OLAF finds irregularities–fraud and possible corruption–in the Metro-4 megaproject

So what else is new? Politico reported that the European anti-fraud office, OLAF, after looking into the financing of Budapest’s fourth metro line, found “serious irregularities—fraud and possible corruption.” OLAF recommended, because it has no authority to do anything else, that Hungary return €228 million to the European Commission and €55 million to the European Investment Bank. OLAF’s investigation covers the period between 2006 and 2015. As Politico noted, this period spans not just the two Orbán administrations “but also two Socialist-backed governments that ruled between 2004 and 2010.”

I have already written about the difficulties surrounding the building of this new metro line, so I will not recount the story here. Suffice it to say that when the line was eventually finished, it bore little resemblance to the original plans. It was only about 7 km long, running between the Kelenföld train station in South Buda and the Eastern Station on the Pest side. Originally, it was to run all the way to the outer sections of the city in Bosnyák tér, but because of financial difficulties the second part of the project was abandoned. As a result, the line is severely underutilized. And its cost was enormous. Benedek Jávor, Párbeszéd MEP, considers the project as it stands now “completely senseless.”

It is difficult to come by hard figures, but Politico puts the total cost of the project at €1.7 billion. According to the Hungarian version of Wikipedia, the cost was 450 billion forints, of which 180 billion came from the European Union and almost 170 billion from the central government. The City of Budapest contributed about 70 billion. The balance most likely came from the European Investment Bank.

As soon as the news of OLAF’s findings reached Budapest the debate began over who the guilty party is. The government’s first reaction was that it had absolutely nothing to do with the project. Everything was handled by the City of Budapest. (The City of Budapest, I would note, didn’t get a copy of the 104-page report OLAF sent to the government.) According to Lord Mayor István Tarlós’s office, as far as they know all the irregularities occurred between 2006 and 2010. So, the Gyurcsány and Bajnai governments and Gábor Demszky, former lord mayor of Budapest, are responsible for all the “irregularities” while the Orbán government is blameless. This is hard to believe.

Since the government has not released the OLAF report, we are in total darkness about the nature of these “irregularities.” I am, however, somewhat suspicious about their alleged timeline. For starters, it was only in September 2009 that the European Commission made the decision to finance the first 7-km section of Metro-4. Of course, that doesn’t preclude the possibility that fraud and corruption occurred before that date. Most likely it did. We know only too well how business is conducted in Hungary, especially when it comes to the prospect of “free money” from Brussels.

As you can see, no money was spared on the appointments

What strengthened my suspicion of the Orbán government’s culpability in this affair was an article that appeared in the government mouthpiece Magyar Idők only a few hours ago. The title of the article is telling: “Brussels wants to saddle Orbán with the affairs of Medgyessy and Demszky.” Brussels, it would seem from the headline, is pointing the finger at Orbán. Perhaps in anticipation of such a finding, the Orbán government set out to shift the blame to Medgyessy and Demszky.

Péter Medgyessy was prime minister of Hungary between 2002 and 2004. After his political career ended, he returned to his consulting business and in this capacity received 597,000 euros from the French company Alstom in 2006, the year when the final decision was made by the City of Budapest to buy Alstom cars for the new metro line. In December 2014 Alstom was found guilty of paying more than $740 million in bribes to government officials around the world.

A few months ago Hungarian authorities began an investigation into the connection between Medgyessy and Alstom. The final verdict on Medgyessy’s innocence or guilt has not yet been reached, but even if it turns out that he lobbied the Demszky administration on behalf of Alstom, for which he received money from the company, it is unlikely that OLAF considers this something for which either the Hungarian government or the City of Budapest is responsible. Unless, of course, they can prove that Medgyessy tried to bribe the officials responsible for the decision to buy Alstom cars. It seems, however, that the investigative committee set up by the Budapest City Council in September has been singularly unsuccessful in proving that any of the lobbyists tried to bribe those responsible for the decision. The final report of the committee has not been published yet, but probing questions by the right-wing media to Fidesz members of the committee have failed to unearth anything about money exchanging hands in connection with the purchase of the Alstom cars.

We can’t expect any information on the OLAF investigation from official sources for months. But, just as in the past, it can easily happen that the document will be leaked to the Hungarian media. After all, Politico is in possession of certain material already. Until then it’s a guessing game.

