Tag Archives: MVM

Fidesz’s very own “NGOs” stuffed with public money

In case you haven’t heard of GONGOs, here is the definition of the term: “Government-organized non-governmental organizations which are set up or sponsored by a government in order to further its political interests and mimic the civic groups and civil society at home, or promote its international or geopolitical interests abroad.” According to Moises Naim, former editor of Foreign Policy, although quite a few GONGOs are established abroad, “the more dangerous GONGOs grow at home. They have become the tool of choice for undemocratic governments to manage their domestic politics while looking democratic.”

The term GONGO is not yet widely known in Hungary, but I’m sure that soon enough it will be because Hungary’s undemocratic government has its own GONGOs, the largest being CÖF or Civil Összefogás Fórum (Forum of Civic Alliance). People had suspected ever since its founding in 2009 that CÖF was a GONGO, but finally there is evidence that the government has generously endowed CÖF through Magyar Villamos Művek (MVM), a state-owned utility company. In addition to the MVM grant, CÖF admits to having received two donations from Szövetség a Polgári Magyarországért Alapítvány, a Fidesz foundation. The grants were allegedly small–in 2012 40 million and in 2013 20 million forints. So, contrary to the Hungarian Wikipedia entry, which claims that CÖF is a bona fide NGO supported by civic groups, its main source of funding is the Hungarian government and Fidesz.

CÖF’s main activity used to be the organization of the so-called peace marches, six in all between January 2012 and March 2014, to bolster Viktor Orbán’s hold on power.  We also know that CÖF plastered the country with thousands of billboards, campaigning months before the official start of the election campaign for the 2014 election. The cost of that ad campaign must have been enormous.

CÖF’s finances have been fishy for a long time, but László Csizmadia, a lawyer who is the president of the organization, consistently refused to answers questions about its sources of funding. Then he changed his mind. A year ago Csizmadia released a long list of supporters, claiming that between 2013 and 2015 CÖF had received almost 620 million forints in the form of gifts from organizations and individuals. When Népszabadság investigated the alleged gifts, however, it found that most of them were bogus.

Given the Orbán government’s recently intensified attack on NGOs that receive grants from abroad, the independent media decided to return to the finances of CÖF. At the end of April HVG published an article about CÖF, which unfortunately is still not available online. Information reached HVG that CÖF’s large budget is funded by the government via MVM. The cover of that issue tells it all. A dog dish filled with money with the caption: “Domesticated civilians—the bought and the attacked.”

The front page of HVG: Little Cöfi’s dish

CÖF’s leadership, which consists of four individuals, was outraged and released a statement which I’m sure they found ever so clever. They explained that there are different types of dogs: watch dogs, hunting dogs, and rabid dogs. CÖF is a watch dog which defends the homeland. Therefore HVG, which for years has been attacking them, must be satisfied with criticizing one of the other two categories.

But a few days later MVM fessed up: they admitted that in 2016 alone they gave 508 million forints to CÖF. Obviously, Csizmadia and his friends couldn’t admit that this money will be spent on the next Fidesz campaign. They had to come up with a couple of innocent-sounding projects. But their creative juices didn’t seem to be flowing. Their first brilliant idea was to establish an entirely new branch of the social sciences, which they decided to call “civilitika/civilitica.” Wow, that’s ambitious! The other undertaking will be the creation of “complete meals based on biological-dietetic principles,” which would then be served in school cafeterias. The chef who has been working on the project explained the meaning of a “complete meal.” It would be a meatloaf-like mixture that would also include the necessary vegetables. Why meatloaf? Because, according to the chef, children like it while they may not like eating vegetables on the side. I wonder how long these children would be satisfied with meatloaf every day, with or without vegetables. As for civilitica, I wouldn’t presume to guess what that could possibly be.

MVM’s grant of 508 million Hungarian forints is approximately $1.8 million. This may not sound like an extraordinary amount of money, but we have to keep in mind that in Hungary every party over a certain size, including Fidesz of course, receives a certain sum of money from the central budget. The money MVM gave to CÖF in 2016 is more than any of the opposition parties received. Jobbik got 476 million forints; MSZP, 427 million; LMP, 174 million; Együtt, 134 million; DK, 132 million; Párbeszéd, 107 million; and MLP, 71 million.

I should add that CÖF isn’t the only GONGO in Hungary. Szövetség a Nemzetért Alapítvány (SZNA), the organization behind the civic groups Viktor Orbán came up in 2002 after his failure to win the election, received 340 million forints last year from the state-owned HungaroControl, a company that offers air navigation services. Thus, says András Stumpf of the conservative Válasz, between these two GONGOs 848 million forints, approximately 3 million dollars, has already been stashed away, “and we are still at the very beginning of the campaign.”

Naturally, the opposition parties are up in arms, as they should be. However, both MVM and Fidesz insist that the contributions are legal because money received from state-owned companies is not considered to be public money. MVM, after releasing the information, explained to Átlátszó that “MVM in the last twenty years has spent several billion forints for projects important for society. This money all came from MVM’s own resources.” They also wanted to make sure that Átlátszó­ understands that in 2016 the MVM Group paid 130 billion forints in taxes.” Balázs Hidvéghi, the latest Fidesz spokesman, sees nothing wrong with CÖF campaigning for the government from “state money.” He also supports CÖF’s latest appearance in Brussels, where a group of about 20 people demonstrated against the bureaucrats of Brussels who had a few questions for Viktor Orbán about his undemocratic ways. The trip to Brussels “served a public function,” claims Hidvéghi.

