Tag Archives: Közgép

Two men who put up a fight: Lajos Simicska and Bachar Najari

Among the active members of Hungarian Spectrum there has been a long-standing debate about the most useful attitude toward the Orbán regime’s very existence and future. There are those who get upset when they encounter pessimism regarding the removal of the present Hungarian government. They think that defeatism is counterproductive and take every opportunity to raise their voices against naysayers. Among these people we find some who think that these pessimists are actually Fidesz propagandists whose job is to spread the dogma of Fidesz invincibility. But, to be fair, one doesn’t need to be a Fidesz troll to feel less than optimistic given the state of affairs in the country.

I for one agree that the proverbial Hungarian pessimism can become a self-fulfilling prophecy, which should be avoided at all costs. But, at the same time, we must admit that overcoming the obstacles that Orbán and his minions have placed in front of those desiring change is a formidable task.

Today I would like to hearten those who are worried about Hungary’s future by writing about two men who decided to stand up to the government. The first is Lajos Simicska, Orbán’s friend from high school, who reaped all the benefits of the mafia state until his falling out with the prime minister about a year and a half ago. The other is Bachar Najari, a Syrian-Hungarian-Swiss businessman, the new owner of the famed Zsolnay Porcelain Factory in Pécs. Although for different reasons, both were targeted for financial annihilation by a corrupt regime. It looks as if the powers that be are finding it difficult to destroy them.

Some people believe that Lajos Simicska’s contribution to the creation, development, and final accomplishment of Fidesz was even greater than Viktor Orbán’s. After all, it was Simicska who brought home the bacon. Of course, in the process he himself became immensely rich. But then came the falling out. Orbán, being a vindictive man, decided to ruin his old friend financially.

Simicska’s most important business venture is Közgép, a construction company that specializes in building highways and railways. As such, it is heavily dependent on government orders. Thus, Simicska looked like an easy target. Indeed, right after the blow-up between the two men, the government suspended midstream the highway that was to be built by Közgép. The second move was that the Public Procurement Authority (Közbeszerzési Hatóság), which handles government tenders, “discovered” that Simicska’s firm had cheated on one of its tenders. It was decided that as punishment Közgép would not be able to compete for any government jobs for three years. Simicska went to court and won, both in the lower court and also on appeal.

Trying to ruin Simicska through Közgép was not enough. Orbán instructed István Tarlós, mayor of Budapest, to break a long-term contract with Simicska’s firm, Mahir Cityposter. In 2006 the firm acquired the right to provide the city with 761 large cylindrical kiosks. The contract was to be good for 25 years. Ten years later the city suddenly “discovered” that the contract was not fair. When Simicska didn’t remove the kiosks by a specified date, the city ordered them to be forcibly removed despite a court order to stop the vandalism. Simicska promptly hired György Magyar, a very able lawyer, who said from the beginning that the case was absolutely clear-cut. And indeed, he was right. A few days ago the court agreed with the argument Simicska’s lawyer presented and forbade the removal of the kiosks while the case is pending before the court of appeal. The city will also have to pay 6.8 million forints in court costs. If the city loses, it will have to pay Simicska 600 million forints in damages.

Perhaps Simicska’s savviest move to date has been to form a consortium with the Italian company Itinera, which has been described in the Hungarian media as “a big gun.” Itinera has been “active in large-scale infrastructure projects and civil construction for more than 75 years in Italy and around the world.” Közgép together with Itinera presented a bid for a 27 km-long section of the M4 highway between Berettyóújfalu and the Romanian border. Their bid was 58 billion forints or approximately 188 million euros. Two other consortiums were also eyeing the job: (1) a consortium of three Hungarian companies whose bid was 84 billion forints or approximately 268 million euros and (2) a French-Slovak-Czech consortium that bid 87 billion forints or 272 million euros.

The difference in price is staggering. It seems that Simicska with this offer wanted to show the fair (admittedly, probably on the low end of fair) price of road construction and to highlight the graft that is normally built into these bids. In the case of the Hungarian consortium it was as much as 26 billion forints or 80 million euros. In this particular case almost 3 million euros per km would end up in someone else’s pocket. Of course, it is still possible to find fault with the Közgép-Itinera tender if Viktor Orbán so desires, saying that price is not everything, but apparently the Közgép-Itinera bid is also best in every other category, including environmental considerations. The consensus is that it will be very difficult to award the project to anyone else.

