Budapest, December 14, 1999

To:
Commissioner Günter Verheugen
Enlargement Directorate-General
Rue de la Loi 200
B-1049 Bruxelles

Dear Mr. Commissioner,

The undersigned NGOs request that you investigate the case of the construction of the Northern Section of the M0 motorway (Hungary). EU PHARE and the European Investment Bank both provided funding for this motorway despite protests and a lawsuit by local residents and environmental organizations who claimed that the planning and construction of the motorway violated Hungarian law and EU directives. The Capital Court of Budapest found in favor of the plaintiffs, and has issued an injunction, dated 21st July 1999, to halt construction. In its decision the Court stated that the new motorway would worsen the local environment, endanger the health of tens of thousands of local citizens, and cause economic damage to area residents.

Subjecting the projects funded by EU institutions to sufficient environmental due diligence to ensure that the projects are in compliance with national law and EU directives is one of the few means available to the EU to encourage greater acceptance of the rule of law and the acquis communautaire in the accession countries.

As the aforementioned section of the M0 is almost completed, it is practically impossible to reverse this situation. However, given the court injunction, we would like to ask your support to ask the Hungarian government at least to not complete the construction of the unnecessary Junction 2. In the meantime, we would like to request that the EU conduct an investigation in order to determine how, given the transitional nature of the recipient country, the EU can better ensure that the projects its institutions fund are in compliance with national law and the acquis communautaire. Furthermore, it should conduct an investigation into possible mitigation measures that would satisfy the court. One possible mitigation measure might be the introduction of traffic calming measures in the residential area of Káposztásmegyer.

Your investigation could considerably help to...

make the activities of European Institutions (including PHARE, ISPA, and EIB) more transparent and accountable; 
strengthen the enforcement of laws concerning the environment and public participation; 
strengthen public support in Hungary for the EU. 
Attached you find a detailed description of the case. We greatly appreciate your attention to this matter.

Sincerely,

Katalin Fokvári 
President
Káposztásmegyer Environmental Protection Society 
HU-1048 Budapest, Székpatak utca 10.
Phone: +36 1 380 8143

András Lukács 
President
Clean Air Action Group 
HU-1465 Budapest, Pf. 1676
hone: +36 1 361 3610. Fax: 36 1 365 0438 
E-mail: levego@levego.hu

Barbara Mihók
National Coordinator, 
CEE Bankwatch Network
HU-1054 Budapest, Vadász u. 29. 
Phone: +36 1 311 7855
E-mail: babar@mail.matav.hu

The Case of the EIB Loan and PHARE Aid 
to the M2 and Northern Section of the M0 Ring Road 
Around Budapest

 Background

Hungary will play a growing role in European transit traffic. Three of the ten planned Trans-European Network corridors cross Hungary. As such, Hungarian citizens will pay an inordinate share of the environmental and social externalities generated by European road transit traffic. In the negotiations towards Hungarian accession into the EU, Hungary is being asked to bring its laws, its infrastructure, and its environment into harmony with European standards.

Most of the Trans European Transport Corridors pass through Budapest. In order to allow most of this transit traffic to bypass downtown Budapest, Hungary has built the southern section of its planned Ring Road, the M0, connecting the motorways M5 (to the South-East), M7 (to the South-West) and M1 (to Austria). Remaining transit traffic represents less than 2% of the traffic on the streets of Budapest. While environmental groups did not oppose the construction of the Southern section of the M0 for this reason, this section of the M0 alone already stimulated the development of over 50,000 square meters of new automobile-dependent shopping centers, and another 80,000 are planned, which has created a much more serious traffic problem than the ring road was supposed to solve. For these reasons, the economic importance of the North and Western Sections of the M0 are marginal. The primary beneficiary of this investment would be real estate speculators to the North of Budapest.

Much more important is that Hungary doesn't have the resources to cope with its significant unmet basic maintenance needs on the existing road network. Deteriorating roads dramatically increase vehicle operating costs and vehicle emissions, making road maintenance by far the road investment with the highest economic rate of return in Hungary. Given that about 25% of the expenses Hungarian State Budget is already dedicated to debt financing, and international institutions are not likely to tolerate significant increases in this debt burden, it was fiscally irresponsible to continue construction of the economically marginal Northern section of the M0.

Furthermore, construction of the Northern section of the M0 has severe environmental and public health consequences, much worse than those for the existing section, or even the planned Eastern section. These problems have convinced two Budapest district municipalities and three towns near Budapest on the Western side of the Danube to refuse the further construction of the M0 on their territory. Despite this opposition, and in violation of numerous Hungarian laws, the construction of the northern section has begun on the Eastern side. Proceeding with this ill-advised project would not have been possible were it not for a HUF 11 billion loan from the European Investment Bank and HUF 2 billion in grant funds from PHARE.

