The Hungarian government’s newest business venture: Installing an e-toll system

György Matolcsy’s failed attempts at putting together a budget that doesn’t need almost immediate adjustment are legendary by now. The final budget accepted in December looked suspicious from the very beginning. Matolcsy included about 400 billion forints from taxes that were not in accordance with European Union laws. If the ruling of the European Court of Justice goes against Hungary, which seems likely, the companies that were so taxed must be reimbursed. So, there is already a 400 billion hole in the 2013 budget.

But that is just the beginning.  There are two other listed sources of revenue that most likely will not add a forint to the coffers of the Hungarian state. You may recall that the Orbán government hoped to receive 75 billion forints from an e-toll system that would require trucks over 3.5 tons to pay per kilometer fees on Hungarian roads. The system was supposed to be functional by July 1, 2013. Another 95 billion forints of value-added tax was supposed to be received by introducing a cash register network directly connected to the Hungarian equivalent of the Internal Revenue Service.

Well, it looks as if neither system will be in place by July 1. Here I would like to explain what went wrong with the e-toll system. Let’s start with the fundamentals. To work out such a complex system takes a lot of time. For example, in Germany, where the system functions well, the government began thinking about its introduction in 1998 but the law regarding the e-toll system was enacted only in 2002. The Germans hoped that the system would be up and running in 2003, but it was completed only in 2006. It is based on a satellite positioning system.  The Austrians also took their time planning and eventually setting up a system in 2003. In Hungary, by contrast, the decision was reached within a few months and by September companies were invited to tender bids for the new electronic toll road system. There were two bidders: T-Systems, a unit of Magyar Telekom, with a 53.4 billion forint bid and Getronics with a bid of 34.89 billion forints. The Hungarian government opted for the lower bid although Getronics had no prior experience in this area. On January 19, in large measure because of the hefty fines that would be levied if it did not complete the project on time, Getronics decided not to sign the contract. The Hungarian government, instead of turning to T-Systems, the under-bidder, decided to go it alone as a kind of “general contractor.”

Before pondering the wisdom of this move, let’s go back a bit in time to review Viktor Orbán’s attitude toward tolls in general. When he became prime minister in 1998 there was a functioning per kilometer system in place. It was the old-fashioned variety, with gates where one got a ticket which drivers paid once they left the toll road. Viktor Orbán in those days didn’t like that system. In its place the first Orbán government introduced a system based on prepaid fees that allowed the owner of the car to be on the road at certain times. It was called the “matrica” system. Matrica means sticker in Hungarian.

So, after 1998 all the “gates” on the toll roads were dismantled because Orbán maintained that “gates are for football fields and not for roads.” At that time there were altogether about 80 such gates on two highways (M1 and M3). To build them cost about 5 billion forints; it was another 1 billion to demolish them. I remember being horrified at the idea of demolishing these gates and substituting the “sticker” system that I found unfair. After all, a valid sticker cost the same whether the person drove 200 km or 20km on any given day. Moreover, ascertaining whether a driver had a valid sticker was haphazard; the state relied on spot checking.

Fourteen years later Orbán obviously changed his mind. As far as I’m concerned this would be fine if the e-toll system was professionally and competently designed and executed. But, according to rumor, the job will end up in the hands of companies whose management teams have close ties to the government. The rationale for choosing them will be based not on experience and competence but on political connections. Most people claim that in Hungary there is simply no company capable of creating an e-toll system that is up to snuff. Yet Orbán promised the pensioners in Vásárosnamény that on January 23 Hungary will have an e-toll system that will be all Hungarian.

Illustration to autopult.hu's article on the subject of e-toll

The illustration accompanying autopult.hu’s article on the subject of  an e-toll system, Hungarian style

The government’s self-confidence is not shaken. András Giró-Szász announced that Getronics’s pulling out is only “a minor detail.” Orbán assured his listeners that all the budgets he submitted in the past went through with flying colors and this will also be true of the 2013 budget. Well, flying colors is surely a bit of an exaggeration because we all remember how many times Matolcsy had to change the figures and how many new taxes had to be introduced to meet the EU’s deficit target.

