Tag Archives: natural gas

“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.

Putin’s visit: “Strategic impetus” for future Russian-Hungarian relations?

Yesterday the Russian ambassador to Hungary, Vladimir Sergeyev, when asked about Russian President Vladimir Putin’s visit to Hungary, basically repeated what Prime Minister Viktor Orbán has been telling the Hungarians in the last few days. Putin’s visit to Budapest is nothing out of the ordinary. The main topic of the talks will be “the extension of a long-term contract” that will ensure the uninterrupted flow of natural gas from Russia to Hungary. The contract is due to expire this year, hence the urgency of the negotiations. Sergeyev emphasized that Putin’s visit has nothing whatsoever to do with “the overall situation in the world and the tension we now observe.” In addition to energy questions, the two leaders will discuss “cooperation in tourism and culture.” All this sounds utterly innocent until we get to the last sentence: that the talks are designed “to give a strategic impetus” to the future development of relations.

Viktor Orbán, although he is usually quite tight-mouthed, also indicated, perhaps unwittingly, that “over and above the question of energy, we must strive for a truly balanced relation. That’s why we invited and welcome President Putin.” These sentences indicate that the conversations will go beyond economic relations. Suspicion is growing in Budapest that the “urgent issue of the gas supply from Russia” is only an excuse for a visit by the Russian president. The real reason is what Ambassador Sergeyev called a “strategic impetus” for closer relations between the two countries. And that is a political, not an economic issue.

Let’s return briefly to Lajos Simicska, the oligarch to whom Viktor Orbán owes his rise to power but who is no longer Orbán’s friend. In his interview with Magyar Narancs Simicska told the reporter that after the April elections he had a long conversation with Viktor Orbán, during which the prime minister outlined his “plans,” which Simicska did not like. Among other things, Orbán shared his views of Russian-Hungarian relations, which Simicska found odious. He expressed his disapproval of Orbán’s scheme, saying: “No, I don’t like it at all. I grew up at the time when the Soviet Union was still here and I don’t have pleasant memories of the activities of the Russians in Hungary. I can’t really see any difference between the behavior of the former Soviets and the political behavior of today’s Russians.” I am sure that Simicska’s anti-Russian feelings are genuine. He was known for his intense dislike of the Soviets even as a high school student. This antipathy most likely had something to do with his father’s involvement in the Revolution of 1956 and the reprisals the family suffered as a result. If his old friend Viktor had talked to him only about economic ties and a secure supply of gas, surely Simicska wouldn’t have reacted so negatively.

A Romanian view: "Putin will visit Hungary: A challenge to the United States Source: Independent.md

A Romanian view: “Putin will visit Hungary: A challenge to the United States”
Source: Independent.md

No, it is becoming clear that the urgent negotiations about a long-term gas contract are only a smokescreen. Although it is true that the current agreement will expire at the end of June, the flow of gas will not stop. According to the present contract, Gazprom is obliged to supply gas to Hungary for at least two more years. Perhaps three. Fifteen years ago, when the contract was signed, energy consumption was higher than it is now. The contract specified a certain amount of natural gas between 2000 and 2015, but that amount hasn’t been used up. So why is this deal suddenly so important to Orbán? Why does he think that he will be able to get the best deal from Gazprom thanks to Putin’s good offices? What did Orbán promise to Putin in exchange for cheap gas? Will he get cheap gas and, if so, at what price? Will Rossatom’s building of the two new reactors at Paks be enough for Putin in return? Or will Orbán be ready to sell or rent the storage facilities he purchased earlier from the German firm E-On to Gazprom? Most important, why is Orbán so keen on a special deal with Gazprom when by now Russia’s monopoly on the gas supply to Europe is broken?

Some observers even claim that it is not to Hungary’s advantage to sign a long-term contract with Russia because the current market price of natural gas is actually lower than what Hungary is paying for Russian gas. Hungary is paying between $350 and $400 for 1,000m³ of gas; on the open market it sells for $300. Moreover, as I already noted, Russia’s gas monopoly is a thing of the past. By now there are alternate pipelines through which western gas can reach Hungary. Although it is true that the completion of the pipeline between Slovakia and Hungary has been delayed due to technical problems on the Hungarian side, it should be ready very soon. Meanwhile gas has been steadily coming into the country from Austria and Croatia.

