The “well-oiled business machinery” of Viktor Orbán’s son-in-law

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.

István Tiborcz posing with  one of his street lights

István Tiborcz posing with one of his street lights

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?

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Member

Since it is very well documented that corruption, family ties with conflict of interest are used to fraudulently obtain lucrative public works contracts, the EU should invalidate these contracts and take the money back from the entities who received the subsidies.
Unfortunately, the EU has too many spineless diplomats, who have no balls. The dictatorship of the viktor IS FINANCED by the EU. If they would stop the subsidies to Hungary, the Hungarian Mafia Government would be bankrupt in just a few months.

Spillie
Guest

well said.For me it is also unbelievable,that this can happen.The opposition here is to weak.
We are rolling from one corruption to an other.The protests from the people:where are they?
The EU is blindly providing the money.The critics is toothless…words….words..procedures(lasting for years).
The people from Europe need to know about where their money is going,how it is spend.
Action!!!!!!!!!!!!!!!!!!!!

Guest

It is incomprehensible that the overt and all-pervading corruption of the Orban mafia does not call people into the streets.

It is also hard to understand that, judged from the comment activity, the readers of HS are just shrugging their shoulders.

spectator
Guest

You really surprised about the passivity?

In my opinion the people see all this as the fulfilment of their dream: these cocky guys just made it, the way I was dreaming about!

Respecting moral values, or even the law is so “anti-Hungarian” that it wouldn’t even worth to consider it.

After all, the Great Leader himself is demonstrating this virtue on a daily basis, what possibly could be wrong with this?

Let’s face it, the maffia-morality prevails in Hungary – the majority expecting some kind of reward if they don’t disturb the “business” of the “big guys” – or/and severe retribution if they do.

Guest

Tonight just could be ‘Goodfellas’. Would be nice to have Magyar subtitles…;-)……art imitating life???

Member

Unfortunately most of us do not live in Hungary, and in Hungary when I have spoken with friends and relatives there, all they can say is “hat igy van”. Hungarians feel helpless because there isn’t an effective opposition party for them to vote for. They also are not willing to take back their country by force. The oppositions only choice is to get their shit together in time for the next election. Or something really bad will have to happen in order for the people to get up and take the government down. I don’t know how much more they need to have happen.

Guest

Re: ‘It is incomprehensible that the overt and all-pervading corruption of the Orban mafia does not call people into the streets’

I watched one of the greatest films ever made last night, ‘The Third Man’. I like to see it every now and then. Keeps me honest on how people approach the world after experiencing tumult and upheaval in their daily lives.

If anybody takes a look at the opening scenes showing how the Viennese dealt with life amid the destruction of their city after the war one can perhaps get into the Hungarian mindset today. I’d suggest it may be on the level of exhaustion. You know Hungarians seem to be more concerned with just living through the tough slog of daily life than going after ‘chiselers’.

And then there’s Orban’s populism which appears to be a bait and switch tactic when it comes to agendas. Hard to get solutions to problems when the wrong questions are asked that do nothing to build a better quality of life for all in the country.

If the opposition is alive here’s a chance for their breakthrough. They can start to lead and generate dialogue and maybe just maybe help ‘kick the bums out’.

petofi
Guest

I remember many years ago studying the Medici and their power over Florence. Once they achieved dominance in the 14th century, their main opposition–the Pazzi–never had a chance at any useful role in the city; indeed, at conducting business within the city. The Medici ruled all. It remained so for at least 200 years.

I believe one can think of Orban and his henchman in Fidesz in a similar position, but with respect to a whole country and not just a city.

Let’s hope it doesn’t take 200 years to remove them…

Guest

Re: “Let’s hope it doesn’t take 200 years to remove them…”

I think they tried remove some who were similar to them in some ways after the mid-fifties. Something certainly went awry along the way.

I think when you go from one ‘ism’ to another or getting involved in things that have suffixes like ‘ists’ you just don’t know where the hell you are or where you want to go. Somebody here already spoke about ‘deer in the headlights’. And yes the Medicis look reincarnated in Magyar garb. By the way, Rossellini did an interesting overview in a TV presentation on them.

Guest

In my latest skype with friends re pending visit, I alluded to the bad state of affairs in Hungary. The wife said “No matter, you will be with us, with our family, who love you!” Not sure if family cohesion trumps governmental fiscal and architectural atrocities. Certainly it’s a good, but should not prevent one from seeing what is going on.

petofi
Guest

Quite right, Gretchy.
And they’ll probably tell you how Viktor is fighting for them in keeping the darkies out, too.

As for Quaestor and other banking illegalities…well, they probably were not involved so it’s ‘not their problem’.

Hungarianism–ain’t it something?

spectator
Guest

It must be a spelling mistake, – sorry to tamper with your post, but the correct phrase could have been:

“…Viktor is fighting for them, keeping in the darkness, too.”

This is the right version, don’t you think?

Istvan
Guest

Gretchen enough pálinka ,and a good day in Siófok can help one forget. At least for a short while.

tappanch
Guest

Orban’s Taygetos for the old or sick (restrictions on health care spending) finally shows results.

Live births [red] and deaths [blue] in Hungary
comment image

spectator
Guest

Perhaps it would be time to resurrect one of my favourite slogans from the late sixties:

“Make love, not war!”

Its true, that then words like “defend, fight, struggle” etc. could loose their penchant a wee bit or two, the popularity of the National TV may sink lower down, if people will engage themselves in more interesting entertainment, but hey, some sacrifices may well worth it!

Just for your information: I can verify all this, since I know!
I haven’t been involved in any war, in case you wonder..

tappanch
Guest

Orban’s justice minister has submitted a bill to charge fees in the future for demanding public data from state ministries or agencies.

http://www.parlament.hu/irom40/05404/05404.pdf
http://444.hu/2015/06/26/fizetosse-tenne-az-adatigenylest-a-kormany/

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