The Russian interest in Hungary’s MOL

MOL stands for Hungarian Oil and Gas Public Limit Company. Although it is a publicly traded company,  the Hungarian government considers MOL a company of "strategic importance." Therefore there was quite a stir when OMV AG, Central Europe's biggest oil company and Austria's largest publicly traded firm that had a 21.2% percent stake in the Hungarian refiner MOL, sold its stake to Russian crude producer Surgutneftegaz. Surgutneftegaz is the fourth largest oil company in Russia. One analyst  (Derek Brower) called it "one of Russia's most opaque and politically connected energy firms." Apparently Surgutneftegaz wanted the MOL stake very badly because it paid €1.4 billion. According to OMV the settlement price was €63.10 a share, almost a 100% premium to MOL's closing stock price of €32.70 just before the deal was announced.

At the time that OMV wanted to have a majority stake in MOL in 2007, the Hungarian government intervened. Parliament passed a law that became known as Lex MOL. It allowed the government to limit the impact of foreign company ownership on the company's management. For example, although OMV owned more than 20% of the company, its voting rights were restricted to 10%. OMV considered Lex MOL illegal and went to Brussels to fight the legislation. The case is still pending.

If Hungarians were nervous about an Austrian company owning part of its natural resources, just imagine the upheaval that ensued when the news hit that OMV had sold its stake to a Russian company whose ownership is murky. Some people even claim that Vladimir Putin is among the owners. The new prime minister, Gordon Bajnai, immediately reacted and told Reuters on April 17 that "as the Hungarian government did not welcome the approach of OMV . . . it is also unhappy with another company's entry through a step that has not been coordinated with" the Hungarian authorities. MOL immediately denounced the purchase. Both the Hungarian government and its opposition parties rallied in support of MOL's independence. The Russian foreign ministry said that Hungary was unnecessarily politicizing the deal. In fact, the ministry said that Hungary should welcome Russian investment in MOL since it showed the willingness of Russian companies to broaden their economic ties with Europe.

For better or worse the purchase is done, but the political reverberations are far from over. Earlier János Veres, then still minister of finance, claimed that the Hungarian government didn't know anything about the impending deal. The opposition first attacked the government for its incompetence: how is it possible that a country that has national security services, not one but several, has no information on negotiations between Sugarneftegaz and OMV AG? As it turned out, a few days before the deal was finalized the government got wind of the deal. However, the new minister in charge of the national security office claims that they couldn't do anything about it. I'm no contract or securities lawyer, but I believe this to be the case. Once OMV AG had a defined stake in MOL, they had control over their position. They could hold onto it or sell it to the highest bidder. Basic principles of the free market. Nonetheless, István Simicskó (KDNP = Christian Democratic People's Party, ally of Fidesz), chairman of the committee on national security, came out with a two-pronged accusation: first, the government lied about their knowledge of the deal; second, the Hungarian government could have prevented the sale.

The situation is complicated because all this information falls under the category of state secrets. So if Simicskó and later Ervin Demeter, former minister of national security, are not simply bloviating, how did they they know what the government knew and when they knew it? Perhaps earlier accusations that Fidesz maintains illegal surveillance over the activities of the government's national security office are well founded. Károly Tóth (MSZP), vice chairman of the parliamentary committee, is outraged; he claims that Fidesz and KDNP members of the committee knew everything before Ádám Ficsor, the new minister, informed them of the details. Apparently they were reading questions and answers from a previously prepared script. According to Tóth, the whole scenario was planned well in advance. The best proof, he claims, is that Ervin Demeter at one point told his fellow Fidesz member that "this question shouldn't be addressed now, only after the next answer." How can they be so well informed that they don't even have to wait for information coming from the government? They know all the answers ahead of time. Tóth suggests that perhaps there should be an investigation. Perhaps so, but by now I'm convinced that it will achieve absolutely nothing. Fidesz is invincible.

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Member

The growing re-establishment of influence by Russia in Eastern Europe is a lot more troubling than the Fidesz bugging allegations.
The gas shenanigans earlier this year show that Germany is more interested in appeasing Russia than in standing in solidarity with its felow EU members.
It seems almost inevitable that the US will weaken in its military commitments to European defence under Obama. The EU itself is becoming more divided and ineffective. A power vacuum is opening up in eastern Europe and Russia likes throwing its weight around, provided that the enemy is small enough (eg. Georgia). The future does not look pretty.

