Tag Archives: Budapest metro

Search for saboteurs brings back unpleasant memories

Some journalists, especially of the younger generation, find the situation created by the incompetence of the Budapest Transit Authority (BKK) in handling the cyber attack on its website amusing. Every time the CEO of BKK or the mayor of Budapest opens his mouth it is patently obvious that he doesn’t know what he is talking about. And then there are the repeated breakdowns of the Russian-made metro cars, which are getting harder and harder to explain away. The reasons they offer are greeted with hilarity and incredulity. In turn, Mayor István Tarlós, who has had a fairly rocky relationship with the press, devotes his considerable energies to attacking the “tee-heeing”(heherésző) scribblers.

Since the leaders of the city are reluctant to admit that the problems are the result of either their own incompetence or the shoddy work of the Russian firm that produced the metro cars, they blame the media for exaggerating the rare and in any case fairly inconsequential mishaps. And if that tactic doesn’t work, they are quite ready to blame someone else for their own shortcomings. This is exactly what’s going on with the cyber attack against BKK and the obstinate metro car doors that refuse to close. In both cases, Tarlós talked about sabotage that had been carefully planned way ahead of time.

At least for the time being, however, the journalists don’t seem to be frightened. They compare the present situation to the 1950s when the communist leadership could easily find a couple of saboteurs who were responsible for the failure of a new factory to open by the deadline. Journalists recall Comrade Virág, the legendary character of the famous Hungarian film “The Witness,” who would be very impressed (if he lived today) by the government’s ability to find “three anti-people sabotages in one week.”

As for the explanation of the latest metro car incident, jokes abound in the opposition media about the “wooden block” that someone placed in the track of the sliding door. No one really believes the story. So, Tarlós made sure at his July 27 press conference that the journalists realize “this is not a joke,” because for such an act of sabotage the prescribed jail term is five years. The media’s reaction is that of deep distrust: if the powers that be work hard enough, they will find culprits. Everybody has heard stories about those dreadful days more than 60 years ago, which seem to be returning.

For the time being at least Tarlós stands behind Kálmán Dabóczi, CEO of BKK. After all, Dabóczi was his choice in 2014 when Tarlós fired the young Dávid Vitézy, whom he accused of hysterical and anti-social behavior. At the time I didn’t follow the “soap opera,” as Tarlós called it, of the firing of Vitézy but, if I recall properly, Vitézy had ideas that Tarlós found far too revolutionary, among them the introduction of the latest IT technology in running the public transportation system of Budapest.

From what Dabóczi had to say about the cyber attack on BKK’s website, it is clear that he doesn’t know the first thing about computer science and the internet. I don’t know how seriously one should take what Tarlós said at his press conference about the details of the massive attack that occurred after the discovery of the initial software problems. One begins to have doubts about the “experts” BKK apparently consulted who claim that a cyber attack of that magnitude is extremely costly. After all, says Tarlós, “40 million people entered BKK’s website within an hour, which costs 300 million forints and a lot of human resources.” One doesn’t need to be a computer expert to know that such attacks are powered by botnets. They are quite inexpensive (apparently starting at about $7 an hour) and need no manpower. Tarlós bragged about his knowledge by explaining that the hackers used 87 IP addresses and that what really did the system in were attacks from “foreign servers.” Well, of course. But at least Tarlós concluded that such a costly operation could not have been launched by the 18-year-old high school student. One ought to add that Tarlós likes to portray himself as a man of superior knowledge about everything technological because of his degree in engineering.

István Tarlós with the wooden block on display

Although demands from opposition forces are numerous for Kálmán Dabóczi’s dismissal, Tarlós stands behind the man, even though the CEO of BKK, who was known in the past as a champion of “morality,” lied several times in the course of the discovery of the software error. Since BKK and its CEO are innocent, the culprit must be the German T-Systems and its Hungarian affiliate, whose leadership “slyly lie low,” according to Tarlós. Without wanting to defend T-Systems, which obviously delivered shoddy work, one must also lay some blame on BKK, which turned a blind eye to warnings about the system’s security problems.

As for the problems of the metro car doors, what can one say? Tarlós’s  explanation that the wooden block was most likely put in the door’s track “between stations” makes no sense to me. After all, between stations the doors are closed. Of course, the skeptical journalists and the equally skeptical public are certain that there was no wooden block, although Tarlós had one on display.