For the reasons described here, EIB and PHARE funding of these projects flouts domestic laws, European Union directives, and the stated aims of most development institutions.

Violations of the Environmental Impact Assessment Law 
and other Environmental Laws

Original plans for the Northern Section of the M0 were prepared, including the Environmental Impact Assessment, by UNITEF Ltd. in June 1994. This planned route connected the M3 motorway (coming from East-Hungary, Miskolc) with the main road no. 11 (coming from the North, on the western side of the Danube). According to this plan, the M0 would pass through an almost uninhabited area near the M3, then connect with the new M2 main road (coming from Vác), which the EIB is also funding under the loan. From there, the road already under construction goes on a 16 m high, 270 m long viaduct, which passes within 250 meters of a housing estate called Káposztásmegyer II. This housing estate has 5000 habitants. Junction 2, connecting the new M0 to a major arterial in the direction of downtown Budapest, is planned within 150 meters of a nursery school and within 400 meters of the apartment buildings. Projected traffic backing up on the roads feeding into the junction is only 15 meters from the apartment buildings, and runs a few meters from the local primary school, kindergarten and nursery.

Until now, the Káposztásmegyer neighborhood has been known as a green area of clean air and peaceful surroundings. Many families moved to the neighborhood because of these qualities.

According to several experts, the Nitrogen Oxides and particulates generated by the increased traffic on the road will be 25-30% above Hungarian ambient air standards. New medical evidence indicates severe public health related risks of PM10 exposure, most of which comes from motor vehicles. In every kilometer 2 tons of pollution will be emitted daily. The noise levels are also expected to exceed the limits and reach 70-76 dB in the day, 63-68 dB at night (counted to the year 2008). The officially accepted limit values are 65 dB in the day, 55 dB at night. This violates not only the Hungarian Constitution (Act 20-1949, Par. 18) guaranteeing citizens a right to a healthy environment, but also the Regional Planning and Regional Development Act 21-1996 (par. 3), which stipulates that environmental considerations are as important as any other concern when making decisions about plans and projects.

The suggested mitigation plan mentioned in the EIA, planting trees around the construction site-new road, to create a green protection belt, will hardly mitigate the problem, as it will take from 10 to 15 years for the trees to reach sufficient size to serve at least partially this purpose.

As traffic studies performed for the Municipality of Budapest clearly indicate dramatic increases in traffic and related emissions, the construction of this part of the M0 will considerably worsen ambient air quality. As the northern sector of the M0 ring road is in the wind corridor from which clean air blows into the city of Budapest, it may well drive significant areas of the city into violation of ambient air quality laws. The team that performed the EIA, lacking access to a dispersion model, failed to determine the impact on ambient air quality in northern Budapest. In any case, it is clear that the project will significantly worsen air quality for a significant portion of the city, in violation of the Decision no. 28-1994 of the Constitutional Court, which blocks all new acts by the state which worsen environmental conditions.

These problems would have been pointed out in public hearings had any of the affected citizens or environmental groups been notified of a public hearing. The Ministry of Transport, Communication and Water Management (KHVM) signed a contract with UTIBER Ltd. on 19th December 1997 to begin work. The habitants of Káposztásmegyer II. were only informed of the construction in the early spring of 1998, when they realised with alarm that excavation had begun 250 m far from their homes. The indignant citizens formed an association, called Káposztásmegyeri Környezetvédők Köre Egyesület (Káposztásmegyer Environmental Protection Society, KKKE).

While the District claims to have announced the public hearing attended by 16 government officials, their admission that not one person from the local residents showed up despite the obvious concern that the formation of KKKE indicates, clearly constitutes a violation of Act 53-1995, the law on the General Rules of Environmental Protection, which requires proper public notification, and Government Decree 152-1995, which requires that the hearing be published in a major newspaper. It also clearly constitutes a violation of EU Directives, and as such violates the policy of the EIB to conform to EU Directives when lending outside the EU.

There is also some question as to the legality of the Environmental Impact Assessment. The EIA was performed under the old EIA law, and was initially rejected. While the area of the road under construction was not the primary concern raised in the old EIA, when the project went forward on the other section an EIA in conformity with the much stricter EIA law of 1996 should have been performed.

The ring road, and Junction No. 3, connecting the M0 to the old road no. 2, passes through a Nature Protection Area inhabited by Hippophae rhamnoides, a protected bush. Furthermore, fencing around the area to protect it during construction, identified as a mitigation measure in the EIA, has not occurred, in violation of Act 53/1996, p. 31, which restricts all activity threatening to nature in Nature Protection Areas. As a consequence, a large part of this bush, protected by Hungarian laws, perished.

