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Brussels is looking to get a grip on the motorway concession contracts in Hungary – again applying double standards. Presumably, they resent the fact that it is not an international company, like Strabag or Colas, that is building the Hungarian road network. The two giants mentioned above hold one of the most disproportionate concession contracts in the history of the Hungarian state, writes Origo.
The previously concluded contracts for the M5 and M6 motorways deviated significantly from good international practice on the basis of several aspects of the investigation, resulting in significant damage to the interests of the Hungarian state. These can be identified from a comparative analysis carried out in May 2022.
The aim of the study carried out by the Supervisory Authority for Regulated Activities of Hungary was to evaluate the concession contracts concluded by the Hungarian state for the M5 and M6 motorways in 1994, and between 2006 and 2008, in terms of how the interests of the state as concessionaire are being served.
In the years 2008-2012, it cost the state more than HUF 100 billion (EUR 261 million) to pay the availability fee for the M5 and M6 motorways than the revenue it generated from tolls on all motorways, despite the fact that the combined length of the M5 and M6 motorways is only six percent of the country’s current total toll road network. This could be due to the disadvantageous financial models of the contracts.
M5 motorway. Photo via Wikipedia
The concession company operating the M5 motorway will have a significant free cash flow of around HUF 160 billion (EUR 416 million) due to the fact that the most significant element of the availability fee in the concession contract is for debt service on the loan taken. In addition, the fact that the availability fee to be paid by the state to concessionaires until the end of the concession period will be in euros is expected to result in a total additional cost of more than HUF 880 billion (EUR 2.3 billion).
Due to the favorable change in corporate tax rates (the corporate tax rate of 9%, reduced in 2017, and currently one of the most favorable in Europe), concession companies, typically with foreign backgrounds, realize an extra profit of around HUF 23.5 billion (EUR 61 million) by the end of the contract period,
while the Hungarian state as the concessionaire does not benefit in any way from the favorable change in the tax environment,
the study found.
M6 motorway. Photo via Wikipedia
The result is that
the concessionaires are expected to collect some HUF 225 billion (EUR 587 million) more in dividends by the end of the contracts than was foreseen at the time the contracts were signed.
Brussels’ attitude is incomprehensible, if only because the numerous international examples it has adopted confirm that concessions are the right economic instrument to promote economic development and the efficient implementation of investments in a responsible partnership between the public and private sectors, with due regard for the responsible management of public funds, the provision of high quality services, the reduction of public risks, and the implementation of investments and developments of national economic and strategic importance within a short timeframe, without increasing public debt.
Via Origo, Featured image via Facebook/Magyar Építők