A toll system that works only in Hungary and that is not compatible with those of other countries in the European Union would be a waste of money, according to experts. Apparently within a few years the European Union is planning to introduce a single system that will be based on satellite technology. There is another problem if a unique Hungarian system is introduced. There is a Union rule stating that trucks from EU countries cannot be stopped at borders. That means that inside of the vehicles there must be a piece of equipment that is able to record the traveled kilometers. In an incompatible system that wouldn’t work. Trucks would need a separate Hungarian recording system. In addition, European Union rules require that all information about time, route, etc. must be safely stored, and experts fear that any system that could be introduced in five months wouldn’t be sophisticated enough to ensure the safe storage of information.

All in all, most people are pretty certain that with the Hungarian state as “general contractor” the proposed e-toll system will be a flop. Earlier the Hungarian government wanted to have its own mobile service and announced its plan with great fanfare. Even though the new company existed only on paper, it received a frequency necessary for operation. The government even appointed a CEO. Everybody told the government that it was an unnecessary expense. There were three other providers and there was no reason to have a fourth company. As a blog writer said, “the catastrophe was predictable.” And it was. The blogger is certain that the same fate awaits the e-toll business of the Orbán government.

Sort by:   newest | oldest | most voted
gdfxx
Guest

Typical NIH (not invented here) idiocy of a totalitarian government. They will spend more billions and end up of with a non-working or barely working system. And a few years later they will scratch that system to build one that is compatible with the rest of the EU, for more billions, otherwise all European truck traffic will avoid Hungary, if at all possible. Maybe that’s the idea, improvement of the air quality…

LwiiH
Guest
Just had a discussion about this with my wife this morning. My comment was there is no way that there is enough talent in Hungary let along available talent with large project experience, let alone anyone with experience with the type of technology that will be needed to make this work in 2 year time frame let alone any time this year. Too bad as I would prefer an electronic system. Any company working without experience in an industry on a fixed price contract is risking a huge loss unless they have some control over the schedule or the number of functional points that need to be implemented. I took a quick look at the Getronics website I see that they have the big software system experience but none of this appears to include hardware. So I suspect they could be able to pull it off but not without a huge amount of risk without the added problems of a short schedule. To give you an idea of the risk, current studies put software project failure rates @ 15%. However, the challenged category is running @ 51%. That means that only 34% of all software projects are delivered on time… Read more »
Member

The Orban government’s resemblance to the communist governments is amazing. These great plans remind me of the Office of Planning (Tervhivatal) of the communist era. This office came up with the grandiose 3 year later 5 year plans that planned out everything for the nation. We shall make this much buses, x% shall own washing machines, y% TV sets. Of course most of them was impossible so they just fudged the statistics or blamed the failure on the evil imperialists.

The great Geza Hofi spoofed this saying the “third 5 year plan or the fifth 3 year plan – either way it is 15”.

In another show he played a communist party secretary requiring the sows to farrow 14 piglets. Then the farmer went: “Have you informed the pig? You should do it. You know, same level …”.

http://indavideo.hu/video/Hofi_Diszno_terv

petofi
Guest

Love the expertise on this blog…

kormos
Guest

BTW. What is wrong with the present toll system?

Paul
Guest

“The Hungarian government, instead of turning to T-Systems, the under-bidder, decided to go it alone as a kind of “general contractor.””

As someone who spent 30 years in IT, I can confidently say that this has ‘unmitigated disaster’ written all over it.

Paul
Guest

OT, but with reference to recent posts on tuition fees – an interesting article from Thursday’s Guardian on the results of raising fees in England:

http://www.guardian.co.uk/commentisfree/2013/jan/24/market-forces-chaos-universities-fees?INTCMP=SRCH

(The references to 2 ‘E’s are to do with the A-level grades – the exams students take in their final year at school. E grade is one above Fail and can be achieved on marks of well under 50%.)

Ron
Guest

According to portfolio.hu there where four bidders to this project. The two highest bidders where also the ones which have the most experience in this field. Besides the amount of the bid, time is of the essence in this project according to VO. If you ask me the government will fail miserable, but they use EU funds and tax money to fill their coffers.