During this same press conference Tarlós put his foot in his mouth when he was asked about the absence of handicapped accessibility at some of the stations. He claimed that there is only one disabled person in every 1,000 passengers, and therefore the additional cost is not warranted. Of course, his explanation is ridiculous because if the metro is not handicapped accessible, very few handicapped people will use it. The second problem is that his numbers are all wrong. The National Federation of the Association of Disabled Persons (MEOSZ) reacted by pointing out that making the metro handicapped accessible is not a choice. It is the regulatory duty of the city. In addition, Tarlós’s statistics are faulty: one in every ten people is handicapped according to the World Health Organization. Moreover, there are parents with baby carriages and older people who have difficulties with escalators and stairs. In the opinion of MEOSZ’s president, Tarlós and the City Council never seriously considered making the M3 line handicapped accessible, and therefore he is planning to make an illegal move. It’s time to find solutions instead of creating excuses.

So, that’s where we stand. Meanwhile the cyber crime experts in the national security offices attached to the ministry of interior are looking for the man with 300 million forints who attacked BKK in order to create chaos during the World Aquatic Championships.

July 31, 2017

Viktor Orbán’s dirty political deal at the expense of the City of Budapest

Two years ago I wrote a post titled “Another Russian-Hungarian deal, good only for the Russians,” about the contract for 37 metro trains with 6 cars each to replace the by now almost 40-year-old Soviet-made metro cars servicing the M3 metro line. Their replacement was long overdue. The decision could no longer be postponed because of the frequent technical mishaps that could endanger lives. Soviet metro cars built in 1970 for the M2 line had already been replaced with brand new Alstom cars. The new M4 line also uses Alstom-built cars, and therefore it would have made sense to purchase the 222 metro cars for the M3 line from Alstom as well.

But this is not what happened. After years of often acrimonious discussions between the central government and Mayor István Tarlós, it was decided in the spring of 2015 that Budapest cannot buy new trains. The old rusted-out Soviet wrecks will have to be refurbished as a cost-cutting measure, and naturally the job will be done by the same Russian company (though subsequently renamed). The suspicion from the very beginning was that this Hungarian “favor” was part of the Paks II deal. After all, the Russian government would be giving Hungary a 10 billion euro loan to build a nuclear power plant, and therefore it was only fair that the Hungarians spend 222 million euros for the 222 metro cars. From the Russians’ point of view, it was a reasonable position to take, even though it was an unethical and illegal business deal. But what I find totally unacceptable is that Viktor Orbán, the great patriot, the prime minister of Hungary, lent his name to this thoroughly dirty deal that was disadvantageous to his own country. It was clear from the outset that the so-called refurbished, technologically outdated, non-air-conditioned cars are vastly inferior to the new super-modern ones even though the City of Budapest was going to pay almost as much for the refurbished cars as it would have for new ones.

But that’s not all. There is a twist in the story that makes the whole deal absolutely sickening. Many experts, after looking over the first cars that arrived in Hungary about a year ago, are fairly certain that these cars are in fact new. One could retort: what’s wrong with that? Actually, it sounds like a good deal. One pays only for refurbishing old ones and gets new ones instead. What a great bargain. Well, not quite. It seems likely that the manufacturer, Metrovagonmash, built a whole series of metro cars in 2008 which were not competitive with products built by Alstom, Siemens, Bombardier, etc. If the City of Budapest were to order new cars, Metrovagonmash couldn’t possible win the tender. Hence, the deal worked out by the two crooks, Viktor Orbán and Vladimir Putin. Under the guise of cost-saving refurbishing, the City of Budapest ended up with inferior new cars for practically the same price they would have paid if they had bought Alstom cars. This is how Viktor Orbán in the service of Putin was helping a Russian company in obvious financial straits. Because it has become evident lately that Metrovagonmash is ready to speed up production in order to be paid as soon as possible. They seem to need cash.

The old 1978 metro car

And the “refurbished” one

But now Metrovagonmash might be in trouble. After months of one technical failure after the other in the nine trains delivered so far, BKV (Budapest Közlekedési Vállalat / Hungarian Transit Co.) has lost patience. They refuse to accept any more cars and demand more than 800 million forints by way of penalty for non-performance. They also told Metrovagonmash’s management to come to Budapest to discuss the matter. And there will be a lot to discuss.

