On Friday Viktor Orbán summarized his administration’s achievements at a conference held in Bratislava/Pozsony. The short English-language talk was mostly about the accomplishments of his unorthodox economic policies, but he briefly called attention to the necessity of having a strong domestic capitalist class. In Hungary, just in other former socialist countries, he admitted, there is not enough capital to enable local entrepreneurs to become really powerful economic engines. But, he added, “we are getting there.”
Under these circumstances how can a country create a strong monied class in record time? If conditions were normal, it would take a considerable length of time for local businessmen to grow organically and compete successfully with foreign companies. If, however, you want instant super-rich capitalists, I can see only one way of achieving that miracle: to make sure that the state creates a legal framework that allows public money to be funneled into private hands. And this is what the Orbán government has been doing in the last five and a half years. The case study I’m sharing today–MET Holding–is most likely only the tip of the iceberg.
The story is not new, but now we have most of the documentation to prove what we have suspected all along: a few of Viktor Orbán’s close friends have made billions at the expense of the Hungarian people.
In 2007 MET Group, headquartered in Switzerland, began operations “in natural gas retail and wholesale trading in the European market as well as in the retail sale of natural gas to industrial customers in Hungary, Slovakia and Croatia.” Five years later, in 2012, MET Holding was established to manage and support the subsidiaries of MET Group.
Shortly after the election in 2010 Orbán promised cheaper energy to consumers. In order to lower prices, the state-owned MVM (Magyar Villamossági Művek) was allowed to dip into its gas reserves, which it could then replenish with cheaper gas from the open market, through a pipeline from Austria. The cheaper gas was supposed to be sold to hospitals, schools, and public buildings. MVM claimed, however, that its own retailer, MVMP (MVM Partners), didn’t have enough experience, so they would have to use a Swiss subsidiary of MET Holding, METI (MET International), for the transactions. As a result, MET itself reaped about 80% of the gain that the cheaper gas coming from the West offered to MVM. That is, the savings from the cheaper gas went to the shareholders of MET Holding instead of to Hungarian consumers.
In order to make that business deal legal, the Orbán government simply changed the regulation governing trading via the pipeline. In 2011 Tamás Fellegi, minister of national development, signed a new regulation allowing MVM to be the sole trader of gas from the open market. The arrangement, which was originally intended to remedy a one-time shortage in gas reserves, was extended year after year. The Hungarian government was perfectly happy to have MET, a private company, be the chief beneficiary of the cheaper gas coming from the West and not the state-owned MVM. This arrangement, by the way, is coming to an end on July 1 because Hungary is currently under an infringement procedure for allowing a single company to use the gas pipeline without holding any auctions.
We knew some of these details already last fall. I wrote about them in November, but then we had no documentation and hence no hard proof. Since then, however, Bertalan Tóth, an MSZP member of parliament, sued MVM for refusing to release the documentation of what is considered to be “a bizarre arrangement” between MET and MVM. Tóth won in the court of first instance and, after MVM’s appeal, also in the court of appeal. He received thousands of documents back in January, but it took months to wade through them and reconstruct a plausible scenario of three years of shady transactions. This morning summaries of the documents appeared on MSZP’s website. On the basis of the documents, the losses the publicly-owned MVM suffered in three years may be as high as 100 billion forints. In November, the estimate was only half that much.
Some of the details that have emerged from these documents are truly bizarre. For example, MVM bought MET’s gas on the Austrian side and later gave it back to MET on the Hungarian side and charged only 2.3-3.5 ft./m³ for shipping. It is also clear from the documents that MVM’s claim that MVMP, the subsidiary created to be a retailer for MVM, was not experienced enough to do the actual buying and selling on the open market was an outright lie. MVMP did a brisk business already in 2011 and 2012 and bought gas for MVM 16.55 forints cheaper than MET did. It even happened that MVMP bought gas from MET on the Austrian side and sold it back to MET for a lower price. MVMP didn’t lose any money because the gas sold back to MET included some gas purchased from another company at a much lower price. From the documents it looks as if MVMP acted only as a “mailman” between MET and MVM. MVM didn’t lose money on its transactions with MET, but its own profit was minimal.
Since the documents were released only this morning, there hasn’t been much time to comb through the material. Moreover, Tóth and his experts on gas transactions figure that perhaps 1,000 documents are still missing, without which the picture is far from complete. Still, the skeleton of the story is there. The Orbán government used the power of the state and its ability to change laws to pass public money to private individuals.
One of the owners of MET, by the way, is István Garancsi, who is described as the new Lajos Simicska. He is the owner of the Videoton Football League which, in turn, has close connections with the Ferenc Puskás Academy. Garancsi is considered to be one of Orbán’s frontmen. He is the one who just signed a contract with the Hungarian government to build the sites for the Aquatic World Championships to be held in 2017.