Tag Archives: Metrovagonmash

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 It was clear from the outset that the so-called refurbished, technologically outdated, non-air-conditioned cars are vastly inferior to the new super-modern ones even though the City of Budapest was going to pay almost as much for the refurbished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

Business ethics is not the strong suit of Russians and Hungarians

Almost a year after the City of Budapest decided that the Russian company Metrovagonmash would refurbish the old trains of the Metro 3 line, the first reconditioned train arrived from Russia via Poland.

Originally, the city had wanted to purchase new cars, especially since the old Soviet-made trains on Metro 2 had already been replaced by new modern Alstom trains and the brand new Metro 4 line also uses Alstom cars. In the final minutes of the negotiations, however, the government announced that they would guarantee the 60 billion forint loan the city needed only if the money was used to recondition its cars, not for the purchase of new cars. Once that was decided, the choice was between Metrovagonmash and Skinest Rail, an Estonian company. Skinest’s offer was lower by 9 billion forints, it offered a 30-year guarantee instead of 25, and its motor design would have ensured savings in energy use. But Skinest was excluded from the bidding process because it had eight “formal” mistakes in its bid. These so-called “formal” mistakes always come in handy when Hungarian authorities want to bar someone from the bidding process.

Already at that point Erzsébet Gy. Németh, the only DK member of the city council who alone voted against the Metrovagonmash contract, suspected a connection between the Russian loan to build the Paks II Nuclear Power Plant and the Russian firm’s winning tender. Antal Csárdi, the only LMP member of the body, said at the time that “all signs point to the likelihood that Viktor Orbán during this trip to Moscow in February 2015 promised Putin that the Russian company would get the job.” He told Magyar Nemzet that Alstom sold new metro trains to Paris for less money than Budapest was paying the Russians for refurbished ones.

So, the first train arrived and with it the great surprise. There is a good likelihood that the train, consisting of six cars, is not the one sent to Russia to be reconditioned but a product that Metrovagonmash began manufacturing in 2009. Since the train’s arrival, experts who have examined it are coming to the conclusion that the Russians didn’t touch any of the old trains, described by many as wrecks. Instead, they got rid of some of their older, unsold trains sitting in their warehouses.

The first reburbished/new metro cars / MTI / Photo: Zoltán Máthé

The first refurbished/new metro cars / MTI / Photo: Zoltán Máthé

But why would the Russians resort to such deception? According to those who are convinced of the deceit, the Russians couldn’t possibly compete with manufacturers like Alstom with their less modern, technologically less advanced trains and therefore would most likely have lost in an open bid. But if that is the case, the Hungarian government is also implicated. After all, it was the Orbán government’s decision about the loan guarantee that forced BKV to sign a deal for reconditioned trains and thus enabled Metrovagonmash to get rid of 37 trains with 222 cars. It is likely that BKV, the city’s transit authority, was also complicit in the deception because immediately after signing the contract, the Hungarian side came up with new requirements, possibly to match the model the Russians were planning to send to Hungary.

Mayor István Tarlós doesn’t find anything wrong with this fraud concocted between the Russian and Hungarian governments, Metrovagonmash and BKV. His first reaction was that the opposition’s favorite pastime is hairsplitting. “Let’s suppose for the sake of argument that these cars are new. Then when did the city get a better deal? When for its money it gets refurbished ones or completely new ones?” He has no problem with the Russian and Hungarian governments’ trickery as long as, in his opinion, the city ended up on the winning side.

But did the city do well on the deal? Figures provided by media outlets differ greatly. Origo states that the city paid 69 billion forints for reconditioning the old cars while brand new trains would have cost 90 billion forints. However, according to Origo’s calculation, the cost of refurbishing the cars in Russia actually cost 84 billion forints because the city had to borrow 9 billion forints in foreign currency and the interest for the 15-year loan is 15 billion forints. Portfolio, disregarding any added costs, comes up with €1.33 million per Alstom car as opposed to €0.98 million for the Russian ones. But even if these cars are new, Portfolio adds, their technology is obsolete.

What are the technological deficiencies? What most people will miss will be air-conditioning. The Russians installed some kind of ventilation, but it is hard to tell whether this solution will do the trick. Also, the train uses an outmoded spring instead of modern air suspension and has an antiquated ATO (automatic train operation) which, according to Index, is as if we filled a modern office with Commodore 64s. And Budapest is stuck with these trains for 30 years.

Shortly after the appearance of the Népszabadság article BKV released a lengthy statement in which it “rejects the criticism of the high-quality reconditioning” of the metro cars. It touts the “most modern components,” the “extension of the guarantee without any additional cost,” and “the early delivery of the prototype.” The statement complains about the negative attitude of some people and expresses BKV’s joy at receiving the first six-car unit. And it goes on and on. Only one thing is missing: an outright denial that these cars are new. Attila Gulyás, the head of one of the unions of BKV workers, is taking BKV’s side. He claimed in a radio interview that BKV’s representatives visited Metrovagonmash during the reconditioning phase, and therefore “there are eyewitnesses to the reconstruction.” Otherwise, Gulyás finds these cars much more attractive than the Alstom ones. I guess he likes the Russian-style design, to which he is more accustomed.

Erzsébet Gy. Németh (DK) has already decided to file a complaint based on the suspicion of corruption, fraud, and deceit. LMP is contemplating the same unless BKV within a week can come up with creditable proof that the cars that arrived from Russia are refurbished and not new. As long as the chassis is new, a vehicle is considered to be new, and it is not difficult to determine whether the chassis is forty years old or brand new. LMP’s Antal Csárdi claimed that the Russians accompanying the cars encountered some difficulties with the custom officials, who had their doubts about the identity of the cars. If true, this is an unprecedented case in the business world.

June 3, 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.