Támogasd Te is küzdelmünket a zöld és igazságos jövőért!

How to sell a country? Some thoughts on Putin’s visit to Hungary

Viktor Orban’s evolving relations with the oligarchs both in Hungary and the wider region are having serious effects on Hungary’s energy strategy. Now, Putin is in town for meetings that will no doubt result in a new contract for the supply of gas, a development which will be to the benefit of a minority and to the detriment of most of the population, and which could also lead to tensions arising with the EU. – Article in Green European Journal

On February 17, Vladimir Putin, the President of Russia is traveling to Hungary, as part of an official visit, to meet with the Hungarian Prime Minister, Viktor Orbán. According to official statements, they are going to discuss the two countries’ economic and political relations, as well as energy security issues.What should we expect from this encounter? One of the concrete goals of the visit could be to renew the long-term gas supply contract with Russia, and –although Hungary is not in a particularly bad negotiating position– the short-term interests of the government will force Hungary to renew this contract under very humiliating conditions. This would not be the first time for Viktor Orbán to take a decision in energy policy matters that goes against common sense, a decision, which enables a small number of people to make huge gains, while the rest of the population can only lose.

The Hungarian energy strategy has numerous controversial elements. What is most disturbing is the fact that, in the last few years, Hungarian energy policy wasn’t determined by internal capabilities, external constraints and by keeping pace with changes in energy technology. Instead decisions were based on choices made due to “superior” goals that had nothing to do with experts’ opinions: the government’s goal was to reward people loyal to Orbán, build a new clientele (using taxpayers’ money), and replace some people at the top of the pyramid of Hungarian oligarchs. These were supposed to strengthen the political power of Orbán.

Orbán and his oligarchs

The first two-thirds majority of Orbán (in 2010) would have been impossible without his long-time friend, and former treasurer of the Fidesz-party, Lajos Simicska. The political and the economic arm of the party were codependent at that time, and the support of oligarchs was necessary to receive the amount of votes needed for the kind of success Orbán was hoping for. The second two-thirds majority in 2014, however, was different: now keeping the oligarchs around was too costly, and by far not as helpful as before. Thus, it was about time to get rid of the boundaries and dependencies Simicska and other oligarchs meant to Orbán and his government. But creating a new clientele – one whose members don’t behave like the kinds of all-powerful oligarchs as Simicska, and are absolutely loyal to and dependent on Orbán – can be just as expensive. Thus, the energy industry is one of the few industries that can provide sufficient funds for this project.

In the past few years we have seen many obvious signs of the industry being corrupted and put under the direct influence of the government. A good example is the increasingly important role of MET Holding. MET is an energy trading company – owned by a number of off-shore firms, related to, among others István Garancsi, a businessman with close ties to Orbán – that is in a privileged position due to some well thought out decrees and contracts: the company can use the 2,2-2,9 billion square meters of gas coming from Austria, without competition, thanks to the state-owned MVM Electricity Ltd.

MVM earns nothing on transporting the gas from Austria to Hungary. MET, on the other hand, is getting richer and richer. The owners of MET’s Hungarian subsidiaries have earned millions of Euros in the last few years. In 2012, the owners have received dividends worth HUF 55 billion (approximately EUR 180 million). But MET’s activities extend to much more than just the import of gas, it has also bought a power plant, and is about to overtake the natural gas trading activities of GDF Suez, a French multinational electricity company, on the Hungarian free market.

The incredible success of MET, and Orbán’s close friendship with Putin is no coincidence.

Orbán obviously needs Putin – a person who has great influence on his country’s energy exports – in order to make the corrupt Hungarian energy system work, and in order to make profits on the country’s natural gas transactions. From this meeting with Putin, he expects a political deal that can further increase his share of profits in the energy sector, and will thus help him further pursue his power interests.

A top priority

Not so long ago, Orbán has called the new, long-term gas supply contract with Russia a top priority of the country. Assigning it such a high importance, however, seems to be irrational: a 2013 study by the Regional Centre for Energy Policy Research (commissioned by the government) has shown that a new contract, right now, would not make too much sense, unless it would require Hungary to buy a much smaller amount of gas than before, and to do that for a much lower price than it currently does. This is not the case: the contract will be about an increased amount of gas, which means that Hungary has to buy more gas than it would normally consume. And it will also pay a higher price than necessary.

Given that the surplus of the previous years will be able to cover the energy needs of the next few years, Orbán is wrong to say that the new long-term contract is badly needed.

