Is Orban riding with Putin?

I actually had a mouthful of apple juice when I read the following. “You will be surprised; the Russians will help Hungary,” Hungrian PM ‘heir designate’ Viktor Orban told MTV on November 25th. This is after his return from Russia where he met Prime Minister Putin.

I managed to not spit out the juice all over my computer, but where’s Orban’s new found love of Russia coming from? Or is he just jealous that Gyurcsány was invited to a private dinner with Putin on Tuesday night? Seriously, I assume that isn’t the case, but Orban also positively mentioned Russian assistance in building and refurbishing Paks nuclear power plant. While it is true Hungary is heavily reliant on Russia for its energy supply (gas supply and nuclear technology) the question becomes why this discovery of Russia as a long lost love? (Why he’s on Putin’s scooter?) Or should we just assume it is diplomatic niceties? Does Orban figure he has more to gain by just being nice to the neighborhood boss? Either way we won’t have that long to wait, the elections are expected in the spring.

Hungary fell behind Slovakia, now Bulgaria? Country gets ‘Smack Down’

smackdownThe economic rise of Slovakia, surpassing Hungary with better salaries and the adoption of the Euro, was embarrassing for Hungary.  After the fall of Communism the more advanced economic system in Hungary combined with rapid (and successful) privatization of key industries should have meant Hungary would continue to lead economically and politically. With the current path Hungary has chosen, it would seem that Bulgaria will soon surpass Hungary for less corruption, a better investment climate and a more sane political environment. Hungary will then have to try hard to maintain its lead over the non-EU Balkan countries.

This week I was at the Energy Forum, attending by a range of government representatives, energy companies and various energy institutes. I attended a forum with Janos Koka, former Economics Minister and now Parliamentary leader dealing with Nabucco, and I was able to ask him the question of whether these recent events against investors in Hungary were an indication of things to come in the future Fidesz government (Orban didn’t take any questions at this event). His response was very kind and I think represented him wanting to preserve Hungary as a stable country for investment rather than making political points.  He said during the time that Fidesz served from 1998 to 2002 they did not take action against investors, so he wouldn’t expect them to punish investors if they came to power. Rather, the noise (and some action) that is being made is for their voters, rather than an actual policy of investor punishment.

Koka’s words, if true, could continue Hungary’s path of economic development. However, maybe this current anti-investor era is representative of a more systemic problem that must be resolved first. That is maybe it is the very traits that made a ‘free market’ system work within the confines of a Socialist economy that has seen Hungary continue to fall behind regional peers. Evasion of authorities, corruption and the lack of political cooperation in the center have all meant the people of Hungary have been ill served by their leaders. Everyone, including the people, whether due to economic survival or greed, have sought to serve themselves. The result is corruption and economic takings that fail to serve the common good of the country thereby denying the advancement of the common and individual good.

The fact that 2 out of 3 Hungarians believe the transition to democracy is a failure only underscores the failed chances to create substantial reforms and improvements in the country. Now even Hungary’s friends and the companies that did believe in Hungary are worried about maintaining the limited improvements the country has made. Following my lead, the embassies of the US, Belgium, France, Netherlands, Japan, UK, Germany, Norway and Switzerland have issued a joint statement on transparency in Hungary.

It is therefore with great concern that we hear of significant new instances of non-transparent behaviour affecting investors in such areas as public utilities, broadcasting, and elements of the nation’s transport infrastructure. These reports could hinder the investment for which Hungary, like every other country, is competing.

This statement is called a ‘smack down’. That is, ‘Hungary you better wake up and cut out your petty stealing because if you don’t nobody is going to do business with your ass’, or as the diplomats said, “foreign investors will make their own decisions about where they will commit their resources.” And as you can see, over in Bulgaria the new Borisov government is doing pretty well at cleaning the country up. Fidesz can say they will be prosecuting the Socialists when they come into power (like in Bulgaria), but if they are still taking from investors (e.g. Pecs, radio stations, utilities) then even Albania will be looking a better bet.

