Tag Archives: Elżbieta Bieńkowska

A political deal was struck: The European Union, Hungary, and Rosatom

The independent Hungarian media has published about a dozen articles in the last few days about the revelations Benedek Jávor, Párbeszéd’s member of the European Parliament, managed to unearth about the European Commission’s decision to drop its objections to the nuclear power plant in Paks, to be built and financed by Russia. Less was written about it in the foreign press.

One of the Commission’s initial reasons for opposing the project was the lack of competition in awarding the tender to Rosatom, a company owned by the Russian state.

Benedek Jávor has been after these documents which, he suspected, would reveal that the rather abrupt shift in the Commission’s attitude toward the Hungarian project which occurred in November 2016 might have gone beyond legal or technical considerations. The EC officials were less than enthusiastic about providing Jávor with the documentation. In fact, he had to threaten them with legal action before he received the crucial documents that proved to him that a political deal had been struck between Brussels and Budapest which allowed the Russian-Hungarian nuclear project to proceed.

People have speculated for some time that Hungary had secret supporters within the European Commission. The chief suspect was Günther Oettinger, who visited Budapest in November 2016 in the company of Klaus Mangold, a German businessman with good Russian connections. As we now know from the newly released documents, there were others as well. The infringement procedure against Hungary was dropped when the EC cited “technical exclusivity” as the deciding factor, agreeing to Hungary’s argument that only Rosatom’s reactor fit the requirements for the project which, by the way, a lot of experts wouldn’t buy.

According to a well-known energy expert, “the term technical exclusivity is essentially a last resort.” He called attention to the fact that France made a similar argument in awarding the Flamanville nuclear plant’s contract to a company without inviting bids from others. He added that Hungary knew that the Commission would “roll over, as it did in the Flamanville case.” As we have now learned, the Hungarian government needed a little help in coming up with the “technical exclusivity” argument, and that help came straight from the “Brussels bureaucrats.”

It was at the end of 2014 that Jávor filed a complaint with the European Commission about the unlawful award of the Paks project to Rosatom without competition. For two years Hungary argued that the contract was legal because it was only Rosatom that would also provide a ten billion euro loan, and therefore Hungary had no choice. That argument led nowhere.

After two years the Hungarian government switched tactics and claimed that Rosatom was the only provider that would meet Hungary’s needs. As is clear from the documents, the Hungarian government was being coached by Tomasz Husak, the head of EU Commissioner for Internal Market, Industry, and Entrepreneurship Elżbieta Bieńkowska’s cabinet, who “walked Hungarian officials through the ‘main elements’ they should offer.” Polish friends can come in handy for Hungarians.

Once that was taken care of, the only question was what the European Union would ask in return. In the end, Hungary had to promise that in the future it will solicit bids for subcontracts, with the important proviso that they will be European companies. This option was described by Commission officials as a “global political solution.” It was most likely deemed a satisfactory alternative to what would have been the only legally acceptable solution: to proceed with the infringement procedure. Of course, Benedek Jávor is correct when he points out that a solution which overlooks one infringement of the law with the promise of not committing another in the future is “legally weak.”
Will the release of these documents have any further bearing on the future of the Paks II project? Can the decision be reversed? According to Politico, it cannot. However, the documents might have some relevance in the event of legal challenges to the Commission’s approval of Hungary’s state aid for Paks II, another EC decision in favor of Hungary.

One thing is sure: officials of Bieńkowska’s department will fight tooth and nail to defend the decision. Lucia Claudet, spokesperson of the European Commission, in answer to Jávor’s accusations, already denied any collusion between the EC and Hungary and announced that “any conspiracy theories or allegations of undue interference are unfounded.” According to Claudet, everything went according to the normal rules of dialogue between a member state and the European Commission.

In Jávor’s opinion, this agreement will have serious consequences for Hungary in economic terms. Originally, the Orbán government had negotiated a 40% Hungarian share of subcontracts but if, as Hungary has promised the European Union, 55% of subcontracts will be decided in open tenders, the Hungarian share might be very low. As Jávor figures, Rosatom will insist that the majority of work be done by the company, and therefore Hungarian firms will be squeezed out of the “investment of the century.” The real winners will be Rosatom and multi-national companies. Unless, as often happens, the bidding process is rigged.

What a bonanza! Hungary will have a nuclear power plant it doesn’t really need, a burdensome long-term debt load, and very little in the way of a short-term boost to the Hungarian economy. All in all, a wonderful investment.

November 26, 2017

The Orbán government in action: graft and fraud

I didn’t think that I would have to return to the topic of the tobacco monopoly and concessions after writing at  least three articles on the subject in 2012 and 2013. The allocation of tobacco shop concessions became such a scandal that I hoped that the Orbán government would leave the tobacco business alone for a while. Obviously, I was wrong. In December, a new bill was submitted to parliament that was designed to eliminate tobacco wholesalers and replace them with one “retail supplier.” The original draft bill provided for two options. Either the government would set up a company for that purpose or it could call for an open tender for a 20-year concession. At this point an individual Fidesz MP introduced an amendment which “allowed the government to appoint a ‘reliable company’ for the task.” This parliamentary procedure was itself highly suspicious and what followed was even more so.