I wonder if this was the reason why there is a carousel of resignations going on. I do not know the exact titles, but first the guy from the ministry of EU funds, a position of trust, than the CEO of the mobile operator, now rumor has it that Matolcsy will not be the new MNB president, but somebody else.

http://www.portfolio.hu/en/economy/hungary_e-toll_system_orban_plans_to_succeed_where_germany_failed.25473.html

Also they seems to have 4-5 concepts regarding this toll system. Most likely they learned this from the tender and subsequent conversations with these tenderers:
http://www.portfolio.hu/en/economy/hungary_mulls_4-5_concepts_to_solve_toll_road_jam_govt_spokesman.25474.html

I wonder how many Companies in future will tender, as the Hungarian government does not act honorably?

Ron
Guest

Slightly off-topic.

Have you seen this online interview with IMF on January 2012?

http://www.imf.org/external/pubs/ft/survey/so/2012/new012512a.htm

Is there anything changed?

Kingfisher
Guest
Curiously, I don’t remember there being toll roads as you describe in 1998. There were hardly any motorways at that point. I’m not disputing you are right, just puzzled why I don’t remember. But the matrica system was decent. You bought a four day sticker for a not unreasonable amount of money and could use the roads. Imagine the tail backs if there were toll gates outside Budapest on a Sunday evening? Much as I love Orbán bashing, I think getting rid of toll gates was a good idea. And remember that if you want to travel a small distance, you used the old roads. But to the main point, I think you are misinterpreting what has happened. A GPS toll system could have been built. It is much easier now because GPS etc is now tried and test technology. And some of those bidding would have been able to produce such a system. What is going to happen now is that Orbán will get those same people to build it (by approaching the same subcontractors), pump up the actual budget (out of the reserve), and that way, 25 to 30 percent will be siphoned off to Simicska. They aren’t… Read more »
Kingfisher
Guest

Sorry, my fingers really don’t do what they are told! The sentence “this is just a tried and tested money” should read “this is a tried and tested method.”

hempi
Guest

Kormos, the problem is that the EU limits the fees the operator can take in the current system (which fees does not depend on actual usage: you pay the same if you use the highways 3 times a day or only once and you don’t pay at all on smaller roads). Ib the new system, trucks (it will apply only to heavy duty machinery) would end up paying 10 times as much, and since we are a transit country, this is important (e.g. currently trucks skip Austria and use Western Hungarian small roads to save a lot of money).

The state will still have to organise public procurments only very private snap procurements, There are only 3 firms with enough experience to provide the gizmos what you need to build in the trucks.And they will not produce at orders, which is the style at Orbán. They think that by Noth Korean style management they will be able to build it out. It is impossible. But they will start to work, burn a lot of money (yep) and the whole project will slowly die and nobody will care about it (most important, as the elctiosn are coming). Case closed.

Guest

Well I remember that I had to pay something like a 1000 HUF toll to use the motorway from Vienna/Györ to Budapest in the mid 90s when I visited my sister – she sent me a 1000 Forint note by post so I would not have to exchange money at the border …

I found that rather expensive – the price for gas was around 90 HUF per liter and one Deutschmark was also worth around 90 HUF, so at least gas was cheap.

A bit more OT:

And wining and dining in Budapest and later near the Balaton also was a fabulous experience although it was difficult to find an open restaurant or Hotel – except for Hévíz …

That’s what prompted me later to buy the old farmhouse near Hévíz, because it was the only place near the Balaton which wasn’t closed down at the end of the summer season …

Member

Ron :
I wonder if this was the reason why there is a carousel of resignations going on. I do not know the exact titles, but first the guy from the ministry of EU funds, a position of trust, than the CEO of the mobile operator, now rumor has it that Matolcsy will not be the new MNB president, but somebody else.

Annamaria Szalay? I heard she has the required experience as she has a bank account. Rozsa Hoffman also carried an offertory box around in her church once. (Just kidding. Although in the current government experience and education matters the least.)

