Hungarian Perspective of the World

For those that haven’t seen this wonderful little map – from the Hungarian perspective – it is something to contemplate over a beer this weekend. I have no idea of the original source, but it is pretty a good representation of the Hungarian perspective.

To add a little more perspective, drawing from István Bart’s great book ‘Hungary and the Hungarians’ 2007, the definition given for ‘The French’ is:

Franciák through the course of history, Hungarians have considered the French, whom they have only known from a distance, the idealized opposites of the all too familiar neighbors the Germans – i.e. Austrians -, whom they have known to be brawny-, aggressive and narrow-minded, while the French have appeared to be refined, light hearted, easy going, and generous of spirit….

[click for larger image]

Second Wave FDI Strategy in Energy hits SCEE

The energy and consumer resources of the SCEE region are now in play for global players. Traditionally dominated by European utilities which pushed into the region when countries began to privatize their electricity and gas distribution companies, the likes of E.ON, RWE, EDF etc… now a second wave of investment may be occurring.  It may be too soon to be calling it a full wave, but there is no doubt that constrained home markets and past expansion plans by a range of energy companies have hit a wall with the global economic meltdown resulting in new strategies being deployed.

Just as the first wave of privatizations altered the energy landscape in the SEE and CEE regions, the second wave represents strategic actions that will cement companies into the region for decades. First let’s run through the slew of stories that serve as the foundation of this proposed second wave, it looks like a grab from Cold War foes.

Today there is the setting up of the joint venture between Gazprom and the Hungarian Development Bank (MFB) called ‘éli Áramlat Magyarország’. It is the company that is meant to operate the South Stream Pipeline through Hungary.  However a decision will be made in 2011.  Although you would think that MOL would actually be involved in operating a pipeline through Hungary, it is already committed to South Stream.

The Russians are still in the headlines in the noisy affair in Croatia of whether they are or are not interested in taking over INA. They continue to deny it, and MOL continues to come under political pressure for ‘corruption’ allegations over how MOL gained control of the company from the Croatian state. Nonetheless, less file this under ‘interested FDI’. As it could be seen with the previous story that if South Stream doesn’t pass through Hungary then it would pass through Croatia, thus having to deal with the technical competence of INA-MOL. Either way, MOL and Hungary stay in the South Stream story – thus the current sour grapes between MOL and Russian Surgutneftegas may go by the wayside before 2011, when actual construction decisions on South Stream (and Nabucco – with US support) are made.

But waiting to put both these pipe dream pipeline plans into disarray is Exxon Mobil, with the aid of MOL, which continue to explore the Mako gas field in Hungary. With Mako possibly holding huge potential reserves – if it can be extracted. Two earlier tests wells have failed which may have helped to prompt Exxon Mobil to buy Texas-based XTO which has expertise in shale and tight-sands deposits.  Very useful expertise for the Hungarian tight-sands, and other countries’ deposits in the CEE region. This should mean if  gas is extractable, XTO will be able to bring the technical expertise to make it happen.

Lest we forget that we are at the beginning of a green revolution, US based Fagen Inc will be setting up a bioethanol plant in Hungary. With Hungary a top 10 global exporter of corn and wheat. Hungary may be well positioned to use its natural resources to its advantage. And this is the true story of the second wave of foreign investment into the region.

This partial list of FDI, coming out within the same week, does indicate change in how foreign companies are participating in the local energy markets.  There is much more activity on the production and resource provision side then on the consumer-services side of the business chain. This represents a maturing of the business market in the region. The privatization of distribution companies was ripe for the injection of private capital which governments lacked at the time and for managerial expertise. The newest round is focused more on investments of energy resources that feed into the consumer side of the business. The result will be a new supply sources that will compliment existing sources. From a security of supply view, diversification of sources is a good thing. But part of any evaluation of security of supply are political and geopolitical elements.

The competing/complimantary projects  (depending who you talk to) of Nabucco and South Stream no doubt must be assessed from a geopolitical point of view. But I think that is for another posting. What is important is that the investments by these companies represent a long-term regional investment. The necessary skill sets will be fostered with local talent and infrastructure improved. This is a good start to what will become a larger wave of investments set to transform the infrastructure for energy production to low and zero carbon energy sources. Gas and ethanol are key in the near and mid-term transition process. Expertise and the development of infrastructure in these businesses will lead the transformation necessary to reduce the regional carbon footprint.