MSZP is filing charges against MVM for engaging in forbidden party financing and misappropriation. DK is convinced that this is just the tip of the iceberg and wouldn’t be at all surprised if “the pseudo civic activists” receive more money than all the opposition parties put together. Jobbik remarked that “CÖF is less independent from Fidesz than Hazafias Népfront (Patriotic People’s Front) was from MSZMP” in the Kádár regime. I heard more than one person agree with this claim.

May 13, 2017

“The great Fidesz gas theft”

On Friday Viktor Orbán summarized his administration’s achievements at a conference held in Bratislava/Pozsony.  The short English-language talk was mostly about the accomplishments of his unorthodox economic policies, but he briefly called attention to the necessity of having a strong domestic capitalist class. In Hungary, just in other former socialist countries, he admitted, there is not enough capital to enable local entrepreneurs to become really powerful economic engines. But, he added, “we are getting there.”

Under these circumstances how can a country create a strong monied class in record time? If conditions were normal, it would take a considerable length of time for local businessmen to grow organically and compete successfully with foreign companies. If, however, you want instant super-rich capitalists, I can see only one way of achieving that miracle: to make sure that the state creates a legal framework that allows public money to be funneled into private hands. And this is what the Orbán government has been doing in the last five and a half years. The case study I’m sharing today–MET Holding–is most likely only the tip of the iceberg.

The story is not new, but now we have most of the documentation to prove what we have suspected all along: a few of Viktor Orbán’s close friends have made billions at the expense of the Hungarian people.

In 2007 MET Group, headquartered in Switzerland, began operations “in natural gas retail and wholesale trading in the European market as well as in the retail sale of natural gas to industrial customers in Hungary, Slovakia and Croatia.” Five years later, in 2012, MET Holding was established to manage and support the subsidiaries of MET Group.

Shortly after the election in 2010 Orbán promised cheaper energy to consumers. In order to lower prices, the state-owned MVM (Magyar Villamossági Művek) was allowed to dip into its gas reserves, which it could then replenish with cheaper gas from the open market, through a pipeline from Austria. The cheaper gas was supposed to be sold to hospitals, schools, and public buildings. MVM claimed, however, that its own retailer, MVMP (MVM Partners), didn’t have enough experience, so they would have to use a Swiss subsidiary of MET Holding, METI (MET International), for the transactions. As a result, MET itself reaped about 80% of the gain that the cheaper gas coming from the West offered to MVM. That is, the savings from the cheaper gas went to the shareholders of MET Holding instead of to Hungarian consumers.

In order to make that business deal legal, the Orbán government simply changed the regulation governing trading via the pipeline. In 2011 Tamás Fellegi, minister of national development, signed a new regulation allowing MVM to be the sole trader of gas from the open market. The arrangement, which was originally intended to remedy a one-time shortage in gas reserves, was extended year after year. The Hungarian government was perfectly happy to have MET, a private company, be the chief beneficiary of the cheaper gas coming from the West and not the state-owned MVM. This arrangement, by the way, is coming to an end on July 1 because Hungary is currently under an infringement procedure for allowing a single company to use the gas pipeline without holding any auctions.

We knew some of these details already last fall. I wrote about them in November, but then we had no documentation and hence no hard proof. Since then, however, Bertalan Tóth, an MSZP member of parliament, sued MVM for refusing to release the documentation of what is considered to be “a bizarre arrangement” between MET and MVM. Tóth won in the court of first instance and, after MVM’s appeal, also in the court of appeal. He received thousands of documents back in January, but it took months to wade through them and reconstruct a plausible scenario of three years of shady transactions. This morning summaries of the documents appeared on MSZP’s website. On the basis of the documents, the losses the publicly-owned MVM suffered in three years may be as high as 100 billion forints. In November, the estimate was only half that much.

Some of the details that have emerged from these documents are truly bizarre. For example, MVM bought MET’s gas on the Austrian side and later gave it back to MET on the Hungarian side and charged only 2.3-3.5 ft./m³ for shipping. It is also clear from the documents that MVM’s claim that MVMP, the subsidiary created to be a retailer for MVM, was not experienced enough to do the actual buying and selling on the open market was an outright lie. MVMP did a brisk business already in 2011 and 2012 and bought gas for MVM 16.55 forints cheaper than MET did. It even happened that MVMP bought gas from MET on the Austrian side and sold it back to MET for a lower price. MVMP didn’t lose any money because the gas sold back to MET included some gas purchased from another company at a much lower price. From the documents it looks as if MVMP acted only as a “mailman” between MET and MVM. MVM didn’t lose money on its transactions with MET, but its own profit was minimal.

Viktor Orbán and István Garancsi

Viktor Orbán and István Garancsi

Since the documents were released only this morning, there hasn’t been much time to comb through the material. Moreover, Tóth and his experts on gas transactions figure that perhaps 1,000 documents are still missing, without which the picture is far from complete. Still, the skeleton of the story is there. The Orbán government used the power of the state and its ability to change laws to pass public money to private individuals.

One of the owners of MET, by the way, is István Garancsi, who is described as the new Lajos Simicska. He is the owner of the Videoton Football League which, in turn, has close connections with the Ferenc Puskás Academy. Garancsi is considered to be one of Orbán’s frontmen. He is the one who just signed a contract with the Hungarian government to build the sites for the Aquatic World Championships to be held in 2017.

