The tenders on a €1,35 billion (HUF 420 billion) water supply construction in Hungary seem to have had serious irregularities. The extent of these irregularities points towards possible misappropriation and restriction of competition. Hungarian MEP Benedek Jávor filed a formal legal complaint in the case to the chief prosecutor in Hungary, Péter Polt, and requested the Public Procurement Authority to launch an investigation as well.
Benedek Jávor, founder of the Centre for the Protection of Public Interest (KK) pressed charges at the Chief Prosecutor’s Office regarding the government’s 420 billion HUF mega tender for the development of sewage construction and public water supply. In his indictment sent to chief prosecutor Péter Polt, MEP Jávor requests the authority to launch an investigation to probe misappropriation and restriction of competition in public procurement. At the same time the head of the Hungarian Public Procurement Authority also received a complaint asking for an investigation in the case.
Currently this is the largest four-year infrastructure development program financed by the EU in Hungary. The tender has already raised concerns in the European Commission: the European body has already requested its suspension once at the phase of the grant announcement in the spring of 2016.
The reason for the Commission´s intervention was the ineligibility of the tendering procedure and the anti-competitive nature of the outlined criteria. The European Anti-Fraud Office (OLAF) also received a complaint highlighting the probability that, besides large international corporations, government-favoured local companies would lead the list of winners.
This is exactly what happened. In October 2016 the following results were announced: the family business of Lőrinc Mészáros, Viktor Orbán’s close friend, the Mészáros and Mészáros Ltd, made its way to the exclusive circle of potential constructors, as well as two companies (Magyar Vakond and Hódút) of Károly Varga, a co-owner with Mészáros in several other enterprises. The interests of György Dunai, a highway constructor making his fortune thanks to public investments under the first Orbán-government, also appeared among the winners.
The supervisors of the European Commission investigated the suspicious mega tender more thoroughly in March this year and found serious irregularities. After examining the submitted proposals, they found that 62 out of the 69 validated proposals should have been excluded based on the procurement criteria: despite the fact that most applicants had not completed the required sample task, they were allowed to participate in the tender procedure.
Based on Hungarian public procurement law, the omission of their exclusion is a violation of the Hungarian legislation, therefore it is the violation of EU legislation as well. Only four out of 24 winners were eligible, which means that the majority of the framework agreements were made on the basis of factually invalid proposals. In the meantime, a Czech consortium was excluded from the grant on the grounds of failing to complete the sample task of the procurement.
The draft report of the European Commission’s audit was received by the Hungarian government this summer. It is highly possible that it will be Hungarian tax-payers who will pay for the irregularities, as the EU can decide on refusing to pay part of the amount on the basis of irregularities; this can amount to as much as EUR 161 million (HUF 50 billion).
The auditors of the Commission found even more serious irregularities in connection with the HUF 5 billion public procurement consultant agreements connected to the mega tender and suggested to withdraw the entire sum. The selection of consultants seemed strongly targeted and consultancy fees were so heavily overpriced they would exceed by multiples both market fees and the fees of public procurement consultants contracted by the state. In addition, in return for such a high price, all that the winning consultancy companies will have to do is complete a simple standardized task.
The consultancy procurement was won by five companies and consortiums, which relate to government-close actors in several ways. Adorján Antal Kadosa’s two companies, for example, are among the winners. He is a public procurement expert known to be part of Lőrinc Mészáros’s circle. He is also known to have a key role in the operation of Mészáros’s corporate empire. Being a member on the board of directors of the TV2 Média Csoport Plc., he is also considered to be a significant actor in Andy Vajna’s media empire.
Written by Leonard Marias
The current text is a short summary of the original article in Hungarian is available here.
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