Back to state capitalism?

Yesterday an article appeared in Bloomberg entitled “Hungary Bolsters Utilities to Expand.” The story reported that the Hungarian government wants to expand MVM (Magyar Villamos Művek) Zrt., a state-owned electricity wholesaler, to increase Hungary’s influence in the Central European energy markets. Surprisingly this was announced by János Lázár, the leader of the Fidesz parliamentary caucus, to two Bloomberg reporters in Budapest: Zoltán Simon and András Gergely.

Lázár explained to them that now that the government has become MOL’s largest shareholder with a 25% stake it is time to expand further in this strategically important energy sector. MOL, Lázár said, already controls refineries in Croatia, Italy, and Slovakia and now the state-owned MVM can serve as a vehicle for further expansion. Lázár was quite clear: “We want to establish a competitive state player in the energy sector,” and he added that he sees “great potential in MVM … [because] there’s a lot of money to be made here, a lot of money.”

As it stands now, MVM doesn’t control the whole Hungarian market and the Fidesz government figures that MVM must expand. Lázár didn’t explain how this expansion will be achieved; he told the reporters merely that “the opportunities determine whether we reach these strong positions through acquisitions or through agreements, but certainly we have to act as market players.” However, Világgazdaság, a paper dealing mostly with economics and finance, seemed to have learned already in late June that Hungary had offered 800 million euros ($1.1 billion) for the German-owned E.ON AG’s Hungarian gas unit. Apparently, the offer hasn’t been accepted “for now” because Germany’s biggest utility company demanded 1.2 billion euros for its Hungarian domestic gas unit. E.ON, by the way, has a major presence in Hungary: it owns three of the country’s six electricity companies, two gas suppliers, and underground storage.

If Világgazdaság‘s information is correct, the Hungarian government–after spending 1.8 billion euros to acquire a sizable stake in MOL–is now planning to spend nearly another billion euros buying E.ON’s gas unit. Raffaella Tenconi, a London-based economist at Bank of America Merrill Lynch, said that “Hungary’s drive to snap up stakes in strategic industries may undermine its ability to cut public debt.”

As things stand now, economists have made some dire predictions recently about Hungary’s ability to stick to the original figures it presented in its convergence program. Economic minister György Matolcsy predicted a 3.5 percent growth for 2011 and that was his more conservative estimate, but it looks as if Hungary will be happy to achieve a 2.5% growth. Meanwhile internal consumption is still dropping and so are tax revenues. Although the Hungarian government predicted a 2.8% deficit for the current year, most analysts are convinced that the deficit will be over 3%. According to some calculations by former members of the Budgetary Council that was dispersed by the Orbán government, there is a real likelihood that next year further austerity measures will have to be introduced. Under these circumstances it seems foolhardy to purchase companies for billions of euros.

The Orbán government would appear to be gambling on some spectacular economic growth in the near future which would allow it to reduce sovereign debt as well as expand its “business activities.” As for the rapid reduction of the sovereign debt, Raffaela Tenconi expressed her doubts because “evidence is accumulating suggesting that the public debt reduction plan will prove much less than forecast, leaving Hungary more exposed to external vulnerability.”

The government is sinking billions into expanding the state’s business ventures. It seems to me that they would like to have the bulk of the energy sector in the hands of the Hungarian state where, they hope, “a lot of money [can] be made.” Of course, a lot of money can be lost as well, as the fall in MOL stock demonstrates. MOL shares have lost approximately 15% of their value since the Hungarian state decided to be one of the company’s principal owners. The loss occurred in two stages: right after the Hungarian state made its purchase and a month or so later when rumors surfaced that the CEO of MOL, Zsolt Hernádi, paid a bribe of 10 million euros to Ivo Sanader, Croatian prime minister at the time, in order to secure a controlling share in the Croatian oil company INA.


The Croatian prosecutor’s office asked the Hungarian authorities to provide legal assistance (jogsegély) in investigating Hernádi’s case. The Hungarian Chief Prosecutor’s Office denied legal assistance but considered the request as a complaint that ought to be investigated.

Meanwhile the Hungarian state as a part owner of MOL immediately announced its position on the Croatian-MOL controversy. When the Croatian government announced its intention to review the 2003 and 2009 agreements signed by MOL and the former government in Zagreb, Orbán announced that “it’s our firm stance as an owner of MOL that we won’t agree to any changes in the contract between the Hungarian and the Croatian oil companies.” At the same time, the Hungarian prime minister made it clear that the Hungarian government will not stand by Zsolt Hernádi if the charges against him prove to be well founded. “We’re aware of the charges [but] we don’t regard them as a matter [concerning] the government. It’s the task of law enforcement agencies to clarify the charges, we do not wish to get involved.” So, Hernádi is on his own and according to some people in the know Orbán wouldn’t be too unhappy to see him go. In such a case, the speculation goes, Orbán could more easily pass the government’s MOL shares on to MVM, a company completely owned by the state. What would happen to MOL’s shares after such blatant state interference no one knows with certainty, but the market normally doesn’t take kindly to such moves.

Sort by:   newest | oldest | most voted

I personally think that energy investments are good investments but can be very risky. For Fidesz to gamble with the financial assets of Hungarians (as it is not from excess money) is very unfair. This is certainly a gamble that can pay of bug time, but of not Hungarians will loose their shirts.
I think there were two other important finance related news, one is that the extra taxes will continue in some form after 2012 (maybe they need the money to reduce the deficit as they spending all the money on something else), and the other that China’s fourth-largest carrier, is planning to buy shares in Hungary’s state-owned carrier, Malev Hungarian Airlines.
All three news are very interesting for various reasons for sure.


I hope that readers here realize that the scale of these investments and their potential for skimming off money for private gain (not just pay-offs: imagine just a few timely put options on MOL shares!) dwarfs by several magnitudes of order the potential for illicit money-making in the largest of projects under the previous government.
Government investments of this scale require a degree of secrecy in advance of their execution to avoid market manipulation, but they also require absolute transparency with regard to their clearance. Hungarian citizens should be absolutely vigilant about this.


GW, are you referring to some sort of “insider trading”? I was trying to figure out why suddenly is this buying selling of stocks by the government, MOL, MVM, Malev, when there is no capital for it. It is all from borrowed (or privatized) money.

Odin's lost eye

I have long been trying to guess where the Fidesz scams were. Now I see them. Insider trading done in a manipulated market. Someone (almost certainly the Hungarian public) is in for a ‘Hair Cut’.
Of course there will be all those lovely (highly paid) top management jobs. There would have to be those classics from the communist era the subsidised ‘clinics’ (which elsewhere would be called ‘County Clubs’) and the ‘official car and drivers’. The senior managers and their families could visit the ‘clinic’ for a ‘Rest Cure’. The ‘special conventions’ held in exotic locations during the worst of the Hungarian winter. The seminars held in the places with 5 star service, superb kitchens and superlative cellars. Need I go on?

Sackhoes Contributor

Is Orban a secret socialist? He seems to be talking from both sides of his mouth. He claims to be a conservative, cutting the fat from the government apparatus, etc., yet at the same time nationalizes important large companies. Is there any reason why an oil company or a power company shold be owned by the government? I can’t think of any…


Sackhoes Contributor, the most interesting is that in Canada, mainly the Tories (or conservatively motivated) are the ones, who are selling or trying to sell the state’s assets. THis include hydro, water, garbage collection. They are deregulating the market. Others do business with China too, but his worship attitude of the Chinese Prime Minister is way beyond any business relationships.