The Orbán government in the last five years or so was not too eager to work either on alternative pipelines or on reducing the amount of gas used by Hungarian households, which is twice that of Austrian households. The reason is inadequate insulation. European Union directives oblige energy suppliers to improve the insulation of buildings, but for some strange reason the Orbán government is in no hurry to change the Hungarian law to allow such a solution. According to experts, people could save 30 to 50% on their gas bills if this essential repair work on windows and doors were done. Definitely more than the much touted 10% decrease in utility bills legislated by the government.

Orbán has exaggerated the danger of running short of gas. He even indicated that if he is unsuccessful in his negotiations with Putin, Hungarians will freeze to death because there will be no gas to heat their houses and apartments. Of course, this is not only an outright lie but a stupid business tactic. If the situation is so desperate, the negotiating partner will have the upper hand in the negotiations, as several people pointed out.

And with that I return to Russian Ambassador Sergeyev’s mysterious “strategic impetus” for future relations between the two countries. Suspicion is growing in Hungary that Orbán is making some kind of a political deal with Putin which may commit Hungary to a closer relationship in the future. Miklós Hargitai of Népszabadság goes so far as to speculate that “it is not the decrease in our utilities bills that will depend on Putin but Orbán’s hold on power.” For whatever reason, the Russian card seems to be of the utmost importance to Hungary’s gambling mini-Putin.

Viktor Orbán and the Fidesz parliamentary delegation show the way

After spending quite a bit of time on foreign affairs, we have to return to domestic policies because soon enough parliament will reconvene, and the Fidesz and KDNP caucuses are preparing for the new session. Members of the caucuses get together, normally at some resort, and are sequestered for a few days. Their agenda is to set the tone of politics for the next five or six months. This time the Fidesz caucus met at the Balneo Wellness Hotel near Mezőkövesd, the center of an area known for its distinctive folk embroidery. Obviously, there is no shortage of funds in the Fidesz coffers. The caucus has 115 members, and several ministers and undersecretaries also attend these retreats.

Balneo Wellness Hotel

Balneo Wellness Hotel

I find these gatherings amusing, especially when I hear from Antal Rogán, the whip of the caucus, “we request and authorize the government” to do this or that. Naturally, the situation is the reverse, Viktor Orbán tells Antal Rogán what he expects them to do. If they come up with an idea of their own, which doesn’t happen too often, Orbán usually decides against it. Or if they want information from the prime minister, they don’t always get it. This time, for example, apparently the MPs wanted to know more about the visits of Angela Merkel and Vladimir Putin, but they heard nothing about either. It also seems they were hoping to hear more about the deal between the government and the RTL Group. They should have known better. When Viktor Orbán loses a fight, he doesn’t like to talk about it. Or, if an encounter, like the one with Merkel, is not exactly a success, he changes the subject.

So, let’s see what Viktor Orbán actually wanted to talk about. His greatest concern seems to be the immigration of “economic refugees.” In the last two years their numbers have grown substantially, and recently they’ve spiked. While last year 42,000 requests for immigrant status were received, this year, just in January, 14,000 such requests were filed. Orbán’s solution to the problem is draconian. He wants “to bolt the door to Hungary” to all “economic immigrants because we don’t need any of them.” Hungarian economic emigrants leave in droves while Hungary is bolted tight to anyone coming from “another culture.” He will not wait for the European Union, which is far too slow. Hungary will act on its own. I wonder how they will deport all those people who are currently in Hungary and what will they do with those who are on their way. An Irish proverb says “Never bolt the door with a boiled carrot.” What will the Hungarians use?

