At the end of May I posted an article about Viktor Orbán’s son-in-law selling his stake in Elios Innovatív Zrt., the leading installer of LED-technology street lighting. István Tiborcz, the husband of the Orbán’s eldest child Ráhel, became spectacularly successful after his future father-in-law was elected prime minister of Hungary. Perhaps too successful. In the last few years 33 municipalities received generous EU subsidies to switch to LED technology. Seventy-one percent of these jobs were won by Tiborcz’s firm. It was inevitable that sooner or later the media would discover the connection between Elios’s success and the part-owner’s family ties. Article after article appeared intimating that the bidding process was rigged in Elios’s favor. Eventually, the pressure became too great. By late April of this year Tiborcz’s name was removed from the letterhead of Elios.
Tiborcz sold his stake in the company to Attila Paár, an oligarch close to the Fidesz government who established, together with two partners, a business called WHB Investment. Five days later WHB purchased Tiborcz’s share of Elios. I suspected at the time that this was a “fictitious transaction.” Others believed that the plan was to liquidate Elios after 470 million forints were paid out in dividends. According to the latest intelligence, however, Elios’s business is still booming. The firm will update the lighting at the Ferenc Liszt Academy and will install new street lights in Tamási, Cegléd, Sárvár, and Ajka. Lighting some new stadiums is also on their agenda. The “well-oiled machinery,” as atlatszo.hu called Tiborcz’s not quite honest business practices, will go on. The only difference is that Ráhel Orbán’s husband will no longer be in the limelight.
In describing this “well-oiled machinery” I am relying on the investigative work of Anita Vorák, a member of Direkt36, which is a new investigative journalism center. The five journalists who established Direkt36 all came from Origo after the Lázár vs. Magyar Telekom affair, which made international news. You can read details about it in The Economist and Hungarian Spectrum.
Vorák’s article is long and detailed, but I will try to summarize what I see as the essence of Elios’s business strategy. Of course, Tiborcz’s presence as an owner was invaluable for winning the contracts, but Tiborcz and company needed a few more tricks to achieve a 14% profit margin in 2014. Apparently other firms with the same profile have a profit margin of 5% on average and, in fact, prior to 2014, so did Elios.
How did Elios Innovatív Zrt. achieve such a high profit margin? One way was to overcharge the customers, which in many cases wasn’t at all difficult because Tiborcz’s firm had no competitors. But even if there were competitors, Tiborcz’s Elios had a surefire way of hitting the magic figure that would ensure him a winning ticket.
Normally, any kind of public works project requires cost-benefit analyses, which compare possible solutions and offer cost estimates so the government can make intelligent choices. Hungarian municipalities also demand something called a “technical study plan” (műszaki tanulmányterv). These technical descriptions, however, don’t offer a choice; they simply suggest one particular manufacturer or contractor and calculate the cost-benefit of the project for the next fifteen years. Elios had an inside track because its owners had personal ties to the people who prepared the technical study plans.
Cities also have to order a so-called “energy study” (energetikai tanulmány). In most cases one of two firms prepared these studies: Sistrade Kft and Tender-Network Kft. The connection between Sistrade and Elios is quite clear. The owner of Sistrade Kft., Endre Hamar, was a business partner of István Tiborcz between 2011 and 2013. In fact, between January and August 2013 and again between November 2013 and April 2014 he was one of the owners of Elios. Anita Vorák didn’t find such a close link between Tender-Network Zrt. and Elios, but she did learn that in every case the energy studies were prepared by the same man: András Imrovicz. He worked for Sistrade as well as for Tender-Network.
The energy studies prepared by Imrovicz included prices for different types of street lightings, but when Direkt36 compared the prices of the same products given to different municipalities they discovered huge price discrepancies. After a closer study of the figures, the journalist came to the conclusion that the decision about what price to submit depended on whether the project was subsidized by the European Union or not. The idea was to milk the EU cow as much as possible. In the case of Szolnok, where 85% of the cost of LED lighting was paid by the European Union, the cost was 91 million forints more than in Vác, which was paid from domestic sources.
But that’s not all. There is a strong indication that Tiborcz’s firm was aware of the parameters of both the technical and the energy studies. Let me explain why the investigative journalists of Direkt36 think that Elios, Sistrade, and Tender-Network were most likely in cahoots
Based on the studies they ordered, the municipalities came up with a maximum figure that should be spent on a given project. Elios was most of the time uncannily close to these maximums, even when István Tiborcz’s firm was the only competitor. In the case of Vác, 535 million forints was set aside for the LED-lighting project. Elios’s estimate was only 67,000 forints less, which meant a 18 forint difference in price per fictures.
Last December, when an earlier investigative article appeared about Elios, András Schiffer, co-chair of LMP, initiated an investigation by the prosecutor’s office in connection with four cases in which Sistrade Kft. was involved when its owner, Endre Hamar, was still co-owner of Elios Innovatív Zrt. A few days later the CEO of Elios announced that the firm will sue LMP for untrue statements about the firm. Today, after the publication of Anita Vorák’s article, Párbeszéd Magyarországért (PM) also approached the prosecutor’s office for a thorough investigation of Elios. Indeed, there are just too many questions about the business practices of Elios. But given István Tiborcz’s family connection to the Hungarian prime minister, I’m almost certain that the prosecutor’s office will not move a finger. Perhaps OLAF, the European Union’s Anti-Fraud Office, will take a look. After all, there are similar corruption cases practically daily in Hungary. Almost all involving EU money. How long will Brussels turn a blind eye to such blatant corruption and nepotism?