Another corruption case and the news of the day

Yesterday I promised to write about another scandalous affair, this time involving a close friend and business partner of Viktor Orbán, István Garancsi. This morning after I read a number of articles on the subject I almost gave up on the idea. The case is so complicated–surely for good reason–that it takes some doing to figure out exactly what happened. Here is what I managed to put together. I’m waiting for more input from readers.

Shortly after Viktor Orbán won the election, companies dealing with distance heating wanted to raise their prices, a move that would not have been popular and something the new government wanted to avoid. So the government instructed the state-owned MVMP Partner Energiakereskedelmi Zrt. to supply gas to these providers from its reserves at a lower rate. In return, the government made sure that MVMP would receive cheaper western gas by way of compensation. In fact, the government bought a great deal more gas than was necessary to replenish the reserves. The extra, which was in fact the bulk of the purchases, was sold by MVMP to a company called MET. It then sold the inexpensive gas at a handsome profit.

MET has its headquarters in Switzerland, but some of its subsidiaries are in Cyprus, the British Virgin Islands, and the Cayman Islands. Behind its complex business structure are two Hungarians:  György Nagy and István Garancsai.  György Nagy was the founder of Wallis Rt., an investment company, whose CEO between 2000 and 2006 was Gordon Bajnai. Subsequent to Wallis Nagy was involved in several successful business ventures. István Garancsai is the owner of Viktor Orbán’s favorite soccer team, Videoton. He also owns a small credit union, Duna Takarék, which miraculously was not nationalized when all others were. It turned out that it was Duna Takarék that gave a loan of 600 million forints to Viktor Orbán’s soccer foundation in Felcsút.

These offshore companies got inexpensive gas thanks to the largesse of the Hungarian government. They then sold it at the going market price in Hungary. According to estimates, their profit was 50 billion forints in 2012 alone.

Those of you who are interested in the extremely complicated details should read the two articles published by atlatszo.hu on January 28 and February 3.

Just a taste of the complexity of the businesses involved / Source: atlatszo.hu

Just a taste of the complexity of the businesses involved / Source: atlatszo.hu

And now let’s move on to some important news of the day. Early in the morning it became known that although the Hungarian government claimed that the European Commission supported its agreement with Russia concerning Paks, the claim is not true. Of course, that doesn’t surprise me because members of the Orbán government are not known for their truthfulness. On Monday, for example, Viktor Orbán delivered a twenty-five-minute speech in parliament in which there was not one truthful statement about the real state of affairs. At any event, when the government initially made its claim that the EU was on board with the Paks deal,  HVG was skeptical and inquired from the commissioner for energy about the case. The reporter was told that the commissioner hadn’t received detailed information and that they were waiting until they had it in hand. Today came the news that the European Commission will investigate the case very soon.

And in a blow to the Hungarian government’s tax policy, the European Court of Justice ruled that

Articles 49 TFEU and 54 TFEU must be interpreted as precluding legislation of a Member State relating to tax on the turnover of store retail trade which obliges taxable legal persons constituting, within a group, ‘linked undertakings’ within the meaning of that legislation, to aggregate their turnover for the purpose of the application of a steeply progressive rate, and then to divide the resulting amount of tax among them in proportion to their actual turnover, if – and it is for the referring court to determine whether this is the case – the taxable persons covered by the highest band of the special tax are ‘linked’, in the majority of cases, to companies which have their registered office in another Member State.

To translate this convoluted sentence into plain English, the extra tax that foreign-based retail chains had to pay since 2011 is discriminatory. The judges instructed the Hungarian courts to make a ruling in accordance with EU laws in those cases where foreign companies suffered financial discrimination. Apparently the contested tax revenues amounted to about 90 billion forints. According to legal experts, it is likely that the Hungarian government will end up paying a great deal more compensation to these companies.

As for a resolution on the fate of the “Gabriel” monument, the suspense remains. Tomorrow János Lázár will have a meeting with various Jewish organizations. A leak published by Népszabadság claimed that the erection of the monument has been “postponed,” a statement that was promptly denied by Antal Rogán. Meanwhile one Jewish organization after the other is returning the money received from the government for the events of the Holocaust Memorial Year. In brief, it is a mess. But Viktor Orbán doesn’t like to admit defeat, and therefore there is a good possibility that he will go ahead with the project. Let’s hope that he realizes the gravity of such a decision given the general climate both within and outside Hungary.

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moral 2014
Guest

Let us return to the ideals of the legendary Anna Kéthley:

„Erkölcs nélkül, jellemes emberek nélkül elpusztul a nemzet.”

“Our nation will perish without moral, and without moral people.”

http://www.kake.hu/author/admin/

An
Guest

Re: Simon Gabor’s case (Eva wrote about him in yesterdays post). There is an interesting article on Origo today.