The government must have realized that the so-called school reform initiated by the second Orbán government was a failure. All schools were nationalized except for a few private schools and were put under one huge umbrella organization that turned out to be totally incapable of supervising about 120,000 employees and thousands of schools. We don’t know how the government is planning to undo the chaos created by Rózsa Hoffmann (KDNP), but it looks as if another “reform” is underway. Every time I hear of a new school reform I just shudder. So far the government hasn’t talked to educational experts or teachers’ unions, and it hasn’t spelled out the details of its plan. It has simply resurrected an old idea of Zoltán Pokorny, former minister of education in the first Orbán government (1998-2002), to extend the eight grades of compulsory education by one year. Apparently, it was inspired by the “Polish model,” which introduced a ninth year of elementary education–along with an entirely new educational philosophy. It seems, however, that Viktor Orbán doesn’t like the idea, so most likely it will be dropped.

Another concern of Viktor Orbán is the state of Hungarian healthcare, which is rapidly deteriorating instead of improving. Orbán seems to be frustrated. At the meeting he complained that 500 billion extra forints had been sunk into healthcare and yet the hospitals are still in the red. Their current debt is 70 billion forints, which must be paid out of the central budget. Their suppliers, mostly Hungarian middle-size companies, are also hurting. For the time being, the newly appointed undersecretary will remain, but I have feeling that his days are numbered. The government’s solution is simple: forbid the hospitals from accumulating any new debts. If a hospital director doesn’t follow this order he will be fired. It is hard to fathom how such a strategy will help the situation. By the way, there’s an apparent contradiction worth mentioning here. On the one hand, the government wants to reduce the number of hospitals and most likely cut back on the number of employees, while on the other hand Antal Rogán “requested and authorized” the government to make money available for a brand new hospital in Budapest. It turns out that money for this new hospital will come from the European Union while maintaining the existing hospitals must come from Hungarian government resources.

Although the Hungarian media is full of the news that Viktor Orbán had to give in to the demands of RTL Klub without the television station toning down its news coverage of government corruption, we learned today that “Fidesz authorized the government to negotiate further with Brussels” concerning the advertising levy. What can that mean exactly? Well, nothing good, I fear. Viktor Orbán will take his sweet time thinking about the deal between János Lázár and the top management of the RTL Group. Moreover, Orbán made it clear that the amount of money he was hoping to get from the advertising levies cannot be reduced as a result of the compromise with RTL Klub. So, we can all use our imaginations trying to figure out what Viktor Orbán has in mind when he talks about further negotiations with Brussels.

If I properly interpret the leaks from the meeting of the Fidesz delegation, Orbán will not back down on government supervision of non-governmental organizations. In his opinion the Hungarian government is entitled to know what kinds of foreign subsidies are given to Hungarian civic groups. So, I assume the harassment of these groups will continue. So will the “national freedom fight.” Rogán revealed that “the Hungarian people expect that the government will always stand for the national interests” and that as a result of the government’s policies “national self-esteem” has grown during the last five years. Orbán also has no intention of changing his “independent” foreign policy because “Hungary has become a strong country” thanks to his leadership. He repeated that cheap gas means inexpensive utility prices, which he considers critical to his political longevity. Only Putin can give him what he needs. What Orbán will give in return is as yet unknown.

John McCain: “A nation that’s on the verge of ceding its sovereignty to a neo-fascist dictator”

Viktor Orbán must have had a rough couple of days. First came the bad news that Vladimir Putin had cancelled the Southern Stream project, and then yesterday John McCain, the Republican nominee for president in 2008 and chairman of the Senate Foreign Relations Committee, lashed out at him. In a speech delivered prior to the vote on Colleen Bell’s appointment to be the next U.S. ambassador to Hungary he gave a long list of objections to her appointment. The upshot was that McCain considers Hungary to be a strategically important country where a seasoned diplomat should head the mission instead of a political appointee.

Whoever collected information on Hungarian politics for McCain did a good job. Anyone who’s interested in knowing exactly what transpired can watch the video. The passage that caused outrage in Hungarian government circles came toward the end of McCain’s venting of his frustration:

We’re about to vote on a totally unqualified individual to be ambassador to a nation which is very important to our national security interest. Her qualifications are as a producer of the television soap opera “The Bold and the Beautiful,” contributed $800,000 to Obama in the last election and bundled more than $2.1 million for President Obama’s reelection effort. I am not against political appointees. I understand how the game is played, but here we are, a nation that’s on the verge of ceding its sovereignty to a neofascist dictator getting in bed with Vladimir Putin and we’re going to send the producer of “The Bold and the Beautiful.”

