Just less than year before the elections, the Fidesz-led government is moving to introduce concession on Hungary’s motorway network for 35 years, pointing to state debt and a lack of funds. The plan, however, is criticized by many who fear that it is yet another step of the ruling parties selling off state assets to businessmen close to Fidesz in an attempt to secure Fidesz’s power. Meanwhile, the government has moved to classify the calculations and motifs behind the endeavor, driving Gergely Karácsony to turn to the European Commission for an infringement procedure to be launched against the Orbán government.
The plan was made public at the beginning of June, but in comparison to its size and significance, it has received little attention due to the EURO and the rolling debate on the LGBT+-restrictive features of the anti-pedophile law.
What it is about?
The Orbán government wants to place Hungary’s nearly 2,000 kilometer-long motorway network in a 35-year concession. The concession entails the planning, renovation, construction, control, operation, and financing of the network for an annual fee.
FactBesides meeting some serious professional reference requirements, winner(s) must meet tough financial conditions too: a tender guarantee of HUF 800 million (EUR 2.3 million) and a liquidity amounting to some EUR 1 billion are among the rules.
In the first ten years of the concession, the winner has to undertake major works too, such as expansions on the busy M1, M7 and M3 motorways, extension of the M3 out to the eastern border, the construction of the missing section of M81, and the construction of a totally new motorway that would connect M1 and M5 via Kecskemét and Székesfehérvár. In numbers: 272 km of new motorways to be built, expansions on 273 km and refurbishment on a further 538 km. Besides, of course, the usual maintenance works for the entire length of the concession and motorway network.
The winner would get some related infrastructure too, while Hungarian Public Roads Ltd (Magyar Közút Zrt), which has been in charge with these works so far, will continue doing maintenance duties on inferior roads.
The road network will, however, remain the Hungarian state’s property, while, according to the promises, tolls will not be increased either (only to the rate of inflation), nor will they be collected privately.
The government argues that the move is necessary, as Hungary will not be able to build motorways on its own or with EU loans. It explains that following EU negotiations, due to the lack of financial resources, Hungary cannot expect EU loans (neither RRF nor MMF loans) for the financing of highway operation services. With this concession, however, the development of the motorway network “can be achieved at a faster pace” while toll revenues will be sufficient to finance the concession fees, resulting in a budget neutral deal.
While the European Commission denied that there would be no funds available for road development, tenders must definitely meet serious (environment protection) conditions too. Answering to arguments that suggested the state to pay renovations out of its own pocket, the government points to the growing state debt and the rigorous ‘book-keeping’ limits of the EU, to come back after the pandemic. This way, however, development costs wouldn’t be borne by the state budget.
Cabinet Minister Antal Rogán also claimed that the availability fee the state pays would remain under the income coming in from the tolls, thus it wouldn’t generate any losses for taxpayers.
State waives supervision over an immense amount of money
Not much has been made public so far on actual numbers. According to HVG’s calculations, the state will pay some HUF 200 billion (EUR 568 million) of the availability fee for the future winner. This means that the winner could pocket some HUF 12,000 billion (EUR 34.1 billion) over 35 years (counting with an inflation rate of 3%), in the math done by the liberal, economic weekly.
On the other hand, annual revenues coming in from the motorways (in large part from the fees trucks are paying) amount to HUF 300-350 billion (EUR 852-994 million) a year nowadays. Operation of the technology amounts to some HUF 30 billion while Public Roads gets HUF 95.5 billion of subsidies for road maintenance. G7 thus calculates that roughly HUF 175 billion (HUF 497 million) remains in the state’s hands, available for potential developments. The economic investigative site thus suggests that motorways are highly profitable for the state, and perhaps fruitful enough to take in developments even without EU funds or concession. While the building of the new motorway currently amounts to some HUF 4-5 billion (EUR 11-14 million), renovation comes out to some HUF 1 billion (HUF 2.8 million) per kilometre.
Another point of criticism is the lack of tendering and accompanying risks, since the future winner of the concession will be able to distribute thousands of billions-worth of construction work either to themselves or to subcontractors without any public procurement and with the exclusion of the public.
The former head of the National Infrastructure Development Private Company (NIF Ltd – in charge of overseeing motorways and related projects), argues that the state has a well-established organization for highway operation, Hungarian Public Roads Ltd, which has the necessary background. In an interview with conservative, government-critical Válasz Online, Kálmán Reményik made it clear that he is highly critical of the outsourcing, and supposes that a future winner would still entrust the state company with the work, just adding on some further percentages. “So this is not a development, just a perpetual annuity for someone,” he says.
