Major foreign investment linked with local land value speculation

The story of a tire factory investment in northeast Hungary has taken a number of curious turns over the past few years, with local politics showing a complete change in heart over the venture. The project, which had been locally opposed, ended up receiving a fortune in state grants, and the story even features one of the government’s favorite contractors.

India’s Apollo Tyres made a commitment in 2008 to build a new factory in northeast Hungary’s Gyöngyös. It was to be the company’s first venture into central Europe and would also have created some 900 jobs in the city of nearly 31,000. However, the local branch of the Fidesz party motioned a local referendum over the investment citing environmental concerns, which in all likeliness led to Apollo shelving its plans.

The plans resurfaced in 2012 when Apollo once more said it would establish a CEE production base in either Poland or Hungary. In 2014, the tire maker announced that it would set up near the originally targeted site in Gyöngyöshalász, a township with a population of around 2,000, neighboring Gyöngyös. This time not only was there no opposition, the government contributed HUF 30 billion (€100 million) in subsidies to the HUF 146 billion (€482 million) investment.

The official announcement took place in September, but there were rumors as early as February that Apollo was opting for Hungary, and preceding events show that the local government was already certain it would become the host.

As soon as 2012, Gyöngyöshalász started reclassifying the land that was to accommodate the plant from farmland to commercial plots, while also modifying local landscaping rules to allow construction to commence. However, the municipality does not have the necessary jurisdiction to amend the classification of the high-quality farmland to industrial, so the central government stepped in and made the reclassification possible. The local government was then allowed to start appropriation of the area even though the owners objected to the low prices they were offered. They took the matter to court, but lost the first hearing.

All along, the municipality denied that its efforts were linked to a possible tire factory construction and cited a general need to revise the landscaping categorization in the area.

The financing of the project was also curious. At first the municipality made a pact with a private company to fund the costs of the appropriation of the lands, and in return it was contracted to perform the landscaping jobs needed to accommodate the factory. Essentially, the firm bought itself a purchase option from the municipality, which in itself raises concerns about legality. The financing firm, Halász Invest Kft also had a clause added to its contract that should the project fail, it would be entitled to compensation totalling 300% of its original investment.

This particular deal eventually fell through, but the later tender for the same purpose was similarly curious. The documentation for the tender became public on August 10, the submission deadline was only two days later, and Artemis Invest Kft was declared the winner on August 18.

The contract obtained by Atlatszo.hu reveals that the firm is paying a modest sum for the whole of the plot, and it will at one point sell it to Apollo Tyres at a major profit. A closer look into the company shows two owners, both close to the current government in terms of their party affiliation, their professional history as well as their families.

Besides Artemis, two other prospective bidders purchased the tender documentation, one of them being construction company Market Zrt, owned by István Garancsi, one of Prime Minister Viktor Orbán’s friends and a regular beneficiary of the current political establishment.

Market and the other interested party eventually dropped out saying that following a more detailed look into the tender documentation, it became clear that it covered the arrangement of the area and not the actual construction of the factory.

It was no surprise that at the end of February, Apollo, Artemis and the local government announced the signing of the contract for the construction of the plant in Gyöngyöshalász. Atlatszo.hu has already filed an enquiry for the publication of the deal, which we will make public as soon as we receive it.

Original article in Hungarian