Zoltán Kovács, undersecretary in charge of foreign communication, is usually the first to raise his voice. He announced that “Hungarian diplomacy will immediately get in touch with American senator John McCain,” but he added that from the text it is clear that McCain was not talking about the Hungarian prime minister but about Vladimir Putin. Kovács’s most likely intentional misreading of the text could not be maintained for long because several Hungarian newspapers and television stations got in touch with the communication director of Senator McCain, who affirmed that there was no mistake. The senator was indeed talking about Viktor Orbán.

The Ministry of Foreign Affairs and Trade moved into action and called in M. André Goodfriend, the U.S. chargé d’affaires, to tell him, I assume, how wrong McCain was about Viktor Orbán. Considering that McCain is a Republican, I can’t quite see what Goodfriend as a representative of the Democratic Obama administration is supposed to do about McCain’s assessment of the Hungarian political situation.

And yesterday Péter Szijjártó announced that McCain must have based his opinion about the Hungarian prime minister on the antagonistic media because if he knew the real situation he would never call Orbán a neo-fascist dictator. The Hungarian response to any negative reaction to the Orbán government is always the same: The Hungarian citizens voted for this government three times this year and everybody should respect their decisions. Szijjártó also indicated that the Hungarian Embassy in Washington will get in touch with the staff of Senator McCain and will inquire about “the background of his statements” concerning the Hungarian prime minister.

Gergely Gulyás, a member of parliament and one of the deputy presidents of the assembly, was blunt. According to him, the “veteran senator for a short period of time lost his critical faculties.” Some pro-government journalists also used strong words. András Stump of Válasz called the 78-year-old senator “senile, ancient” (agg, vén) and not to be taken seriously. András Bencsik, editor-in-chief of the far-right Demokrata, called him an idiot. Another right-wing commentator again alluded to McCain as being incoherent during the session. But he did not stop there. He accused McCain of being far too friendly with Ukrainian Nazi politicians. And then he came to the crux of the matter: why is Hungary suddenly so important to the United States? Because of the United States’ interest in selling American shale gas to Europe. The Americans have become worried about Hungary being a middleman between Russia and Europe, which may result in their supplying all of Europe with Russian gas instead of their own. Otherwise, all the rest about democracy, about the illiberal state, about NGOs is of no interest to the United States. They are only excuses that mask the real intent.

John McCain in Budapest, January 2014 Despite the compulsory smiles McCain was not too happy even then

John McCain in Budapest, January 2014
Despite the compulsory smiles, McCain was not too happy even then

Of course, this story our man concocted is total nonsense, but what is really worrisome is that the official advisers to the Hungarian government, the great “political scientists” of Századvég, also seem to think along the same lines. Yesterday I cited some foreign policy experts who actually know their subject but who have been dropped from the ministries or, if they work in independent research institutes, are never consulted. On the other hand, we know that Századvég has allegedly supplied the government in the past four and a half years with thousands and thousands of pages of advice on domestic and foreign policy strategy with which, it seems, the Orbán government is completely satisfied. What kind of advice is supplied to the Hungarian government is well demonstrated by an article by Gábor G. Fodor, the strategic director of Századvég, which was published on December 1 in Napi Gazdaság, the paper owned by Századvég.

Very briefly summarized, the United States’ interest in Hungary and the East-Central European region is dictated by one consideration only: getting rid of the Russian monopoly over the gas supply in the region. All the attacks on Hungary in the last few months have served this purpose. The U.S. has a master plan: (1) Ukraine must fall into the sphere of American influence; (2) the United States wants to stop the building of the Southern Stream; and (3) the Americans intend to prevent the Russian purchase of the MOL shares in the Croatian oil company INA. The goal is “a total change of monopoly of gas supply in the region.” Hungary is at the center of this master plan and surely this is why Hungary suddenly became such an important country for the United States. Hence the attacks against the Orbán government.