 

Now we can turn to the case of Bachar Najari, the Syrian-Swiss businessman with a Hungarian wife who also speaks fluent Hungarian. How Najari ended up owning the Zsolnay porcelain factory is a long story, which I pretty well told in a post titled “How to ruin a businessman with government help.” The upshot of the story is that one of Viktor Orbán’s oligarchs, Attila Paár, decided that he would like to own the factory because many of the vintage buildings in Budapest that will be restored or even rebuilt will need the famed terracotta tiles Zsolnay was famous for in the last decades of the nineteenth century. Najari had managed to put the formerly city-owned factory on solid financial footing, and it looked as if from here on it would be a profitable enterprise, especially with the impending sale of roof tiles. There was a fairly large loan which had been taken out by the city earlier from the Hungarian Development Bank for which Najari offered a certain amount of money to settle the account. The bank declined the offer and instead sold the debt for half of what Najari had offered to Attila Paár. Meanwhile, the city of Pécs decided to help Paár along by setting up a bogus company to which it recruited more than half of the workforce of Zsolnay. These workers are actually on paid vacation and no one knows who pays them. The situation was compared by one of the workers of the factory to a gangster film from the 1930s.

gangsters

Najari decided to fight. First he managed to get back his stock, which had been placed under sequestration. He used his own money and made good on the debt he inherited when he bought the factory from Pécs and also paid 90 million in local taxes, although it was a disputed item. Therefore there was no more reason for the city, which owns 19% of the stock, to take over the factory. Then the Kaposvár court refused to register Pécs’s new porcelain manufacturer, called Ledina Kerámia. Finally, the court in Zalaegerszeg turned down the request for a liquidation of the Zsolnay factory. A few days ago the city of Pécs “sold” the nonexistent Ledina Kerámia to an unnamed off-shore company. The city claims that the sale, for 3 million forints, “will ensure the jobs of those workers who were enticed to leave Zsolnay because it was to fold soon.”

Meanwhile work is being done at Zsolnay. Najari refused to be intimidated, and it seems that he managed to foil the attempt to rob him blind.

Although it is not easy, these two cases show that a person can win as long as he has the means and the determination to stop the Orbán regime’s unscrupulous, illegal activities.

September 19, 2016

The end of an Orbán family business?

In November 2014 I wrote a post,”How do European Union funds end up in the hands of the Orbán family?” It was about the new member of the Orbán clan, István Tiborcz, the husband of Viktor Orbán’s eldest daughter, Ráhel. Tiborcz and Ráhel had known each other for at least six or seven years before they married in September 2013. The young man in 2008 was a fledgling businessman, half owner of a small business dealing with electrical supplies. In 2010, however, one of Közgép’s divisions purchased the majority of shares in Tiborcz’s business. From this point on the business, named Elios Innovatív Zrt., changed directions and became the leading installer of LED-technology street lighting. One after the other, Fidesz-led municipalities made sure that the to-be son-in-law’s company received lighting contracts. By 2012 Elios was thriving. What surprised me at the time was Közgép’s withdrawal from the company just when Elios was doing so well. I wrote: “what baffles me is the role of Simicska’s Közgép. I find it more than a little odd that Simicska’s Közgép shows up to support the fledgling business of István Tiborcz, already known to be Ráhel’s boyfriend, only to withdraw from the firm after its spectacular growth. Közgép is not, as far as I know, active in venture capital or private equity.” Now, a few months later, I am no longer baffled. Közgép/Fidesz, because it is difficult to know where one began and the other ended before the Simicska-Orbán fallout, in fact did play the role of venture capitalist. It financed the “promising” company of István Tiborcz, the future son-in-law of the boss. Moreover, it was a surefire investment given Elios’s business profile. Especially since, as it turned out, the government allocated almost 9 billion forints of mostly EU money to upgrade ordinary street lighting to LED technology. And orders from Fidesz-led municipalities could be counted on.

Looking back now on the beginnings of Tiborcz’s business career, I’m almost certain that Tiborcz’s transition from owning a business that sold electrical supplies to owning one that installed street lighting was inspired by Viktor Orbán himself, who by 2010 knew very well that there would be plenty of EU money for more efficient street lighting fixtures. It was to the advantage of the municipalities to embark on such a project because 85% of the cost was covered by EU and Hungarian government money. And given the family connection, business success for Elios was guaranteed.

István Tibor and his father in law, Viktor Orbán having some  homebrew

István Tibor and his father in law, Viktor Orbán, having some homebrew

My suspicion was further aroused when I read lately that János Lázár, then mayor of Hódmezővásárhely, was the first head of any Hungarian city to come up with the idea of LED-technology street lighting. That was in the fall of 2009, before the 2010 elections. At the time such technology was still in its experimental phase, even in the most developed parts of the world. The city fathers approved the idea and soon enough Hódmezővásárhely chose István Tiborcz’s brand new company to do the job. It was this job that established Elios as the expert in LED street lighting technology.