“According to an MSzP official, the socialists were shocked for two reasons. First, because nobody would have thought that the “modest, grey mouse” Simon would hide millions. “If you had asked me to list some MSzP members who could be hiding millions, Simon surely wouldn’t have been in the top ten, or not even in the top 20 on the list,” said an MSzP parliamentary representative who has known Simon for a long time. His guess was that Simon could have been keeping somebody else’s money, but he didn’t want to elaborate on who he had in mind.”

Interesting…. I keep wondering who’d be in the top 10 🙂

The rest is here in Hungarian:
http://www.origo.hu/itthon/20140205-az-mszp-sek-aggodnak-hogyan-uszhatjak-meg-simon-gabor-ugyet.html?sec-2

vernon
Guest

The underlying problem is that MSZP politician have to worry about this, while Paks, while the MET-Garancsi-Nagy stories go on. But since MSZP people has zero media whatsoever, they are helpless, cannot push any message or idea, they are totally dependent on the generosity of the independent media (as the state and fidesz media are obviously pounding them). Since the independent media loves to be self-righteous, it loves to be even handed, it pounds MSZP and does not deal with the important issues. What a clusterf***k.

pestalozzi
Guest
Some clarification to the MET-Garancsi story, although I tried to simplify the events a bit. Hungary has a long-term agreement with Russia pursuant to which Russia supplies gas at a price that is linked to the price of crude oil (The agreement is up for renewal in 2015 and that is an issue in Orban’s game with Putin regarding Paks 2 and the subway car deal). The agreement was made between private entities and I do not know it’s current status, but it involved Panrusgas Zrt., MOL and surely some Russian owned entities, but the point is that the price was linked to that of crude oil and oil prices remained high, while natural gas prices on the spot market are lower for various reasons. Hungary has some own, declining natural gas production as well. Now, the Panrusgas 15-year agreement used to be, and probably still is a so-called take or pay agreement, which means that regardless of how much gas Hungary consumes (demands), it has to pay the full price for the entire capacity purchased in the agreement. Since the gas consumption decreased by some 40% during the last years (climate and less electricity generation), I suspect there must… Read more »
Pilot
Guest
Garancsi is Orbán’s stróman, that is clear. He never had any own business with which he could get to close to deals like this MET deal (50 billion after tax profits just in 2012). He had been a bank officer in various positions starting in the countryside until he was somehow allowed to privatize CD Hungary in the last days of the first Orban government, the real estate management company which owned all embassy buildings, residencies. MSZP never dared to privatize that as it was deemed a sensitive company given its business. Fidesz solved the problem somehow. Garancsi must have made a lot of money (Zsolt Hernádi was also involved) on CD Hungary, but he cannot conceivably make enough these days to maintain Videoton’s lavish spending and be such a big player as to get a cut from these gas transactions. Nagy György sold its minority stake in Wallis in 2005, Tibor Veres was always the main person at Wallis. Although Wallis was mentioned as being close to MSZP that has been an enduring myth. Wallis always employed a number of trusted fidesz people e.g. Tamas Wachsler, Balázs Fürjes, even Gyula Gansperger and they had to be on good terms… Read more »
Ron
Guest

With all this corruption nothing will happen. At least that is my expectation. Fidesz controls the Prosecution Office, but it seems also that they somehow control some bookkeepers and auditors.

I noticed westbay holdings ltd, and on google search immediately came also http://www.westbay.hu. The Company is controlled by

Cégtulajdonos: Nagy György
Ügyvezető igazgató: Nagy György, Ferjancsik Domonkos

One of the many investments is:Magyar Könyvvizsgálói Kamara Biztosítási Alkusz Kft

Mr. Paul
Guest

The secret interest rates on Paks are 4% then 4.5% and finally 4.9% according to index. Time of first payment to the Russians 2025.