Can you imagine what kind of Hungarian foreign policy can be based on G. Fodor’s “analysis”? I shudder to think.

I am not at all sure that Hungarian diplomacy in its present state can successfully navigate through the perilous sea Hungary managed to get itself into thanks to the brilliant strategy of Viktor Orbán. Until recently the Orbán government was certain that a Republican administration would have closer and warmer relations with them, but after McCain’s outburst they must realize that even if the Republicans win the next election Hungary will remain a pariah in Washington, unless some miracle happens in Budapest. Like Viktor Orbán vanishes from Hungarian politics. And that at the moment does not look likely.

Gazprom stores some of its natural gas in Hungarian facilities

I guess it is high time to talk about Vladimir Putin and natural gas.

First, Putin’s trip to Serbia. Serbia and Russia have had close ties for more than a century. The only exception I can think of is the 1948-1954 period when Tito was considered to be the “chained dog of the imperialists.” But otherwise in all conflicts Russia stood by Serbia. Serbia’s financial situation is pretty grim at the moment, and I understand that without Russian help Belgrade would be in even greater economic and financial trouble than it is. The closeness of the two countries is demonstrated by the fact that the date of the celebration of the 70th anniversary of the liberation of Belgrade by the Red Army was moved forward to accommodate Vladimir Putin’s schedule. The military pomp on display to impress the Russian president was noteworthy, especially in view of Serbia’s insistence that she wants to become part of the European Union.

Putin decided to use this opportunity to deliver a stern message to Europe. He warned Brussels that as long as the Ukrainian crisis is not settled, naturally in favor of Russia, gas supplies to Europe might be disrupted just as happened in 2006 and 2009. He said that he himself will do everything to avoid such an eventuality, but if it does happen it will be the fault of the European leaders.

Almost at the same time news reached the West that Hungary will store Gazprom gas. You may recall that Hungary purchased the German-owned E.ON gas storage facilities in 2013 for an incredibly high price. The story of that purchase is well summarized in an article in the Budapest Beacon, according to which the Hungarian state-owned company, MVM, may have lost $2.6 billion as a result of the deal. Given the pervasive corruption in Hungary, analysts were certain that the purchase of E.ON’s business units was “a success story for certain business circles but a huge loss for the national economy as a whole.” This assessment might not be on target. It is more likely that Viktor Orbán’s eagerness to purchase E.ON at whatever price stemmed from a deal with Gazprom to use Hungarian storage facilities. Aleksey Miller, CEO of Gazprom, visited Budapest in October 2012. At that time Miller agreed to such a deal, but only if the storage facilities were in the hands of the Hungarian state. A year later Orbán obliged.

gaztarolok

So, what kinds of storage facilities are we talking about? E.ON Földgáz Storage Zrt. has five underground facilities in which it can store 3,740 million cubic meters of natural gas. According to Hungarian sources, these underground storage facilities are the best and the largest in the region and  fourth in size in Europe. As a result, in 2009 Hungarians were more or less unaffected by the gas shortage when Russia stopped the flow of gas through Ukraine to Europe.

I was pretty sure by the end of September that something was afoot concerning Russia’s use of Hungary’s storage facilities, but it was only on October 10 that I read an AFP report which noted that although Hungary is steadily buying gas from Russia, it is also storing Russian-owned gas. The article noted that “it is unusual for the company to store gas still owned by Gazprom, which is locked in a dispute with Kiev that some fear could see transit through Ukraine halted for the third time in a decade.” According to the spokesman of MVM, the owner of the facilities, “with this agreement Gazprom will be able to comply with its long-term contract obligations, should there be problems on the transport routes.”

Kyiv Post tersely noted the Russian-Hungarian deal without adding any editorial comment. But Kiev must see the deal as an antagonistic move because, with it, Russia can supply gas to Europe at the same time that it squeezes Ukraine.

