Where do European Union subsidies land: The role of Lajos Simicska

Only lately have journalists started to shine a spotlight on a company that has been handling more and more government infrastructure projects. The company has a rather unimaginative name with a tinge of the 1950s when practically all state companies’ names started with “Köz” (public). For example, a chain of grocery stores was called “Közért” and a lot of people still refer to the small corner grocery stores as ‘”közérts.” “Gép” in Hungarian means “machine.”

Little was known about Közgép. Its website offers a rather inflated company history that claims that the company goes back to 1921. From the description it is not quite clear what Közgép’s predecessors did exactly, but they seemed to have been closely connected to government organizations. In 1951 the company was reorganized and somehow managed to survive with the financial help of the government until it was privatized in 1994 and became known as Közgép.

Although the website is not exactly full of details of the recent history of the company and the projects it worked on, I found many important government jobs Közgép handled: the four-lane highway M6 (Budapest-Pécs), part of the M43 highway, and road maintenance in Győr, Salgótarján, and Sopron. Among its ongoing projects are the northern railway bridge, the renovation of the railway bridge in Mezőtúr; the M6 viaduct at Szebény, and waste management in the Balaton-Sió area, Nógrádmarcali, Veszprém, and Debrecen.  We are talking about billions and billions, not forints but euros. Yes, because most of these projects are financed by the convergence program of the European Union.

According to András Pethő’s history of the company on Origo, it seems that Közgép managed to get hefty government contracts even during the socialist-liberal governments. It is unlikely that they knew that the owner of Közgép was Lajos Simicska, the former “treasurer” of Fidesz and the real power behind the success of Fidesz. He has been providing financial backing for the party ever since its establishment in the late 1980s. Charges of corruption surrounding the renovation of the Margaret Bridge in Budapest were widespread, but it looks as if the greatest beneficiary of the project was Fidesz through Simicska’s company, Közgép, that worked on the project and not the corrupt socialists. Or at least, not only the ones.

Közgép’s website is certainly tight-lipped on the subject of ownership, and even András Pethő of Origo couldn’t get any further than Zsolt Nyerges, a businessman from Szolnok and a partner in some other business ventures with Lajos Simicska. But at last the word is out that the owner of Közgép is Simicska himself. The CEO of the company, Miklós Németh, was forced to reveal his name because of Közgép’s application for a public tender. In such tenders the name of the actual owner cannot remain a secret.

The search for the real owner of Közgép has been going on for years, but certainty eluded the journalists. Although there were rumors about Simicska’s involvement with the company there was no proof, and most of the journalists who tried to learn something about Közgép were reluctant to risk a whopping fine in case Közgép sued the paper for libel.

Monkeys

As soon as Simicska’s ownership was revealed, László Varju, the managing director the Demokratikus Koalíció, announced that his party is going straight to Brussels. At the press conference Varju said that they had been suspicious about the contracts worth billions Közgép received from the Orbán government. Varju listed some of the mega-projects Közgép was involved in and added that the state-owned Hungarian Development Bank just lent 34 billion forints to the company while small and mid-size companies are unable to get credit.

DK decided to go straight to Brussels because Fidesz’s two-thirds majority would prevent convening a parliamentary committee to investigate Simicska’s company. They can’t go to the Government Audit Office because its chairman is a former Fidesz member of parliament. They certainly can’t turn to Péter Polt, the chief prosecutor, or Tünder Handó, who heads the judicial system. However, the European Union has an office charged with investigating possible fraud in European Union subsidies. DK would like a ban on signing further contracts with Közgép until a satisfactory answer is found about the fate of the money Közgép received in the last year and a half.

How much of this money landed in party coffers is hard to judge, but I have little doubt that it was a substantial amount. By now the European Union must feel swamped with complaints about the Hungarian government, and I have no idea whether they will undertake yet another investigation. But I think it would be to their advantage to look into the matter.

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a3t
Guest

Eva, I think they probably did know that they probably did know that Kozgep was controlled by Simicska. Rather, the contracts that went to Kozgep were Fidesz’s spoils under the 70:30 system that was revealed by the Strabag scandal. The parties in power got 70 per cent of the kickbacks, the opposition got 30 per cent.
Either way, it’s magnificent news that, finally, people are starting to get p’d off about Simicska. Guy has a nerve.