In fact, Elios was too successful, Tiborcz too greedy, or the municipal leaders too servile. Far too many contracts landed in Tiborcz’s lap, and questions kept popping up about his business success, which smacked of corruption and nepotism. Yet, although months went by and negative articles multiplied, Viktor Orbán didn’t seem to be bothered about the unfavorable press. In fact, Nándor Csepreghy, assistant undersecretary for communication involving European Union projects, outright lied to György Bolgár of KlubRádió when the reporter asked him about the inordinate number of projects in which Tiborcz’s firm was involved. He claimed that there were hundreds and hundreds of such municipal orders and that Elios won only a couple of dozen of them. Soon enough it became known that so far only 33 cities have received grants from the EU and the government for street lighting to the tune of 5.7 billion forints and surprise, surprise, István Tiborcz’s firm won 71% of these contracts–that is, close to 4.1 billion forints. Very often Elios was the sole firm that qualified because the demands of the Fidesz-led municipalities were tailor-made to fit the son-in-law’s firm. Details of this highly irregular affair can be found in an article published by direkt36.hu in March of this year.

Although Viktor Orbán acted as if he were oblivious to the growing scandal surrounding his son-in-law’s business dealings, by now we learned that the decision to escape from a very sticky situation was made sometime earlier. They decided “to sell” István Tiborcz’s 50% stake in Elios. On May 28 Napi Gazdaság, the new servile government newspaper, reported that exactly one month earlier, on April 28, István Tiborcz sold all of his businesses that had anything to do with public procurement. The family could no longer stand the constant attacks by the opposition and the antagonistic media.

On April 30, two days after the sale of Elios, HVG reported a “sensational piece of news.” János Lázár himself rejected the city of Jászberény’s proposal because its wording was suspiciously designed to match Elios’s qualifications. Well, in light of our current knowledge that by that time István Tiborcz was no longer a co-owner of Elios, Lázár’s bravery, hailed by HVG, is less admirable than it seemed at the time.

Who is the new part-owner of Elios? His name is Attila Paár, another Fidesz oligarch who has been involved in many large projects, such as the renovation of the Várkert Bazár and the National Civil Service University. On April 23, 2015 he established, together with two partners, a business called WHB Befektetési Kft (WHB Investment), which  five days later purchased Tiborcz’s share of Elios.

Before Tiborcz’s share of Elios was sold, Tiborcz and his partner took out 470 million forints in dividends from the company’s profits, which left the company with only 6.29 million forints on its balance sheet. The deal has all the earmarks of a fictitious transaction.

Explaining away EU action

I’m not naïve enough to think that politicians and government spokesmen tell the truth and nothing but the truth, but I don’t expect them to lie through their teeth either. In fact, it is very dangerous to resort to outright lies if you are in politics because the likelihood of being found out is pretty high, and in such cases the political fallout can be devastating. Just think of the fate of Richard Nixon. A skillful politician or spokesman would skirt the issue, reveal only a partial truth, or try to minimize the gravity of the situation. Members of the Hungarian government, however, aren’t skillful in this respect. By now, I think, more than half of those Hungarians who are at all interested in politics are convinced that they cannot believe a word they hear from the representatives of their government. Folksy Viktor Orbán doesn’t seem to take to heart the Hungarian proverb about a liar who can be caught more easily than a lame dog.

Indeed, the Orbán crew gets caught right and left but, unlike in other countries where there would be serious consequences of their dishonesty, in Hungary, “the country without consequences,” everything goes on its merry way. Lately, however, there have been too many scandals that need to be covered up, and therefore the job of lying has become increasingly complicated and intricate. Just in the last two days the Orbán government was found to have lied about two different issues. First, Nándor Csepreghy, undersecretary in charge of communication on economic development, lied about the reasons for the European Commission’s official suspension of 700 billion forints in grants designated for the regional development operational program. A day later it was discovered that the Orbán government was most likely aware of financial irregularities at the Quaestor Group already in 2011 and actually stopped an investigation of the firm. Today I will write about the suspension of the EU funds. Tomorrow I will turn to the Quaestor investigation.

Csepreghy has two degrees, one in communication and the other in public relations. He is articulate and even sounds intelligent. He also talks at quite a clip, which is a useful quality in someone who doesn’t always tell the truth. It can be tough to catch the discrepancies.

So, let’s see how Csepreghy explained the reason for the suspension of 700 billion forints to which Hungary was entitled in the regional development operational program. This particular sum was designated for innovation, purchase of machinery, and business infrastructure. Although the money comes from the EU budget allocated for the 2007-2014 period, regulations allow countries to receive and spend money to the end of 2015.

Csepreghy said that the dispute is only over “accounting practices.” The European Commission has an issue with the system of allocating funds that was devised in 2007 during the second Gyurcsány government when Gordon Bajnai was in charge of the EU monies coming to Hungary. Csepreghy further explained that it was in 2014 that the Commission decided to send auditors to Hungary, who “examined thousands of applications” and found the whole system faulty. It didn’t matter how fast Csepreghy tried to speak and how often he repeated that it was all Gyurcsány’s and Bajnai’s fault, those present couldn’t quite understand why the auditors came to check on the tenders only in November 2014 if the Commission had already been aware of the problem in 2010, as Csepreghy claimed. Yes, we know, the “Brussels bureaucrats” are slow, but that slow?