As for the amount of stored gas owned by Hungary, this number is difficult to estimate. Throughout September the Hungarian media was full of complaints about Hungarian tardiness in filling the country’s storage facilities. In mid-September HVG claimed that they were only 58 percent full. Moreover, if one can believe MTI, a month later, on October 16, the situation was exactly the same. Opposition politicians naturally blame the Orbán government for its tardiness and predict terrible consequences come winter. But I suspect that something else might be behind the procrastination of the Hungarians. The Russian-Hungarian deal to store Russian gas in Hungary was signed only at the end of September, and it is very possible that in return for its “generosity” Hungary managed to get a lower price on Russian gas. I can’t think of any other rational explanation for not filling the storage facilities as quickly as possible. Especially since other European facilities are 80-90% full. Perhaps we will eventually learn the real story, although I’m sure that the Hungarian government will do its best to conceal it.

Viktor Orbán on the world stage and at home

Every second Friday Viktor Orbán spends about twenty minutes with a servile reporter from Magyar Rádió who asks the great leader about his achievements and plans. But before I cover the latest pearls of wisdom coming from the prime minister I want to share some thoughts about an unexpected private meeting between Chancellor Angela Merkel and Viktor Orbán preceding the European Union Employment Summit held in Milan on October 8.

Critics and opponents of Viktor Orbán’s domestic and foreign policy initiatives were dismayed over news of the meeting. Just when the United States finally seems to be showing signs of greater resoluteness in its dealings with the Hungarian government, Angela Merkel rewards him with a private meeting. Hungarian opposition papers pointed to Merkel’s broad smile and assumed that the encounter had to be friendly. But this might not have been the case. Of course, we don’t know what transpired during the meeting, but there are a few signs that may indicate a less jolly encounter than Merkel’s smile would indicate.

The official government website republished the MTI summary of the encounter, based on information supplied to the news agency by the prime minister himself. What can we learn from that brief description? “First and foremost [they] talked about foreign affairs.” The second topic was energy policy. As far as foreign policy is concerned, I assume the topic was Hungary’s reluctance to support the common EU resolve concerning further sanctions against Russia if necessary. It is also possible that Merkel mentioned her disapproval of Viktor Orbán’s eastern orientation. When it comes to the country’s energy policy, I’m almost certain that Merkel brought up Hungary’s sudden decision to stop sending natural gas to Ukraine three days after the CEO of Gazprom paid a visit to Viktor Orbán.

How do I surmise that? A careful reading of this short report on the meeting makes that interpretation more than plausible. Let me quote the appropriate passage verbatim: “Hungary will be part of the common European efforts, but at the moment she must establish her own energy security. Thus, Hungary now is busy with feeding its own storage facilities.” After January 1, 2015, when the Slovak-Hungarian gas pipeline is functioning, “we will be able to send non-Russian gas to Ukraine, if our Ukrainian friends would like it.” I should call attention here to Orbán’s emphasis on the source of the gas intended for Ukraine. That strongly indicates that he agrees with the Russian position that selling Russian gas to countries outside the EU is illegal.

As for the possibility of a discussion between Merkel and Orbán on Hungarian-EU relations, my source is Viktor Orbán’s Friday morning interview. While until now we have heard only criticism from Orbán concerning the West, which is in decline and on the wrong track, during the interview Orbán praised German economic strategy. The German mentality of hard work and prudence is the basis of  successful economic policy. I might add here that praise of German economic strategy was somewhat ill-timed in the wake of dismal economic news from the country.

As far as future domestic policies are concerned, the Friday morning interview was singularly uninformative. There has been much talk lately about a new era coming, but Viktor Orbán refuses to provide any details. A careless remark by Mihály Varga a couple of weeks ago prompted speculation about the introduction of new austerity measures. Rumor has it that the government cannot hold to the 3% deficit, which may followed by the reintroduction of the excessive deficit procedure by the European Commission. And that would mean turning off the money spigots from Brussels. A government denial followed Varga’s remark, but people are not convinced that austerity measures are not in the offing. The budget that should already have been presented to parliament is still nowhere. According to Orbán, he and Varga will go through the numbers this afternoon.