http://index.hu/gazdasag/2014/02/05/megallapodtunk_paks_penzugyi_reszleteirol/

sixtyseven
Guest
I do not think the Left will win the majority, but it is interesting to read what the are planning. Of course – music to the ears of Laci Kövér – the left will do gestures “from the distribution of EU monies to cultural policy”. http://hvg.hu/itthon/20140206_MSZP_arnyekkormany_valasztas MSZP and the left are so afraid that Fidesz will terrorize them with street fights that they are willing to do anything to appease them. Believe me, they will OK all the Szakály-institutes, the memorials of the German occupation, the Simicska-deals (only now they will want their cuts) and so forth. Do not expect any proud action, only the usual lefty “I apologize for my existence”, appeasement, “bi-partizan” type of decisions which means that they will dilute their own policies (if they existed at all) which of course will end up nowhere but will surely create conflicts. Exactly as Fidesz wants. Can you imagine any better adversary for Fidesz than the united Hungarian left? Aggressiveness and ruthlessness always work against the Left. Let’s remember that. The Left always leaves the policies of the Right intact (because the leftists are afraid of the wrath of the Right and they want to look oh-so-generous and bipartizan,… Read more »
tasilo
Guest
Mr. Paul, first I would like firmer information that what Hir Tv – a notoriously unreliable and biased source – leaks, let’s wait some days until we get more data. What if the disbursement takes places at 96% of par value because there is a 3% administrative fee and a further insurance fee of 1%? If the Orban government follows the usual pattern then they leak some favorable sounding info and then many days later we get the real info which is much worse but by then nobody cares and believed the first info (like that the “Russians will take away the spent rods”, now it turns out that for only during the first 20 years and then they send even those back, so we end up with all the spent fuel for which there is no storage place). By the way, with interest rate around 5% the electricity prices must at least double from the current levels, not counting a lot of costs such as the handling of the spent rods, and assuming a lot of things (like construction within budget which is unlikely), the Danube dams and so forth. So more like triple. That is the “deal of… Read more »
petofi
Guest

Has anyone heard, in modern times, of a country similarly ensnared by financial arrangements to another country for 50 years?

If this deal is so good, why are major elements being kept secret?
Has a democratic country ever committed itself for 50 years on such terms?

Mr. Paul
Guest

tasilo :
Mr. Paul,
first I would like firmer information that what Hir Tv – a notoriously unreliable and biased source – leaks, let’s wait some days until we get more data.

I see that you didn’t read the link, which was an index.hu link. No problem here is another, from Népszabadság

http://nol.hu/gazdasag/4-4_9_szazalek_lesz_a_paksi_eurohitelkamat
titled: “4-4,9 százalék lesz a paksi euróhitelkamat” / Paks interest rates will be between 4-4.9

The title is given by Népszabadság itself in case that’s not clear. I hope that clears up, what you did not understand.

tappanch
Guest
Finance Minister Varga announced something about the Interest rates this morning about the Russian Paks loan. No we did not get the generous 2% interest offered by the Soviet Union for Paks 1. This interest will be between 4% and 4.9%. It is not clear whether Hungary start from 4.9% and finish with 4%, or (which is more likely) we start with 4% tranches and finish with 4.9%. I am going to calculate the amount of debt Hungary is taking on with the following assumptions: ————- The average interest rate is 4.5% The 10 billion euro loan will be called in equal, yearly tranches for 10 years, starting 2015. The cost of the power plant will be 20 billion, not the announced 12.5 billion at the end. (Some atomic power plants cost 2.5 times the original estimates, my model calculates with a 1.6 factor only), so Hungary has to take another 10 billion loan out, say, at a 6.5% interest, with a center of gravity in 2025. Suppose the atomic power plant will be operational in 2030, just five years later than the current estimate. Hungary has to start to repay both loans when in 2030 at fixed interest rates… Read more »
tasilo
Guest

Mr. Paul,

OK, so the point is that the interest rate in itself does not say anything about the total cost of the loan.

Only an Average Joe thinks (but I suppose the leak targets them as most people are Average Joe when it comes to finance) that you pay a nominal interest rate and that is it.

In Hungary, for example, there is the “THM or teljes hiteldíjmutató” index which must be used by banks when they advertise their loan products and which index supposedly includes all other cost items which all in all might increase the cost of the loan beyond the mere interest rate.

It does not matter which media prints the info (Népszabadság or Index), the leak comes from one single souce: the government, which we all know tends to lie and game the media.

As a result, I would wait until we know all the details to decide whether the numbers can be considered a “good” deal or not.

In any case, however, causing further huge indebtedness to the already most indebted CEE country is a very bad deal, especially for a project like this.

tappanch
Guest

Since tax revenue/GDP was 37.1%,
the GDP was 98.9 billion euros in 2011,

we can also estimate the total cost of Paks 2 as 157% of the 2011 tax revenue of Hungary.

THe 2.28 billion euro yearly repayment is 6.2% of the 2011 tax revenue

tappanch
Guest

Additional remarks about my model.

I was generous:
I compounded the interest only yearly before the power plant becomes operational.

Perturbation of the model:
The amount Hungary has to repay is more sensitive to the delay in the readiness of Paks 2 than to the nominal interest rate.

Russian loan:
10 billion euros, to be received between 2015 and 2024, if the center of gravity of the loan is in 2020.

Paks 2 is ready in : amount to be repaid at 4.5%;4.7% nominal interest rates at that time

2025: 12.5; 12.6
2027: 13.6; 13.8
2029: 14.9; 15.1
2031: 16.2; 16.6
2033: 17.7; 18.2

qaz
Guest

Maybe a way to repay the debt will be to default on it. The Russians are not stranger to this way of dealing with a debt they do not want to repay. The only problem is probably that the 800 pounds gorilla can default and get away with it but that may not be a viable option for a little flie.