The first train with six cars arrived in Hungary during the winter of 2016, but the train still needed a lot of work. It made the long trip on existing railroad lines, which could have ruined certain parts of the train, including its engine, if it had been completed. So, the final touches were done in Budapest. Then, drivers had to be trained. At last, on March 20, the first train made its debut. But after a few hours the train had to be taken out of service. There was something wrong with the opening of the doors.

Ever since, there have been constant problems with the Russian trains. Although nine trains have been delivered, only four of them are actually being used. The rest are obviously not yet travel-ready, and those that are deemed so are under constant repair. It is bad enough when the doors don’t open, but it can be fatal when they open on the wrong side, as happened on June 13. Or, even worse, the doors open on both sides. Then it can also happen that the train is already on its merry way but the doors are still open. As one of the passengers said, “It was very frightening.” On June 14 the Russian engineers triumphantly announced that they had found the problem and from here on all will be well.

That turned out to be false optimism. A week later a new/old train arrived at the Western Station metro stop but the doors didn’t open at all. The train arrived later than expected and was absolutely jammed. During the next 12 minutes, the driver asked for patience and apologized for the inconvenience several times. Eventually he announced that the train must be shunted in order to enter the station again when the doors are supposed to open. As time went by, the passengers expressed their dissatisfaction not only with the train but with the government. They said nasty things about Lőrinc Mészáros, Fidesz, the stadiums, and claimed that conditions were better in the 1980s. As time went by, panic set in. Some women cried, others, the more claustrophobic types, were so eager to get out that in two of the cars strong guys tried to pry open the emergency exit. That, by the way, was quite a feat, given the less than satisfactory construction of the emergency exit. Several men were required to turn the handle that was needed for the operation.

This incident was the straw that broke the camel’s back. BKV will not send more old cars Russia to be “refurbished,” it is claiming a penalty for non-performance, and they talk about future severe sanctions. Erzsébet Gy. Németh, DK member of the Budapest City Council, who was the only representative who voted against the deal initially, demanded that István Tarlós break the contract with the Russians. In any case, the Közlekedési Hatóság (Transport Authority) has withdrawn all six refurbished subway trains from use.

Erzsébet Gy. Németh, being an opposition politician, also demanded István Tarlós’s resignation. Although I find Tarlós an objectionable person, this time I must say that this whole dirty deal is not his fault. He had no choice. The old cars were becoming dangerous; the City had to take out a loan, which couldn’t be done without a government guarantee. The guilty one is Viktor Orbán, who perhaps one day will have to answer in court for what I consider to be abuse of power by knowingly forcing a disadvantageous deal on the City of Budapest for political gain. According to the Hungarian penal code, if he is found guilty, a three-year jail sentence is the minimal punishment. Wouldn’t that be nice, after the scores of innocent people he dragged into court on trumped-up charges?

As I was reading the description of what happened in that metro car where the doors wouldn’t open, I was thinking that there have been occasions in world history when something that ordinary sparked a revolution. The fact that people verbally abused the government in a country where fear is palpable is remarkable by itself. Slowly we may be edging toward a moment when dissatisfaction will burst into action.

June 25, 2017

Metro 4: The largest case of Hungarian fraud and corruption

Now that the complete OLAF report is available online, we can all settle down and try to read 103 pages of dense prose detailing “irregularities, fraud, corruption, and misappropriation of EU funds.” A five-member OLAF group began their investigation in January 2012 after the Court of Auditors and the Directorate General for Regional and Urban Policy of the European Commission contacted OLAF, asking the office to scrutinize the case. During the investigation, the OLAF staff got in touch with only the City of Budapest and Péter Medgyessy, prime minister of Hungary between 2002 and 2004, whose consulting firm worked for Alstom Transport S.A., one of the firms accused of wrongdoing.

The total cost of the project was €1,747,313,606, of which €696,490,000 came from the Cohesion Fund. According to OLAF’s calculation, “the financial impact on the Cohesion Fund is €227,881,690.”