Billions diverted from Hungarian state coffers to natural gas broker

Thanks to Budapest Sentinel, we now have an English translation of an article published on the internet site 444.hu with the title “This is the way to make the most money in Hungary.” Earlier I wrote a post about MET Holding A.G., headquartered in Switzerland. It is partly owned by MOL, the Hungarian oil company, and partly by Hungarian individuals–people formerly employed by MOL and businessmen with close ties to Viktor Orbán. At the time there were a lot of questions about this very successful company, but since then 444.hu‘s journalists managed to ferret out details of MET’s business model. As a result of their work, we now know how the Orbán government manages to divert public money into private hands. We can be certain that this is not the only enterprise that specializes in creating a new business class on taxpayer money. Enjoy!

* * * 

Russian President Vladimir Putin gives Hungarian prime Minister Viktor Orbán a knowing wink in January 2014

President Vladimir Putin gives Prime Minister Viktor Orbán a knowing wink in January 2014

  • MET has made huge profits on natural gas since 2011
  • For this it needed the help of the government and state-owned MVM (Hungarian Electric Works)
  • Russians are also involved
  • Even as MET makes a lot of money, its business partner MVM requires state support

Over the past four years a Swiss-based company partially owned by various off-shore companies was given the opportunity by Hungary to enrich its owners in a totally unique fashion.

The Hungarian subsidiary of MET managed to make a huge amount of money by securing an exceptional place on the domestic gas market thanks to government orders and wonderful contracts.  After tax profits in 2012 alone were nearly HUF 50 billion (USD 225 million).

The government was so generous that all three opposition parties (MSZP, Jobbik, and LMP) filed complaints of misappropriation, fraud, and money laundering.   The National Office for Investigations, however, found no crime and did not open an investigation on the basis of any of the complaints.   Over a year ago MSZP, and now LMP, formally requested the MET gas contracts from MVM.  The parties are awaiting a court decision.

The machination that opened the road

It is not clear whether the elimination of the KÁT (obligatory electricity purchasing system) played a role in MET’s success, or whether one followed from the other, but the story starts here.

The KÁT was a unique kind of state support available in the case of renewable technologies or power plants producing both electricity and heat.  Here the second pillar of KÁT is interesting, which numerous local governments have to thank for being able to obtain heat inexpensively for district heating.   The theory was that the so-called “connected production” producing both electricity and heat was environmentally friendly because it made more efficient use of energy.  In this way the gas-fired power plants also qualified for state support and could supply heat cheaper.

The price of KÁT was built into the cost of electricity.  But in 2011 after a long debate the part pertaining to power producers was eliminated.  There was a big scandal about it.  For example, it was on this matter that former state secretary for energy matters János Bencsik clashed with then Fidesz caucus leader  János Lázár who submitted the bill.  Lázár won the battle and from July 2011 producers of electricity and heat no longer received supports from KÁT, and therefore could no longer provide a discount to many dozens of cities.

It was for this reason that the government issued a decree providing cheap gas to the settlements and institutions that suffered.  585 million cubic meters of gas was released from Hungary’s strategic gas reserve for this.  In this way it was possible to avoid increasing the price of district heating to many dozens of cities.  However, it was necessary to replenish the gas.

We’re replenishing, we’re replenishing

Let’s first look at the replenishment of the gas taken from the strategic reserve because that was the biggest business.

For many years it has been possible to purchase gas less expensively in Western Europe than the gas coming from Russia on the basis of the contract concluded (with Gazprom) in 1995.  (Of course, the gas coming from Western Europe may also have originated in Siberia, it is merely a matter of Russian pricing).

In the hope of obtaining cheaper western gas, the government issued a degree whereby the HAG pipeline between Hungary and Austria could be used free of charge in the interest of replenishing gas reserves.  Under normal circumstances gas traders would compete with one another for the right to use the pipeline, with the one paying the most given the right to use it.  This is a EU requirement, by the way.

However, given the extraordinary need to replenish gas, this obligation was temporarily suspended.   In the name of energy security the government made it possible to access the HAG pipeline without auction for one year between July 2011 and July 2012.  The government was very generous.  Minister for National Development Mrs. László Németh’s pencil cut a thick line.  In the interest of replenishing the 585 million cubic meters of gas used to compensate KÁT victims, it ordered that 2.9 billion cubic meters of gas could be transported without auction, in other words, very cheaply.

Furthermore, the law providing special access was extended from year to year, always with reference to energy security.  The current arrangement is valid through the end of June 2015.

For the past four years it has been possible to import a total of 19.6 billion cubic meters without having to compete for the right to use the pipeline.  All of this in order to replenish 585 million cubic meters of gas.  As the discounted quantity of gas completely used up the pipeline’s free capacity, during this time others could not access the HAG pipeline.  In other words, beyond the fact that the government put someone in a very favorable position, it also removed all competitors from the road.

According to the decree originally two companies were entitled to import gas without auction: the gas trading company (MVMP) owned by state-owned MVM (Hungarian Electric Works), and a small amount by E.on.  The gas business unit of the latter was acquired by the state in 2013 and given over to MVM.  In this manner, since then MVM has been the only beneficiary of this arrangement.

Apart from the long-term contract concluded with the Russians, only the state could import gas cheaper.  However, somebody else also made money off of this.  To be more precise, somebody else primarily made money off of this.