December 22, 2016
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Guest

Shouldn’t reports like this be published generally?

Doesn’t every democracy have some kind of “Freedom of Information Act”?

Observer
Guest

Wolfi

Yes, but in a democracy.

BTW Hungary also has freedom of information laws, they are just being ignored or broken, azt jò napot.

Ferenc
Guest

But OLAF is an EU institution, it should be published for sure. Could be that so far there is a draft version (for comments to a.o.Hungary), and later on officially to be published.

Ferenc
Guest

Here is OLAF’s yearly report over 2015: http://ec.europa.eu/anti-fraud/sites/antifraud/files/olaf_report_2015_en.pdf

Incoming information from Member States in 2015:
Infos from Hungary: 1 public source / 20 private source

quote: “most incoming information comes from private sources. However, information from private sources tends to be less reliable than information from official sources.”
(note: I think in the case of Hungary that quote might be the other way around)

One case study about Hungary: “misuse of EU funding for a manufacturing project in Hungary”

Report seems to have been published end of May 2016, so 2016 report to be expected 2017 May.

Observer
Guest

With local knowledge I can firmly state that there are no corruption free gov projects in Hun, perhaps except for some rare special goods supply contracts.

The main distinction is between
– real projects with overpricing, ie. kickback (usually 20-40%, but up to 90% – the “Vondemort” case), and
– phony projects designed to be payouts to cronies, usually disguised as studies or consultancy, where up to 95% is embezzled, examples galore.

I have never observed such grand robbery

Ferenc
Guest

Any proof of frauds with EU money, can be reported to OLAF!!
http://ec.europa.eu/anti-fraud/olaf-and-you/report-fraud_en
Wish I has something to give them………..

Observer
Guest

I don’t recollect such an orgy of embezzlement in the OECD world. (Hard to beat the late Mobutu champion).

Ferenc
Guest

What I don’t understand from the EU and it’s funds is why suspicsions of fraud doesn’t have immediate consequence for new funds/budgets.
Now money flows and frauds run paralel without any consequences to each other.
My suggestion:
1.if suspicion, freeze same amount in new funds/budget for concerned country
2.after completion of investigation the frozen amount is dealt with
3.if fraud proven, same amount deducted from the new funds/budget

In this case you don’t need a new institution, just integrate fraud and it’s investments into the current system (and money flows)

Guest

I have been told that the stations on the M4 line are all built by different companies. This would explain why they are so varied and expensive. The station on Kalvin ter is extravagant, looking like a Piranesi phantasy.

Ferenc
Guest

Don’t know how anything is done on the M4 (and never been in it myself), but note that costs of building projects start with the budget and the design.
If the stations are so varied as you state, it should be on purpose and with same variation in budget and design for each of them.
Anybody here knows more (background) about the M4 stations?

Ferenc
Guest

Here’s a 2016 press meeting report from the “Socialist & Democrats” in the EU parliament:
http://www.socialistsanddemocrats.eu/sites/default/files/Corruption%20cases%20concerning%20Hungary.pdf

webber
Guest

Eva – a small criticism:
Why “Lord Mayor” of Budapest? Since when has Hungary been a Kingdom, with noble titles granted to people in office?

The Mayor of New York is not a lord, nor are the Mayors of Paris, of Vienna, of Rome, of Berlin, of Los Angeles, or of Boston. They are all simply called “Mayor,” and all those cities are, in one way or many, more significant than Budapest.

Lord Mayors exist in the UK, which has a monarchy. The Mayor of London is a Lord Mayor.

In Hungary? No. Hungary has not been a kingdom since 1946.

I’ve seen the title “Lord Mayor” used before for Demszky and Tarlos. It is wrong. I assume people who use it want in some way – perhaps subconsciously – to transfer the glory of London onto Budapest, and assume that if it is right for the Mayor of London it is right for the Mayor of Budapest.

Budapest is a wonderful city. But it is not run by a lord.

Member

I second @weber’s suggestion. Please let’s stop dubbing Tarlos “lord” and just call him “chief mayor,” which is a literal translation, and has suitable associated ridiculousness, or, an even apter revenge, keep it “Oberbürgermeister,” from its KK origins. Just not “Lord Mayor”! (In other countries, the submunicipal chief administrators are called aldermen — varosatyak — and the top one is called the mayor.)
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webber
Guest

If Alstom bribed people in Hungary – and since they bribed people the world over, why wouldn’t they in Hungary – then you can be sure that Fidesz people also got kickbacks. That was the system before 2010. The opposition also got a cut.