Motorway concessions also come on the heels of several other debated outsourcing moves. Following a re-privatization scheme done by Fidesz (just some examples: power plants, state oil company MOL stakes, several strategic companies), recently, it tends to turn to outsourcing. Namely, the outsourcing of the entirety of higher education and various state assets. On one hand only domestic figures get overseeing rights over these assets. But on the other hand, we can virtually only find people loyal to the government, government-linked bodies, and even politicians among the (future) holders of these assets, institutions etc.
So who can win the concession?
This is something yet to be seen, as of now, there are only speculations, pointing to both (domestic or foreign winner) directions. Even relevant ministers gave somewhat contradicting statements. While PMO Head Gulyás said conditions “overstep a potential Hungarian winner” Antal Rogán said “we can be happy if a Hungarian comes out as the winner.”
Well, some aspects of the conditions and the government’s previous moves indeed provide base for a Hungarian government-ally figure to come out as the winner. Such accounting will mostly be made in forint (HUF), meaning that the future concession-winner will have to undertake the exchange rate risk (again for as long as 35 years) too, something that in the case of a domestic winner shouldn’t be that much of a problem.
This is one of the aspects and recent tendencies of the Fidesz-led government which actually led most to think that a government ally businessman or their consortium could be the winner. Namely, fast-emerging, childhood friend of the Prime Minister, Lőrinc Mészáros and another construction mogul close to Fidesz circles: László Szíjj and his Duna Aszfalt company (similarly winner of countless state projects) are mentioned most frequently.
The bar of professional conditions is put rather high, but not impossibly high for Hungarians to jump over. Several engineer offices can prove, for example, the planning permission and engineering task-related requirements, similarly to the one that prescribes the building of some 100 km of roads. The condition of operation of some 300 km of roads, however, can only be fulfilled by state-owned Public Roads Ltd.
Financial conditions (at least EUR 400 million of income and at least EUR 150 million of equity in the last closed business year) could only be met by Duna Aszfalt (not even Lőrinc Mészáros’ relevant company or Strabag could apply alone).
According to G7’s conclusion, this means that Duna Aszfalt together with Public Roads Ltd and with some Hungarian engineering companies could potentially be fit for the job (this of course, doesn’t exclude other participants).
Huge international companies present in Hungary, such as Strabag or Colas, would definitely be able to go for the deal too. And just as it has been referred to previously, the PMO Head aired that strict and tough financial requirements ‘step over’ domestic applicants, something that could perhaps strengthen a foreign winner scenario, or that a foreign company would be at least part of the winner grouping.
China was also said to be potentially in on the concession, something that politically perhaps wouldn’t fall far from the current government, but the volatile and unpredictable nature of a business of this kind would question their prospects.
Shortness of the application time is also a matter debate. Anyhow, after a mere one month for handing in the initial offers (deadline is July 5), a longer negotiating phase would come. But according to Antal Rogán, the government wants to settle the business and finish the deal as early as until December, well before the next elections.
FactNot all of Hungary’s motorways are state-operated. At the moment, Strabag operates the M5 motorway and a section of the M6 motorway, with a combined length of 255 km.
Political criticism: “destruction,” “theft,” “high treason”
Political opposition to the plan has centered around the same fear as the one in connection with the outsourcing of higher education, arguing that Fidesz fears losing the election, therefore it sells off state assets to a businessman close to its circle in order to secure assets and power, even in case of a defeat.
According to Budapest mayor Gergely Karácsony (himself one of the opposition’s PM candidates), the decision will result in a decrease of public wealth, while the burden on motorists will increase. He suggest a theft occurring in the background. “…I understand the panic of the governing parties: they feel that they will lose the elections next year, so they are trying to take home everything they can,” he claimed.
Green-centrist LMP called the deal an “unbridled plunder, destruction and a qualified case of high treason,” arguing that outsourcing “vital parts of the infrastructure” would cause immense harm.
Left-liberal Párbeszéd, in addition, bought a toy motorway for Viktor Orbán over the weekend with MP Bence Tordai arguing that the concession would raise state debt by 4-5%, “while Fidesz oligarchs get richer”.
Secrecy is back
In addition to the aforementioned doubts and questions, the government (or more precisely, the National Bureau of Concessions, belonging under Rogán’s ministry) moved to classify the material containing the details, calculations and arguments behind the move for 10 years.
In this aspect, the project already resembles other controversial ones, such as the enormous China-related Budapest-Belgrade railway, or some features of the Paks upgrade being executed with Russia’s participation.
As a consequence, Gergely Karácsony announced that he is turning to the European Commission for an infringement procedure against Hungary. Both EU law and Hungary’s Public Procurement Act establish that a concession contract may be concluded for a period longer than five years only if calculations prove that the concession will not result in extra profit for the winners, he argues. “If these [calculations] were made public, it would be as clear as day for all that Viktor Orbán’s government is preparing for the biggest theft of the last twelve years: they want to play out the extra profit for their own clique for two generations,” Karácsony claimed.
featured image illustration via Zsolt Czeglédi/MTI