How does MET come into the picture?

Profits arising from the sale of gas imported inexpensively by MVMP could have enriched its owner, the state.  Or it could have sold the gas cheaper to consumers, and in this way help decrease utility costs.  But it did neither.  The arising profits were collected by the Hungarian subsidiary of Swiss based MET Holding.

The model works as follows:

  • One of MET’s subsidiaries, METI, bought cheap gas from the west
  • It sold the gas at the Austrian-Hungarian border to MVMP
  • MVMP imported the gas by availing itself of free access to the pipeline in accordance with the decree on energy security, extended annually
  • On the same day MVMP sold the gas at minimal profit to MET
  • MET was than free to sell the gas to Hungary for whatever it could

So in practice the state allowed a market player to use the pipeline.  This is indicated by the fact that, according to the contracts, only such cash traded hands as was necessary for MET to pay MVMP a small margin for transporting the gas over the border.   This was HUF 2.50 (USD 0.012) per cubic meter.  Gas purchased from MET was HUF 32 (USD 0.15) cheaper per cubic meter in 2012 than the gas arriving from Russia on the basis of the long-term contract.

A year ago, an unknown individual posted part of the contracts concluded between MVM and MET online, without which no one would have found out what is happening.

And what became of the gas taken from the storage tanks?

The whole matter started when the government released 585 million cubic meters of gas from strategic storage in order to help those for whom district heating became more expensive as a result of the decrease in KÁT. Except part of the gas went to MET.

The official reason for this was that no one else needed the cheap gas.  According to the explanation, by the time the government decree was issued obliging MVM to release the cheap gas, every district heating company and potential beneficiary had already contracted with the market for the gas quantity required for the year.  MVM then decided that if it could not sell directly to those consumers leaving it in the lurch, it would issue a tender to sell the cheap gas.

In September 2013 and February 2014 Hungarian Socialist Party MPs Tibor Kovács and István Józsa posed questions relating to Mrs. László Németh, then Minister for National Development.  From her answers it is possible to figure out what happened.

From the answer given by Mrs. Németh in September, it can be determined that of the 585 million cubic meters of gas, only 270.6 million cubic meters could be supplied indirectly to the beneficiaries.  In other words, half the gas inventory was given over to traders.

And from the answer she gave in February 2014, it turned out that the trader was MET.

All of this the government found to be appropriate considering that by ministerial decree MVMP had to take delivery of the reserve gas.  And if it did not find a customer it was only logical that it sell the remaining gas through public tender with the requirement that the trader sell the gas to the KÁT victims.

Too much money, too little money

In 2012 it was readily apparent who was making money on this.  Even as the gas trading unit of MVM closed the year with a loss of half a billion forints (USD 2.3 million),  MET’s owners were able to take HUF 55 billion (USD 205 million) worth of dividends out of the company.

For a long time MVM was one of the largest revenue generators for the state.  Furthermore, it always had a lot of cash on hand.  It was precisely for this reason that from the first decade of this century it routinely happened that if there was a problem, MVM helped with the budget.   The trick was frequently employed by which the state took a few billions out of MVM if it got into temporary trouble.

Next to the state’s loss, MVM’s losses were negligible.  But one of Mol’s subsidiaries, FGSZ also lost on this construction because for years it could not issue a tender to use the HAG pipeline.  Fortunately, Mol was the 40 percent owner of MET.  (Mol stands for Hungarian Oil Company. -ed.)

But who are the owners?

This is not possible to know with certainty.   Even MET Hungary Zrt. CEO Gergely Szabó wasn’t willing to reveal this information to Figyelő.

What is certain is that MET Holding AG was registered in Switzerland, which has numerous subsidiaries. 40 percent of the holding company is owned by Mol, 10 percent by a Swiss company by the name of MET ManCo AG, in which Benjámin Lakatos has an interest.  The 38 year-old Lakatos, who is also the director of MET Holding, previously worked for Mol and is considered to be a confident of Mol CEO Zsolt Hernádi.

50 percent of the company belongs to WISD Holding, which owns numerous miscellaneous companies via a complicated network of offshore companies.  (Hungarian investigative website) Átlátszó previously unearthed that, among the companies in which WISD has an ownership interest, are companies owned by István Garancsi and György Nagy.  Garancsi is the owner of the Videoton football team and a good friend of Prime Minister Viktor Orbán and Zsolt Hernádi.

In the domestic business world György Nagy is considered an ally of OTP president Sándor Csányi.   Garancsi and Nagy are owners of WISD through their respective Cypriot companies, Inather Ltd. and Westbay.

The third known owner of WISD is Small Valley Investments Ltd., which is registered in the British Virgin Islands.  According to our information the company is owned by Russians, and that altogether they own 20 percent of MET Holding.

The fourth owner of WISD is a Swiss company by the name of Deneb Algedi Invest AG which is also owned by Benjámin Lakatos.

Viktor Orbán comes up

In Autumn of this year a Swiss and a Roman paper published articles claiming that the reason Viktor Orbán traveled to Switzerland may have been to conduct MET business.  A number of Hungarian energy experts are of the opinion that the articles appearing in the foreign papers were a warning on the part of foreign secret services that they were watching the opaque energy deals of the Hungarian government with Russia.  The articles appeared in two relatively minor international papers that are not in the habit of breaking stories of world economic importance.

