to the West compared to some countries in the region, and Polish academics who studied and traveled in the West are now heading many major ministries. Poland has nevertheless been preoccupied with establishing its political and economic independence. As a result, the increasing western attention to environmental liability in property transactions was not a subject likely to attract much Polish attention. Moreover, in a system of state owned and managed industry, western style property transactions, let alone their environmental aspects, had relatively little importance.

Because environmental issues were first raised in specific negotiations, the Polish government has had very little time to understand these issues and devise solutions. Moreover, the rapid political changes in Poland and the region have not allowed a great deal of lead time to address many other major issues, including privatization itself. Advance planning is a luxury in a region that is under considerable pressure to make many substantial changes in a very short time. Consequently, environmental issues, including major policy issues, are being resolved concurrently with privatization, and often within the context of specific transactions.

There is no evidence that the Ministry of the Environment was involved in writing the privatization law or anticipated its environmental importance. Moreover, the Ministry of Privatization appeared surprised when environmental issues were raised by prospective investors. None of the currently required economic and financial evaluations of firms that are being prepared for privatization seem to have been written with environmental costs or requirements in mind. Rather, the analysis required by law is intended to help determine a company's value and whether a basis for legal claims against the company exists, reflecting a widespread sensitivity in the post-communist era to the potential claims of former owners or their heirs for expropriated property.

Poland might overcome some of these institutional deficiencies by borrowing from the United States' experience with federal facilities. For example, SARA's requirements for federal agencies entering into contracts for the sale or transfer of property on which hazardous wastes were stored for a year or more could be reformulated and applied. However, there are several reasons why the U.S. model may not work for Poland. One is the sheer volume of transactions anticipated in Poland. The U.S. procedures are time consuming — Poland is under intense economic and political pressure to avoid delay. Additionally, analogies to federal ownership in the United States cannot always be strictly drawn. As commentators have pointed out, the ownership structure in Poland, and in the rest of Eastern Europe, is "ill-defined."¹⁵ For various historical, political, and economic reasons, "those rights are now rather vaguely distributed among the workers, managers and state bureaucracies."¹⁶ A purely historical approach to environmental responsibility is therefore not feasible.

Nevertheless, the costs of environmental cleanups, potential liabilities, and compliance are significant elements in the total economic picture that must be considered in privatization. Even if the analyses required under the privatization law are not explicitly directed at determining environmental costs, the language can easily be read to include them. Moreover, like labor, capital, and debt, these are specific and real costs of an enterprise.

From the standpoint of both potential investors and the Polish government, the first step in resolution of these issues is to assess the extent of environmental damage to the property and facilities being privatized. Following experience gained in several transactions that were stalled by unresolved environmental concerns, the Polish government has now decided to perform environmental audits early in the privatization process.

ENVIRONMENTAL AUDITS

An environmental audit reduces the uncertainty faced by both government and investor and helps establish the costs of cleanup and control technology. Based on the information disclosed by an audit, the seller and purchaser can negotiate who will bear responsibility for these costs. As a practical matter, this has already happened on an ad hoc basis in the handful of cases in which audits have been performed. For example, in the sale of the Polena plant at Bydgoszcz to Unilever, adjustments were made in the purchase price to reflect the purchaser's assumption of responsibility for cleanup. In the sale of the Polam Pila plant to Phillips Lighting, B.V., the purchaser received an increased number of shares in return for assuming responsibility for cleanup costs. In a thirdcase, perhaps the most interesting, the government accepted the principle that a portion of the purchase price should be reserved in an escrow account for environmental cleanup. The purchaser agreed to commence environmental remediation within an agreed upon time, and the government agreed to share the costs and expenses of remediation. In each of these transactions, cleanup standards and other important details were established by negotiation, often referencing EC or other Western European standards. These examples, particularly the use of an escrow account, may provide modesl for other transactions.

Because the focus on environmental issues has, to date, been driven by western investors, little attention has been paid to Polish investors or others who fail to raise environmental issues in transactions. In the best case, routine procedures established to deal with the environmental concerns of foreign investors will become the standard. Indeed, under the business treaty between the United States and Poland,¹⁷ U.S. investors are entitled to the same treatment as Polish [22 ELR 10096] investors. Thus, at minimum, Poland could not have a discriminatory enforcement program.

The problem, however, is really the inverse. For the same reasons that foreign investors are concerned about these issues, the Polish government should protect Polish investors by making sure that environmental costs are explicitly taken into account in domestic transactions. Otherwise, Poles could pay more than corresponding western investors for properties with similar liabilities, which is an untenable result.

