Scandal surrounding the purchase of E.ON gas company

The left-of-center Hungarian media is full of stories about details of  the purchase of the German-owned E.ON gas and electricity company by MVM (Magyar Villamos Művek), a state-owned utility company.

Let’s go back a few years to recall the background of this deal. Rumors of the purchase of the company were already circulating in the summer of 2011 because Viktor Orbán made it clear that he found state ownership of utilities of strategic importance to the country. Not everybody shared the Hungarian prime minister’s view. For example, the Financial Times Deutschland at the time called the idea “madness,” arguing that the price of energy cannot be lowered by nationalizing the utility companies.

It is also important to understand the history of E.ON in Hungary. Originally E.ON bought the company from MOL, the Hungarian oil and gas company, when during the initial tenure of Viktor Orbán (1998-2002) the government set the price of gas so low that MOL suffered considerable losses. For ten years E.ON managed to make the Hungarian business profitable, but in 2010 it suffered a blow when the second Orbán government once again froze the price of gas. As a result, E.ON lost money. The Germans decided to bail and sell the company to the Hungarian state. The deal was closed in March 2013. At the time experts found the purchase price too high.

Because of the controversy over the purchase price, atlatszo.hu  (Transparency), an NGO that receives some funds from the Norwegian Grants, decided to ask for documentation about the deal. Although by law the Magyar Nemzeti Vagyonkezelő/Hungarian National Asset Management, the state organization that handles state properties, was obliged to release the documents, they refused. At that point atlatszo.hu went to court and won. The state appealed but atlatszo.hu won again. That did not deter MNV. They decided to go all the way to the Supreme Court (Kúria). But no luck. After a year and a half of legal wrangling the Hungarian state was forced to release the documents. Atlatszo.hu promptly made them public on its website.

On the basis of the documents now released, it looks as if MVM purchased a company that was practically bankrupt. The purchase price of 251 billion forints was considered too high when critics were unaware of the actual financial health of E.ON. As it turned out, the assessors estimated the value of E.ON to be -355 billion forints. Yes, you read it right: minus. So, with the 251 billion paid by the government, the loss to the country is 616 billion forints.

Viktor Orbán was bent on purchasing E.ON regardless of price. In fact, even before negotiations began he repeatedly announced his absolute determination to acquire the company. Not the smartest move. There was not much haggling over price either. The Germans asked 260 billion forints and, it seems, Orbán was happy to pay.

Prime Minister Viktor Orbán and Chairman-CEO of E.ON

Prime Minister Viktor Orbán and Chairman-CEO of E.ON

In fact, he was so eager that he wasn’t bothered by the fact that the Hungarians were unable to examine the financial health of the company thoroughly. The German side announced that certain documents would be released only after the deal was complete.

The negotiators from MNV were aware of the riskiness of the transaction and were afraid to go ahead with the deal without appealing to a higher authority. They wanted to submit their findings to the Ministry of National Development for approval. Mrs. László Németh, then minister of MND, did not feel comfortable with the deal either, so in the end it was Viktor Orbán who personally assured MNV of state guarantees for any losses incurred as a result of the transaction.

Apparently the greatest risk for the health of the company is the “take-or-pay contract” that has existed for many years between Gazprom and the E.ON companies. That means that the company either takes the product from the supplier or pays the supplier a penalty. After 2008, in the wake of the global financial crisis, Hungary’s gas needs decreased considerably. And yet the company was obliged to buy gas regardless of need. Some references in the documentation indicate that after the close of the deal the new owners might be able to negotiate with Gazprom concerning the take-or-pay arrangement. Orbán’s cozy relationship with Putin should help in this regard.

Critics also point to legal irregularities. For instance, owners of E.ON shares were not notified thirty days before the deal was signed. There is also the possibility that Brussels will consider the state subsidies to MVM illegal. (Apparently, the socialists already asked the European Union to investigate the case.)

The new division of MVM cannot stand on its own financially. Not only does it need state subsidies to cover its costs, but two of the gas storage facilities bought from E.ON already had to be closed.