The “reliable company” actually turned out to be two companies that bid for the concession together. The British American Tobacco Hungary  (BAT), which has a factory in Pécs, and the Continental Tobacco Group, “an independent family-owned private company” that, according to its promo, supplies cigarettes and other tobacco products to 25 different countries. That’s all one can learn about this family business online. What one naturally doesn’t learn from its website is that the owner, János Sánta, is a good friend of János Lázár. Sánta’s name surfaced already during the scandal of the tobacco shop concessions when Napi Gazdaság, then still an independent daily, discovered that the final corrections on the proposal the government sent to the European Commission for approval were done by János Sánta. It turned out that Lázár relied heavily on the “advice” of Continental Tobacco all along.

Giving the whole job to a small family business would have been too obvious, so BAT, Hungary was chosen to assist the Hungarian government in this dirty deal. It cannot be a coincidence that Tamás Lánczi of Századvég, who is involved in a business venture of Árpád Habony and Arthur J. Finkelstein called Danube Business Consulting Ltd., became a board member of BAT at the end of March. Lánczi is an avid Fidesz supporter and the son of András Lánczi, an important adviser to Viktor Orbán.

cigarettes

The whole deal was done in such secrecy that the competitors of BAT and Continental were not even aware of the tender before it was a fait accompli. And the competitors can’t turn to the office that is supposed to be the watchdog of fair competition practices because the government designated the arrangement as “of strategic importance to Hungary.” Such projects cannot be questioned or investigated.

Three multinational tobacco companies–Japan Tobacco International, Imperial Tobacco, and Philip Morris–protested the decision and proposed a joint bid that included the amount they were prepared to pay for the concession. Their offer was ten times greater than that of BAT-Continental. Over twenty years, instead of 8.91 billion forints they offered 89 billion. Once the ministry of national development received the counter-offer, government officials had a very hard time explaining themselves, but they eventually settled for “the proposal being invalid and incomprehensible.” They came up with all sorts of excuses why the proposal was invalid and incomprehensible and hence couldn’t be considered, but with the exception of one–that the Hungarian government had already signed a contract with BAT-Continental–they all sounded bogus.

According to Index, the European Commission has been keeping an eye on the Hungarian government’s interference in the tobacco industry for some time. In the spring Elżbieta Bieńkowska, commissioner in charge of internal market, industry, and entrepreneurship, wanted to have details of this latest assault on private enterprise. It seems that the Hungarian government gave some kind of an explanation for what happened, but Bieńkowska and her staff were not satisfied with the answers. Index quoted the commissioner as saying that “there are other tobacco monopolies in Europe, but nowhere is it as obvious as in Hungary that only those can sell tobacco products who have good connections to the government.” She indicated that they “have to investigate the case very thoroughly.” She added that “strictly speaking we still cannot talk about corruption but it is clear that contracts and economic advantages which foreign companies enjoyed earlier now moved elsewhere.” Index had the impression that yet another infringement procedure is in the offing.

The Hungarian government reacted sharply to the Index story. The prime minister’s office released a statement in which they accused Bieńkowska of representing the interests of the multinational tobacco companies. In fact, she did something that was unprecedented: she became “the instrument of political pressure.” The government made it clear that it will fight to the bitter end, all the way to the European Court of Justice in order to win this case. Such a court case would be “a war of the multinational tobacco companies against Hungary, which is fighting against tobacco use” in defense of the public.

Meanwhile at home, János Lázár tried to explain why Hungary is in trouble in Brussels on account of the tobacco distribution concession. He announced at his press conferences last Thursday that it is Philip Morris that is behind the attacks against Hungary. He revealed that the government is planning to introduce “plain packaging” of cigarettes, as is already done in Australia. Philip Morris, he said, is upset about this change that will be introduced sometime next year. Mind you, no one had ever heard of this plan before. But that wasn’t enough. Lázár also charged Philip Morris with playing a role in anti-government protests.

I left the best to last. A few days ago the Hungarian public learned that János Sánta, the owner of Continental Tobacco Group, became part owner of Napi Gazdaság, the new government organ. The current owner of Napi Gazdaság is Gábor Liszkay, a long-time friend of Simicska and formerly part-owner of Magyar Nemzet. After Liszkay refused to follow Simicska’s demand for a more independent editorial policy, he purchased Napi Gazdaság from Századvég. Sánta apparently now has a 47% stake in the company, for which he paid 70 million forints. I guess this was the price he had to pay for his company to become the co-distributor of tobacco products.

This is how business is being conducted in Hungary. What these kinds of business practices do for Hungarian competitiveness we can only imagine. It’s no wonder that László Seres in an opinion piece expressed his fears that Orbán state capitalism with its mafia-like foundations will bury Hungarian democracy and the country’s economic well-being.