Another corruption case and the news of the day

Yesterday I promised to write about another scandalous affair, this time involving a close friend and business partner of Viktor Orbán, István Garancsi. This morning after I read a number of articles on the subject I almost gave up on the idea. The case is so complicated–surely for good reason–that it takes some doing to figure out exactly what happened. Here is what I managed to put together. I’m waiting for more input from readers.

Shortly after Viktor Orbán won the election, companies dealing with distance heating wanted to raise their prices, a move that would not have been popular and something the new government wanted to avoid. So the government instructed the state-owned MVMP Partner Energiakereskedelmi Zrt. to supply gas to these providers from its reserves at a lower rate. In return, the government made sure that MVMP would receive cheaper western gas by way of compensation. In fact, the government bought a great deal more gas than was necessary to replenish the reserves. The extra, which was in fact the bulk of the purchases, was sold by MVMP to a company called MET. It then sold the inexpensive gas at a handsome profit.

MET has its headquarters in Switzerland, but some of its subsidiaries are in Cyprus, the British Virgin Islands, and the Cayman Islands. Behind its complex business structure are two Hungarians:  György Nagy and István Garancsai.  György Nagy was the founder of Wallis Rt., an investment company, whose CEO between 2000 and 2006 was Gordon Bajnai. Subsequent to Wallis Nagy was involved in several successful business ventures. István Garancsai is the owner of Viktor Orbán’s favorite soccer team, Videoton. He also owns a small credit union, Duna Takarék, which miraculously was not nationalized when all others were. It turned out that it was Duna Takarék that gave a loan of 600 million forints to Viktor Orbán’s soccer foundation in Felcsút.

These offshore companies got inexpensive gas thanks to the largesse of the Hungarian government. They then sold it at the going market price in Hungary. According to estimates, their profit was 50 billion forints in 2012 alone.

Those of you who are interested in the extremely complicated details should read the two articles published by atlatszo.hu on January 28 and February 3.

Just a taste of the complexity of the businesses involved / Source: atlatszo.hu

And now let’s move on to some important news of the day. Early in the morning it became known that although the Hungarian government claimed that the European Commission supported its agreement with Russia concerning Paks, the claim is not true. Of course, that doesn’t surprise me because members of the Orbán government are not known for their truthfulness. On Monday, for example, Viktor Orbán delivered a twenty-five-minute speech in parliament in which there was not one truthful statement about the real state of affairs. At any event, when the government initially made its claim that the EU was on board with the Paks deal,  HVG was skeptical and inquired from the commissioner for energy about the case. The reporter was told that the commissioner hadn’t received detailed information and that they were waiting until they had it in hand. Today came the news that the European Commission will investigate the case very soon.

And in a blow to the Hungarian government’s tax policy, the European Court of Justice ruled that

Articles 49 TFEU and 54 TFEU must be interpreted as precluding legislation of a Member State relating to tax on the turnover of store retail trade which obliges taxable legal persons constituting, within a group, ‘linked undertakings’ within the meaning of that legislation, to aggregate their turnover for the purpose of the application of a steeply progressive rate, and then to divide the resulting amount of tax among them in proportion to their actual turnover, if – and it is for the referring court to determine whether this is the case – the taxable persons covered by the highest band of the special tax are ‘linked’, in the majority of cases, to companies which have their registered office in another Member State.

To translate this convoluted sentence into plain English, the extra tax that foreign-based retail chains had to pay since 2011 is discriminatory. The judges instructed the Hungarian courts to make a ruling in accordance with EU laws in those cases where foreign companies suffered financial discrimination. Apparently the contested tax revenues amounted to about 90 billion forints. According to legal experts, it is likely that the Hungarian government will end up paying a great deal more compensation to these companies.

As for a resolution on the fate of the “Gabriel” monument, the suspense remains. Tomorrow János Lázár will have a meeting with various Jewish organizations. A leak published by Népszabadság claimed that the erection of the monument has been “postponed,” a statement that was promptly denied by Antal Rogán. Meanwhile one Jewish organization after the other is returning the money received from the government for the events of the Holocaust Memorial Year. In brief, it is a mess. But Viktor Orbán doesn’t like to admit defeat, and therefore there is a good possibility that he will go ahead with the project. Let’s hope that he realizes the gravity of such a decision given the general climate both within and outside Hungary.