Paul
Guest
Kingfisher : Curiously, I don’t remember there being toll roads as you describe in 1998. There were hardly any motorways at that point. I’m not disputing you are right, just puzzled why I don’t remember. But the matrica system was decent. You bought a four day sticker for a not unreasonable amount of money and could use the roads. Imagine the tail backs if there were toll gates outside Budapest on a Sunday evening? Much as I love Orbán bashing, I think getting rid of toll gates was a good idea. And remember that if you want to travel a small distance, you used the old roads. But to the main point, I think you are misinterpreting what has happened. A GPS toll system could have been built. It is much easier now because GPS etc is now tried and test technology. And some of those bidding would have been able to produce such a system. What is going to happen now is that Orbán will get those same people to build it (by approaching the same subcontractors), pump up the actual budget (out of the reserve), and that way, 25 to 30 percent will be siphoned off to Simicska.… Read more »
Paul
Guest
Getting back to Orbán’s mad plans (with my IT project manager/consultant hat on) – I saw many large projects die prolonged, painful, and very expensive deaths – we never seemed to learn. But the UK IT industry has at last got to grips with this (although there are still the occasional disasters). The trick is obviously very tight, comprehensive (and realistic) project planning and control, but the first, absolutely key, step is to be realistic about the project – can it realistically be done, how much will it really cost, will it actually produce the benefits claimed? If there are doubts about any of these questions, the project should be reviewed and either canned (It’s amazing how many of these developments aren’t actually needed, they are just someone’s vanity project), or broken down into smaller systems that can be phased in as required (or not). The other key aspect is to keep up with the technology and adjust the project’s scope and methods if there is a significant change in the technology in the meantime. I saw many a huge and expensive project lumber ahead for years, only to be finally implemented too late because much cheaper and easier technology… Read more »
Member

Breaking News

Tha Galamus blog will be back next week!

LwiiH
Guest
Paul : Getting back to Orbán’s mad plans (with my IT project manager/consultant hat on) – I saw many large projects die prolonged, painful, and very expensive deaths – we never seemed to learn. If there are doubts about any of these questions, the project should be reviewed and either canned (It’s amazing how many of these developments aren’t actually needed, they are just someone’s vanity project), or broken down into smaller systems that can be phased in as required (or not). Given that any sensible route would be to piggy back off of existing mobile (T-Systems??) or GPS (Gentronics??) systems one would have to conclude that this will ostensibly a software project. To pull off this project in 6-9 months they will have to big-bang it which implies traditional waterfall and projects delivered that way tend to have a 15% success rate. Our projects are developed in 1 week sprints and using continuous delivered mechanisms. We can cut a new release on demand. It is this type of (agile) methodology that is driving up project success rates. However, setting up infrastructure to do this takes time which is why it’s most likely that they will attempt the big-bang. To… Read more »
Paul
Guest
LwiiH – that’s pretty much how I read it, but I think your conclusion may even be a bit generous. My prediction is that either it won’t even start or that it will go tits up a lot quicker. As you say, their only option is big bang, and there’s no way they’ve got the talent in Hungary (or immediately available) to do that successfully – and, even if there was, they wouldn’t touch it. Typical of people who know nothing about IT commissioning vanity projects. Interesting to read how project development has changed though. I’ve been out of the business for 10 years and at that stage we’d only just started persuading people to do iterative development, or even to have project groups actually including users! I came into IT from both a technical and business background and was involved in the PC and mini systems development area from the beginning, so I had a very different attitude to project development and user involvement to the ‘big boys’. I fought a long, and mostly unsuccessful, battle for 15 years or more to get them to change their attitudes towards systems development. In the end it was the users finally… Read more »
Paul
Guest
OT, but regarding toll gates on motorways – the only ones we have in the UK are at river/sea crossings (apart from one privately owned motorway link, which I’ve never used). Some of these tolls are very expensive, to pay back the construction.running costs, some are subsidised by local government, some have been removed altogether. My only real experience with tolls and their effect on traffic flow is the Dartford river crossing, east of London (two tunnels and a bridge under/over the Thames esturary). The gates for this are massive, there must be 30 or 40 gates on each side, some of which are reserved for cars with electronic ‘Dart Tags’ which let the drivers go straight through. But there is still congestion at some times of the day, occasionally quite serious. Given this congestion (and that this is on the M25, one of Europe’s busiest roads) and the cost of running the toll gates, I have never understood why they don’t just make the crossing free (as are all other Thames crossings). But what really puzzles me is that they don’t adopt the system that is common elsewhere of only charging one way. They would lose very little this… Read more »
Pttrghd
Guest