Even before the Swiss article appeared, there were a lot of rumors that MET was very important to the Prime Minister.  The theory was that the company is an important part of the new economic elite being organized around the Hungarian head of government.

The Russians were also needed

In 2007 Mol founded the company that grew into MET Holding, and which the oil company was the only owner at the beginning.  In 2004 Mol sold its gas unit, but with the establishment of MET retained the possibility of returning one day to the gas trade.

In 2009 a company registered in Belize (Normeston) bought half of MET, at which point the Russians acquired an interest.  Belize is a Central American company where the institution of “introduction shares” exists.  This means that those people receive the dividends who can personally show that the shares are physically with them.  It is not necessary for them to introduce themselves.  That Russians were behind the company was confirmed by Gergely Szabó, MET Hungary CEO to Figyelő.   The company needed the Russians in order to help obtain gas cheaply:  “We also hoped that through its owners MET could obtain gas advantageously”.   That Russians are involved in the company through Small Valley, I heard from person familiar with Mol matters.

As Szabó explained, the Russians can obtain gas inexpensively.  There are those who believe that they are the other leg to MET’s wonderful rise.

Anyway the Russians are willing to sell gas to a given country cheaper than what is provided by the official, long-term contract, and creates various trading companies for the purpose of conducting the business.

This is how the business works

The trade in gas is the most profitable business on this side of Europe because:

  • Huge quantities of it are needed, and it is possible to sell it in huge amounts.  Even with small margins it is possible to make huge profits in a short period of time.
  • Because it arrives through pipelines, it is easy to establish a monopoly situation with it: only those with access to the pipeline can also sell it.
  • The market is influenced by state regulations.  Who obtains the favors of the authorities needn’t be afraid of competitors.
  • It is almost impossible to obtain gas that is not Russia.  Whoever is on good terms with them shall be showered in gold.

In these parts nearly all the gas comes from Russia, where the state has a monopoly and where the huge company by the name of Gazprom is responsible for production, delivery, as well as trade.  The Russians like to agree on gas prices separately with countries in this region for long periods, whenever possible.  The last of the so-called long-term contracts concluded by Hungary in 1995 for twenty years expires this summer.  There is no agreement regarding its extension and for this reason there is a lot of movement in the Hungarian gas market these days.

The long-term contracts are always political decisions often determined over the course of negotiations between the Kremlin and the government of the other country.  Gazprom sells the same gas at prices that vary by as much as three-fold.  There were times when Gazprom sold gas to Bulgaria for USD 600 per cubic meter but only charged Belarusian USD 167. There really is not other product on the international market for which there really is no price.  Nobody knows how much it costs to produce gas in Russia, and the Russians sell to their customers based on whatever momentary political interests dictate.

The buyers have little choice in the matter.  For example, in Hungary most households heat with gas, and much of the electricity is produced from gas, which is indispensable for industry.  So gas is required.  And it is difficult to choose among suppliers.   Oil prices exist because it is possible to change sources of supply:  oil comes in a barrel and in containers from just about anywhere.  For this reason oil prices are, for the most part, uniform.  A seller cannot allow himself to play with prices.  However, this is not the case with the delivery of gas, which is tied to pipelines.

There is also a cheaper one

So the gas enters the country on the basis of a price structure contained in the 1995 agreement.  But if the Russians want, they supply the same gas for less.

The Russians anyway created a shadow model as well.  In certain cases, seemingly harmful to their own market, they also sell gas cheaply to certain beneficiaries.  The way the model works is that they set up a trading company that is allowed to purchase gas from Gazprom at a reduced price, and then sell it to the target market for less than what is provided for by the long-term contract, but still with a respectable profit.

The Russians operate such brokerage companies for two reasons: on the one hand it enables them to sideline those among their own people the Kremlin happens to target.

On the other hand, it enables them to create and control the oligarchs and politicians of the target country.  Operating such a brokerage company is not only a good investment from the point of view of bribing oligarchs in the target country.  In general, through these companies it is also able to blackmail the target country even if its partners lose their influence as a result of a domestic political change or domestic showdown.   If a country becomes addicted to cheap gas, then whoever is in power thinks twice before deciding whether to terminate the grey business with the Russians at the price of higher utility costs, or for the new people to take the warm seats of the oligarchs of the previous cycle.

In this manner it is possible to earn a lot of money without effectively doing any work.  The brokerage companies sell the same thing as their competitors from the same sources.  They simply are able to access it less expensively.  Apart from paper work there is no other task.

There is some indication that MET partially works on the basis of this model.  There is no proof of this, but various domestic energy industry experts believe it is likely that the company can purchase Russian gas in Western European less expensively thanks to its Russian owners.

How does a more sophisticated model work?

The largest of such brokerage companies to ever exist was the Russian-Ukrainian RosUkrEnergo, which during its heyday in 2006 was able to make USD 785 million in profits in just under one year (this is about one half of the profits Austria’s ÖMV made in 2013).  Apart from this, neither refineries, nor petrol stations, nor anything else had to be maintained.  All that was required was the work of some lawyers in Switzerland.   RosUkrEnergo bought gas at a discount on the Russian side of the Russian-Ukrainian border, and then sold it on the other side.  Naturally, nothing happened to the gas itself.  The transaction only took place on paper.  Half of the company belonged to Ukraine Oligarch Dmitrij Firtas, the other half belonged to a Swiss subsidiary of Gazprom.