The release of OLAF’s final report put an end to the political game Fidesz and the Orbán government had been playing with the document. János Lázár, head of the prime minister’s office, and his deputy, the honey-tongued Nándor Csepreghy, did their best to get as much political mileage from the affair as possible. Lázár intimated that an international socialist-liberal conspiracy was behind the corruption that occurred at the Metro 4 project. On another occasion, he claimed to have filed charges against Gábor Demszky, mayor of Budapest between 1990 and 2010, Csaba Horváth, deputy mayor between 2006 and 2009, and János Atkári, an adviser to Demszky. Csepreghy must have known that none of these people was mentioned in the document, but in a long interview at 888.hu he intimated that even Ferenc Gyurcsány, prime minister between 2004 and 2009, may have shared responsibility for the misappropriation of funds. A few days later he claimed that other politicians might also be implicated.

All this is just political fluff. What we know from the OLAF report is that the City of Budapest signed a contract in 2004 with Budapesti Közlekedési Vállalat (BKV), the city-owned transit authority, which was commissioned to implement the project. Most likely that was a major mistake, which led to a lot of difficulties later. Any project, especially such a large one as the construction of a metro, needs a general contractor who oversees the project. BKV’s staff was not equipped to coordinate the work, which led to innumerable hiccups during construction.

Throughout the project the Hungarian media, especially the online site Index, reported many suspicious cases of overspending. But these cases were actually small potatoes, like too many consulting firms and lawyers making millions for very little work. Although several such cases are described in the final report, the bulk of the money OLAF would now like to be returned came from serious irregularities during the acquisition of tenders by huge corporations.

According to OLAF, 96% of the “irregularities” occurred in contracts signed by six large firms: Siemens AG, the largest manufacturing and electronics company in Europe; Swietelsky, an Austrian construction company from Linz; Strabag, the largest construction company in Austria, based in Villach; a Hungarian company called Hídépítő Zrt., which as its name indicates builds bridges and roads; the BAMCO consortium (Vinci CGP, Strabag, Hídépítő Zrt); and Alstom, the French multinational company operating worldwide in rail transport, including the manufacture of metro trains.

I left Alstom to last because it was in regard to Alstom that OLAF got in touch with Péter Medgyessy, who received €600,000 in 2007-2008 from Alstom for two years of consulting. This payment occurred after Alstom had won the tender with apparently the worst offer. Medgyessy naturally claims that his consulting firm had nothing to do with the Alstom case, adding that it is a well-known fact that his relationship with Prime Minister Ferenc Gyurcsány and the liberal SZDSZ leadership of the City of Budapest was strained. What his relationship with Gyurcsány had to do with BKV deciding to purchase overpriced Alstom cars is beyond me. I have no idea whether in a court of law Medgyessy would be found innocent or not, but in ethical terms his behavior was highly suspect.

Siemens, the German company which was in charge of electrical works, received 31.7 billion forints (€102,303,730) for the job. Since OLAF claims that Siemens most likely received inside information during the bidding process, the European Union wants the Hungarian government to pay back the whole amount. The same is true of Alstom’s 22.9 billion forint (€73,892,769) tender. BAMCO also won the tender in an irregular manner, and therefore the European Union demands the return of 8 billion forints (€25,817,360). The EU also demands 7.6 billion forints (€24,523,364) from Swietelsky, which was responsible for the interior of the metro stations. Strabag-Hídépítő, in charge of structural work on the station at Baross Square, received 3.7 billion forints for its work but because of procurement irregularities 2.5 billion forints (€8,067,751) should be returned.

Another politician who, although not mentioned by name, was most likely involved in the metro case is László Puch, former financial director of MSZP, whose company Media Magnet Kft. just purchased the ailing Népszava and Vasárnapi Hírek. Media Magnet, according to the OLAF report, received 331 million forints (€1,068,110) from Siemens for advertising. The report notes that “this company was in charge of the campaign of the political party which was in a decision-making position in the case of Metro 4.” In 2010 Index reported that BKV ordered all sorts of superfluous studies from Media Magnet on such things as, for example, the state of the cable television market. There is a strong suspicion that some of this money ended up in MSZP’s coffers.

The biggest culprits will most likely be found among the representatives of the named companies and those BKV officials who were in contact with them. There’s no question that the guilty parties should be punished, but judging from the outcomes of earlier corruption cases I have my doubts that we will ever hear about all the dirt that OLAF unearthed. I’m also pretty sure that Fidesz will try its darndest to drag high-level politicians into the morass around BKV.

