New Hungarian attack on a French company

It now seems that what happened to Suez Environment in Pécs (see my post "Foreign Investors in Hungary Beware: Pécs and Suez Environment" [October 7, 2009]) was not a singular event. Not the crazy idea of some loose cannon, a newly elected mayor in one of Hungary's bigger cities. I never thought that Mayor Zsolt Páva was acting on his own because such a drastic attack on a foreign company, in my opinion, couldn't possibly happen without the knowledge of the top brass at Fidesz. Especially so close to the elections which they are poised to win. I thought that perhaps it was a trial balloon to test domestic and international reactions.

If it were just a trial balloon, by now it should be crystal clear that the foreign reaction is resoundingly negative. Not just in the case of Suez Environment but also in the case of the two radio stations, Sláger and Danubius, originally owned by foreign companies, who lost their licenses. Again, those interested in the story should read my earlier post. These two cases prompted international outrage. Nine countries issued a joint statement from their embassies calling the Hungarian government's attention to these antagonistic moves against foreign companies. Of course, the Hungarian government is quite innocent. It has no jurisdiction over the independent local government of Pécs or the equally independent ORTT, the body that administers Hungary's airwaves.

In addition, U.S. Representative Joe Donnelly (D-IN) introduced a resolution that  "(1) condemns the recent action by the Hungarian National Radio and Television Board that awarded the national community radio licenses; (2) encourages the Republic of Hungary to respect the rule of law and treat foreign investors fairly; and (3) encourages the Republic of Hungary to maintain its commitment to a free and independent press." Donnelly's resolution pointed out that over $9 billion has been invested in Hungary from the United States since 1989, making the U.S. the fourth largest contributor to foreign investments in the country. It also noted that the Hungarian Investment and Trade Development Agency deemed foreign investment crucial to Hungary's economic development. The resolution was overwhelmingly passed a couple of days ago (333:74).

So after all this, one might think that Fidesz would stop its anti-foreign rhetoric and action. Because this is no laughing matter. Such a resolution against a European nation must be taken seriously. That's why I was so surprised to read in today's Népszava that the mayor of Hódmezővásárhely refused to meet with the CEO of DÉMÁSZ, the Hungarian subsidiary of EDF Group, a leading player in the European energy industry. The company started in 1946 as Elecricité de France and subsequently became an international company with branches in the United Kingdom, Germany, and Italy. EDF has more than 160,000 employees in Europe and provides electricity to 38.1 million people. The original investment in the Hungarian subsidiary was more than 37 billion forints. The company is one of the largest employers in the region, that is the southern Great Plains where Hódmezővásárhely is located.

The mayor of Hódmezővásárhely, János Lázár, is not a two-bit local leader in a smaller town (population 50,000) but an important player within the party. He is a member of parliament, chairman of the parliamentary committee that oversees police matters, and is often talked about as Hungary's next minister of interior (also in charge of the police).

So what happened? Thierry Le Boucher, CEO of DÉMÁSZ, asked for a meeting. Lázár in an impolite letter refused to meet the Frenchman. The letter read: "I received your intention of meeting me, but I have no desire to meet you either now or any time in the future. Next year the new government will change the legal provisions concerning the country's energy sector in order that it would serve the need of large companies and ordinary citizens. As a mayor and as a member of parliament I consider it very important to change the rules and regulations concerning your activities and the price structure of your firm. I very much hope that in our country in the future such political outlook will receive center stage that defends national interests and not the interests of foreign companies."

Considering that 80% of Hungarian exports are produced by large foreign companies I really don't know what Viktor Orbán and Fidesz are thinking.

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whoever
Guest

Yes – but EDF are nothing to do with exports – they have been running a utility which in many mixed economies is considered to be a “public good” – as is water and gas.
Certainly in Western Europe, the idea of private water and electricity providers remains a controversial and frequently questioned concept. It has been driven by profit and free-market ideology rather than the public interest.
In this regards I wish Fidesz the best of luck, as would many.

Hank
Guest
“Certainly in Western Europe, the idea of private water and electricity providers remains a controversial and frequently questioned concept.” Absolutely true, and therefor buying back an earlier-privatized stake in such a company is totaly legitimite, but… 1. One should behave reasonably and predictably which means talking, negotiating, and if need be go for a court or mediation. That is something different then the rude, boerish, and provincialist behaviour Lázár, Páva and the likes are showing. 2. There are good reasons why (partly) privatizing such services in Central Europe makes more sense than it does in Western Europe and should at least be comtemplated a bit longer and more seriously. Western Europe has stronger state administrations (better able to enforce regulation), less burocratized state administration, stronger public opinion and less corruption than for example Hungary. Many old state-owned utility companies in this country were total shit in many respects, not at least customer service (repair times, waiting times, information, latest technology, sorting out billing problems etc.) Most of those which are now ppp companies have changed hugely for the positive. Sure, pricing policy should be the subject of discussion between privat investor and other owners(and there should be a strong regulatory… Read more »
Mark
Guest
Hank: “There are good reasons why (partly) privatizing such services in Central Europe makes more sense than it does in Western Europe and should at least be comtemplated a bit longer and more seriously.” Privatization is a little bit of a misnomer where European energy markets in general, and EDF in particular are concerned. 84.7% of EDF’s shares are owned by the French state – therefore we are not talking so much about privatization, but the transfer of assets from one sovereign state to that of a foreign sovereign state. The beneficiaries of high energy prices charged to Hungarian consumers are not risk-taking entrepreneurs but the state budget of a much richer foreign state (which ultimately gains the revenues from holding EDF’s shares). If you like it is the state backed redistribution of wealth from Eastern to Western Europe. It is a generally problem that the European energy market is dominated by companies (either state owned like EDF, or privately-owned ones like EON) which enjoy a dominant position in their home state because of late or partial liberalization of their domestic markets (while Hungary privatized its electricity companies in 1996, EDF was the single monopoly provider in France until 1999!).… Read more »
Guest