Csepreghy also somewhat carelessly mentioned that the European Commission specifically criticized the Hungarian government’s dissolution of the Nemzeti Fejlesztési Ügynökség (NFÜ/National Development Agency) established in 2007 under the Gyurcsány government. In January 2014 the office of the prime minister took over its duties. In fact, the EU in April 2014 temporarily suspended payments because of its dissatisfaction with the new arrangement.

It didn’t take long, only a few hours, before the document the Hungarian government received from Brussels was leaked. The Demokratikus Koalíció was among the recipients. László Varju, deputy chairman of the party, called a press conference at which he accused of Csepreghy of lying. According to Varju, all the cases mentioned in the document were decided after 2010. It was not the system the Commission criticized but the specific requirements stated in the tenders. They were formulated in such a way that for all intents and purposes only one company could fulfill all of them. So there was no competition. Moreover, the projects were grossly overpriced, on average by 46%.

444.hu also received a copy of the document and published a lengthy summary of it yesterday. Since then the full Hungarian language version of the document has been available online. Unfortunately it is not yet available in English.

So, here is the real story. The auditors came to Hungary in November and randomly chose not thousands but only 55 applications, out of which they found 16, or 29%, unacceptable. It would take too long to report on all the individual cases, so I chose two I found especially outrageous.

One involves Közgép, Lajos Simicska’s company, that won the tender to build a harbor on Csepel Island for 3.6 billion forints. The tender was written in such a way that only Közgép could compete. The government demanded several previous accomplishments that were totally unnecessary to accomplish the job. It wasn’t enough to show that a company had earlier built at least a 2,000 meter network of street lighting; it had to have been done on an “industrial site.” The same was true about a 5,000 m² basalt-concrete facing. The construction of a three kilometer asphalt road also had to be accomplished in an industrial setting. As if there were any difference between roads or lighting inside or outside of an industrial park. But the best was that, in order to get the job, the company had to have built at least 2,000 m. long railroad tracks. There were no railroads anywhere near the harbor. The fine in this case alone is 633 million forints.

The Csepel Harbor

The Csepel Harbor

Even more bizarre was the office furniture ordered for a government government office under the supervision of the ministry of administration and justice to the tune of 4.1 billion forints. What did an applicant have to show to be eligible to compete? The company had to have furnished an office where the project was worth at least 400 million forints. Since the office in question was an area for meeting clients, the company also had to have furnished such an office for 300 million forints. Among these jobs there had to be one with at least 50 workstations. The auditors rightly pointed out that the quality of the furniture to be supplied has nothing to do with the size of earlier orders. The requirements were such that a consortium of seven different companies had to be formed to fulfill all the requirements. The fine here is 1.6 billion forints.

Apparently since November the Hungarian government has been trying to explain the “discrepancies” away, but the Commission wasn’t moved. Once it became clear that the EU could not be persuaded that all was in order, János Lázár decided to be more humble than usual. He is now asking the Commission to help Hungary devise a better method for writing tender requirements. Well, he could start by being honest, but I guess that doesn’t occur to him right off the bat. Honesty, I’m afraid, cannot be learned by basically dishonest people.

The European Union has had enough: No money for a 110 billion project already underway

Not only does Quaestor’s collapse and the government’s involvement in this scandal weigh heavily on the third Orbán government. Viktor Orbán just heard officially that the European Union is refusing to finance a 30 km section of a new Hungarian superhighway, the M4, that would be 230 km long and would lead all the way to the Romanian border just north of Oradea/Nagyvárad. This is a first. And this time there is no possibility of any further negotiations. The project must either be abandoned or be built from purely Hungarian sources. Trying to resubmit the same project based on another, lower bid seems pretty hopeless since the European Union considers the whole project a “luxury item.”

I would be hard pressed to recall all the dates that were mentioned in the press about the imminent beginning of work on the project. It was in 2003 that civil engineers and experts on transportation came up with a 15- and a 30-year plan which included two much-needed superhighways, M8 and M4, that would transverse the country from the Austrian border to Romania. The point was to avoid Budapest, which has for far too long been the epicenter of the Hungarian transportation system. By 2005 it looked as if both M8 and M4 would be built.

In December 2012 Index reported that work on the planned 30 km section of M4 between Abony and Fegyvernek would begin in 2013. At that time people familiar with the price structure of Hungarian highways predicted that it would cost “tens of billions of forints,” but by the end of 2014, when all the bids were in, the cost was 110 billion or almost 4 billion per kilometer. That is four times the price of similar road construction in Western Europe where wages are considerably higher. Such a blatantly overpriced project was too much for the European Union. Moreover, they suspected price fixing. But what is really devastating for the Hungarian government is that the EU didn’t just stop this particular section of M4 but refused to finance the entire 230 km of M4 during the 2014-20 budget period.