On the contrary, in the light of the current natural gas market developments, Hungary could have relatively large margin of maneuver. The Russians would benefit from a long-term gas contract, since the revenue would improve their unstable budgetary position and improve their regional position. The gas market is currently supply-driven and in the coming years is likely to remain so. In a supply-driven gas market the customer is the one who’s in a good bargaining position, this is what Orbán is giving up for pennies in his oligarchy fighting spirit.

Don’t trust the short-term benefits

The Orbán-Putin meeting is likely to yield a more political bargain and as a result – according to internal sources – Hungary will receive Russian gas cheaper below market price, at least in the short term. You can cut utilities in the coming years and possibly provide for the 2018 election campaign financing. In addition, the price difference between the contracted and the marketed price enriches the new oligarchs. However, the agreement does not serve a healthy functioning energy market or the long-term interests of Hungarian consumers.

Russia will, for sure, ask a high price for this deal. There are two possible scenarios:

(1) In exchange for the current short-term reduction, we might, in the long-term, be forced to buy natural gas for a price above the market price. If we look at the neighbouring countries, it becomes quite obvious that all the countries who have signed long-term contracts with Russia, around 2005, are now paying a much higher price for gas as does Hungary at the moment.

(2) Putin might as well ask for a political favour: a consistent pro-Russian stance in the EU. The Russians badly need a disagreement inside the EU, so that it cannot act in a unified manner when it comes to Russia. A veto on sanctions against Russia can be very valuable for Putin.

Angela Merkel has visited Budapest less than two weeks prior to Putin. During her visit she made it clear to Orbán that Hungary cannot have a Russia policy that is not in line with the EU stance: the Union has to act in a unified way when it comes to Crimea or the conflict in Eastern Ukraine. Orbán, however, defended Hungary’s relations with Russia, on their press conference. This lets us infer that he won’t say no to Putin. He will rather pick a fight with the EU. Especially when the EU’s warnings seem to be so distant for Orbán. Russia in the meantime seems to be quite sure that Hungary can be the partner it is looking for, in order to mess with European unity.

I believe that nothing will stop Orbán from selling the country and the future of its people to Russia.


Hungary eyes Russia’s ‘illiberal’ model

Hungary has increasingly courted and won favour with Russia, while rejecting the core values of the European Union.

Prime Minister Viktor Orban says he wants to turn Hungary into an 'illiberal' state, using Russia as a model. Source: aljazeera.com
Prime Minister Viktor Orban says he wants to turn Hungary into an ‘illiberal’ state, using Russia as a model. Source: aljazeera.com

Budapest, Hungary – As the West holds its breath waiting to see if Russia will intervene in Ukraine, there is one country looking to Moscow for inspiration: Hungary.

In a speech in late July, Prime Minister Viktor Orban said he wanted to turn Hungary into an “illiberal state” and used Russia as a model example.

“We want to build a workfare society … which is willing to bear the odium to declare that it is not liberal in character,” said Orban, adding the 2008 financial crisis proved liberal democracies cannot be competitive.

The speech proved highly controversial, grabbing international headlines and calls by Hungary’s opposition groups for the European Union, of which Hungary is a member, to monitor the country’s reforms.

“Hungary has gone so far as to actually reject explicitly by the prime minister the very values that guide the European Union and NATO. This has never happened before, this is a unique event,” said Charles Gati, a professor of European and Eurasian studies at John Hopkins University.

Government spokesman Zoltan Kovacs said the prime minister was only talking about the limits of liberal democracy and how to deal with those restraints. Kovacs said the reference to looking towards Russia, as well as other countries Orban mentioned including China, Turkey and India, were regarding economic models.

“He was not referring to democratic institutions and the decision-making process,” Kovacs told Al Jazeera.

However, director of the Hungarian-based Political Capital Institute Peter Kreko said Russia’s influence over Hungary goes far beyond economics.

“Putin serves as a role model for him in the sense that Putin is … the frontman of the ideological fights against Western Europe and Western interests.”

Warm relations

Hungary’s move towards Russia has been in the works for years – and it seems Russia has taken note. Last year, Vladimir Putin sent a letter congratulating Orban on his birthday and thanking the prime minister for greatly strengthening relations with Russia, according to Hungary’s state news agency MTI.

In January, Russia agreed on a controversial deal to loan Hungary up to $13.5bn to build two reactors at a nuclear power plant in the country’s south. It will be the largest construction project in Hungary since the end of communism more than 20 years ago.