Routine environmental audits are easily added to the analyses done to prepare individual enterprises for privatization. They can become one of a number of pieces of information that are considered and incorporated into individual negotiations by which most properties are sold. Sectoral privatization may facilitate the incorporation of environmetal considerations by grouping similar enterprises for privatization in the same time frame. The grouped firms are also likely to present similar environmental issues.

The announced audit procedures may not be appropriate for mass privatization, which involves privatizing large numbers of diverse companies. There are many unanswered questions about the responsibility of fund managers for the environmental liabilities of fund enterprises. In recognition of this, the Polish Ministry of Privatization has recently decided to exclude environmentally troublesome enterprises from mass privatization, although it has not indicated how such firms are to be identified.

EFFECTIVE ENVIRONMENTAL IMPLEMENTATION AND ENFORCEMENT

A second important step in resolving investors' concerns about the potential for environmental liability is implementing an effective and predictable system of environmental regulation. If sale prices for enterprises are adjusted to account for cleanup costs or costs for controlling future emissions, the purchase agreement must be backed by a system that ensures that the purchaser pays these costs and implements any agreements. If the purchaser is provided a credit for agreeing to shoulder these costs, then there must be some assurance that the purchaser will perform the appropriate duties. This is important from the point of view of everyone affected by the transaction — the government, the purchaser, other investors, and the public.

It is unrealistic to think that Poland can simply rely on purchase agreements. Experience shows that even in a mature system of environmental regulation, the threat of enforcement is often necessary to assure compliance. Without it, the credibility of the government will suffer, and the likelihood of environmental or health improvements will be reduced. Further, the passage of time and resales may obscure obligations that were incurred at the time of privatization.

Implementing adequate environmental protection programs in Poland and the other governments of the region will not be easy for several reasons. Inexperienced regulators must negotiate with and impose requirements on foreign investors who have considerable negotiating and litigating experience dealing with the environmental agencies in the West. By contrast, environmental regulation and enforcement agencies in the West have had the luxury of a kind of parallel evolution of experience. Relationships between western regulators and the regulated community reflect many years of mutual interaction and increasing sophistication on both sides. EPA, the regulated community, and public interest environmental organizations have grown up together from environmental infancy to the current level of sophistication applied to these issues. The relationship is less balanced in Central and Eastern Europe. As already mentioned, the current economic situation is another obstacle to effective implementation. Investors offer the prospect of employment in cities and towns currently suffering in transitional economies. Indeed, the Polish Foreign Investment Law¹⁸ offers tax holiday incentives to investors in certain sectors, including areas of high unemployment.

Despite these potential obstacles, there are strong additional policy reasons why the governments of the region should use the opportunity of privatization to advance environmental regulation. The nations of the region are moving from being the generators of goods and services to the western model in which government protects the essential interests of its citizens by regulating any excesses that result from the production of goods and services. Privatization is a natural transition point in which explicit responsibilities for pollution control can be recognized. It would be unfortunate if the opportunity were lost to address not only the form of ownership of these firms, but also the responsibilities that accompany private ownership.

Explicit consideration of environmental issues in privatization can encourage Poland's environmental consciousness. A record showing how privatization advanced environmental protection could be a considerable advantage in developing the public support that is necessary to an ongoing environmental effort. Polish opinion polls currently reflect a belief that economic goals should take precedence over environmental concerns.

Environmental audits and efforts to implement environmental requirements also offer a new area of employment for professionals. The Polish government is assuming that western investors will want audits that meet U.S. or EC standards. Few Polish professionals are currently trained to perform such audits. Poland is therefore encouraging western audit firms to associate with Polish companies and individuals to help Poles build audit skills for the future. Requirements to clean up and install control technology will create jobs that can be done by local expertise. The environmental protection industry in the United States is a fast growing sector. If developed correctly, this can prove true in Central and Eastern Europe, and the skills developed there can also have export potential. Perhaps in recognition of this, the Polish government has recently announced a sectoral program for privatizing the environmental equipment industry.

Finally, a systemized way of addressing the environmental aspects of privatization transactions could help insulate privatization officials from criticism based on rumor and false information. In the last two elections in Poland, for example, charges were made that incumbent officials were selling important properties at far less than their true value. When the costs of cleanup and environmental compliance are quantified and documented along with other costs, the impact of such charges may be reduced, so long as the data and analysis are made available to the public. One way to do this would be through establishing a publicly accessible docket that documents each transaction.