An unfulfilled dream: "M4's construction began at Abony / szolnoknaplo.hu

An unfulfilled dream: “M4’s construction began at Abony” / szolnoknaplo.hu

The European Union’s decision about the Abony-Fegyvernek section of M4 couldn’t have come as a surprise to the government. Although by January 2014 all necessary permits were obtained and therefore work could begin, the green light from Brussels wasn’t forthcoming. In December 444.hu learned that in general there are problems with the Hungarian projects waiting for approval in Brussels. “Among other reasons, the European Commission did not pay because the officials consider the prices submitted too high.”

Benedek Jávor (PM MEP) turned to OLAF (European Anti-Fraud Office) to initiate an investigation into the M4 highway project. He wanted to know whether there were any signs of corruption, specifically any possibility of kickbacks to parties by the five firms involved in the construction of the project. Colas USA and the Austrian Swietelsky were to build 13.4 km for 46.76 billion forints. Lajos Simicska’s Közgép together with another Hungarian company, Híd, was entrusted with a short 2.4 km section, but it had three bridges, including a new 756 meter-long bridge across the Tisza River. For this work they signed a contract for 32.5 billion. For the rest Strabag International was to receive 31.5 billion.

The Hungarian government was so eager to launch the project that in January they began construction, which means that about 30% of the project has already started. It is not at all clear what the government will do in light of the EU decision. After all, it is not the fault of the companies involved that the Hungarians decided to begin construction without the final okay of Brussels. If, however, price fixing can be proven, Nándor Csepreghy, assistant undersecretary in charge of communication on matters related to the European Union, said, the construction companies will be responsible to the Hungarian taxpayers for the loss of 110 billion forints.

Although the Hungarian government now echoes the EU and says that the construction costs are too high, back in 2013 when Benedek Jávor first began his investigation of the case neither Mrs. László Németh, then minister of national development, nor János Lázár found anything wrong with the winning bids. In fact, both insisted that they “were not irrationally high.” But now, suddenly they’re talking about price fixing. It is hard to escape the conclusion that Benedek Jávor’s suspicions about possible kickbacks to individuals and perhaps also to Fidesz’s coffers are well founded.

As far as I know, up to this point it was only Simicska’s Közgép that reacted to Csepreghy’s threat of passing the lost EU money on to the companies involved. Közgép published a statement in which they explained that it was Közgép that offered the lowest price in a proper bidding process and that their job was not simple road building but the construction of three bridges. The new Tisza bridge will require 8,500 tons of steel. In addition, two smaller bridges, on either side of the Tisza, must be built over wetlands. Közgép called attention to the fact that the January issue of the Official Gazette announced that the government would finance from domestic sources a road that “connects M5 with M4.”

Indeed, János Lázár only recently reiterated the “government’s long-standing desire to have at least a four-lane highway between M5 and Szolnok.” Apparently, it is for political reasons that the Orbán government wants to make this road a priority. It was in Szolnok last September that Viktor Orbán announced his ambitious plan for building four-lane highways that would connect each county seat to the larger superhighway system of the country. Moreover, he planned this expansion of the roads not from EU money but from domestic resources. Such a road would “bring spectacular economic development to the city,” said Ildikó Bene, a Fidesz member of parliament. Budapest could be reached from Szolnok in less than an hour, she promised.

As for the charge of cartel activities and price fixing, I’m not sure that this is the real reason for the extraordinarily high prices asked for the job. Colas-Swietelsky bid 3.49 billion/km and Strabag 2 billion/km. Közgép is a different story because their work consists mostly of building bridges. I’m almost sure, however, that officials demanded kickbacks. A conversation between Nándor Csepreghy and Egon Rónay of ATV on Friday morning supports this supposition. When Csepreghy went on and on about the cartel activities of the firms involved, Rónay asked him why Hungary had to wait for the European Union to suggest that price fixing might be behind the high prices. Why didn’t they investigate these suspiciously high prices themselves? Csepreghy refused to answer. He tried every which way to bypass the question until Rónay said, “Well, you just refuse to answer my question.” Probably a wise decision.

How do European Union funds end up in the hands of the Orbán family?

The European Union has been, wittingly or unwittingly, enriching members of the Orbán family. Today, in what is undoubtedly only one story of many, I’ll focus on Viktor Orbán’s eldest daughter, Ráhel.

The last time Ráhel, Rasi to her family and friends, was in the news was more than a year ago when she got married with great fanfare to István Tiborcz, a 27-year-old businessman with a law degree. In 2008 Tiborcz and a friend started a small business dealing with electrical and energy supplies. In 2009 the business had a modest profit of 8 million forints on which they paid 2 million in taxes. Two years later the annual profits of the groom’s business were over 2.5 billion forints.

Ráhel is in the news again. This time on account of her spending a year at the École Hôtelière de Lausanne in Switzerland where she is working toward “an Executive MBA in Hospitality Administration.” Why the interest in Ráhel’s studies? The reason for all the fuss is the high tuition fee she has to pay for the two semesters she is spending in Lausanne. The cost is 60,000 Swiss francs or 15 million Hungarian forints. Because of the recent focus on alleged widespread corruption among Hungarian politicians, this tuition fee prompted questions about the source of the money. Journalists pointed the finger at Rasi’s father, Prime Minister Viktor Orbán. How can he plop down 60,000 Swiss francs?

