Tag Archives: Siemens

Metro 4: The largest case of Hungarian fraud and corruption

Now that the complete OLAF report is available online, we can all settle down and try to read 103 pages of dense prose detailing “irregularities, fraud, corruption, and misappropriation of EU funds.” A five-member OLAF group began their investigation in January 2012 after the Court of Auditors and the Directorate General for Regional and Urban Policy of the European Commission contacted OLAF, asking the office to scrutinize the case. During the investigation, the OLAF staff got in touch with only the City of Budapest and Péter Medgyessy, prime minister of Hungary between 2002 and 2004, whose consulting firm worked for Alstom Transport S.A., one of the firms accused of wrongdoing.

The total cost of the project was €1,747,313,606, of which €696,490,000 came from the Cohesion Fund. According to OLAF’s calculation, “the financial impact on the Cohesion Fund is €227,881,690.”

The release of OLAF’s final report put an end to the political game Fidesz and the Orbán government had been playing with the document. János Lázár, head of the prime minister’s office, and his deputy, the honey-tongued Nándor Csepreghy, did their best to get as much political mileage from the affair as possible. Lázár intimated that an international socialist-liberal conspiracy was behind the corruption that occurred at the Metro 4 project. On another occasion, he claimed to have filed charges against Gábor Demszky, mayor of Budapest between 1990 and 2010, Csaba Horváth, deputy mayor between 2006 and 2009, and János Atkári, an adviser to Demszky. Csepreghy must have known that none of these people was mentioned in the document, but in a long interview at 888.hu he intimated that even Ferenc Gyurcsány, prime minister between 2004 and 2009, may have shared responsibility for the misappropriation of funds. A few days later he claimed that other politicians might also be implicated.

All this is just political fluff. What we know from the OLAF report is that the City of Budapest signed a contract in 2004 with Budapesti Közlekedési Vállalat (BKV), the city-owned transit authority, which was commissioned to implement the project. Most likely that was a major mistake, which led to a lot of difficulties later. Any project, especially such a large one as the construction of a metro, needs a general contractor who oversees the project. BKV’s staff was not equipped to coordinate the work, which led to innumerable hiccups during construction.

Throughout the project the Hungarian media, especially the online site Index, reported many suspicious cases of overspending. But these cases were actually small potatoes, like too many consulting firms and lawyers making millions for very little work. Although several such cases are described in the final report, the bulk of the money OLAF would now like to be returned came from serious irregularities during the acquisition of tenders by huge corporations.

According to OLAF, 96% of the “irregularities” occurred in contracts signed by six large firms: Siemens AG, the largest manufacturing and electronics company in Europe; Swietelsky, an Austrian construction company from Linz; Strabag, the largest construction company in Austria, based in Villach; a Hungarian company called Hídépítő Zrt., which as its name indicates builds bridges and roads; the BAMCO consortium (Vinci CGP, Strabag, Hídépítő Zrt); and Alstom, the French multinational company operating worldwide in rail transport, including the manufacture of metro trains.

I left Alstom to last because it was in regard to Alstom that OLAF got in touch with Péter Medgyessy, who received €600,000 in 2007-2008 from Alstom for two years of consulting. This payment occurred after Alstom had won the tender with apparently the worst offer. Medgyessy naturally claims that his consulting firm had nothing to do with the Alstom case, adding that it is a well-known fact that his relationship with Prime Minister Ferenc Gyurcsány and the liberal SZDSZ leadership of the City of Budapest was strained. What his relationship with Gyurcsány had to do with BKV deciding to purchase overpriced Alstom cars is beyond me. I have no idea whether in a court of law Medgyessy would be found innocent or not, but in ethical terms his behavior was highly suspect.

Siemens, the German company which was in charge of electrical works, received 31.7 billion forints (€102,303,730) for the job. Since OLAF claims that Siemens most likely received inside information during the bidding process, the European Union wants the Hungarian government to pay back the whole amount. The same is true of Alstom’s 22.9 billion forint (€73,892,769) tender. BAMCO also won the tender in an irregular manner, and therefore the European Union demands the return of 8 billion forints (€25,817,360). The EU also demands 7.6 billion forints (€24,523,364) from Swietelsky, which was responsible for the interior of the metro stations. Strabag-Hídépítő, in charge of structural work on the station at Baross Square, received 3.7 billion forints for its work but because of procurement irregularities 2.5 billion forints (€8,067,751) should be returned.