The construction also cut through a special wetland area, protected under Act 53-1996, the law on Nature Protection. The Göncöl Alliance, a regional environmental NGO north of Budapest has just prepared a denunciation against the constructors because of breaching the Criminal Code (par. 281) which considers the damaging of nature a crime.

The Budapest Court Halts the Construction of the M0

Confronted with the motorway's construction, local citizens organized themselves into the Káposztásmegyer Environmental Protection Society (KKKE) and asked for professional assistance from the Clean Air Action Group (CAAG), a national federation of seventy-nine Hungarian non-governmental environmental organizations. Together KKKE and CAAG received legal assistance from the Environmental Management and Law Association (EMLA), a national environmental service provider, and from Mr. Istvan Sárosi, a lawyer and resident of Káposztásmegyer.

Two of the legal arguments against construction of the M0's northern section were that it had been planned without effective public hearings, and that the official environmental impact assessment was disregarded when it proved to be unfavorable to the construction plans. Among others, the environmental impact assessment had focused only on passenger traffic and completely omitted trucks, and even so it had found that the expected air pollution levels would exceed limits permitted by Hungarian norms. Noise levels are also expected to exceed the set limits during the day and night. (Even though the official norms are set so high that the "permitted" noise levels are also might damage human health.)

In the environment impact assessment conducted, the residential area which is closest to the motorway and were 5000 people live, were missing on the map. Public hearings were not publicly announced. The Hungarian government completed no studies whatever were completed to find out how the traffic patterns and environmental parameters would change in Northern Budapest and its surroundings after the motorway section was built. There were no analyses about its economic impact on the area either. Although the Hungarian transport minister, Mr. Kálmán Katona publicly claimed that this section of the M0 is Hungary's biggest environmental investment in 1999, he admitted in a meeting with the representatives of environmental NGO's on August 30, 1999, that he has absolutely no data on the expected environmental impacts of the motorway on Northern Budapest and its surroundings. However, computer forecasts ordered by the Transport Department of the Budapest Municipality, showed that, if constructed, this section of the M0 would worsen both traffic conditions and the state of the environment in the area. (The Municipality never made the results of this study public.)

Other calculations, made by experts of CAAG similarly showed that the new motorway would have no positive impact on the environment. Almost 100% of the traffic in the area have their start or destination or both in Budapest, so the new road will divert practically no traffic from Budapest, which is stated by the Transport Ministry as the main purpose of building this new section.

The investment cost HUF 22 billion which is an enormous sum for a 7 km stretch of motorway. In comparison, the Budapest Public Transport company which carries over 60% of the passengers in Budapest (calculating only public transport and private cars) can afford only about HUF 4 to 5 billion each year for investments.

In this precedent-setting case, the Capital Court of Budapest has issued an injunction to halt the construction of the Káposztásmegyer part of the northern section of the M0 motorway. In its decision, dated 21st July 1999, the Court stated that the new stretch of the motorway would worsen the local environment, endanger the health of tens of thousands of local citizens, and cause economic damage to area residents.

The Motorway Company constructing the M0 appealed the court's decision. However, according to the Court's decision this does not give the right to the company to continue the construction. Nevertheless work on the M0's northern section continues illegally, on the pretext that this is needed for safety and maintenance reasons. However, the local citizens and the environmental organizations supporting them will not give up the struggle to protect their health and their environment for them and their children.

NGO's turn to EIB and the European Union Ombudsman

Soon after the legal case was filed, together with the CEE Bankwatch Network and the New York-based Institute for Transportation and Development Policy, KKKE and CAAG petitioned the European Investment Bank to withdraw its funding. Sir Brian Unwin, the Bank's president, denied the request. In its response, the Bank stated that any project it finances has been subject to detailed environmental studies and has received the necessary legal clearances. Furthermore, the Bank stated that it was not its task to judge the national legal procedures of the country in which it finances a project.

In addition to working through the Hungarian legal system, in November 1988 the mentioned NGOs with the help of the European Environmental Bureau turned for redress to the European Union Ombudsman. According to the environmental NGOs, international financial institutions should be held accountable for the legality of the projects they finance. In addition, the NGOs argue that such institutions should take into account environmental and social impacts, not just financial, when making the initial funding decisions. The Ombudsman is now investigating the case and asks the EIB for detailed information about its decision to grant the M0 loan.

Conclusion

Financing of this project by the EIB and PHARE indicates their tacit approval of a motorway project which makes practically no economic or financial sense, and causes severe environmental and health consequences. This indicates at best an indifference on the part of the EU institutions towards environmental due diligence and public sector accountability.

For these reasons, the citizens represented by the Káposztásmegyer Environmental Protection Society, the Clean Air Action Group and the CEE Bankwatch Network call upon the European Commission for help in addressing these matters and making the EIB and PHARE more accountable.

Budapest, December 14, 1999