There was only one topic on which Orbán was more expansive: his ideas about education. Specifically, producing skilled workers. He has big plans for something he calls “dual education,” which will produce a highly skilled workforce. After a student has been in school for eight years he would enter a course of study that would combine some academic study with hands-on work experience. It would be a kind of apprentice (inas) program. There is nothing new under the sun. Many of us still remember Nikita Khrushchev’s introduction of precisely the same type of education. We also remember that it was a huge flop and the experiment was abandoned. I guess Orbán thinks he can do a better job.

But if Khrushchev’s experiment was a bad idea in the 1960s, it is a terrible idea today. Who thinks that eight years of elementary education are enough to produce highly skilled workers who nowadays need higher math, computer skills, and–most likely in Hungary’s case–the command of a foreign language, just to mention a few requirements? The very word “inas” (apprentice) conjures up images of the little boy who was apprenticed to a master and who was terribly exploited by him. He lived with the master’s family and often did all sorts of things that had nothing to do with his future trade.  But in those days one didn’t need a lot of education to learn how to make shoes or to become a bricklayer. Today I would say that to become a skilled worker one should finish high school and have at least a two-year associate’s degree.

journeyman

Back to olden days

I agree that training a skilled workforce is needed, but Hungary is unlikely to be a country where industry dominates. The service sector will most likely remain the mainstay of the economy, as elsewhere in western countries. Moreover, it is not true, as Orbán claims, that “the road to successful life is through crafts” because statistics prove that university graduates’ compensation greatly exceeds the salaries of non-graduates. I fear, however, that he will introduce his ridiculous ideas on education very soon. He promises such legislation this year. I wonder what impact such a reorientation of education will have on the current educational system, which has already gone through a very hard time because of the nationalization and centralization of all public schools. One could also ask where they will find teachers by the thousands to instruct students to become skilled workers by the age of 16 or 18. What will happen to those teachers who today teach academic subjects? The whole thing sounds not only crazy but injurious to the country.

This year was spent mostly on campaigning for three different elections, and therefore the Orbán government had relatively little time to come up with ever new ideas and proposals that become law in record time. I fear this legislative respite is over, and the prime minister will have quite a few surprises for us in the coming months.

Hungary stops supplying gas to Ukraine and makes its own gas deal with Russia

The news of the day is Hungary’s decision to stop the supply of gas to Ukraine despite its pledge to assist its beleaguered neighbor. Although the AFP news service assumes that the decision came after “threats from Moscow,” I have a different take on the matter. To make my case I have to go back a few weeks in time.

It is true that Russia was playing games with its gas supply to Poland and Romania, but Hungary was in no way affected by these Russian measures, most likely because of the cozy relationship that exists between Putin and Orbán. On the contrary, in the last few months large amounts of gas arrived in the country from Russia. Currently, the storage facilities are 60% full, and even larger amounts of natural gas will come from Russia in the next few months. Poland indeed had to temporarily stop its supply of gas to Ukraine on September 10, only to resume its operations two days later when Russia assured Poland that it would send an adequate supply of gas to the country in the future. Romania began receiving less than the usual amount of gas on September 15.

Instead of worrying about natural gas from Russia, on September 18 a very upbeat article appeared in Magyar Nemzet telling its readers that “we can be the gas center of Europe.” The article reported that two days earlier Miklós Seszták, minister of national development, conducted negotiations with Anatoly Yanovsky, Russian deputy minister for energy affairs, concerning the storage of 500 million cubic meters of Russian gas in Hungary “to facilitate the supply of Europe with gas in case of irregular transit shipments through Ukraine.” These plans are not new.  They were apparently first discussed in October 2012 when Aleksey Miller, CEO of Gazprom, had a meeting with Viktor Orbán in Budapest. However, the precondition for such a deal was the nationalization of the storage facilities. The Hungarian government subsequently purchased them from the German company, E.ON, at an incredibly high price. Although auditors warned the government about the pitfalls of the deal, Orbán insisted. It looked as if he did not care about the price. Now we know why.