Kingfisher
Guest

Ahhhhhhhhhh, Éva, of course MSZP knew Simicska owns Közgép!! He and Puch have even had joint business interests in the past. The construction firms, each with their own political background, operate as cartels, and it was plain to everyone that Margít Híd was a straight split between Fidesz and MSZP, which is why neither parties objected to what was obviously blatant price fixing (the contract quoted 1.2 billion forints for unnamed extras!) The same is true for that pointless bridge down near Balaton.
You mention “party coffers.” Some money goes into them, of course, but mostly it is being divided up among a small group of individuals (oligarchs) for whom politics is a means to an end. And possibly explains why Orbán seems so uninterested in running the country properly. Politics is interesting because of the power it gives him, plus the wealth (which is not kept in forints!)

a3t
Guest

Yup, Kingfisher nails it.

a3t
Guest

Of coure, one of the reasons we’re now hearing about Simicska is that Fidesz tore up the previous 70:30 “gentleman’s” agreement, keeping 100 per cent for its uzleti erdekeltsegek. The danger in doing that, as Simicska and Orban are now discovering, is that it creates discontents with an incentive to sing.

Eva Balogh
Guest

This is so awful. The whole thing.

GDF
Guest

Eva:”This is so awful. The whole thing.”
It looks like the maffia-like organization includes everyone at the top. Maybe it was formed during the transition negotiations. And, apparently, I was wrong, the wars between them is not done with machine guns and concrete shoes but with two third majorities…

Eva Balogh
Guest

Kingfisher: “Ahhhhhhhhhh, Éva, of course MSZP knew Simicska owns Közgép!!”
I think one of Gyurcsány’s “sins” as far as Puch and Co. were concerned that he wanted to to put an end to this practice by introducing a reform of the party financing. Mind you, Fidesz didn’t want any change either and did everything to defeat any attempt in this direction.

An
Guest
Sure, corruption has always been very bad in the country and the situation has been getting worse in the past years. Both parties were implicated in deals, and gained from corruption (either as a party or as individuals). Just think of what Fidesz’s absolute power is doing to corruption (other then cutting off MSZP from the deals, for which I am not going to shed tears for). With Fidesz puppets sitting in every possible government office, and with Fidesz’s undisguised attempts to control the media, the last functioning barriers to state-run corruption are being taken out. Because who is going to investigate corrupt insider deals (involving government officials), if all state offices are run by the same mafiosi. The situation was very bad before Fidesz took over, but it definitely became worse and more institutionalized (look at the number of laws passed to favor Fidesz loyal businessmen). Not saying that stuff like that did not happen before Fidesz, but at least there was some possibility for control (e.g. such laws are not so easy to pass if you don’t have a 2/3 majority). Fidesz is also a lot more arrogant and acts with sense of entitlement when it comes to… Read more »
petofi
Guest

The whole body politic is infected: there is no recourse.
Not some rotten apples but the whole barrel. After Fidesz’ total power grab, anyone trying to reform will probably be dealt with summarily. Executive action. It’s all beyond hope.

Kirsten
Guest

An: “In short, there is very bad, and then there is even worse.”
I was still hoping that althought those bad guys are potentially in all parties, there are also still people who have not joined these “cartels” (also potentially in all parties). These have to cooperate to change the system. Differences between “left-wing” or “right-wing” are in general relevant but in this case, it is not about party politics, it is about recapturing the state. Neither Puch nor Simicska are helpful. And precisely because it is not about party politics but about reputation, Ferenc Gyurcsany would have to give clear proof of that he either never participated in that system (unlikely) or has credibly broken with the past.

petofi
Guest
@Eva, “But I think it would be to their advantage to look into the matter.” No it wouldn’t. They already know that they’re dealing with a completely different animal than a normal civilized polity–it’s raw power justified, weakly, by a faulty voting system that allows ridiculous powers when 2/3 of a voting majority–regardless of how small a percentage of the eligible voters–is won by a party. Of course those bogus powers become unlimited when the corrupt elements of the society–practically every functioning institution of which the worst are the judges, is titilated to full bloom. If nothing else, Hungary highlights the weakness of the democratic system when active elements seek to pervert it. Some changes that come to mind would be: a) suspending the 2/3 rights if 70% or more, of the population has not voted; b) making chief judges lifetime appointees not subject in anyway to executive action but can only be removed by parliamentary action. Etc. etc. The question of WHAT if anything can be done in the case of Hungary is another story. The moronic ‘believers’–equally under the spell of Orban’s rhetoric and the dictates of the Church–are lock-step behind Victor as he leads them to the… Read more »
petofi
Guest