Update: to underscore this second wave of investments, and into renewables there is now this story:

The European Bank for Reconstruction and Development (EBRD) has decided to invest up to EUR 125 million to take a 25% stake in the Hungarian and Polish subsidiaries of Iberdrola Renovables. link

Hungarian ‘national security’ requires MOL toilets

Once again Hungary makes a farce out of its tendering procedures. On the same day that the Budapest Municipal Court ruled that the tender for two commercial radio frequencies was illegal Hungarian politicians called for the examination of the results of a gas tender. The crime: a Hungarian gas company lost. In both cases the foreign company offered better conditions than Hungarian companies.

On December 30, 2009 it was announced that OMV had won a tender to provide fuel to government bodies. This would mean that state owned vehicles would be gassed up at the winning bidder’s petrol stations. OMV was able to underbid MOL by 2-3 ft per litre with an overall saving for the state budget at 100- 150 million Forints a year. The tender’s weighting was 70% price, 20% number of stations and 10% location. There you have it, an open tendering procedure with clear criteria and clear savings to the tax payers.

The problem arises from the fact that OMV is NOT Hungarian, but rather part of the evil empire in Austria. You would have thought Lajos Kossuth himself came back from the grave to stop this insanity of governmental cooperation with an Austrian entity. To add insult to injury there is the history of OMV previous attempt to take over MOL and which is now solely responsible for MOL’s current spat with Surgutneftegas after selling it’s shares to the Russian company. This dispute is not new to Hungary, just typical of it forcing its taxpayers to pay more for their energy then necessary.

Now that the tendering procedure is over, and the benefits to the taxpayer and the concept of EU cross-border commerce have prevailed, Parliament’s National Defence and Law Enforcement Committee will hold hearings on the travesty caused by this tender. Apparently, since OMV does not have ‘national security protection status’ then the Republican Regiment, police, fire fighters and ambulance workers will continue to use MOL’s service stations.

I don’t want to rally against MOL, as they also have clean bathrooms, but it is clear that once again the Fidesz politicians that are calling this ad hoc meeting are opposed to a foreign company winning in a government controlled tender. I really can’t take the view that in this case it is an issue of ‘national security.’ MOL will be able to survive and profit regardless if it wins this tender, and OMV probably won’t be making much money off the gas itself, since margins are so thin. Rather, the profit will probably come from selling candy bars and coffee to the police and fire fighters. Also at the end of the day, a savings of 150 million Forints for the government budget won’t do much to dent Hungary’s debt. It will however, cover for some of the lost revenue generated by not renewing the radio frequency tender to the original foreign owners.

Public tenders are done to foster a transparent playing field for companies where the best price and services are gotten for a lower cost than through backroom deals. The fact that OMV won this tender is no doubt a big coup for them, however more than the savings that it produces it should demonstrate Hungary’s commitment to regional commerce. In the era of open EU borders, a company with a long established presence in Hungary, like OMV, should be seen as a benefit to fair business practices, not a threat to national security. It is beyond belief that somehow OMV would withhold petrol to Hungarian ambulances or its police force. If some Fidesz politicians are believers in buying local –at any cost, then let them use MOL’s toilets. But let’s allow the taxpayers to save some money by peeing on Austrian property – even Kossuth himself would be tempted by that.

Once again Hungary makes a farce out of its tendering procedures. On the same day that the Budapest Municipal Court ruled that the tender for two commercial radio frequencies was illegal Hungarian politicians called for the examination of gas tender that didn’t favour a Hungarian gas company. In both cases the foreign company offered better conditions than Hungarian companies.

On December 30, 2009 it was announced that OMV had won a tender to provide fuel to government bodies. This would mean that state owned vehicles would be gassed up at the winning bidder’s petrol stations. OMV was able to underbid MOL by 2-3 ft per litre with an overall saving for the state budget at 100- 150 million Forints a year. The tender’s weighting was 70% price, 20% number of stations and 10% location. There you have it, an open tendering procedure with clear criteria and clear savings to the tax payers.

The problem arises from the fact that OMV is NOT Hungarian, but rather part of the evil empire in Austria. You would have thought Lajos Kossuth himself came back from the grave to stop this insanity of governmental cooperation with an Austrian entity. To add insult to injury there is the history of OMV previous attempt to take over MOL and which is now solely responsible for MOL’s current spat with Surgutneftegas after selling it’s shares to the Russian company.