Emfesz’s CEO get’s Scooby-doo-ed.

If it wasn’t for those darn kids he would have gotten away with it. It is reported that CEO István Góczi of Emfesz was arrested by Hungarian authorities for embezzlement. According to this article it was Góczi who used the power of attorney to sell Emfesz to RosGas. But one can never know for certain in this murky game of Russian/Ukrainian/Hungarian gas.

It also wouldn’t be the first arrest in relation to Emfesz, if this report is to be believed,

In January 2008 [Semen] Mogilevich was arrested in Moscow on charges of aiding and abetting a tax evasion scheme, but many observers believed this was false and that his arrest was directly linked to a struggle between Firtash and Gazprom over the control of Emfesz. According to informed sources, prior to his arrest Mogilevich disclosed that Gazprom was determined to take over Emfesz and that he had played a role in this plot.

What is clear is that Dmitry Firtash lost (temporarily?) a profitable Hungarian company from his holding company Group DF to RosGas, which is suspected of being tied to Gazprom, although the latter denies this.

Now the question comes up as to whether you dear reader believe in coincidences. The arrest occurred on November 11th, the day before MOL and Surgutneftgas appear in a Budapest court to go over their differences. MOL is resisting registering Surgutneftgas as a shareholder, as it is not approved by the Hungarian Energy Office.

Now, if the Hungarians wanted to send a message to the owners of Emfesz and Surgutneftgas then this would be a pretty strong message. From the arrest then this may be a signal to back off. But that is only if you believe in coincidence. Either way, just like those darn kids in Scooby Doo, it looks like the Hungarian authorities found some Scooby snacks and decided to take action against a specter.


Tightening Screws on Investors in Hungary

Contributing to investor unease in the current financial crisis in Hungary, Fidesz is now actively looking to really scare away foreign investors and is hinting at redoing past deals.  Not just in Pecs, where the Fidesz dominated city council is locked in a battle with Suez for control of the waterworks. Now in Budapest the candidate that has a big chance to win election for Mayor is publicly saying he wants to renegotiate with foreign investors. According to Hungary Around the Clock, “If Fidesz wins the local elections in Budapest, it will renegotiate agreements concluded with foreign-owned public utility companies, the party’s candidate István Tarlós told reporters on Tuesday as he outlined his platform.”

It seems to me that with the largest investors in the country being energy companies, and who actually serve as the backbone of the mismanaged Hungarian economy that punishing them by ‘renegotiating’ with them certain terms or even rates (which are set by the regulator) that this will only be bad for the rate payers.

Regardless of the long term impact on these companies, is it really smart to be making foreign investors into devils when your whole country’s economy is in a pit? It seems to me it is going to take the effort of everyone to bring Hungary out of this and not just the power of small and medium sized businesses. I think there are ample examples of government run utilities in the SEE and CEE region which lack sufficient investment to properly function. In the case of Macedonia the governments there have held on for a long time to the national generator only to have it ran into the ground with attempts to keep prices low and investment lacking. We can only imagine what Hungary would be like without foreign investors into its utilities. This isn’t to say I side with the foreigners all the time, but they have since their entrance, been able to work in a stable investment climate and I believe this has enable a higher rate of investment at a lower rate than what has been achieved in Romania or Bulgaria which have resisted longer private investment into the utilities.

Overall, I find it disturbing to see the positive impact that foreign investors have had on Hungry compared to other countries. To turn around after so much work has been done and threaten to take it away or make a government department manage the operations, places the financial footing of Hungary in greater jeopardy than now. The current condition of state run enterprises (MAV, BKV, etc.) lend little credibility about Hungarian state run management abilities, that is except for paying exorbitant salaries for corruptly managed businesses.

Can you imagine if electricity distribution was managed as well as MAV and BKV? Enough said.