Tag Archives: Suez Environment

The City of Pécs, which served as Fidesz’s laboratory, is close to bankruptcy

In preparation for today’s post on the chaotic situation in my hometown of Pécs, I read two pieces I had written in October 2009, shortly after, as the result of a by-election, Fidesz candidate Zsolt Páva became mayor of the city. The first article was titled “Watch Pécs: It will tell a lot about Fidesz plans for Hungary.” Rereading this article eight years later is an eerie experience because indeed Fidesz was using Pécs as a laboratory for its own plans for the country. All the tricks it later employed, including the national consultations, were first introduced in Pécs.

Originally Páva, in true populist fashion, wanted to take the oath of office on the main square, right in front of City Hall, but MSZP and SZDSZ members of the city council, who were in the majority, refused to endorse the plan, considering it “blatant demagoguery.” Eventually, Páva took the official oath inside the building but repeated the performance in public.

Soon enough one “referendum” followed the next, which were the forerunners of the Orbán government’s national consultations. Páva spent a sizable amount of money on these referendums, in which his administration inquired about matters to which the answer could only be “yes.” Doesn’t it sound familiar? Páva also sacked all city employees who had anything to do with the previous administration. In no time he managed to change the composition of the city council by convincing a couple of members to switch parties; thus Fidesz achieved a slight majority in the council. Every company owned by the municipality was audited at a considerable cost because, Páva claimed, the audit would save the city 500 million forints. This was, as it turned out later, simply not true.

His next move was the forcible takeover of the water company in which the minority shareholder was Suez, a well-known French company. Páva ordered security men to occupy the headquarters of the firm at 3:30 in the morning. When the employees arrived for work, the guards prevented people belonging to the upper and middle management of the company from entering. A few days later a new city-owned water company was formed with a capital base of five million forints. (No, that’s not a typo.) The new company promised to pay the salaries of Suez’s 360 employees from their “riches” of five million. Suez was stunned and called the occupation of its headquarters “forcible entry.” Naturally Suez brought legal proceedings against the city. The law suit dragged on for years. Pécs was finally assessed 3 billion forints for its share in the water company, which the city of Pécs was unable to come up with. The bill was paid by the central government.

Something very similar happened in 2016 when the city of Pécs acted as an intermediary, hoping to pass the Zsolnay Porcelán Manufaktura on to a Fidesz oligarch. The factory was owned by a Syrian-Hungarian-Swiss businessman who had bought 74.5% of the shares from the city and promised to sink 500 million forints into the enterprise. The methods were roughly the same as in the Suez case. First Páva and the businessmen behind him established a new company by enticing the majority of the approximately 150 workers to abandon Zsolnay in favor of the new city-owned company. The aim was a forcible takeover of private property. I don’t want to go into the complicated machinations, but a certain businessman with close ties to the Orbán family suddenly had a burning desire to own Zsolnay because of the large restoration projects in the Castle District and elsewhere in Budapest. The roofs of many of these buildings, which had been erected in the last years of the nineteenth century, were covered with pyrogranite tiles made by the Pécs factory. In the end, the city failed because the Syrian businessman wasn’t easily intimidated and had enough money to clear all of his debt to the Hungarian Eximbank, which had been complicit in turning him out of his property. The financial loss to the city as a result of its new “business venture,” which never got off the ground, was again considerable.

By now, apparently, the City of Pécs is close to bankruptcy. For some time, there has been talk about Páva’s possible departure from the mayoralty. About three weeks ago a press conference was scheduled to take place where the mayor was supposed to announce the establishment of the Magnus Aircraft factory in Pécs. This is a huge event for the city, whose economy is in the worst shape among all larger Hungarian cities. Since 2009 the city has lost 13,000 inhabitants, unemployment is high, and investors don’t find the city, far away from Budapest and hard to reach from the West, attractive. Yes, it is a charming city with a rich history, but aside from the university with its 20,000 students it has little to offer economically. The nearby coal and uranium mines have closed and nothing came to replace them.

Együtt: City of Pécs close to bankruptcy. When will Zsolt Páva resign?

So, the intention of Magnus Aircraft to set up a factory is big news. I must admit that I had never heard of this company, which developed the e-Fusion, the first all-electric, aerobatic trainer aircraft. It is a Hungarian company from Kecskemét which describes itself as a multinational group. It has a business arrangement with Siemens, which provides the batteries. What will come of this new technology no one knows, but Pécs is very excited.

The long-awaited press conference was held, sans Mayor Zsolt Páva. Instead, two Fidesz members of parliament representing the district, Péter Csizi and Péter Hoppál, made the announcement. Páva’s absence indicated to those journalists who, after being booted out of the local Dunántúli Napló when it was bought by Lőrinc Mészáros, founded an internet news site called Szabad Pécs (Free Pécs), that Páva’s position must be shaky. And soon enough came the news on the city’s official internet site that “a new policy making body will lead Pécs” from here on. The decision was allegedly reached by the Fidesz-KDNP members of the city council. The mayor, the deputy mayors, and the two Fidesz MPs will comprise this new group, but its chairman will not be Páva but Péter Csizi. So, as Magyar Nemzet rightly points out, the city will be run by a committee no one elected. Not exactly a democratic solution to a problem.