[22 ELR 10097]

CURRENT IMPEDIMENTS TO EFFECTIVE IMPLEMENTATION OF ENVIRONMENTAL REGULATIONS

Progress toward effective environmental regulation will be tempered by a corresponding need to move cautiously. Results cannot be achieved overnight where no serious efforts have been made for many years. Poland's most important goal today is attracting investment and making investment attractive. Too strident a pursuit of environmental goals could deter investment and delay economic recovery. Further, economic growth is a political necessity to sustain Poland's commitment to democratic and liberal market values.

However, there are ways to soften the impact of expensive environmental protection requirements in a difficult economy. Requirements can be imposed over realistic time periods. Compliance schedules could specify particular activities that purchasers or investors must undertake to bring themselves into compliance with environmental requirements and deadlines for these activities. Remedies would be necessary in the event that agreed upon schedules were not met, and it would also be necessary to structure remedies that are appropriate to a civil law system in which courts lack the broad equitable powers of the common law tradition. Used in this way, compliance schedules could be written to reconcile the reality of the current transitional economic situation with the necessary environmental requirements.

Effective long-term environmental regulation will also require resolution of structural and legal issues in Poland. In reaction to the old system of centralized planning, Poland has adopted a highly decentralized institutional structure of environmental protection that is not conducive to effective environmental regulation. The result is that under current Polish law, permits are written by 49 separate districts that also have sole authority to enforce violations.

Privatization, however, is the responsibility of the Ministry of Privatization in coordination, on particular issues, with the Ministry of the Environment. Because local governments have authority to write and enforce permits, coordination is essential. Mechanisms must be established so that the ministries and the local authorities do not work at cross purposes.

Another obstacle to setting consistent, enforceable regulatory requirements is that current Polish discharge limits are set on an ambient basis. This means that quality goals are set for water and air, and discharge limits for individual sources are set to meet those goals. However, Poland's institutional structure makes it difficult to implement ambient-based controls in a fully effective way. For example, each of the 49 district governments have independent authority to write water discharge permits without any requirement that they coordinate their activities. Where numerous industries discharge into the same river, inconsistent permitting decisions can be made by adjoining districts or by districts on opposite sides of the same river. The difficulty of such a policy is illustrated by the numerous permitting authorities that control discharges into the Vistula River, which flows through much of Poland and empties into the Baltic.

There also needs to be some rethinking of the basis for issuing permits. The experience in the United States with ambient water quality controls has been very mixed. Many observers believe that technology-based controls have been more successful in the U.S. water program, although that approach also has flaws. A more effective strategy would combine both approaches, with minimum requirements based on available technology and additional requirements designed to meet location specific requirements. Unfortunately, legislation being prepared for introduction into the Polish Parliament might go to the opposite extreme of the current approach and rely entirely on technology-based permits.

Also, district governments are not currently required to prove that they have the resources and infrastructure to manage regulatory programs before they assume these responsibilities. By contrast, the U.S. Federal Water Pollution Control Act (FWPCA)¹⁹ allows states to administer permitting programs only if they meet specific conditions set out in the Act. Polish law allows the Polish Environment Ministry to review and, if necessary, annul routine district permitting decisions. One way that the ministry could achieve better coordination among the various districts would be to use a carrot and stick approach — the ministry would offer the district technical and organizational assistance while taking a more aggressive review posture for clearly unacceptable permits. Whether the Environment Ministry will do this is a delicate question that depends in part on whether it is perceived as reintroducing some form of central planning.

These problems of coordination are even more acute for requirements that are established or confirmed in the context of privatization. Requirements, including environmental discharge permits, must be written under severe time constraints and must be seen as facilitating, not constraining, the privatization effort. To assume a more active regulatory role, the Environment Ministry will also require additional resources. While the Environmental Protection Fund established through debt forgiveness might be used for this purpose, public statements to date have been unclear on this potentially critical issue.

There is also the issue of how to build effective environmental protection skills in the Ministry to address these problems. While the Polish people possess much raw talent, the skills developed in the Ministries over the past 45 years are not necessarily appropriate to the tasks currently facing the nation. Moreover, the sheer magnitude and novelty of the tasks facing Poland draw talent toward the ministries and efforts that are perceived as having higher priority. The salaries offered by government ministries are extraordinarily low, making it difficult for talented personnel to stay for long. For these and other reasons, ministries are often inadequately staffed for the difficult tasks. Capable personnel are often required to manage too many tasks. For example, one person, an American who came to Poland on a Fulbright scholarship, currently manages privatization of the chemical and pharmaceutical industries in the Ministry of Privatization and has responsibility for that ministry's environmental issues.