I see that Gábor Demszky will be represented by György Magyar, one of the “star lawyers” in the country. On February 3 Magyar announced on ATV that Demszky had signed only three contracts during the many years of construction. One was the contract between the city and the government in which the parties agreed that 79% of the construction cost would be borne by the government and the rest by the City of Budapest. The second contract dealt with a loan the City had to obtain for the project. The third was the contract that gave full authority to BKV for the implementation of the project.

Fidesz naturally wants to have a parliamentary investigation into the case, which will lead to further accusations on both sides. If Hungary had a decent prosecutor’s office and an independent chief prosecutor, it should undertake a speedy, thorough, unbiased investigation of the case. Unfortunately, this is the last thing we can hope for under the present circumstances.

February 6, 2017

The perils of being an opposition politician in Hungary

I don’t know whether I will be able to make a coherent story out of the mess the Orbán government most likely has purposefully created regarding the report of the European Commission’s European Anti-Fraud Office (OLAF) on irregularities—fraud and possible corruption—in connection with the construction of Budapest’s fourth metro line (M4). The report covered the period between 2006 and 2015.

Although the Hungarian government received the OLAF report—or its English-language summary, the Hungarian public heard about it only from the English-language news site Politico. It didn’t take long before the Fidesz government and the Fidesz-led City of Budapest, on the one hand, and the politicians of the socialist-liberal government of the pre-2010 period, on the other, were at each other’s throats. The government claimed that practically all the financial wrongdoings were committed before 2010 while the opposition politicians accused the Orbán government of making political hay out of the case while refusing to make the report public. The administration claimed that it has no authority to release OLAF’s findings.

Most likely because of the holiday season at the end of the year, for about a month not much happened. Then, on January 16, János Lázár officially announced that he will file a complaint against Gábor Demszky (SZDSZ), mayor of Budapest between 1990 and 2010, Csaba Horváth (MSZP), deputy mayor between 2006 and 2009, and János Atkári, a highly respected economist who for many years served as Gábor Demszky’s financial adviser. That announcement started an avalanche of often conflicting articles in the Hungarian media.

A day after Lázár’s announcement, his deputy Nándor Csepreghy gave a detailed press conference dealing with the Metro4 corruption case. The government found MTI’s report of that press conference so important that it was immediately translated into English. We learned from Csepreghy that the Fidesz government had had its own suspicions of fraud surrounding the project even before. The OLAF report only confirmed these suspicions.

Csepreghy disclosed a few relevant facts that might help our understanding of the case. For example, he revealed that the investigators of OLAF conducted interviews with 50 individuals, “including the competent executives and managers” of the Budapest Transit Authority (BKV) and the City of Budapest. In addition, Csepreghy named a few companies that had been involved in the construction of the metro line as possible culprits. He also gave the initials of certain individuals heading large public and private companies. Finally, he said that “there are dozens of actors mentioned in the report who were politicians, were associated with the realm of politics, or operated as semi-public actors.” Finally, he told the press that the “government’s legal advisers are currently looking into the possibility of disclosing the OLAF report to the public in its entirety, to which the Government is fully committed.”

Nándor Csepreghy at the press conference / Photo: Tamás Kovács (MTI)

Although the government filed a complaint against Demszky, Horváth, and Atkári, they weren’t among the individuals Csepreghy referred to by their initials. A Magyar Idők editorial found Demszky’s absence from the list especially regrettable. The former mayor will get off scot-free because “according to rumors, his name doesn’t appear to be in the report.” Only the CEOs of large companies will be prosecuted. But what will happen if they reveal “the name of the chief coordinator”? In brief, the journalist responsible for this editorial accuses Gábor Demszky of being the head of a conspiracy to commit fraud.

Meanwhile Hungarian members of the European Parliament decided to look into the question of whether the Hungarian government told the truth when it claimed that it needed the approval of OLAF to release the report and that it was waiting for OLAF’s response to its request. All three opposition MEPs–Csaba Molnár (DK), Benedek Jávor (Párbeszéd), and István Ujhelyi (MSZP)–asked the head of OLAF, Giovanni Kessler, about OLAF’s position. All three claimed that, according to the information they received, it was up to the Hungarian government whether to release the document or not. Since there is a controversy over the meaning of the information received, I will rely on Ujhelyi’s statement, which includes the original English-language letter he received from OLAF. Here is the crucial passage:

In response to your question, since the OLAF final report has now reached its intended recipients, the Office is not in a position to decide on the possible release of the report. Such a decision belongs in the first place to the national authorities to which the report was addressed. It is for these authorities to assess the impact of a possible release of the report and to ensure compliance with the relevant legal obligations on judicial secrecy, data protection and procedural rights, including the right of access to file.