Istvan
Guest
In Chicago we have had several of the central city (loop) subway stations rebuilt and all with huge cost overruns. There were a flurry of stories about the politically connected contractors at the time. Nothing happened with all of this and the Mayor who oversaw the project, Richard M Daley, eventually retired happily. His many municipal projects are today considered to be achievements even though our city is in severe fiscal crisis in part due to bonding debt for these projects and diversion of funds from city workers pensions. Isn’t it interesting how time creates acceptance of corruption once a project is completed. I suspect even some of the amazing ornate buildings of the period of the Empire in Vienna like the Hofburg Palace complex involved vast levels of corruption and obvious over expenditure. Parliament Building In Budapest is also an example of this I think. During the 17 years of its construction, between 1885 and 1902, the total planned cost of the Parliament was estimated around 18.5 million golden crowns. By the time they finished the works, the total actual cost was 38 million gold crowns. Because by law only Hungarian contractors could be used they had a lock… Read more »
webber
Guest
Istvan, that is exactly the problem – many projects are already falling apart due to shoddy construction. An example: next time you are in Budapest I suggest you visit the National Theater, built under the first Fidesz regime. Inside, rap your knuckles on some of the “marble” statues and pillars. You’ll find they are all plastic. Look into the Várkert bazár – opened, then closed because the cement began to crack immediately, then opened again, then closed again because of problems elsewhere, then opened again, then closed again, etc. Look into the lighting projects completed by Orbán’s son-in-law’s company – you’ll find complaints that villages are now darker than they were before his company “fixed” the street lights. I haven’t visited a single one of the new stadiums, but would bet that they are all in poor shape already. Everywhere, if you look at Fidesz’s major construction projects, you will find things falling apart. The only exceptions that I have seen are church (re)construction projects – but in this case, the church in question put up a significant amount of the funding (up to half), and was in control of all aspects of construction. So, the renovation of Bazilika is… Read more »
Observer
Guest

Istvan

Accepting the project result, eg a building is one thing, tolerating the corruption in its execution is a completely separate issue.
The public enjoys the building, the prosecution does its job and see that the law is upheld and justice is served. Pretty simple, in theory.

Observer
Guest

Webber

The National Theater building has become a by-word for kitsch amongst architects, Fidesz leaning ones included.
Felcsùt leaves its imprimatur on everything, we may come to talk about the Felcsut Period in arts.

webber
Guest

I think the new metro line is excellent. I don’t use it that often, but it is very useful if you want to get to or from Keleti or Kelenfold train stations. Since the plan is to eventually shut Déli train station and to make Kelenföld a major station, that metro line should become more important and better used in the future.

That said, the work done was, apparently, shoddy in places. Water is already seeping through the walls all along the line. It’s so bad that it’s not only coming in along the tracks, you can even see it seeping through at some of the stations, which were supposedly made using top materials. This is not, yet, a problem, but will be an enormous problem as time passes if it is not fixed – and the price of fixing the cladding along a metro line is enormous.

One of the major problems with the old Metro 3 line is the water seeping in now, and estimates of the cost to repair that are astronomical. This will be, by far, the largest expense when M3 is eventually repaired (as it must be)

webber
Guest

For those who doubt the new metro line is leaking water – voila, an article in Hungarian with a picture. You can clearly see that the walls are damp:
http://www.blikk.hu/aktualis/belfold/szivarog-a-viz-a-4-es-metro-vonalan-a-gellert-ternel/f8s2d0c

webber
Guest

The “solution” to water leaking into the new metro line:
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webber
Guest

Some people in Budapest call the new line the Aqua Park:
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Guest

Not too much OT:

Corruption especially in building projects is verywhere – an (in)famous example is the Metro or Stadtbahn of Cologne where in 2009 the walls of the famous Historical Archive collapsed, destroying many historic exhibits:
https://en.wikipedia.org/wiki/Historical_Archive_of_the_City_of_Cologne

Afaik the reason was that not enough steel was used for reinforcing the concrete of the metro tunnels – so the water from the river Rhine came in …

PS:

I still have that strange situation that new comments appear at least twice – sometimes even four times. It’s not a real problem though, just strange …

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