Anyone have an update on Tarlos and the BKV loan?
When he was in trouble, he mentioned a figure of 32 billion forints. When a loan was forthcoming, the figure turned out to be 63 billion. Anyone know more?

petofi
Guest

Something funny with the exchange rates being stuck when, in fact, the forint should be diving.
Anyone know how we can find out who is supporting the forint?

LwiiH
Guest

@petofi, You’ve hit the nail on the head.. the system is rotten from top to bottom. In a sad way if Fidesz just broke the gentleman’s agreement because of the 2/3rd majority they must know that this would incent the losers to cry foul.
@eva Let me complete that sentence for you ;-)…. “I think one of Gyurcsány’s “sins” is not coming out and just publicly stating what he knows to be true. If he’s so anti corruption it wwwaaaayyy past time he starts pointing fingers.

petofi
Guest

It has just occurred to me that the real pressure is on the EU and not Orban, the threat being that Orban will take Hungary out of the EU if they get no loan. The problem for the EU is that if they give in and negotiate a loan, Orban may still take
the country out of the EU…but with considerably less political justification before the Hungarian citizenry.

LwiiH
Guest

There is no way OV takes Hungary out of the EU. Out of the EU it’s good bye to Germany and that is a major part of the economy. Even when the last government tried to put taxes into place German companies that had agreements in place complained enough that the government had to back down. Germany is a major part of this countries GDP.
Volkswagon HQ acts as VC and all plants bid for all projects. The Volkswagon plant was in serious danger of moving to Slovakia. Out of the EU all of that bidding would be redone.

LwiiH
Guest

To quick on the post… VW HQ acts as VC in that they fund projects and those projects are in turn bid on by plants worldwide. The new tax regime would have changed the cost structures to the point where the Hungarian plant would not have been able to compete against the Slovakian plant. That deal alone is worth more than 5% of Hungary’s GDP and would have wiped out the economies of all the towns and cities close to the plant. So the government had no choice but to honor existing agreements.
This is why OV wants the Mercedes plant to start kicking in. It will help his GDP numbers which will help him solve his problems with the EU’s budget deficit rules. Out of the EU, HU is screwed…. there is no easy path out.
BTW, the new corruption charges in Brussels aren’t going to make any of the contributing member countries any more friendly so while things have been some what quiet.. there’re no means better.

Eva Balogh
Guest

Kirsten: “Ferenc Gyurcsany would have to give clear proof of that he either never participated in that system (unlikely) or has credibly broken with the past.”
What I learned from Gyurcsány interviews and writings that the MSZP party chairman was the head of the party only in name because Puch controlled the money. Gy. was not strong enough within the party to get rid of Puch and his system.

The Hungarian Comedian
Guest
The Hungarian Comedian

Hahahahaha.
Where did you dig up that old photo of me Eva? I’m in the middle.

Dubious
Guest

@petofi
I don’t know anything about the BKV loan, but on a connected subject, according to the press Tarlos is going to pay 15 billion forints (€ 50,000,000) to Suez to buy them out of the Budapest waterworks.
I believe there are better ways to use this money.

1qaz
Guest
@ Dubious “Tarlos is going to pay 15 billion forints (€ 50,000,000) to Suez to buy them out of the Budapest waterworks. I believe there are better ways to use this money.” That is if you believe that the governing principle is public interest. However, the governing principle is to get one’s hand on cash generating enterprises, preferably in a monopoly situation so there is no competition on the open market, and skim the cream off the top. As in any corrupt economy, the people pay but the benefits are reaped by a small coterie. This is the economic model behind illegal expropriation, such as what happened with the airport back in 2001/2002. It was implemented by Fidesz but the Socialists found the bed very comfortable and did not make good on their promise to undo the expropriation (see in that respect the TV debates between Medgyessy and Orban at the time). The mechanism is the same when those companies are taken over not by expropriation but by “agreement.” I am not sure that Suez was a willing seller (except maybe they had enough of the Hungarian business environment). The aim in both cases (expropriation or agreement) is to take… Read more »
The Hungarian Chuckler (The Hungarian Comedian)
Guest
The Hungarian Chuckler (The Hungarian Comedian)