Együtt-PM and DK are bringing charges of mismanagement and abuse of fiduciary duties in connection with the purchase of the E.ON gas business by MVM. MSZP was more modest. The party only asked Miklós Seszták, the new minister of national development, to investigate the case. If I were the representative of MSZP I wouldn’t wait breathlessly for this investigation. The ministry already made its position clear tonight. Hungary cannot be at the mercy of foreign interests in the energy sector, and therefore the purchase of E.ON was necessary for the “defense of the decrease of utility prices.” Getting back the gas company is also of inestimable value from the point of view of national security because of the gas facilities where Hungary can store 70% of its yearly gas consumption.

As for the purchase itself. “Several independent assessments showed the economic justifiability of the purchase in the long run.  The state ownership guarantees the secure gas supply of Hungary and it serves as a solid foundation for future economic growth,” reads the statement of the ministry released to MTI. I must say that this is a pretty weak response to the very serious charge of financial irresponsibility with taxpayer money.

In the right-wing media the silence is deafening. The only article I found was in MNO (Magyar Nemzet Online). It was posted at 17:33 and is a bare outline of how the documents were acquired by atlatszo.hu and what the documents show. It seems that, since the Ministry of National Development hadn’t yet responded to the revelations, the paper’s editors didn’t know what the right position was on this particular issue. I guess they will eventually find their voices.

As for the Fidesz-friendly prosecutors, they were quick to charge socialist and liberal politicians with an abuse of fiduciary duty for selling state properties at prices they considered too low. But it is unlikely they will ever charge Fidesz politicians with the same abuse for buying state properties at prices that are too high.

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kincs
Guest

To make a slight correction: The assessors did not value the E.ON assets at -600 billion forints, but at -355 billion. That’s still a huge minus.
With the 251 billion paid by the government, the loss to the country adds up to 616 billion forints.

buddy
Guest

Actually MOL sold its two gas companies to E.ON in March 2006, as noted in this MOL press release:
http://www.mol.hu/hu/a_molrol/mediaszoba/kozlemenyek/2006/2006._marcius_31./

petofi
Guest

@buddy

Somehow, the government’s involvements with companies–MOL, Malev, and now E.ON–reminds me of the old ‘pea trick’. They move the ‘pea’ around and inevitably, while some company (usually Russian owned) greatly profits, the government is left holding the bag.

With E.ON now we are being told that the same thing happened–Orban, on his own–goes ahead and purchases a company without looking at its books….and the government (ie. the taxpayer) takes a bath for 600 billion forints No problem, it seems.

On Egyenes Beszed, this topic was touched upon before going to ‘more important matters’ like
the political polls…Laughable.

As I see such matters unfold, I get the eerie feeling of being on the Titanic while the band plays on…

Member

Just so everyone is clear, we are talking about 192,172,441 euros with today’s exchange rate.

Here is an interesting small article also from 2013:
http://budapesttimes.hu/2013/01/21/e-on-buy-back-too-costly-for-govt/
“Consequences of overpayment
Asked about the state paying a higher than appraised purchase price for something, lawyer Tamás Kovács said that in such a situation the suspicion of misappropriation or misuse of funds could arise. In that case the person tasked with handling the asset could be charged.”

petofi
Guest

@Some1

Look around…I think you dropped a ‘0’ somewhere..

PALL
Guest

“MSZP is more modest”. Right. They are the Peyers from the Bethlen-Peyer Pact. Only it was a Puch-Simicska pact this time. For a handful of meager crumbs the “szocis” would sell their own mothers.

chandlerozconsultants
Guest

Reblogged this on hungarywolf.

Boka
Guest

I am sure MSZP is part of the gas deal somehow. The old 2/3s-1/3s division of spoils does not apply of course, after all Simicska was right: after Fidesz’ 2/3s in the Parliament which allows its unlimited powers the old rules were out, but say 98-2, given the amounts involved anyway that’s still enough for the hungry szocialistas. They are reliably petty, dumb and eager to please. The perfect “opposition” to people like Simicska or Orban.

