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.