There were real toll roads in Hungary, especially the one to Szeged, however the Socialist government thoght that it was a constant reminder that the foreigners were living off from poor Hungarians asking a hell lot of money for a drive that cost a fraction elsewhere, so by the time a Socialist party congress was held in Szeged (in was 2004 or 2005) the toll road was abolished and M5 was included in the sticker system. Whatever.

Ron
Guest

Eva S. Balogh :
@Ron “According to portfolio.hu there where four bidders to this project.” Yes, but my understanding is that two of them were excluded for “formal reasons.”

Initially their were accepted. Something happened in December. I believe that during the negotiations the Hungarian government was pushing for a deadline, and penalties there after if it was not finished either on-time or not properly finished.
http://www.motorway.hu/AAK_Cikk/2012/11/PR20121105

Pttrghd
Guest
Talent is a very misleading term. It is often said that people (well, Hungarians) are talented, They would be capable of doing something, if only. If only this or that. There is no such thing as a raw individual talent of which we hire 200 and tehy will deliver. Forget it. In a huge project like this (or an Olimpics or the much-delayed Berlin airport) or even a small project, people need to work in a team, they need to be managed, have to work together with the client, with the suppliers, there need to be an organisational memory, they need to make sure intellectual property are honored, licenses are negotiated and so on. Based on these requirement, there is no way, that a straight Hungarian bunch (like any state owned entity) can in itself deliver the e-toll system, not by mid-year, not by year-end. It is impossible. Since Getronics never delivered such system, they would not have been able to do it by the deadlines. It will be now much slower, but the opportunity to steal money will be even bigger. There are very few if any organisations in Hungary which have the experience of rolling out a project… Read more »
Ron
Guest

As to the toll highway in Hungary. It was totally irrelevant whether there were toll roads. In 1995 Hungary had no completed highways:
There was no M0, M1 was completed up to Gyor, M3 up to Miskolc, M5 up to Kecsekemet, M7 to Siofok, M6 and M2 not even existing. At that time the M2 was financed via the EU fund Phare, and it took a long time

The Horn Government decided that quick development was necessary and therefore entered into contracts with South African Company and a French Company. So the M1 and M5 became toll roads from Kecsekemet and the M1 from Gyor to Hegyeshalom.

Both were finished in 1997/1998. In 1999 the Orban government decided to do it different, and made it a nationwide matrica system, and in that period they only completed the 3 lane M7 making his father rich.

Now he is making himself rich by starting to do this electronically. HUF 40 billion is a lot of money..

Kormos
Guest

@ Hempi. Do I understand you right? I read: EU prohibits to raise the vignette price for large (long&heavy) vehicles, but allows to build a new, so called electronic system, whereby the Country could charge 10 times of the present fee. There is got to be some way around this.

spectator
Guest

You’re taking it all wrong here!

In reality, this is an ingenious defense plan: instead of erecting the ‘Great Hungarian Wall’ all along the borders, the cunningly clever Hungarians find another sophisticated and contemporary solution to make the country inaccessible to ‘the enemies of Hungary’!

Just wait and see, pretty soon everyone will follow us – just as they copying our unorthodox method of becoming a financial ‘Super Power’ too….!

Thanks to our Great Leader, of course, and the sometimes hmmm… complicated (financial!) view of His Right Hand.

God bless them, as they deserve it!

Guest

Spectator, this will mainly force the trucks from Russia, Poland, Ukraine etc to make a detour when traveling to the Mediterrenean ports like Triest, Koper, Rijeka …

Now when we return home to Hévíz at night (say from Budapest) we see convoys on the M7 south of the Balaton. Also the M1, M5 and the (M)4 are heavily used – we try to travel to our relatives in Eastern Hungary only on Sundays.

And also the Romanians “commuting” to work in Italy will have to find alternative routes …

But, as the blind man said: We’ll wait and see …

wpDiscuz