This is grand larceny on an epic scale and it will continue for years to come. Yet the opposition (except for DK) is silent? What’s going on?

Fidesz is here to say for decades. And Hungary has about 2-3 more years in the EU. People will choose “cheap gas” from Russia over agricultural/infrastructural subsidies from the decadent EU. Orban is currently setting up a conference on how to subvert the EU’s sanctions because those go against the interests of Hungary and others and this is the only the beginning. He will indeed conclude the entente cordiale with Russia, if he hasn’t already.

WERQ
Guest

Imre Kertesz is the holocaust clown of the government.

http://index.hu/velemeny/2014/08/15/kertesz_imre_lett_a_kormany_holokausztbohoca/

Klein
Guest
OT, Kertész will accept the Szent István Order, a newly revived and even previously rarely issued decoration (popular under Horthy) which even Hermann Göring received. As the Index.hu post wrote this acceptance from this government after all the machinations it has been carrying out from Veritas to House of Fates and so on puts the entire ouvre of Kertész into a strange quotation marks. I agree. People constantly underestimate the Orban government. It has great people skills because it employs professionals for these tasks, who always find the weak spots, that is their job. They know how to get the targeted people on their sides. And they deliver. Liberals are not disciplined, lack long-term strategies and simply lack the necessary phantasy to believe what’s going on and thus will forever lose out against Fidesz. I am sure Kertész has been the target of the Fidesz government (aka the Berlin rezidentura) for years. The pros knew that Kertész didn’t like “communists” because they did not appreciate enough Kertész back in the day and also that Kertész is critical of the “holocaust-industry”, i.e. Kertész would have wanted the Nobel prize for his good writing only, without any reference to his subject matter.… Read more »
Member

A related topic:
http://budapestbeacon.com/public-policy/takarekbank-sale-completed-after-constitutional-court-green-lights-transfer-of-governments-shares/
A fate for MKB?

And a related OT:
http://www.foreignaffairs.com/articles/141825/jan-werner-mueller/moscows-trojan-horse

PS: In previous ZoRRo remarks I posted a link that gave some insight on the Transylvanian reactions related to OVI’s “Posvanyos” speech. Unfortunately that time I failed to make that clear. I cannot find the link now that appeared under the same nickname.

Vertigo
Guest
@ZoRRo: Trojan horse?? We officially hate the West and support Russia. That is clear official policy, everything else is a show for the EU so we (I mean Simicska and Co.) could continue to receive the EU funds. Only a naive German can say that Hungary is still only a Trojan horse. We are a paid agent for Russian interests, it’s rather hard to deny this, the evidence is all over the place. We are even proud of this, the Bulgarians less so. Russia has turned us, they are pretty good at that. And now comes the part when the agent start to identify with his handler, we are way into that territory. Orban would have long ago left the Eu and Nato and he already prepared the populace for that. Nobody will shed a tear (at first). He made up his mind, there is no turning back now, the only question is when? For the time being that circa 5-6bn Euro keeps Orban there, but not for long, mind you, because at one point the money Orban and Co. make from the rather simple oil and gas deals (see the EON/Gazprom deal in the present post which is only… Read more »
petofi
Guest

Imre Kertesz’ acceptance

Kertesz is an 84 year old man who has been serious all his life. It’s time to be light-hearted.
To decline is to be serious: to accept is to be whimsical.

“To be honored by this rabble of right-wing Hungarian maniacs?! Who can take it seriously?
Yes, I will accept. Simple as that. That’s all the thought it deserves. And, I will use the ‘honor’ as a door-stop to my toilet. And, in the ways of old man, I will piss on it from time to time.
It’s what it deserves…”

politology
Guest

@petofi: you could be right in theory.

But that fact is that it was Maria Schmidt herself who leaked this news (prior to the August 20 ceremony and she could not keep it herself, I guess) in a long article in the reliable weekly government mouthpiece Heti Válasz in a triumphant manner foreshadowing what she and other fideszniks will use this acceptance for.