@Eva Balogh
You have to read this and have a good laugh if you have 5 minutes or so:
The Fidesz party members Harangozó Tamás and Selmeczi Gabriella accused DK to be the new KISZ in parliament. Little did they know that Kover, Ader, and Orban were all a part of it. I laughed through the whole incident:
http://www.nepszava.hu/articles/article.php?id=541746
There was also an interview with DK Bauer which ended in the last 30 seconds on a bit of embarrassing comment about the interviewer (that interviewed Schmitt Pal in the dark office that Friday):
http://www.hirado.hu/Hirek/2012/04/19/08/Bauer_Orban_az_europai_normakkal_szemben_vedi_egyeduralmat.aspx

The Hungarian Comedian
Guest
The Hungarian Comedian

@Eva Balogh, correction:
Pardon me, Harangozó Tamás is of course MSZP.

The Hungarian Comedian
Guest
The Hungarian Comedian

I was off course refering to Boldog István, Fidesz not Harangozó Tamás, MSZP. I seem to have mixed up the names, as I had no clue who Harangozó Tamás was until today.

Kingfisher
Guest

The airport expropriation was extraordinary. The boss of the Canadian company running the airport was in his office when security guards entered and marched him off the premises. That was the first he knew that his company had been turfed out. It was state gangsterism of a pretty dire kind, but as 1qaz rightly says, the MSZP failed to right this particular wrong.

Kirsten
Guest
Éva, my “theory” is the following: In the early 1990s, the process of privatisation and establishment of private businesses was to some extent uncontrolled. The government was not that strong to fully control the process of a shift in property rights (perhaps in the Hungarian mixed system it may have also been to some extent undefined who exactly decides about the use of the property of a firm), new laws had to be written and applied. In such a situation, a lot of operations may not be strictly illegal and yet they shift the economic power to specific people, related to the old party, the economic elite but also “newcomers” who just chance their luck. Because the rules are fluid (laws have to be written) and incomplete (in some cases laws were just copied from earlier times or other countries), the grey zone is relatively large. Hence, people who made a fortune during these years may be right in that they did not do anything illegal. And yet those others who were not that “fast” or clever wake up one day to the new reality of a changed income distribution, with those with high profits from the newly established or… Read more »
Eva Balogh
Guest

Hi Chuckler, I heard about the KISZ story and I saw Tamás Bauer. I have to congratulate him. It was great.

Eva Balogh
Guest

Chuckler mentioned Boldog. He is a real moron. Take a look at his bio: http://www.parlament.hu/internet/plsql/ogy_kpv.kepv_adat?p_azon=b091&p_ckl=39
And don’t miss his own blog.

petofi
Guest

@The Hungarian Chuckler, Bauer Tamas interview
Thanks for the connect. Bauer is impressive. I remember when he used to regularly be called to the round table talk shows on ATV, he put the young, verbose, political ‘experts’
to shame. After a while, they had to stop having him on the show because the other panel members seemed so dim, I suppose.
In this interview by the right-wing, gang-of-three, he beat them back with nary a sweat on his brow. The final touché to the turkey who had ‘interviewed’ Schmitt was ever so elegantly delivered. If Orban watched all this, he must’ve gagged. DK is slowly growing in the polls and Orban’s chance of out-debating Bauer, Gyurcsany and (hopefully) Bajnai is about the same as Nemethne singing La Traviata at a straight Opera House.

Eva Balogh
Guest

To Petőfi1. I agree with you, Bauer is a very, very smart man and it was a pleasure to have him on ATV’s András Bánó’s Wednesday night program.
I did have a discussion with one of these young so-called political scientists about Bauer once. She bitterly complained how difficult a man Bauer was. I told her that “I’m sorry to say that I’m almost always on Bauer’s side.”
By the way, the reason he had to leave the program was that he became one of the two deputy chairmen of Ferenc Gyurcsány’s Democratic Coalition (DK).

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