I, who followed the research done by Atlatszlo.hu at the time of the wedding and reported about the sudden enrichment of István Tiborcz, couldn’t quite understand why Hungarian journalists assumed that it had to be Orbán who footed the bill when Rasi has been married for over a year to a young man who since 2010 has become quite wealthy.

Ráhel became tired of all the questions and accusations and decided to speak up on her Facebook page. She said that she and her husband are paying her tuition, not her father. I’ll bet she regrets that decision now because her Facebook note prompted Atlatszlo.hu to look into Tiborcz’s more recent business affairs. And what they found is not pretty.

The happy couple

The happy couple

Of course there is nothing wrong with being a successful businessman, but István Tiborcz’s success most likely has nothing to do with his business acumen. Before Viktor Orbán became prime minister he owned a very modest business. The meteoric rise in his fortunes can be compared only to that of Lőrinc Mészáros: from 8 million in revenues in 2009 to 3 billion in 2011.

How did he achieve this incredible feat? In 2010 one of Közgép’s divisions purchased the majority of shares in Tiborcz’s business and used it as yet another of its conduits for EU cohesion funds. The customers of E-Os Innovatív Zrt., as the business was renamed, were almost exclusively municipal governments with Fidesz mayors. They contracted with E-Os to do work that was funded by cohesion funds from Brussels.

For reasons that are unclear, in 2012, according to publicly available information, Tiborcz’s business was renamed Elios Innovatív Zrt. and Közgép no longer had a majority stake. Two companies bought out Közgép, one of which, Green Investments, was owned by a former partner of István Tiborcz, Endre Hamar. The change in ownership had a decidedly negative impact on the company’s revenues. In 2012 Elios Innovatív Zrt. grossed only 20 million forints. Three weeks after the 2014 national election, however, Tiborcz bought out his former partner Endre Hamar, and from there on business boomed.

Tiborcz’s firm installs street lighting. Atlatszo.hu lists 2.9 billion forints worth of contracts with different municipalities: Hévíz, Balatonfüred, Kecskemét, Szekszárd, Dunaújváros, Sopron, Hatvan, Kalocsa, Bicske, just to mention a few. Most of these revenues (2.1 billion) were the result of a tender issued by the Nemzeti Fejlesztési Ügynökség (National Development Agency) and financed by the European Union. Local governments could apply for grants to reduce their energy costs; if successful, they received large sums of money to have the appropriate work done.

There are strict EU guidelines that the Hungarian authorities must follow. The most important rule is that the firm that prepares the technical details must not in any way be connected with the successful bidder. However, as Atlatszo.hu discovered, most of the tenders Tiborcz’s firm won were prepared by his former partner, Endre Hamar, who owned another company called Sistrade Kft. It is likely that Hamar and Tiborcz acted in collusion, making Tiborcz’s bid fraudulent. In fact, Atlatszo.hu notes that the arrangement was so bizarre, and presumably illegal, that Hamar was still an owner of Elios Innovatív Zrt. at the end of April 2014 when the firm signed the contract with the city of Héviz.

Atlatszo.hu did a yeoman’s job in trying to make sense of the company’s shifting identity and ownership structure. Unfortunately, many questions remain. One that baffles me is the role of Simicska’s Közgép. I find it more than a little odd that Simicska’s Közgép shows up to support the fledgling business of István Tiborcz, already known to be Ráhel’s boyfriend, only to withdraw from the firm after its spectacular growth. Közgép is not, as far as I know, active in venture capital or private equity. And, as the next year’s revenues showed, Tiborcz’s company was not ready to stand on its own.

I think it would be high time for Brussels to take a harder look at some of the businesses–and individuals–that profit from its largesse. Let’s not forget that in this case we are talking about the daughter and son-in-law of the prime minister. Surely, the goal of the EU convergence program is not to make the Orbán family rich.

The asphalt tax: Lajos Simicska is not taking it lying down

A few days ago 444 reported that the government is planning to levy extra taxes on companies that have received large government contracts for road construction over the past few years. The reason for these new taxes is a large fine that the Hungarian government is expecting from the European Union. Apparently, ever since 2007  Hungarian governments have insisted that only construction companies that had asphalt mixing plants close to the job sites could bid for contracts. The European Union objected to this constraint which, in their opinion, restricts free competition.

The argument between Budapest and Brussels has been going on for some time, and it looks as if the Hungarian government has reconciled itself to the fact that it will have to pay a heavy fine, perhaps as much as 100 billion forints. Although the current Hungarian government spends money quite freely, it either doesn’t have the money for such a fine or doesn’t feel like paying it from funds it would rather spend on stadiums or the purchase of private enterprises. In any case, the government came up with a splendid idea: let the companies pay for something that is clearly the Hungarian government’s fault.