Another way to deal with it is to factor in the fact that in the long term we’ll all be dead.

An
Guest

Mr. Paul :

tasilo :
Mr. Paul,
first I would like firmer information that what Hir Tv – a notoriously unreliable and biased source – leaks, let’s wait some days until we get more data.

I see that you didn’t read the link, which was an index.hu link. No problem here is another, from Népszabadság
http://nol.hu/gazdasag/4-4_9_szazalek_lesz_a_paksi_eurohitelkamat
titled: “4-4,9 százalék lesz a paksi euróhitelkamat” / Paks interest rates will be between 4-4.9
The title is given by Népszabadság itself in case that’s not clear. I hope that clears up, what you did not understand.

All the info comes from Hir TV… Index and Nepszabadsag are just repeating what Varga, the Mister of Economics, said on HirTV. So, this is what the government says. I hope that clears up, what you did not understand.

An
Guest

Re Paks deal: my understanding is that the full documentation of the Paks deal hasn’t been made public, and the part that was made public doesn’t include the specific details on financing. So at this point, we are asked to believe what the government says… and I’m sure there is a lot of “truthiness” in what they say 🙂

Honesty PR
Guest

An in #17 has clarified the news sources on the interest rate. Mr. Paul is challenged to be as honest as our great An.

Mr. Paul seems to be one of the loyal supporters of the current tyrannic oppressors of Hungary. A faithful analyzer of the dirty report cards. Like those confused millions in the less than nice Zsolt Bayer peace marches.

Why do we see such endless polarizing times again in our old poor Hungary?

tappanch
Guest

The rubber stamp parliament voted for the Paks treaty with Russia. Fidesz and Jobbik members voted together for it without knowing the details of taking on such huge debt!

Cunning and cowardly Fidesz leaders wanted to avoid criminal responsibility: Orban, Lazar, Navracsics, Varga and Semjen were not present at the vote…

http://444.hu/2014/02/06/orban-ott-sem-volt-amikor-paksrol-kellett-szavazni/

An
Guest

@Honesty PR: Well, Mr Paul is a pro. Very crafted.

tappanch
Guest

Here is a legal way out of the Paks treaty by a future government.

By abolishing the Constitution, the Fidesz party created a dictatorship in Hungary on January 1, 2012.

A new, post-Fidesz government can repudiate any treaties Fidesz made between this date and the restoration of a democratic constitution.

Catanga's Mighty Giraffe
Guest
Catanga's Mighty Giraffe

I imagine Mr. Paul sits in a Hungarian government office in Budapest or somewhere in Europe, and closely follows what is being written about Hungary. Very important. That is his job. Only he knows why he supports Orbán, his boss, so faithfully, but I think that ability to be loyal no matter what was the main reason why he was selected in the first place back when he started his career.

An
Guest

@tappanch: That would be the only way to get out of this mess, but the EU treating the Oran regime as a legitimate democratic government is not helping.

Unfortunately, it still seems that things have to get a lot of worse before they can get better. Orban needs to be pushed to the point where he starts acting out, till the authoritarian nature of his government becomes evident (blatant electoral fraud, silencing of the opposition by violence and jail). Until he can keep up the pretenses of “democracy,” not much will be changed. But I believe if he feels really threatened, he is going to be less cautious about pretenses.

qaz
Guest

Mr. Paul seems to be a well-honed team of AstroTurfer.

qaz
Guest

Sorry, astroturfers.

petofi
Guest

@ An

“..Orban needs to be pushed to the point..”

Yeah?
Well, that should result in Viktor calling in his ‘partners’, the Russians, to protect
Paks and Hungary from the domineering EU.
Just wait and see…

HiBoM
Guest

FFS, Mr Paul expresses opinions, some of which I agree with, some of which I don’t. It is pathetic that people feel the need to cook up some conspiracy theory to explain away someone with views different to their own. But then again, it is not unusual in the comments section for people to demand that Kálmán Olga should be more partisan in her approach, or that ATV should be even more explicitly biased than it currently is.

vaspondro
Guest

tappanch: I do not think that works under public intl. law.

Internal legal matters have no relevance regarding international treaty obligations as far as I remember.

The treaty should be terminated, as it will provide for that possibility. I imagine even the Russians want that option, although the Orbanist lawyers will surely make it very difficult to get out of it in practice.

Remember that the Bős-Nagymaros treaty simply did not provide for its termination, we could not legally get out of it.

Orban did create for himself a dictatorship in all but name. Orban also knows that only sucker dictatorships hand over power to challengers (like the socialist/communist were, I think Orban very seriously looks down on them as weaklings). He is not a sucker. He will not hand over the power to anybody.

An
Guest

@petofi: Maybe that’s what it takes for Hungarians to wake up.

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