Could someone tell me when all these privatisations and the sales to foreign companies like EDF and EON happened ?
I distinctly remember getting my first energy invoices from Kögaz and Dedasz – now it’s all EON here (near Heviz)

Hank
Guest

Mark: “Privatization is a little bit of a misnomer where European energy markets in general, and EDF in particular are concerned.”
I fully agree, Mark, but in my book that means companies like EDF have to be (partly) privatized, as well, and there needs to be strong regulatory oversight by the EU and national authorities.

Carl
Guest

In response to wolfi, it seems to have mainly happened during the Horn government, 1994-1998, with gradually increasing proportions of private ownership of these utilities from 1996 onwards. Now I understand that only a token element of these utilities are publicly owned. However the branding is only being gradually changed to reflect the ownership.
What people tend to miss is the relationship between this and the PHARE money from the EU – much of which was targeted towards infrastructure which was to be owned by EU multinational companies. This would seem to reflect corruption on a massive scale, reflecting on both Hungary and the EU.

Mark
Guest
wolfi: “Could someone tell me when all these privatisations and the sales to foreign companies like EDF and EON happened ?” 1995-7. The Bokros programme reduced the budget deficit, but did not deal with the underlying debt burden (in fact controlled devaluations of HUF would have potentially made this worse). Therefore the Horn government to manage the debt burden was forced into a kind of fire sale of as many of its most valuable assets as it could. This meant that in the three years between 1997-9 it could use the one-off windfall of privatization revenues to avoid rolling over debt. Because of its forced and mass nature, and because it happened in a period before the peak of the boom of the late 1990s these revenues were never sufficient to solve the underlying problem. Economic growth eased it, but this too was unsufficient to avoid a recurrence of Hungary’s “debt trap” problem from 2000. Hank: “I fully agree, Mark, but in my book that means companies like EDF have to be (partly) privatized, as well, and there needs to be strong regulatory oversight by the EU and national authorities.” But the EU energy markets have never been properly liberalized,… Read more »
Odin's lost eye
Guest
Oh dreary me! Someone in FIDESZ has dropped a clanger! The ‘Cat is now out of the bag’ and we all know Fidesz future intentions. There is always a problem with Nationalised industries and those owned by Local Authorities. Unless they have some real sharp cookies on their tails the management will run these outfits for their own benefit and not for those who hold their equity. The problem is that the ‘sharp cookies’ get head hunted into the private sector PDQ. EDF and other management partnerships make their profit by making those companies they manage ‘lean and mean’ What Fidesz is planning I think is to take over those companies by placing them under ‘Supervision’. They will do this to ensure that these companied work ‘for the benefit’ of Hungary. Their order of priority will be ‘Local Utilities’, then foreign owned banks, foreign owned property companies, foreign owned manufactories etc. They will be selective depending on the ‘support’ (in the form of envelopes) they receive. The Supervisors will themselves by private companies –owned by guess who- and be financed by those whom they are supervising from fees extracted for their services and fines for ‘non-compliance’ etc. This would avoid… Read more »
Wehehehe
Guest

“Considering that 80% of Hungarian exports are produced by large foreign companies I really don’t know what Viktor Orbán and Fidesz are thinking.”
Don’t be uneducated dear Eva!
Hahahaha 80% = 80% of GDP (Gross !!!! data) the only important is the GNP in the life of a country (GNP = Measures of national income and output) The foreign contribution for Hungarian GDP = 80%, but the foreign contribution for Hungarian GNP = less than 10%. That’s why the foreign capitals is less important for Hungarians!

whoever
Guest

EDF and other management partnerships make their profit by making those companies they manage ‘lean and mean’.. but do they?
Has anyone here had any business with an EDF-owned company in Hungary? For setting up a contract or querying a bill? Would “lean and mean” be the best description… or “incompetent and badly-managed” ?
We mustn’t make the assumption that public companies=bad, private=good: we can say that cultural factors play a large role as to whether an inefficient private sector provider takes over (eg the French water companies in the UK) or an efficient public sector provider emerges (eg StatOil in Norway)
After all, an EU study of Swedish electricity privatisation concluded the following:
“In the case of the electricity industry, retail prices have increased since the opening-up of the market, while employment has decreased and the produced volume has remained at approximately the same level as before”

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