Although the public usually hears only about Lajos Simicska’s company Közgép, the firm that receives most of the government orders, there are others. Apparently, there is a company called Duna Aszfalt that lately has become a true competitor to Közgép. In addition, there is a French company called Colas, the Austrian Strabag and Swietelsky Magyarország, Magyar Aszfalt, and Hídépìtő Group. Each of these companies has had more than 100 billion forints worth of government orders and thus would be obligated to pay a 15% tax on its gross income.

According to an article that appeared in HVGKözgép was the greatest beneficiary of the Orbán government’s largesse. Since 2007 it won bids for projects to the tune of 132 billion forints, which would mean a retroactive tax of 20 billion. But in the last two years Duna Aszfalt–which is in fact situated in Tiszakécske–has grown tremendously. In 2012 it received government work amounting to 28 billion forints, whereas in 2013 this amount was 54 billion and its profits almost quadrupled. The two owners received 1.8 billion forints in dividends. It was Duna Aszfalt that built the road from Makó to the Serbian border.

road construction

Soon after the first report of the possibility of an extra levy on these companies, the Hungarian government denied any such plan. The denial, however, was carefully worded. On HírTV János Lázár said only that “in the last few months the topic has not even been mentioned in cabinet meetings.” That is not a categorical denial of the existence of such a plan, especially since Lázár during the same interview admitted that Brussels “has formulated doubts and misgivings concerning road construction worth about 500 billion forints.” He added that “it was probable that Hungary will have to pay a significant fine.” For the time being Lázár couldn’t say how and to what extent this fine will affect the companies that were the beneficiaries of the contracts, but he claimed that the “Hungarian government will defend the Hungarian people and the Hungarian companies.” He added that “this defense will not be extended to foreign companies.”

That is clear enough. The Hungarians will not have to pay or will have to pay less while the Austrians and the French will pay through the nose. Therefore, it might seem surprising that Magyar Nemzet today wrote a scathing article against the government’s plan in defense of the construction companies. One must keep in mind, however, that Lajos Simicska and Zsolt Nyerges, his close business partner, have a stake in the newspaper. The publisher of Magyar Nemzet is Nemzet Kft, which used to be called Mahir Kft; this was Simicska’s first business venture.

The title of the article is: “How will a 100 billion forint tax become a 1.2 trillion deficit?” The article claims that if the companies have to pay such a large amount, their own future business activities will be in jeopardy. The contention is that the companies’ profit margin is nowhere near 15%. In fact, the spokesman for Strabag talked about a 3% profit margin on road construction. The author thus calculates that the loss to these companies would be unbearable. Moreover, these companies haven’t even received all of the money the government owes them: “in brief, the money that the government wants to collect is nonexistent.” The consequences will be serious, the article warned. There will be liquidity problems that will result in these companies not being able to pay their workers and their subcontractors; they wouldn’t even be able to buy material. In brief, their current projects will come to a screeching halt.

And that’s not all. Even the slightest delay might mean that these firms could not finish the construction jobs before the December 31, 2015 deadline, in which case the country would have to pay back all of the subsidies received from Brussels. That would mean a loss of 1.2 trillion forints. Further, the article warns about possible bankruptcies, which may result in the loss of 90,000 jobs. Problems in the construction sector could seriously affect Hungarian economic growth. In the first quarter of 2014 GDP was 3.5%, and the construction sector contributed 0.5% to that figure. As a result, it can easily happen that Hungary’s deficit may exceed 3%. If that happens, Hungary could be placed under the excessive deficit procedure, which would mean a suspension of all EU subsidies.

The construction lobby is pushing hard, using Magyar Nemzet to describe the worst case scenario if the “asphalt” tax is imposed. It may persuade the government to go light on Hungarian companies, as Lázár already intimated the government would. But I don’t know what Brussels will think if Hungary implements a two-tiered tax: one for domestic companies and the other for foreign companies. Such a solution would definitely restrict free competition, which was Brussels’ objection in the first place.

The Fidesz robber barons. Part II

Today I’m continuing the story of Fidesz’s mafia methods as perfected by Lajos Simicska, the financial wizard of the party. I will pick up the story at the time of the campaign that preceded the election of 1998, which Viktor Orbán with the help of József Torgyán, chairman of the Smallholders Party, won.

For the campaign Fidesz needed money. Lots of money. Enter Gábor Princz, chairman of Postabank, which was a state-run bank. The name of the bank accurately reflected its structure. Its branches operated at post offices and thus could reach a wide clientele. Princz ran the bank in a totally irresponsible manner and handsomely paid politicians on both sides for expected favors. He was also very generous when it came to support of the media and organizations connected to culture. Eventually, Postabank went bankrupt, but before that happened Princz used his bank’s assets to support Fidesz’s election campaign. Gábor Kuncze, chairman of the liberal SZDSZ, calculated that Postabank lent and/or gave 800 million forints to Fidesz. Since a few months later there was no Postabank, it is unlikely that Fidesz ever had to pay this money back.