Steve
Guest
I think it happened like this: 1. Russians used the time of the power vacuum, when Gyurcsany resigned, to make the transfer. Gyurcsany can take all the blame, but he already resigned… 2. Gyurcsany probably knew about it, he visited both Vienna and Moscow before the Russian move, or at least knows the reason what for the shares are needed by the Russians. No surprises, he stood clearly for Russian gas against Nabuco. 3. Silvassy, (maybe even Veress) knew about the transfer, it could be the reason why they were removed from/left their positions. 4. In the TV report Ficsor said that the national security knew about it, and when his statement is “read between the lines”, its obvious that the information reached at least Silvassy. 5. Even Bajnai didn’t had that emotionless face he most of time has, when he denied knowledge. Hungary is a pawn in an ongoing geopolitical chess game, and MSZP played against Hungarian and EU interests. The best for the Left in Hungary would be if MSZP disbanded. Carrying the burden of the communist past can’t go on forever. The existence of MSZP makes impossible for an authentic and competent Left party to emerge. Such… Read more »
Mark
Guest
“Once OMV AG had a defined stake in MOL, they had control over their position. They could hold onto it or sell it to the highest bidder. Basic principles of the free market.” The raises an interesting issues about privatization of energy-related businesses when many of the potential buyers are either state-owned, formerly-state owned, or quasi-monopoly providers of energy in their home markets. We know in the electricity market in Hungary about the dominant position of E.ON, the privatized (it began life of the state utility company of the German state of Prussia created in the depression) utility company. In the UK, the market is dominanted by E.ON and EDF (the part-privatized public French utility). Austria and Russia are both states that have extended this kind of quasi-state capitalism into the oil business – though for understandable geo-political reasons opinion is more worried about Russia, than Austria. It seems to me that because certain large companies are prepared to use a semi-monopolistic position in their home market, or political support from their government, while trying to act like an overseas investor abroad that we are not talking about the “basic principles of the free market”. To allow these to operate… Read more »
Member

I think that Steve and this blog’s author are unfortunately on a similar wavelength.
You both seem to be that obsessed with the incestuous internal feuding of Hungarian political life that the fact that Russia is taking over your utilities is merely a footnote in your thoughts.

Godot
Guest

Simple. Either the Hungarian government is profoundly corrupt and sold out to the Russians, or they are so unbelievably clueless that they really had no idea what’s happening. Take your pick. In any case, this MOL giveaway is yet another sad example of why Hungary is going down fast.
When are we going to find an “anatomically correct” leader? You know, with brains, spine and balls…

Steve
Guest

“You both seem to be that obsessed with the incestuous internal feuding of Hungarian political life that the fact that Russia is taking over your utilities is merely a footnote in your thoughts.”
After MOL’s own leadership, the Hungarian government is the biggest guarantee for MOL to stay independent of foreign influence. If the leaders of the government are incompetent, fail to act, or are outright helping foreign interests, then internal politics is important.

Mark
Guest

Steve: “After MOL’s own leadership, the Hungarian government is the biggest guarantee for MOL to stay independent of foreign influence.”
I think this kind of economic nationalism is pretty misplaced. Hungary has an oil industry in no small part because of the nvestment of the American-owned Standard Oil Corporation when it discovered oil at sites in Sopron and Zala counties in the 1930s.
Hungary is also a member of the EU, which guarantees the free movement of capital within the single market. Provided the buyer buys legally, and no issues of international competition are raised the Hungarian government has no power to prevent a private company remaining independent of “foreign influence”. Of course, Hungary could nationalize – but this would mean paying the current shareholders full compensation at a current market rate from the state budget, and this would limit the freedom of manouver for the management of the new state company, which would lead to further problems of its own.

whoever
Guest

If anything this development undermines the government’s determination to avoid the OMV takeover of MOL. The proposed joint ownership of OMV and the Hungarian state could have been the “least worst option!”

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