Whatever Kertesz’ considerations are (in a way, those are completely irrelevant even if he will explain them), Fidesz’ considerations and goals with respect to Kertész are crystal clear already.

Bowen
Guest

Is Imre Kertesz’s health in a similar condition to Helmut Kohl’s?

tappanch
Guest

Kertesz has advanced Parkinson’s disease.

He probably has no idea who gives him which award.

Here is a news item from more than a year ago.

http://www.pecsma.hu/pecs-aktual/titokban-kezelik-kertesz-imret-pecsett/

It is disgraceful that the Orban government uses him as a propaganda tool.

Member
Petofi is right. I dropped a 0. 616,000,000,000 (616 billion) forints is worth 1,972,970,400 (about 2 billion) euros. THis is the amount Orban happily OVERspent from Hungarian taxpayers. Now, if I can direct everyone to a seemingly unrelated item from Time Magazine, titled Russians Start Paying the Price for Putin’s Ukraine Adventure This is just a few snippets from the article publish yesterday: “Desperate for cash to develop Crimea, the Russian government has dipped into the national pension fund, essentially deciding to confiscate everything its citizens will contribute to it this year and the next. “No one has any intention of giving this money back, because this money has gone to Crimea,” said Finance Minister Anton Siluanov. (His deputy was promptly fired when he confessed on Facebook that he “feels ashamed” for the expropriation on Aug. 5.)” “the Finance Ministry has proposed a new sales tax of 3% to plug holes in the federal budget that have largely resulted from the crisis in Ukraine” “When the Iron Curtain fell, meat patties on round buns seemed to us like symbols of freedom,” wrote the author, Ulyana Skoibeda. “Now our national leader [Putin] has declared that Ossetian pastries and Tatar pies can… Read more »
petofi
Guest

Hey, those Russkies are something, ain’t they?
They stop 20 km short of the Ukrainian border for a day and then continue a day later.
Now the 262 truck convoy is being examined by Ukrainian border officials.

How many of you think that the Russkies have changed the contents in those ‘missing’ 24 hours?

Paloma
Guest
@tappanch By now there is an entire library written about the activities within the III/whatever directorates trying to woo back emigrant Hungarian intellectuals and artists so that their return/loyalty to the communist system could be used to establish the credentials/legitimacy of the communist government both inside and outside of Hungary. (Needless to say the Russians are also great in these games.) Thus there is an accumulated (publicly available) expertise about this and this expertise was simply used on Kertész. He could be sick and feeble, but his considerations don’t matter the slightest because he and Fidesz are not playing in the same play. Fidesz is doing this with two goals in mind (there is always a well-thought out strategy with these power plays). Firstly, to forever silence jewish or western criticism (because they just cannot get a higher authority than Kertész, Eli Wiesel perhaps, perhaps, but he is not Hungarian and is not too well-known) and secondly to make Hungarian jews and liberals understand: Fidesz and Fidesz alone decides about their fate and their history. They do not matter at all, they are completely powerless and irrelevant, they can’t even define their own history because they (fideszniks) can turn around… Read more »
Bowen
Guest

Orban on the radio today, trying to ‘explain’ his speech in Transylvania last month …

“I believe that Hungarian Prime Ministers see things more deeply and from a unique perspective that only they have, because there is only one Prime Minister. They see into European politics, the witches’ cauldron and the processes that go on there from a unique perspective and to such a deep extent that I think is interesting for Hungarians who want to think to see what the world looks like from here, from where I complete and perform my work.”

i.e.
there is only ONE prime minister in Hungary (Orban)
Europe is a ‘witches cauldron’
only Orban can understand Europe.

gdfxx
Guest

BBC News this morning:

‘Speaking on Hungary’s Kossuth Radio, Mr Orban said “the sanctions policy pursued by the West… causes more harm to us than to Russia.