Another politician who, although not mentioned by name, was most likely involved in the metro case is László Puch, former financial director of MSZP, whose company Media Magnet Kft. just purchased the ailing Népszava and Vasárnapi Hírek. Media Magnet, according to the OLAF report, received 331 million forints (€1,068,110) from Siemens for advertising. The report notes that “this company was in charge of the campaign of the political party which was in a decision-making position in the case of Metro 4.” In 2010 Index reported that BKV ordered all sorts of superfluous studies from Media Magnet on such things as, for example, the state of the cable television market. There is a strong suspicion that some of this money ended up in MSZP’s coffers.

The biggest culprits will most likely be found among the representatives of the named companies and those BKV officials who were in contact with them. There’s no question that the guilty parties should be punished, but judging from the outcomes of earlier corruption cases I have my doubts that we will ever hear about all the dirt that OLAF unearthed. I’m also pretty sure that Fidesz will try its darndest to drag high-level politicians into the morass around BKV.

I see that Gábor Demszky will be represented by György Magyar, one of the “star lawyers” in the country. On February 3 Magyar announced on ATV that Demszky had signed only three contracts during the many years of construction. One was the contract between the city and the government in which the parties agreed that 79% of the construction cost would be borne by the government and the rest by the City of Budapest. The second contract dealt with a loan the City had to obtain for the project. The third was the contract that gave full authority to BKV for the implementation of the project.

Fidesz naturally wants to have a parliamentary investigation into the case, which will lead to further accusations on both sides. If Hungary had a decent prosecutor’s office and an independent chief prosecutor, it should undertake a speedy, thorough, unbiased investigation of the case. Unfortunately, this is the last thing we can hope for under the present circumstances.

February 6, 2017

Merkel-Orbán conversations: Serious differences of opinion

Yesterday, right after Angela Merkel’s plane left the runway at the Budapest Airport, I jotted down my first impressions. It was a busy day for the German chancellor, so I had to be very selective in my post. I concentrated on Merkel’s comments, largely because they were the most unexpected elements in the exchange. Moreover, I talked mostly about her reactions to Hungarian domestic issues and spent a great deal less time on the disagreements between the two leaders over foreign affairs.

Let’s start with their attitudes toward Putin’s Russia. According to Orbán, Ukraine is important for Hungary because it is a neighbor of Hungary, because there is a Hungarian minority across the border, and because the gas that Hungary needs badly travels through this country. Therefore, he said, Hungary “can stand only on the side of peace. We can imagine only a solution that will take us toward peace.” But let’s see what Merkel had to say. According to her, the Germans would also like to have a ceasefire and political stability in Ukraine that “can guarantee the territorial integrity of the country.” Something Orbán didn’t talk about. Merkel also gently reminded Orbán that Hungary is not the only country that is dependent on Russian gas, indicating that it is unacceptable for Hungary to have a different viewpoint on the question of Russian sanctions.

That last remark from Merkel prompted Orbán to open a discussion with his guest on Hungary’s unique position in this respect. Germany’s situation cannot be compared to that of Hungary; “one must take Hungary’s situation vis-à-vis Russia very seriously.” Hungary has to renew her long-term agreement on the price of gas for the next fifteen years, and therefore “it is difficult to fully support the Russian sanctions.”