Reuters estimates that Gazprom lost USD 2 billion in under a few years by selling gas cheap to Firtas.  Except Firta was one of the most influential people in Ukraine for a long time.  More than half of the members of parliament literally took instructions for him, and in this way it was possible to manipulate Ukrainian politics to suit Russia’s needs.

For a while in 2009 Firtas was taken out of the business when Yulia Timoshenko became the Ukranian prime minister.  Then they took him back.  And then after (former Ukrainian president) Jankovics’ failure, he once again fell out of the picture.  He is presently under house arrest in Vienna, and most recently called attention to himself by announcing that Hungarian and Romanian paid assassins were threatening his life

However, the Hungarian connection does not only appear with Firtas.  He was the owner of a former Hungarian company by the name of Emfesz which, in its heyday, supplied Hungary with one-quarter of its gas, and which operated according to the same model: it gained a market for itself in Hungary with cheap gas from RosUkrEnergo.   In only a few years, Emfesz became the 27th largest company in Hungary out of nothing.  This also shows the huge amount of easy money can be found in this business model.

Is MET the new Emfesz?

With the failure of Emfesz Hungary’s shadow model domestic player died out.  But it appears that a new company, MET, was able to step into its place, but just a little differently.   The Russians appeared as owners of MET in 2009.  That was the year when Firtas was pushed out of the gas trade, and with this Emfesz’ fate was sealed.

MET happened to become the large winner of the KÁT gas compensation in spring 2011 when Hungary and Russia opened a new chapter in relation to energy.  At that time the Hungarian government purchased a 21.4 percent interest in Mol from Russia’s Surgutneftegaz.  It is not possible to know who the owners of Surgutneftegaz are, but it is for certain that we are talking about companies that are close to the Kremlin.   This company, for example, supplies petrol to the Russian military.

At the time the purchase of the shares in Mol appeared to be a victory: using state administrative means the Russians were prevented from having a say in the running of MOL, and the government considered the business to be a national security success.  They claimed to have arranged for us not to be at the mercy of the Russians.  However, in retrospect it appears that the business may have been the start of a new Russian-Hungarian energy cooperation involving the political leadership of the two countries.   This is indicated by the fact that until that time Fidesz regarded Russia with suspicion.  However, since 2011 the friendship between the two governments has strengthened, and they are more and more cooperation agreements to show for it.

MET is expanding

These days MET is visibly strengthening, and it is readily apparent that the company’s ambition goes beyond simply bringing gas to Hungary.  Last year it purchased the Dunamenti Power station which produces electricity from gas and which is the country’s second largest producer of electricity.  The power plant almost went bankrupt before MET acquired it.  MET was able to save the power station by acquiring gas less expensively than the French.

In the same way, MET acquired GDP Suez Energy Holding Hungary Zrt. last year, which was the domestic electricity trader for the French company.

Offshore is not a problem

The Hungarian government officially opposes the spread of offshore companies to Hungary.  The new Fundamental Law officially opposes the spread of offshore companies in Hungary.  According to the new Fundamental Law the government of Hungary may not conduct business with companies whose ownership structure is not transparent.   Among MET’s owners are numerous offshore companies which, with powerful help from the state, are able to find fantastic opportunities in Hungary.

 

Mysterious trips of Viktor Orbán and János Lázár to Switzerland

Today I will have to pull up my socks if I want to give even a semi-coherent summary of the growing scandal surrounding a company called MET Holding A.G. with headquarters in Switzerland. The holding company, established only a couple of years ago, is partially owned by MOL (40%) and partially by Hungarian individuals–people formerly employed by MOL and businessmen with close ties to Viktor Orbán.

First of all, it’s hard to decipher the company’s structure which is, as is often the case with enterprises like MET Holding, extremely complicated. Second, since it is likely that MET Holding, in addition to its regular activities, also serves as a money laundering operation for Fidesz as well as Viktor Orbán and his friends, those involved do everything in their power to conceal the company’s business activities, ownership, financials, and so on.

I should go back a few years to February 2010, only a month before the national election and the birth of the two-thirds majority, when the U.S. Embassy in Budapest compiled a report entitled “Allegations of political corruption surround unbundling law.” From the lengthy report we learn that “it is an open secret in Hungary that MVM and MOL provide significant funding to the two main political parties, with MVM rumored to favor the Socialists and MOL favoring Fidesz.”

MET Group predated this U.S. report. According to its promotional material, it began operating in 2007 “in the natural gas retail and wholesale sector benefiting from the market liberalization starting in 2004.” Currently it is active in wholesale gas trading in the European market as well as in the retail sale of natural gas to industrial customers in Hungary, Slovakia, Romania, and Croatia. Five years later, in 2012 MET Holding was established with the objective of being “a central holding organization to manage and support all the subsidiaries of MET Group.” (If you want to know why MET Holding might have been layered on top of MET Group, I suggest you take a look at “How a Holding Company Works.”)

Shortly after the election in 2010 Orbán promised cheaper energy to consumers. In order to lower prices the state-owned MVM (Magyar Villamossági Művek) was allowed to dip into its gas reserves which it could then replenish with cheaper gas from the open market. MVM could have bought the necessary gas directly from Austria, but instead it purchased gas through MET. According to the figures that are available about the transaction, MVM gained little while MET made about 50 billion forints on the deal.