Now that the tendering procedure is over, and the benefits to the taxpayer and the concept of EU cross-border commerce have prevailed, Parliament’s National Defence and Law Enforcement Committee will hold hearings on the travesty caused by this tender. Apparently, since OMV does not have ‘national security protection status’ then the Republican Regiment, police, fire fighters and ambulance workers will continue to use MOL’s service stations.

I don’t want to rally against MOL, as they also have clean bathrooms, but it is clear that once again the Fidesz politicians that are calling this ad hoc meeting are opposed to a foreign company winning in a government controlled tender. I really can’t take the view that in this case it is an issue of ‘national security.’ MOL will be able to survive and profit regardless if it wins this tender, and OMV probably won’t be making much money off the gas itself, since margins are so thin. Rather, the profit will probably come from selling candy bars and coffee to the police and fire fighters. Also at the end of the day, a savings of 150 million Forints for the government budget won’t do much to dent Hungary’s debt. It will however, cover for some of the lost revenue generated by not renewing the radio frequency tender to the original foreign owners.

Public tenders are done to foster a transparent playing field for companies where the best price and services are gotten for a lower cost than through backroom deals. The fact that OMV won this tender is no doubt a big coup for them, however more than the savings that it produces it should demonstrate Hungary’s commitment to regional commerce. In the era of open EU borders, a company with a long established presence in Hungary, like OMV, should be seen as a benefit to fair business practices, not a threat to national security. It is beyond belief that somehow OMV would withhold petrol to Hungarian ambulances or its police force. If some Fidesz politicians are believers in buying local –at any cost, then let them use MOL’s toilets. But let’s allow the taxpayers to save some money by pissing on Austrian property – even Kossuth himself would be tempted by that.

News: Reuters analysis of Russia-Belarus dispute

SNAP ANALYSIS-Russia’s oil spat with Belarus via Thomson Reuters

By Chris Baldwin

LONDON, Jan 4 (Reuters) – Russia said on Monday it had resumed oil supplies to refineries in neighbouring Belarus after a brief rupture, but tensions were still simmering.

The following outlines some of the issues at stake. [more…]

Follow link for comments from Michael LaBelle of the Energyscee.com

Watching the Russian & Ukrainian energy dispute with eggnog

The cold Christmas and New Years holiday meant the oil dispute between Russia and the Ukraine was subdued with spicy eggnog.  This year the dispute was not over gas but oil.  Probably the best preparation for this non-crisis was in the form of sitting by the fire and letting it play out.  For both Russia and the Ukraine to repeat their dispute from a year ago would have been akin to shooting their other foot (the first foot being shot last year).

The assurance of security of energy supplies from Russia to Europe, since last years gas dispute, has become an important consideration in EU energy policy.  While there has not been a significant change in energy policy, the awareness exists that further disruption could lead to concrete action from the EU. This would be good news for those in Central Eastern European states who have been trying to make their case that Russia is an unreliable energy partner. The cautiously neutral position of Brussels would have shifted to see Russia (and the Ukraine) as unreliable suppliers. The result would be a greater emphasis on shifting to alternative energy routes and supplies.

For this post-non-crisis discussion the reasons for the initial dispute then must be understood. Is it, as suggested, a political ploy for boosting Ukrainian President Viktor Yushchenko’s reelection bid or was it an actual ‘commercial’ disagreement? The aftermath of the 2009 gas crisis, shows the purely ‘commercial’ dispute between the two countries involved a significant amount of political posturing. Prime Minister Putin came out with his usual verbal assault, “We are ready to deliver, we have a contract, but if any of the transit countries abuse, what can you do?” While the main political contenders in the January 17th presidential elections Prime Minister Yulia Tymoshenko and President Viktor Yushchenko sought to play it up, but as it turns out, resolve the ‘crisis’ right at the deadline with a 30% boost for the Ukraine’s transit fees. Thereby lending a concession for Yushchenko, who can demonstrate his ability to negotiate with Russia.

While the curtain drops on the act, I have to applaud the gamesmanship in creating a non-crisis, or rather elevating a regular serious discussion over commercial activity into the political arena for domestic consumption. In the last few days, we can also see again the replay of the 2009 gas crisis, with the cutting of oil shipments to Belarus. With significant stocks held by Belarus, the question must be raised whether it is a commercial dispute or political dispute. Either way the best approach for Europe may be to sit tight with the eggnog in hand, plans at the ready and action to be taken once an actual security of supply threat materializes. Let’s just hope there is enough eggnog to last.