It is highly unlikely that the decision to establish such a body was made by the Fidesz-KDNP members of the city council. I wouldn’t be at all surprised if the decision came from Viktor Orbán himself. Removing Páva at this juncture is out of the question because holding by-elections now would be a suicidal move. According to my calculations, if LMP hadn’t decided to run alone in 2014, Pécs wouldn’t have two Fidesz members of parliament today. In local elections Fidesz cannot rely on foreign votes, and the locals are pretty unhappy with the Fidesz leadership. The last thing Orbán wants is an electoral loss in a major Hungarian city.

According to rumor, Pécs, during the tenure of Zsolt Páva, has accumulated 24 billion forints in debt. The city is close to bankruptcy despite the fact that Pécs did not have to pay the 3 billion forints to Suez by way of compensation. As far as I know, the owner of Zsolnay Manufactura is also suing the city.

The Fidesz laboratory set up in 2009 has failed miserably. Páva did everything that was demanded of him and yet, or perhaps because of it, he drove his city into bankruptcy. Is it possible that once Orbán’s rule is over the country will be in a similar situation despite the regime’s bragging about its fantastic successes? Not at all unimaginable.

Tomorrow Pécs will have a distinguished visitor, the prime minister himself. He is allegedly attending the 650th anniversary celebration of the university’s founding. Well, kind of. It is true that the first and only Hungarian medieval university was established in Pécs in 1367, but it most likely survived for less than fifty years. The real founding of today’s university was in 1921 when the University of Pozsony (today Bratislava) moved to Pécs. But more about that sometime in the future.

August 31, 2017

Nationalization Hungarian style

It is hard not to notice that the Orbán government is very fond of state ownership, especially in business sectors that they deem of “vital interest to the nation.” The first major venture of the Hungarian government was the purchase of a 21.1% share in MOL. It was a fantastic deal for the Russian company that owned these shares and a truly rotten one for the Hungarian government. As we discussed at the time, the Orbán government overpaid: 22,400 forints per share. Today the price is 16,350.

The next move was to buy out Rába Automotive Holding, whose stock is languishing on the Budapest Stock Exchange. This was followed shortly thereafter by the purchase of the German E-ON storage facilities. Again the price was too high according to people in the know.

So, one can ask,what is the Orbán government after? When we hear about the nationalization of private property, we tend to think of the kind that took place in 1948-49 when one day the store owner arrived to open up his small store only to be barred from entering. Surely, this kind of nationalization is out of the question today. If the state wants to have a greater share in the economy, it has to find more subtle ways of achieving its desired end.

Policy Agenda, an economic and political think-tank, estimates that up to date the Orbán government has spent more than three trillion Hungarian forints on purchasing or acquiring in one way or the other hitherto privately owned businesses. In most cases, at least outside of the energy sector, the state doesn’t actually want to own these companies. Rather, it wants to change the ownership structure of a particular business sector. In plain language, to take away from some in order to give to others.

Reaching hands / tmblr.com

Reaching hands / tmblr.com

One method is direct interference in the ownership of entire business sectors. The government is able by legal means to force current business owners to give up their businesses and sell them to others. The transfer in such cases is direct; the state is not an intermediary.

A good example of this type of state interference is the pharmacies. Soon after the Orbán government came into power the decision was reached that by a certain date all pharmacies must be owned by a practicing pharmacist working on the premises. Now it seems that relatively few employees want to buy their boss’s pharmacy although the government is offering loans. So for the time being the state will have to step in and assume “temporary” ownership.

Another example of direct transfer of ownership is the heavily criticized land lease program by which state-owned lands are distributed to people close to Fidesz and their relatives. By legal means the government can also achieve a transfer of ownership in the banking sector by demanding a minimum 50% Hungarian stake in all banks in the country.

A second method of ownership transfer is for the state to make a certain segment of the economy a monopoly. Cases in point: the monopolization of tobacco products or, earlier, of  slot machines. Here the state not only interferes with private property ownership but shuts down all activities connected to a market segment. The same thing happened to the so-called Elizabeth lunch vouchers, the issuance of which became a state monopoly. It’s no wonder that the European Commission objects to the practice.

A third method used by the Orbán government to achieve a change of ownership is price fixing. No one doubts that a government has the right to adjust tax laws, but when it also decides the final price of the product the owners of the enterprise might be forced to sell because of financial pressures. The much lauded mandatory lowering of utility prices is a good example of this method.

A fourth method of ownership transfer occurs when the central government takes over the responsibilities of the municipalities and consequently their business activities. This is what happened in the case of schools and hospitals. The municipalities now own the buildings and therefore are responsible for their maintenance but the activities within these buildings are supervised by the central government.

I doubt that we’ve seen the end of the state’s expansion into the domestic economy. If tobacco products could be made a monopoly why not have national liquor stores? I’m also certain that casinos are on the list. Perhaps the transfer of Margaret Island from District XIII to the City of Budapest is the first step in building a state casino on the island.

A final note on the French Suez  Environment  Co. that was part owner of Pécs’s water company. You may recall that shortly after Zsolt Páva, the new Fidesz mayor, took office in 2009 security officers in the dead of night locked out the employees of Suez and the city forcibly took over the company. The head of the company couldn’t even enter the building. Suez naturally sued. It was only a few days ago that Páva proudly announced that they settled with Suez for 7.5 billion forints instead of the 10 billion (34  million euros) originally demanded by Suez. The central government will take over part of the obligation.  Meanwhile the price of water has gone up substantially and local MSZP officials claim that investors cannot be convinced to come to Pécs. They all remember the fate of Suez. Currently unemployment in the city is 13%, well above the national average.

Who ever said that governments were great entrepreneurs?