The owners of MET, in addition to MOL, are István Garancsi, a personal friend of Viktor Orbán and owner of Orbán’s favorite football team, Videoton, and György Nagy, one of the founders of Wallis Asset Management Co., a private equity/venture capital firm. Both men have close ties to Zsolt Hernádi, the beleagured CEO of MOL who is accused of bribery in Croatia, and to Sándor Csányi, his deputy and the CEO of OTP, Hungary’s largest bank. Heading MET Holding is Benjamin Lakatos. He expects sales this year to total some 3.8 billion euros.

Most likely nobody would have cared about this Hungarian company with headquarters in Zug, Switzerland, if Hungary’s prime minister hadn’t been so involved in negotiations with Putin as well as with Russian energy companies, in particular Gazprom and Rossatom, the Russian company that specializes in building nuclear power plants. Rossatom was chosen to construct two extra reactors at the Paks power plant. Given the widespread concern over Viktor Orbán’s dealings with the Russian autocrat, Swiss journalists started probing into this mysterious MET. A  well researched article appeared on November 3 in TagesAnzeiger, which was later reprinted in Basler Zeitung. According to the Swiss paper, MET Power, MET Marketing, MET International, and MET Holding all share the same Zug address. Benjamin Lakatos is the CEO of all of them. Zug, by the way, is about 20 km south of Zurich.

I understand that the company’s management is made up of former MOL employees who know the energy business inside out but who found greater opportunities outside of MOL. Lakatos is very proud of his achievement of building MET Holding in two years from practically nothing to a sizable player in the energy business, though one cannot help but be suspicious of a such a sudden rise in fortune. Moreover, given the cozy relationship in the past between MOL and Fidesz, one wonders what role MET may play in the possibly continued reliance of Fidesz and Viktor Orbán on MOL as a source of illicit money. With István Garancsi’s name in the cast of characters, one becomes doubly suspicious since he is often portrayed in the Hungarian press as Orbán’s front man.

Source: www.tagesanzeiger.ch

Source: www.tagesanzeiger.ch

And now let’s move to more recent events that might have something to do with MET Holding. I’m patching the story together from several sources. You may recall that the editor-in-chief of Origo, an online news portal, was dismissed because one of the reporters of the internet site was too curious about a couple of very expensive trips János Lázár, the most important member of the Orbán government after the prime minister, made to Great Britain and Switzerland. Lázár for a long time resisted revealing any details of these trips but eventually after a court order the prime minister’s office released some information. Among the bits and pieces of information that Origo received, there was one item that might be relevant. Origo was informed that János Lázár during his Swiss trip “held conversations with a German citizen about German-Hungarian and Russian-Hungarian relations.”

More than a year later there was another trip to Switzerland. This time it was a private affair. Viktor Orbán and his wife and János Lázár and his wife spent a weekend in Zurich. First they stopped in Germany to visit a “family friend” and then off they went to Zurich, allegedly to attend a concert given by a children’s choir from the Szekler areas of Romania. Quite a lame excuse for traveling to Zurich because earlier this same group gave three concerts in the Hungarian Parliament in Budapest. There was also a side trip to visit a friend in Germany. Is he perhaps the same man Lázár held talks with in March 2012?

About a week ago Viktor Orbán made another trip to Switzerland. This time the occasion was a family visit (including his wife and their two youngest daughters) with Rachel, who is enrolled in a fancy, expensive hotel management course in Lausanne. Since, again, this was a private visit, the prime minister’s office refused to release any information about the trip. However, thanks to an eagle-eyed person, Orbán was spotted at the  Zurich railroad station having a beer with an unidentified man. Since the Orbáns decided to travel back to Hungary by train, a stopover in Zurich was unavoidable since there is no direct train from Geneva, a forty-minute train ride from Lausanne. But why did he choose to go by train from Lausanne all the way to Budapest, a trip that takes altogether 16 hours and 22 minutes? He said that wanted to spend more time with his children. Well, I could imagine many more pleasant ways of spending time with my family than sitting in a second-class train compartment. Suspicious Hungarians already have their own theory: for one reason or other, Orbán chose to travel by train because there is no inspection of either persons or luggage on trains. I find that difficult to believe. I hope that we are not at a point that the country’s prime minister is carrying millions of euros in his suitcase.

Although one can probably discard such speculation, one should take more seriously the information received by the Demokratikus Koalíció that while in Zurich Orbán met representatives of Credit Suisse and Pictet Bank. Pictet is a private bank which in 2012 was the target of a U.S. probe into the use of foreign banks by wealthy Americans seeking to avoid paying taxes. Pictet specializes in “wealth management.” As for Credit Suisse, which is one of the most powerful banks in the world, it also had its problems with the law. In July 2014 Credit Suisse reported a loss of $779 million because of the settlement of a tax evasion case in the United States. Zsolt Gréczy, the spokesman for DK, emphasized that they are not accusing Orbán of anything; they simply want to know whether he met with representatives of these two banks as the prime minister of Hungary or as a private individual.

All in all, the picture that emerges from the few pieces of information we have is not pretty. Orbán has enough trouble as it is. Tonight another 10,000 people demanded Ildikó Vida’s resignation–and his as well.

Scandal surrounding the purchase of E.ON gas company

The left-of-center Hungarian media is full of stories about details of  the purchase of the German-owned E.ON gas and electricity company by MVM (Magyar Villamos Művek), a state-owned utility company.