“In politics, this is called shooting oneself in the foot.” ‘

Lowe
Guest
What gives me pause in this matter is this: Lajos Bokros said that the 600 bn figure is absurd and only total kooks could come up with such a number. For starters a negative number like that assumes that someone will pay you 350 Billion in cash and then sell you their company after? Not only was that the only complete idiocy, He explained that the miscalculation comes from not understanding the situation. He said the way E.ON signed a contract with the Russians, there was a minimum amount of gas included in the contract that has to be bought from Russia. Even if you buy less then the stated minimum you will still have to pay as much as if you bought the minimum amount of gas. So you must buy a minimum amount of gas from them for sure that is the way the contract is signed. Now you could create the huge negative number by falsely assuming that E.ON will buy much less than the minimum agreed in the contract. You could justify the assumption several ways (because the winter was mild, the gas is not needed). And then from this assumption you calculate the loss by… Read more »
Marcel Dé (@MarcelD10)
Guest

@gdfxx: “Better to shoot in the foot rather than to be shot in the head.” – Lituanian FM Linkevicius’ answer to OV’s quote this afternoon.

buddy
Guest

OT: Rapper Dopeman is facing a possible 3 years in jail(!) for last year’s political stunt of knocking down a styrofoam statue of Orbán and then kicking the head.
http://www.blikk.hu/blikk_sztarvilag/gyanusitottkent-hallgattak-ki-dopemant-2277449

Even if he doesn’t serve time, it’s clearly a message meant to intimidate the political opposition – if you humiliate the Great Leader in public, you will be sent to jail.

Robotmaus
Guest
Lowe: you seem to be a pseudo naive guy sent by Fidesz, but let me add a couple of points. EON or Hungary/MVM can store the gas only for one year because the next year the obligation to “take or pay” comes up again. So let say for the sake of argument if the winter was mild (as has been the case more often lately) and there is a lot of gas already in storage (say essentially full from last year’s take up) then what do you do when you have to take up the next yearly amount? You can’t put into storage all the new amounts because (a) maybe there is no capacity for storage left and (b) after a couple of years of mild winters there is no way to use up, build down that excess gas ever (taking into account the recurring take up obligation). The only way to get rid of the new gas is to sell abroad. You can’t sell domestically because the regulated price (as set by Orban) is lower than the price we get the gas for from the Russian middle-men pursuant to the the Panrusgas agreement which is up for renewal in… Read more »
Tompi
Guest

Hungary will shoot a movie about Kincsem the race horce with Russian help . Apparently Putin’s presidential culture fund is participating, i.e. on paper of course because eventually we will pay that via the gas price or by Paks. For HUF 12bn. Probably 10x more expensive than any Hungarian movie ever made. Insanity.

Note that the Russians are omnipresent these days.

Oh, and Vidnyányszk’s National Theatre lost 1/3 of its viewers (40,000 less). Which means either they played less times of often half of the seats were empty (to get the average 1/3s loss from full utilisation).

Kirsten
Guest

Klein: “The game is over. Fidesz has won. The only thing left is to get to love Big Brother.”

Good luck with that. But what I do not understand is this constant whining about some left that is not forceful enough. If people prefer forceful government that decides for them and tells them what to do in drastic ways, the current government is a good choice (and Europe should eventually accept this also and suspend Hungary’s membership). A different government, one that exactly does discuss, does allow people to voice very diverse opinions, makes sense only when people demand that. So, democrats will be by definition less “forceful” (if you mean by that “governing” through threats, fouls, shady deals and blackmailing etc.), but if a sufficiently large number supports this type of government, it can work. So, asking the liberals to be far-right or far-left wingers in their manners is indeed futile. The question is why the Hungarian society, which is not at all specifically aggressive, has such preference for this hard way of governing, and why more civilised approaches to politics are considered “weakness”.

petofi
Guest

Ok, so the 600 billion figure is bogus. Still, to pay 260 billion–the asking price, no reduction–without checking the books is suspect.

This kind of reminds me of what happened when I bought my apartment in Budapest. The person showing it was a ‘trustee’–ie. someone entrusted to sell it. When we came to discussing the price, he wouldn’t give an inch and then I realized that he had agreed with the sellers on a fixed price and however much he sold it for, the difference was his. So, any bargaining was coming off his end completely.

Deja vue all over again?

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