It is hard to fathom why the Orbán government again resorted to lying instead of appealing to the possible legal problems that could stem from the release of the report. Since then, Attila Péterfalvi, president of the National Authority for Data Protection and Freedom of Information, personally asked István Tarlós, who by now has a copy of the document, not to make the OLAF report public. It looks as if Péterfalvi, before making this request, consulted with János Lázár of the Prime Minister’s Office and Péter Polt, the chief prosecutor, who are both against the release. Although there might be compelling legal reasons not to allow the publication of the OLAF report, given the reputation of Péter Polt’s prosecutor’s office one cannot help being skeptical about the real reasons for the secrecy.

Over the weekend Gábor Demszky gave an interview to Vasárnapi Hírek in which he detailed his position on the case. Demszky said that, according to the rules of the Council of Europe and the European Parliament, OLAF must give anyone mentioned in their investigative reports the opportunity to respond. Since no one contacted Demszky, Horváth or Atkári, it is probably safe to assume that they are not the subjects of the investigation. Even so, the Orbán government filed complaints against them. Demszky also said that because OLAF conducted its investigation between 2012 and 2016, “most of their information came from the offices of the Fidesz government.” OLAF, Demszky added, most likely accepted the information in good faith because its investigators don’t expect these offices to be swayed by political pressure.

I might add that one has to be very careful when assessing the veracity of witness testimony. We know from other politically motivated trials that witnesses often give false testimony. The most infamous was that of Zsolt Balogh, head of BKV. In order to save himself months of pre-trial custody, he invented the story that Miklós Hagyó (MSZP), one of the deputy mayors, demanded 40 million forints, to be delivered in a Nokia box.

The opposition parties are truly worried about the prospect of years of investigation by politically motivated Hungarian prosecutors. Even though in the past most defendants were eventually exonerated, they remained in limbo for years and their careers were ruined. We must also keep in mind that although OLAF has filed scores of such reports on cases involving fraudulent procurement practices, only four guilty verdicts have been handed down in the last almost seven years. Some cases, like that involving Orbán’s son-in-law, were unceremoniously dropped. The prosecutors’ sudden interest in this case indicates to me that they think they can use it to do damage to the opposition, one way or another. Evidence of culpability has never been the litmus test for deciding which cases to pursue.

January 30, 2017

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

Another Russian-Hungarian deal, good only for the Russians

In the past few years passengers have been evacuated from one metro car after the next on the M3 line in Budapest because the cars started to smoke. These Soviet-made cars have been in service since 1978 without any refurbishing. The most modern metro cars nowadays are guaranteed for 30-35 years. It was high time for these old cars to be retired. Line 2, which was completed in 1970, had the same vintage Soviet cars, but they were replaced by air-conditioned Alstom Metropolis trains in 2013. It was also Alstom that provided the cars for the M4 line that opened in March 2014. Thus, it would have made a lot of sense to seriously consider Alstom’s bid to provide 37 trains with 6 cars each for the M3 line.

Well, this is not what happened. After years of often acrimonious discussions between the central government and Mayor István Tarlós, a decision was reached a few months ago. The M3 line is not getting any new trains. The Soviet cars will be refurbished, allegedly because of cost. Commentators and experts are skeptical.

But let’s start at the beginning. In order to get rid of the by now dangerous old cars Budapest figured it would have to take out a 60 billion forint loan, for which it needed the central government’s guarantee. It was a few months ago that at last the Orbán government said it would guarantee the loan, but only if the money was used to refurbish the old cars, not to buy new ones. The city’s hands were tied. They would have to settle for fixing up the old trains.

Originally 22 companies were interested in getting the job, but BKV, Budapest’s transit authority, found only five that could meet the requirements. Alstom was not among them. In the end, the competition was between two companies: the Russian Metrovagonmash, whose predecessor, the Mytishchi Machine-building Factory, produced the original trains, and Skinest Rail, an Estonian company whose owner is Oleg Ossinovski, an Estonian-Irish citizen. Magyar Nemzet learned that Skinest Rail planned to have the job done in Ukrainian Krykov Railway Car Building Works operating in Kremenchug if it got the job, which it didn’t.