If Princz thought that his generosity toward Fidesz would save him, he was wrong. One of the very first moves of the Orbán government was to remove him from his post as head of the bank. Princz moved to Austria for a while where he felt a great deal safer. Meanwhile, the government began to take care of the immense debts that Postbank had managed to accumulate. Eventually, they calculated the amount of money which according to their experts was needed to put things in order: 152 billion forints. Naturally, Princz himself doubted this figure, which was not surprising. But even people like Imre Tarafás, at the time head of the Állami Pénz- és Tőkepiaci Felügyelet, the organization that supervised bank and monetary transactions, in his report for the year 1999 claimed that the government spent far too much money trying to straighten out Postabank’s accounts. Tarafás was asked by Orbán to resign. When he declined, the government created a new office with a similar mandate and abolished Tarafás’s organization. Tarafás was not the only one who had doubts about the financial needs of Postabank. In 2006 it came to light that at the time KEHI, the government financial supervisory body, also noticed several very shady real estate deals in connection with the consolidation of Postabank. However, István Stumpf, head of the prime minister’s office, suspended any further probe into the matter. But it looks as if about 50 billion forints disappeared in the process of cleaning up the books of Postabank.

Once Fidesz won the election Viktor Orbán began building his political and financial power base. Corruption now became systemic and centralized. The Fidesz government established a number of entities that siphoned large sums of money from the public coffers. First, they set up something called Országimázs Központ (Country Image Center) whose duty it was to conduct a propaganda campaign lauding the outstanding performance of the country under Fidesz leadership. The man in charge was István Stumpf. This body handed out large contracts to two business ventures, Happy End Kft. and Ezüsthajó Kft. (Silver Ship), to stage large state events. One must keep in mind that the new millennium and the Hungarian Kingdom’s 1,000-year anniversary gave plenty of opportunity for lavish celebrations. Just the New Year’s Eve extravaganza, which by the way was a flop, cost, at least on paper, 3.75 billion forints.  Several more billions were spent on celebrations all across the country, including the smallest villages, during the Hungarian millennium year. It seems that altogether the Országimázs Központ spent almost 13 billion forints on such events, and more than 90% of that amount was received by Happy End and Ezüsthajó.

Hyde and Hyde

Hyde and Hyde / varanus.blog.hu

It would be too long to list all the phony overpaid providers who were naturally members of the Fidesz inner circle or at least people with close connections to Fidesz. It is almost certain that some of the money paid out to these firms ended up in Fidesz coffers handled by Lajos Simicska.

The really big corruption cases, however, were connected to government investments, especially highway construction. Here the key organization was a state investment bank called Magyar Fejlesztési Bank (MFB, Hungarian Development Bank). The bank was supposed to give out loans for promising business ventures.

When Lajos Simicska left APEH, he got a job at this state investment bank and came up with a fiendishly clever scheme. Road construction was not handled directly by the government but by a company called Nemzeti Autópálya Rt., which was created by MFB specifically for this purpose. The beauty of the arrangement was that the rules and regulations that applied to projects financed by public money were not applicable here. For example, no competitive bidding was necessary. The next step was to designate a company to be the beneficiary of government orders. The chosen company was a leftover from the Kádár years called Vegyépszer. The name is typical of the many state companies that existed in the socialist period. But the name of this company indicates that it didn’t have anything to do with construction. Judging from its name, once upon a time it had something to do with chemicals. But that really didn’t matter because it wasn’t Vegyépszer that was going to do the work but hired subcontractors. Suddenly Vegyépszer received orders to the tune of 600 billion forints. From nothing it became as important a company between 1998 and 2002 as Lajos Simicska’s Közgép is today. I might add that Vegyépszer went bankrupt last year.

The question is how much of that money was returned to Fidesz. After the defeat of Fidesz in 2002, an old high school friend of Orbán, Simicska, and Varga told Debreczeni that the reason for Orbán’s electoral defeat was that “the boys were not satisfied with the customary 10%, they wanted 20% of everything.”

Of course, this is a very brief summary of exceedingly complicated financial transactions. I suggest that those who know Hungarian read the book. It is full of details about the functioning of MFB, which acted as a never ending source of government funds and also was involved in selling state properties to friends of Fidesz politicians under highly questionable circumstances. Some of the beneficiaries of these unsavory deals involving large state farms are still members of Viktor Orbán’s inner circle: Sándor Csányi, István Töröcskei, Zsolt Nyerges, and, yes, Lajos Simicska.

As for Fidesz’s current favorite company, Közgép, which gets almost 100% of government investments financed by the European Union, it belongs to Lajos Simicska himself. Or whoever stands behind him in the shadows.

To be continued