As background for today’s post, I suggest taking a look at my earlier article on the Mátra Power Plant (MPP), titled “Orbán is buying a white elephant from his stróman Mészáros.” In it, I summarized the lignite-fueled power plant’s recent history, which began with its sale to the German RWE (Rheinisch-Westfälisches Elektrizitätswerk AG) in 1995. The power plant was profitable until 2018, after which the company began losing substantial amounts of money. It was at that point that Lőrinc Mészáros gained control of the power plant for only 5.9 billion forints (€17 million). The company needed an immediate infusion of an additional 20 million euros, which the Orbán government promptly provided. The emergency aid didn’t stop the bleeding of the company, but the almost five billion forint loss in 2018 didn’t deter Mészáros, who owned 73% of the power plant, from taking out 11.2 billion forints (€32.5 million) in “dividends.” After he made roughly double his initial investment, in November 2019 Mészáros sold the power plant to the state-owned MVM (Hungarian Electricity Works), which had been the minority owner of the plant. The plant, it was determined, would require further modernization if it wanted to continue using lignite. The alternative was to change over to natural gas and RDF (refuse-derived fuel). At that time, László Palkovics, minister of innovation and technology, estimated that the change might cost between 200 and 300 billion forints (€600-870 million).
The Orbán government initially refused to reveal the exact purchase price of what I called a white elephant. I argued that Orbán’s justification for building Paks II was that, once it was operative, Hungary would be able to export electricity to West European countries, which would not have enough energy because of their refusal to rely on nuclear energy. But if this is the case, why does Hungary need a new power plant at such a high cost?
I wasn’t the only one who was puzzled by the state’s purchase of MPP. A couple of weeks after the appearance of my article, Zoltán Jandó of G7, a blog dealing with economic questions, was seeking answers to the same question and found none that made any sense. Viktor Orbán’s own explanation for this enormous investment was the government’s concern over the loss of approximately 10,000 jobs as a result of the shuttering of the plant. First of all, MPP employs only about 2,000 workers, but even if we generously include enterprises that do business with the company, every job saved will cost the state 30 million forints. A rather expensive job-saving effort.
It was in March 2020 that Gergely Gulyás, head of the powerful prime minister’s office where the most important decisions are made, finally announced that the purchase price of MPP was 17.44 billion forints, or approximately 50.7 million euros. Economists and well-respected journalists specializing in economic matters, like Gergely Brückner of Index, considered the price exorbitantly high and, from the point of view of the taxpayers, inexplicable. It was pointed out that most likely MVM had no choice but to conclude the transaction, knowing full well that it was an unprofitable investment.
Not being satisfied with the information it received from the government, MSZP sued the government for all the documentation of the “adventurous legal maneuver” that, as it turned out, cost the taxpayers not 17.44 billion forints but 75.15 billion, or €218.33 million, which included a shareholder loan of almost 5 billion forints, a 26 billion forint capital raise, and an assumption of 26 billion forints of debt over and above the “purchase price” of 17.44 billion forints. And the documentation apparently is still not complete. For the missing information Bertalan Tóth, chairman of MSZP, is suing MVM.
Already in December 2019 it was suspected that something was amiss with this purchase. Bernadett Szél, an independent member of parliament, asked for an investigation into the deal for breach of trust because, as she said, it was the “purchase by the government of an unprofitable, financially plucked and bled-dry wreck of a power plant with significant environmental obligations at an unknown price from [Lőrinc] Mészáros.” It was surmised that the coffers of the company were empty because of the large amount of money Mészáros withdrew from the reserves that the German RWE had set aside for modernization.
Three days ago, László Szakács, deputy chairman of MSZP, gave an online press conference, announcing MSZP’s resolve to report the case to the European Commission because they consider the “purchase” of MPP by the government a form of state aid, which is illegal according to the Treaty. “State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities.” In a major loophole, however, the Treaty also states that there might be exceptions, when state aid is justified by reasons of general economic development. I suspect the Orbán government would argue that, without the extra energy MPP produces, Hungary’s energy supply would be in jeopardy.
There is no question in my mind, and again I’m not alone in this, that the purchase of MPP is, in effect, a government bailout of Mészáros and whoever is behind him. The government not only rescued a disastrous business venture but also contributed handsomely to his already enormous private fortune. No rational explanation can be mustered to defend the decision except the obvious one, which all thoughtful commentators suspect. Another major case of government corruption, a company too close to the prime minister to fail.