It was only about a week ago that the final decision was reached: Metrovagonmash was the winner. BKV’s arbitration committee ruled that Skinest’s bid couldn’t be considered because, according to Hungarian public procurement law, it had eight “formal” mistakes. It is amazing how often a company is excluded from the bidding process because of “formal mistakes.” Skinest claims that they not only underbid Metrovagonmash by 9 billion forints but offered a 30-year guarantee as opposed to the Russian 25-year guarantee. The Skinest motor design would also have ensured savings in energy use.

Budapest ended up with a project that will cost 69 billion forints, while it can borrow only 60 billion. The balance must be found in Budapest’s very tight budget.

Napi.hu, an economic internet news site, finds the deal “inexplicable.” Everybody suspects foul play here. And not without reason when one reads that László Deák, CEO of Alstom Hungária Zrt, told Magyar Nemzet that “months ago they approached city hall saying that for 75-81 billion forints (242-250 million euros) they would deliver 37 trains with six cars each.” The difference between the 69 billion Budapest will have to pay for old refurbished trains and the Alstom’s offer for new cars is relatively small. (As a point of comparison, “the fence” will cost close to 30 billion forints.) Moreover, after negotiations the city might have been able to lower the price even further. István Tarlós, however, claims that he has no information of any such offer.

By now, Hungarian internet sites have published pictures of the likely Metrovagonmash creations by finding old Soviet-made cars refurbished by the same company. Here is one from Moscow.

Moscow metro

Compare that with the Alstom cars running in Budapest:

alstom2

The city council with its large Fidesz majority naturally voted to accept Metrovagonmash’s offer with the dutiful assistance of the MSZP members. There was only one person who voted against it: Erzsébet Gy. Németh of DK, who suspects a connection between the Russian loan to build the Paks II Nuclear Power Plant and the Russian firm’s winning tender. Antal Csárdi of LMP abstained. He was even more specific in his criticism. According to him, all signs point to the likelihood that Viktor Orbán during his trip to Moscow promised Putin that the Russian company would get the job to refurbish the metro trains. He told Magyar Nemzet that Alstom sold new metro trains to Paris for less money than Budapest is paying the Russians for refurbished ones.

As I said, BKV and the Budapest government claimed that the decision to settle for renovating the old cars was financial. In fact, Tibor Bolla, CEO of BKV, in an interview today alleged that the new trains would have cost at least 90-95 billion forints, an estimate based on prices obtained during earlier negotiations for the trains.

But that’s moot. Cost didn’t figure into the city’s current decision because the choice to refurbish the old cars instead of purchasing new ones was not in their hands. It was in Viktor Orbán’s. So, let’s assume that Orbán had an understanding with Putin about the Russian firm’s involvement with metro cars on the M3 line. Why didn’t he then simply specify new cars manufactured by Metrovagonmash? That would have meant an even a bigger chunk of money for the Russians. I suspect that he was afraid that Metrovagonmash, with its still fairly conservative design and technical know-how, might not have been able to compete successfully with, for example, Alstom. Declaring the Russian company the winner would have been too obvious. Having the same Russian company fix up the old cars that it manufactured forty years earlier looked like a much safer bet.

As it turned out, even that wasn’t entirely smooth sailing. The Russians won only on a technicality. Two days ago Skinest Rail submitted a formal complaint to the European Commission over the procurement procedure. The Estonian firm “contends that its bid was more favorable in every key aspect, as its proposal meets all modern technical requirements–asynchronous drive, disc brakes, pneumatic suspension, longer life cycle, etc.–and the eight points cited by BKV Zrt. as reasons to disqualify the Skinest bid are formal in character.” The press release further noted that “a Hungarian Parliament bill for the acceleration and simplification of certain development investment projects in Budapest was passed on the same day as the announcement of the tender winner, and was dubbed the M3 Act because of its focus on the M3 modernization project.”

Although Skinest claimed in its formal complaint to the European Commission that the bill passed by parliament “limits legal remedies available to contending bids,” according to Bolla, CEO of BKV, Skinest is mistaken, and since then they have asked for remedies in Hungary. Skinest will not, however, be able to compare the two competing tenders because of Metrovagonmash’s insistence on secrecy. I wouldn’t be too optimistic if I were Oleg Ossinovski. Estonia/Ukraine can’t beat Russia in Budapest.