In early July, Orban said Hungary would go ahead with the South Stream pipeline project that would import natural gas from Russia through a route that would bypass Ukraine.


To link Hungary’s economy stronger and stronger to Russia which is in a trade war with… the European Union and in a diplomatic conflict with the European Union, I think it’s highly dangerous and highly risky.

– Benedek Javor, European Parliament member

Andre Goodfriend, who is currently in charge of the US embassy in Hungary while it awaits a new ambassador, told Al Jazeera that Hungary needs to diversify its energy imports from other countries.

“We’ve been encouraging Hungary and many other countries to diversify their sources of gas [and] find other ways … to share gas between different countries … without having it necessarily come from Russia,” he said.

Kovacs, the government spokesman, argued that there was a long, thorough process before the deal was made.

“It’s been competitive in the form that the previous government as well as this one has looked around and tried to measure all possible alternatives and possibilities,” he said.

Concerns exist, however, that the nuclear deal will increase dependency on Russia, which is already Hungary’s main supplier of natural gas and oil.

European Parliament member Benedek Javor, who is part of a small leftist opposition group in Hungary, asked the EU to investigate the deal over whether it broke the law.

He said the Ukrainian crisis, sparked by then-president Viktor Yanukovich sacrificing an EU trade deal for closer ties to Russia, showed the risk of allowing Moscow greater influence over Hungary.

“To link Hungary’s economy stronger and stronger to Russia which is in a trade war with … the European Union and in a diplomatic conflict with the European Union, I think it’s highly dangerous and highly risky,”Javor told Al Jazeera.

What’s in it for Russia?

But what does Russia get out of a relationship with a relatively small country such as Hungary?

“The main reason for Russia’s interest … is to weaken the European Union,” John Hopkins University professor Gati said. “It is doing so … primarily by several countries dependence on Russian energy and, therefore, these countries’ willingness to close their eyes to some aspects of Russian behaviour.”

Putin feels that the European Union is in a very weak position.

– Peter Kreko, Political Capital Instiute

Peter Kreko, director for the political consultancy firm Political Capital Institute, said focusing on Hungary is one of the best ways to undermine the EU because Orban has taken an antagonistic approach to the supranational government.

He added, however, that previous leaders have also tried to get closer to Russia. “Putin feels that the European Union is in a very weak position,” Kreko told Al Jazeera.

Hungary is not the only EU member-state to have maintained ties to Russia during the Ukrainian crisis. Austria also said it will go along with the South Stream gas pipeline project, while Germany, where exports to Russia in 2013 equated to almost $50bn, avoided placing tough sanctions on Moscow before the Malaysian Airlines M-17 downing in eastern Ukraine.

Meanwhile, France said it plans to go through with the delivery of a mistral warship to Russia in a deal worth $1.6bn.

But so far, only Hungary has been accused of a democratic backslide. Last year, the European Parliamentadopted a non-binding resolution stating that Hungary was undermining the independence of its own judiciary and was rushing through legislation.

Goodfriend echoed similar concerns about the check on power in Hungary.

“A number of those checks and balances don’t exist here and with a government that has a two-thirds majority [in parliament], it’s especially important that they use that majority to ensure that they carry out legislation responsibly.”

Uptick in nationalism

Kreko said there are also signs that Orban is mimicking Putin’s strategies, such as removing his limits on power and increasing nationalist rhetoric.

In Orban’s July speech, he discussed how “paid political activists” working for NGOs with foreign funding were preventing reforms in the country; a month earlier, Hungarian authorities raided the offices of NGOs receiving grants from Norway over accusations thay they are politically biased.

Kreko said this is similar to when Putin took aim at NGOs by introducing a law that requires organisations using funding from abroad to register as “foreign agents”.

In May, Orban called for autonomy of ethnic Hungarians in western Ukraine, while in the east rebels allegedly backed by Russia were also demanding autonomy from Kiev.

It led to the Hungarian ambassador being summoned by the Ukrainian government, but government spokesman Kovacs said Hungary was simply asking for autonomy for minorities set out in international agreements.

According to MP Javor, other EU member states with fragile democracies could follow Hungary’s footsteps if the EU does not act.

“This combination limiting democracy and stronger dependency on Russia makes the Hungarian situation extremely [worrying] for Europe as a whole.”

Follow Kristina Jovanovski on Twitter: @kjovano