As a result, many tasks are contracted to foreign consultants. But using contractors to help "jump start" Poland presents some obvious problems. For example, in some situations consultants are simply not receiving adequate supervision, which may result in their work being rejected or uncritically accepted. Moreover, the consultant's work is too often short term in nature. The governments of the region badly need people to stay for a [22 ELR 10098] significant period of time who have some incentive to train and to leave skills behind. In some cases, the use of consultants is papering over serious institutional deficiencies without contributing to the long-term development of Polish skills and institutions.

CONCLUSION

Institutions in Poland, as elsewhere, must adapt to a world in which environmental considerations have increased importance, yet many habits formed under socialism remain significant barriers.

Two stories illustrate the still widely differing attitudes. In one, an iron-ore buyer for a Polish steel plant purchased a more expensive, but improved, grade of ore because it reduced overall energy consumption and produced less slag for disposal. Although there were overall cost savings to the plant and environmental improvement, the buyer was faulted by management. The higher cost purchase meant that the buyer exceeded the amount budgeted for purchases by the plant. Management was simply unable to take into account either the environmental benefit or the cost savings in other departments. The second story involves a major industrial enterprise that is undergoing privatization. The enterprise wants to recognize the importance of reducing the environmental costs of its operations, and has decided that one member of the board of directors must represent environmental concerns. The management has asked a distinguished Polish environmental scientist to fill the newly created position.

Patterns to date in Poland indicate, however, that little environmental progress can be made until enterprises discharging pollutants to the water, soil, and air are forced to control those discharges. Virtually all of these enterprises are to be privatized, and thus privatization offers a unique opportunity to address environmental issues that have been either ignored or placed on a back burner for 45 years. Whether Poland will fully seize this opportunity for change, or whether it will merely respond with ad hoc solutions in individual investments, is still an open question.

1. Law of July 13, 1990 on the Privatization of State Owned Enterprises (Journal of Laws No. 51, Positions 298 and 299).

2. EPA, ENVIRONMENTAL CONDITIONS IN POLAND AND HUNGARY, REPORT TO CONGRESS REQUESTED UNDER § 703 OF THE SUPPORT FOR EAST EUROPEAN DEMOCRACY (SEED) ACT OF 1989 (1989).

3. Cf. 2 D. LIPTON & J. SACHS, BROOKINGS INSTITUTION PAPER ON ECONOMIC ACTIVITY, PRIVATIZATION IN EASTERN EUROPE: THE CASE OF POLAND (1990).

4. Privatization Act, supra note 1, at ch. 2, art. 5.2.

5. Id. at ch. 3, art. 20, pt. 1.

6. Id. at ch. 3, art. 20.3.

7. See MINISTRY OF OWNERSHIP CHANGES, REPUBLIC OF POLAND, PROPOSED PROGRAMME FOR MASS PRIVATIZATION (June 1990).

8. MINISTRY OF PRIVATIZATION, REPUBLIC OF POLAND, CAPITAL PRIVATIZATION DEPARTMENT, SECTORAL PRIVATISATION (Aug. 1991).

9. EPA, SUPRA note 2.

10. Zbigniew Bochniarz, OVERVIEW OF THE POLISH ENVIRONMENTAL SYSTEM: DEFICIENCIES AND CONSTRAINTS, IN DESIGNING INSTITUTIONS FOR SUSTAINABLE DEVELOPMENT: A NEW CHALLENGE FOR POLAND 19, 22 (Zbigniew Bochniarz & Richard Bolan eds., Minneapolis-Bialystok 1991).

11. Discussions with Thomas A. Kolaja, Manager, Chemical, Pharmaceutical, and Environment, Ministry of Privatization (throughout 1991).

12. 42 U.S.C. §§ 9601-9675, ELR STAT. CERCLA 001-075.

13. EUROPEAN MANAGEMENT ATTITUDES TO ENVIRONMENTAL ISSUES, EUR. UPDATE (Touche Ross Europe Services), Mar. 1990.

14. MINISTRY OF ENVIRONMENT, NATURAL RESOURCES AND FORESTRY, REPUBLIC OF POLAND, NATIONAL ENVIRONMENTAL POLICY para. 9 (Oct. 1990).

15. 2 D. LIPTON & J. SACHS, SUPRA note 4, at 303.

16. ID.

17. Treaty Concerning Business and Economic Relations. Mar. 21, 1990, U.S.-Poland, 29 I.L.M. 1194 (Sept. 1990) (this treaty has now been ratified by the U.S. Senate and Poland's Sejm).

18. Law of June 14, 1991 on Companies With Foreign Participation (Journal of Laws No. 60, Position 253).

19. FWPCA § 402(b), 33 U.S.C. § 1342(b), ELR STAT. FWPCA 057.