Let’s go back a few years to recall the background of this deal. Rumors of the purchase of the company were already circulating in the summer of 2011 because Viktor Orbán made it clear that he found state ownership of utilities of strategic importance to the country. Not everybody shared the Hungarian prime minister’s view. For example, the Financial Times Deutschland at the time called the idea “madness,” arguing that the price of energy cannot be lowered by nationalizing the utility companies.

It is also important to understand the history of E.ON in Hungary. Originally E.ON bought the company from MOL, the Hungarian oil and gas company, when during the initial tenure of Viktor Orbán (1998-2002) the government set the price of gas so low that MOL suffered considerable losses. For ten years E.ON managed to make the Hungarian business profitable, but in 2010 it suffered a blow when the second Orbán government once again froze the price of gas. As a result, E.ON lost money. The Germans decided to bail and sell the company to the Hungarian state. The deal was closed in March 2013. At the time experts found the purchase price too high.

Because of the controversy over the purchase price, atlatszo.hu  (Transparency), an NGO that receives some funds from the Norwegian Grants, decided to ask for documentation about the deal. Although by law the Magyar Nemzeti Vagyonkezelő/Hungarian National Asset Management, the state organization that handles state properties, was obliged to release the documents, they refused. At that point atlatszo.hu went to court and won. The state appealed but atlatszo.hu won again. That did not deter MNV. They decided to go all the way to the Supreme Court (Kúria). But no luck. After a year and a half of legal wrangling the Hungarian state was forced to release the documents. Atlatszo.hu promptly made them public on its website.

On the basis of the documents now released, it looks as if MVM purchased a company that was practically bankrupt. The purchase price of 251 billion forints was considered too high when critics were unaware of the actual financial health of E.ON. As it turned out, the assessors estimated the value of E.ON to be -355 billion forints. Yes, you read it right: minus. So, with the 251 billion paid by the government, the loss to the country is 616 billion forints.

Viktor Orbán was bent on purchasing E.ON regardless of price. In fact, even before negotiations began he repeatedly announced his absolute determination to acquire the company. Not the smartest move. There was not much haggling over price either. The Germans asked 260 billion forints and, it seems, Orbán was happy to pay.

Prime Minister Viktor Orbán and Chairman-CEO of E.ON

Prime Minister Viktor Orbán and Chairman-CEO of E.ON

In fact, he was so eager that he wasn’t bothered by the fact that the Hungarians were unable to examine the financial health of the company thoroughly. The German side announced that certain documents would be released only after the deal was complete.

The negotiators from MNV were aware of the riskiness of the transaction and were afraid to go ahead with the deal without appealing to a higher authority. They wanted to submit their findings to the Ministry of National Development for approval. Mrs. László Németh, then minister of MND, did not feel comfortable with the deal either, so in the end it was Viktor Orbán who personally assured MNV of state guarantees for any losses incurred as a result of the transaction.

Apparently the greatest risk for the health of the company is the “take-or-pay contract” that has existed for many years between Gazprom and the E.ON companies. That means that the company either takes the product from the supplier or pays the supplier a penalty. After 2008, in the wake of the global financial crisis, Hungary’s gas needs decreased considerably. And yet the company was obliged to buy gas regardless of need. Some references in the documentation indicate that after the close of the deal the new owners might be able to negotiate with Gazprom concerning the take-or-pay arrangement. Orbán’s cozy relationship with Putin should help in this regard.

Critics also point to legal irregularities. For instance, owners of E.ON shares were not notified thirty days before the deal was signed. There is also the possibility that Brussels will consider the state subsidies to MVM illegal. (Apparently, the socialists already asked the European Union to investigate the case.)

The new division of MVM cannot stand on its own financially. Not only does it need state subsidies to cover its costs, but two of the gas storage facilities bought from E.ON already had to be closed.

Együtt-PM and DK are bringing charges of mismanagement and abuse of fiduciary duties in connection with the purchase of the E.ON gas business by MVM. MSZP was more modest. The party only asked Miklós Seszták, the new minister of national development, to investigate the case. If I were the representative of MSZP I wouldn’t wait breathlessly for this investigation. The ministry already made its position clear tonight. Hungary cannot be at the mercy of foreign interests in the energy sector, and therefore the purchase of E.ON was necessary for the “defense of the decrease of utility prices.” Getting back the gas company is also of inestimable value from the point of view of national security because of the gas facilities where Hungary can store 70% of its yearly gas consumption.

As for the purchase itself. “Several independent assessments showed the economic justifiability of the purchase in the long run.  The state ownership guarantees the secure gas supply of Hungary and it serves as a solid foundation for future economic growth,” reads the statement of the ministry released to MTI. I must say that this is a pretty weak response to the very serious charge of financial irresponsibility with taxpayer money.

In the right-wing media the silence is deafening. The only article I found was in MNO (Magyar Nemzet Online). It was posted at 17:33 and is a bare outline of how the documents were acquired by atlatszo.hu and what the documents show. It seems that, since the Ministry of National Development hadn’t yet responded to the revelations, the paper’s editors didn’t know what the right position was on this particular issue. I guess they will eventually find their voices.

As for the Fidesz-friendly prosecutors, they were quick to charge socialist and liberal politicians with an abuse of fiduciary duty for selling state properties at prices they considered too low. But it is unlikely they will ever charge Fidesz politicians with the same abuse for buying state properties at prices that are too high.