Yanovsky had barely left Hungary when Aleksey Miller arrived in Budapest. The meeting of Miller and Orbán was kept secret from the Hungarian people, who read about it on Gazprom’s website. This is not the first time that we learn about important meetings and bilateral negotiations from the media of countries for whom close relations with Hungary, a member of the European Union, are important but who are not exactly friends of the West. The Hungarian government would rather not inform the world about its dealings with such countries as Iran, Belorussia, Azerbaijan, and Kazakhstan. According to Gazprom, “the talks were focused on the issues of reliable and uninterrupted gas supplies in the coming winter period. The parties paid special attention to the implementation of the South Stream project and noted that it was progressing on schedule.”

Source: Gazprom.com

Source: Gazprom.com

This morning, three days after the Miller-Orbán meeting, Viktor Orbán announced that Hungary would indefinitely suspend supplying Ukraine with natural gas. According to Itar-Tass “the decision was made to meet the growing domestic demand for gas,” FGSZ, the Hungarian company operating the pipeline, said. Yet MTI reported today that even Serbia might be able to receive gas from the Hungarian storage facilities. So, surely, there is no shortage of gas in Hungary. The European Union is anything but happy about the suspension. Helen Kearns, a spokeswoman for the European Commission, in an answer to a reporter’s question on Hungary’s unilateral suspension of the gas supply to Ukraine, said that “the message from the Commission is very clear: we expect all member states to facilitate reverse flows as agreed by the European Council.” Naturally, Naftogaz, the Ukrainian gas company, also urged its “Hungarian partners to respect their contractual obligations” and said the Hungarian decision “goes against the core principles of the European Union single energy market.”

After delivering his usual Friday morning radio interview Viktor Orbán left for Berehove (Beregszász), in the area of Ukraine south of the Carpathian Mountains officially called Zakarpattia Oblast, to deliver a speech at the Hungarian-language college situated in the town where about half of the population is Hungarian speaking. Altogether there are three smaller territorial units within the oblast where there are significant Hungarian populations: in the uzhhorodskyi raion (33.4%), in vynohradiv raion (26.2%), and in the area around Berehove where they are actually in the majority (76.1%). Altogether there are about 120,00 Hungarians out of a total population of 1,254,614. The distribution of Hungarians in the oblast can be seen here.

Orbán indicated in his early morning interview today that Hungary will support Hungarians in the neighboring countries who demand autonomy. Although he did not specifically mention the Hungarian diaspora in Ukraine, he was obviously also talking about them. This was not the first reference to possible autonomy for Hungarians in this region of Ukraine. At the outbreak of the Russo-Ukrainian crisis Orbán already mentioned such a demand. He made it clear, again not for the first time, that his main concern in this very serious international crisis is the fate of the Hungarian minority. He promised his audience that Hungary will not do anything that would harm his Hungarian brethren, which I found interesting in light of the decision to cut the flow of gas from Hungary to Ukraine.

While Viktor Orbán was in Berehove, representatives of the European Union, Russia, and Ukraine got together to come up with an energy deal that would ensure the supply of Russian gas to EU members and Ukraine over the winter. In return, Ukraine would repay $3.1 billion of its debt to Russia.  The first installment, $2 billion, would be due by the end of October and the rest by the end of December. If Russia agrees to this deal, it would avert an immediate crisis, although it would not resolve the deeper dispute over what price Kiev should pay for past and future deliveries. The Ukrainian government earlier filed suit with the Stockholm Arbitration Court against Russia for making it overpay for gas since 2010. A decision may be reached by next year.

On the one hand, Ukraine seems to be happy that, after so many unsuccessful attempts, there is hope of an agreement but, on the other hand, it is unhappy that the price of Russian gas “is dependent on the decisions of the Russian government.” According to Kyiv Post, “Ukraine will under no circumstances recall its suit from the Stockholm Arbitration Court.”

If this deal goes through, as it seems that it will, perhaps it was unnecessary for Hungary to unilaterally and abruptly stop the flow of gas to Ukraine. By this decision Orbán further emphasized his pro-Russian sympathies and undoubtedly further alienated himself from Western governments.