MAL - the afterlife of a disaster
In October 2010, the walls of a red sludge reservoir belonging to aluminum maker MAL broke, releasing a wave of toxic mud to sweep through the village, killed ten people in Hungary’s worst man-made ecological disaster. The case not only raised questions of criminal responsibility, but also resulted in noteworthy legal solutions regarding the company’s management and its future. What has happened to MAL since the catastrophe?
Toxic red sludge broke through a reservoir wall of the aluminum company MAL near the west Hungarian town of Ajka on October 4, 2010, killing ten people as it flooded the towns of Devecser, Kolontár, and Somlóvásárhely, as well as huge areas of agricultural land. The ecological disaster immediately grabbed the attention of the international press, which initially attempted to assess its long-term effects on nature and later followed up on the legal developments of the case.
The sludge is a by-product of the early stage of alumina production, a mix of metal oxides, mainly iron, which gives its red color. Strongly alkaline, the material irritates the skin. While some studies have linked the inhalation of titanium dioxide and silicon dioxide dust to cancer in animals, it has not been proven in humans. However, if the material, reaches farmlands, it destroys crops, but fortunately it can be quite quickly be neutralized given rain and slightly acidic substances in soil.
Still, to prevent further catastrophes, the government and its institutions reacted immediately. Disaster crews built an emergency dam to protect the village of Kolontár, in case the weakened wall of the damaged reservoir collapsed further. Prime Minister Viktor Orbán himself visited the disaster area and promised to rebuild the destroyed houses as soon as possible.
He kept his word. “We were in despair. What would we do without our house? We are old,” a woman in Kolontár said a year after the disaster, sitting in her newly built home. Their street is now full of similar buildings, all given to people affected by the events nine months after the disaster. “Now we feel that this is our home,” she added. “Now some people in the town envy our new house, but they were not envious when we had to spend hours standing in the sludge and praying,” the woman’s husband adds.
The restoration process was an obvious success for the government, as it acted quickly and effectively to rebuild the towns according to the local needs; the legal aftermath of the disaster has proved somewhat more controversial elements.
As part of its immediate reaction to the catastrophe, the state took control of MAL on October 12, 2010. As Prime Minister Viktor Orbán told Parliament on October 11, damages must be paid to those affected by the spill, jobs at the plant must be saved, those responsible must be held accountable, and further risks at the company must be identified. “We need to bring the company responsible for the red sludge spill under state control, and its assets under state closure, until all of these four tasks are taken care of,” he said in explaining the decision.
Orbán even ventured to suggest who the responsible parties might be: “In light of what happened, we have good reason to believe that there were people who were aware of the dangerously weakened state of the walls of the reservoirs, but driven by their private interests, they believed they were not worth repairing and hoped that trouble could be avoided.”
Control and fine
The law enabling the government to practically nationalize MAL for an unknown period of time was criticized by legal experts, who expected it to be thrown back by the Constitutional Court (AB) for creating the possibility for the state to take control over companies with a retroactive validation in order to “act effectively in avoiding disasters or reduce their negative effects”. It also raised eyebrows that the regulation was built in to a law about national defense, even though the case has little to do with the Defense Ministry’s competencies. However, the law was finally passed without problems and was not questioned by the AB. It should also be noted that the company managed to keep its market position and MAL’s 1,100 workers also keep their jobs.
Although the company was under state control, meaning, for example, that the state supervisors’ approval was required for any money transfers from MAL’s bank account, the regular heads of the company kept their roles in drawing up business strategies, and managing director Zoltán Bakonyi kept his mandate as the main decision-maker at the company. Moreover, as an insider told the Budapest Business Journal, the situation at that time had several benefits, and Bakonyi “blessed his star for having the state involved” as several crucial processes such as building permit applications, which were required for the development of the reservoirs and would normally take two months, were very much sped up. If Bakonyi wrote down in the evening what permission he needed, he had it by the morning, our source said.