Although yesterday I talked about their disagreements over the meaning of democracy, I said nothing about how the topic came up during the press conference. Orbán naturally did not bring it up; it was Merkel who announced that during her conversation with Orbán she “indicated that although the Hungarian government has a large majority, in a democracy the role of the opposition, the civil society, and the media is very important.” She added that later she will find time to have a conversation with the leaders of Hungarian civil society. From Orbán’s reaction it was clear that the Hungarian prime minister did not expect such direct involvement by Merkel in a matter he considers a domestic issue. It was after these points of disagreement that Merkel and Orbán had their rather sharp exchange on the nature of “illiberal democracy.” As the Frankfurter Rundschau pointed out, Merkel can at times be quite “undiplomatic,” as she was this time, and therefore “she annoyed Orbán.” You can see the prime minister’s annoyance and his determination to follow his own path on the picture below, taken during their debate on “illiberalism.”

Source: MTI / Photo Tibor Illyés

Source: MTI / Photo Tibor Illyés

Csaba Molnár,  the number two man in the Demokratikus Koalíció, thought that Orbán was cowed and “behaved like a scared little boy standing by his teacher’s side.” I disagree. I saw exactly the opposite: a combative Viktor Orbán who will not be swayed by any argument and who will continue to build his illiberal state. I’m afraid the same might be true when it comes to negotiations with Vladimir Putin. Even though he might sign on to further sanctions, he will try to make a deal with Putin regardless of EU disapproval. It is another matter whether Putin will swallow a big one and give preferential treatment to Orbán despite the meager returns he can expect from Budapest.

As even the right-wing media had to admit, the visit was not a great success, although it was designed to be a showcase of German-Hungarian friendship and a stamp of approval by the German chancellor of the Orbán regime. What does Fidesz do in such an awkward situation? After all, they cannot admit that Merkel and Orbán disagreed on almost everything, starting with Russia and ending with the nature of democracy. The simplest and the usual Fidesz response in such cases is to resort to outright lying. This is exactly what happened today.

Vs.hu is a relatively new internet news site that came out with the startling news that the real significance of the conversation was in the realm of new German investments in the Hungarian economy. András Kósa, a well-respected journalist who used to be on the staff of HVG, just joined Vs.hu. He was told by unnamed members of the government and local German businessmen that although on the surface there was visible friction between Merkel and Orbán, in fact “concrete important industrial agreements came into being on Monday.” Siemens will be involved in the construction of the Paks Nuclear Power Plant. In addition, Hungary will buy thirty helicopters from Airbus, not from the American Sikorsky or the Italian-British AgustaWestland. Kósa was told that “BMW is contemplating opening a factory in Hungary.” Only the exact location remains to be settled. And, on top of everything else, Mercedes will build a new factory to manufacture a new model.

Well, that was quite a scoop. The Hungarian media went crazy. Dozens and dozens of articles appeared within minutes, and every time the story was retold it became grander and grander. While the original article emphasized that all these favorable developments “might happen,” by the time the story got to Magyar Nemzet it became “Gigantic German investments are forthcoming as a result of the Merkel-Orbán meeting.” Válasz discovered that the real significance of the meeting was that new “gigantic German investments are coming to Hungary,” obviously all that taken care of during a short luncheon. Even such a reputable site as Portfolio.hu fell for the story.

The first word of warning came from a specialized internet site that deals with the car industry, Autopro.hu. It is possible that economic relations were discussed, but it is impossible that there could be negotiations between Merkel and Orbán regarding concrete projects, the author of the article remarked. This is not the first time that the possibility of a BMW factory is being heralded by the Hungarian media, but nothing ever came of it. Moreover, if there are such plans or decisions, they would not be discussed by Merkel and Orbán but by the top management of BMW and Hungarian economic experts. Autopro.hu didn’t manage to get in touch with BMW, but they were told by Mercedes that at the moment they have no intention of building another factory. Later the pro-government Napi Gazdaság  learned from BMW headquarters that “the BMW Group has no plans to build a factory in Hungary.” I don’t know whether the rest of the story, about Siemens and Airbus, is true or is also a figment of the imagination of certain government officials.

I consider Kósa a reliable and serious journalist who would not make up such a story. But why would government sources leak information about nonexistent projects? What do these so-called high government officials think when they concoct stories that are bound to be discovered to be false? Perhaps they think that the false news will spread like wildfire, as it did in this case, and that the correction will be reported by only very few media outlets. Therefore, it can be considered a successful communication stunt. Fidesz is good at that.