Finally, MAL implemented the more accepted and safer technology of dry storage of red mud. As a result, in June 2011 the state control came to an end on grounds that “the region was no longer threatened by significant ecological risks, and MAL has successfully undergone a technological overhaul without losing its market positions.”
Meanwhile, the Mid-Transdanubian Inspectorates for Environment, Nature and Water levied a HUF 135 billion fine on MAL for the catastrophe. The company appealed the amount, saying that it is not in proportion to the caused damage.
The inspectorate’s justification was that the breach of the dam allowed 1.8 million cubic meters of red sludge to flood the three towns, while the so-called red sludge report, initiated by green-liberal opposition party LMP and conducted by Greenpeace, says that the real amount was around 1 million cubic meters. This opinion is also supported by data published on a website the Interior Ministry dedicated to the disaster, which says that around 330,000 cubic meters of hazardous waste was carried away from the communities affected and another 787,000 from the outlying areas. As such, MAL’s lawyer György Ruttner says that authorities took even the amount of rainwater into consideration when allocating the fine.
Further, as MAL had all the required permits, the walls of its reservoir met the prescribed rigidity standards, and none of the regular inspections conducted by authorities found any problems, the company says that responsibility may also lie with the authorities awarding the waste management licenses to MAL and with those who carried out the inspections; however, only MAL’s responsibility was brought up during the legal process. As for the fact that the toxic red sludge was not even labeled as hazardous waste, and so could be stored under less strict requirements, state secretary for environmental issues Zoltán Illés blamed the European Union, saying that Hungary had considered red sludge as hazardous waste before 2004 but changed the regulation when it joined the EU. MAL head Bakonyi himself also said on the day following the disaster that red mud might irritate the skin but is not toxic, and “it can be properly cleaned off by a strong wash with a hose”, an opinion shared by experts worldwide.
If MAL loses the appeal and is eventually obliged to pay the entire fine, it will definitely bankrupt the company. Even though MAL covers 5% of the world’s aluminum market, and its pre-crisis revenues were above HUF 50 billion in 2007 and more than HUF 28 billion even in 2009, paying HUF 135 billion would be impossible for a company that, according to auditor KPMG, is currently valued at around HUF 20 billion.
However, it seems that the government could offer MAL another option. According to a law amendment, introduced by an MP of the co-governing KDNP party and passed by Parliament in December 2011, the state has the right to gain ownership of companies that cannot pay environmental fines imposed on them. This opened the door for the partial or full nationalization of MAL or, indeed, any other company getting into similar trouble in the future.
Doubts on the rise
Perhaps inevitably, several conspiracy theories have emerged regarding the case. All experts and insiders the BBJ talked to about the issue mentioned that “there might be some further interests in the background”.
Although parliamentary party Jobbik enjoys the support of 14% of voters, it is labeled as anti-democratic, and the party’s statements rarely get good coverage in the Hungarian press unless they touch on racial issues in a scandalous way. The suggestion last September by Jobbik MP Lajos Kepli, speaking as co-chairman of the parliamentary committee investigating the disaster, that it was possible that the dam broke as a result of an intentional explosion, went largely unreported. Kepli’s words were based on the expert opinion of a material physicist, who found that a strong hit was needed to break the dam, while the committee could exclude the possibility that the impact in question was caused by strong waves across the top of the reservoir. MAL’s explanation about the ground breaking due to the bad location of the reservoir and also to heavy rains before the disaster was found to be baseless.
As ten people died in the red sludge flood and at least 200 were injured, the case might have serious criminal consequences as well. The prosecutor of Veszprém County pressed charges against 15 suspects, including Bakonyi, in connection with the disaster. The indictment says that MAL’s leaders have committed several errors and, most importantly, failed to report that their measuring devices indicated some irregularities the day before the dam broke. The devices even sent emergency signals an hour and a half before the disaster, which would have been enough time to evacuate the area.
However, the final report made by the parliamentary investigation committee shows that the body did not find anything suggesting that the disaster had detectable forewarning signs. Also, both the police and the directorate for disaster management confuted this theory.
The trial starts this September and is expected to take at least a year.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.