Hungary by atlatszo.hu
Former Fidesz mayor advocated for questionable public procurements won by Orban’s son-in-law
The civil society organization “Everyone for Pécs” filed a request for documents to the now opposition-led local government regarding a questionable street lighting modernization project that took place in Pécs in 2015. These documents help shed light on how Elios Zrt., a company which was owned by Prime Minister Viktor Orbán’s son in law, István Tiborcz, was able to win the nearly €2.5 million public procurement.
Thanks to “Everyone For Pécs,” Átlátszó was also able to examine these documents. They tell a story of corruption, abuse of office, and complicity on the part of the investigative authorities.
The company in question, Elios Zrt., has carried out dozens of street lighting modernization projects around the country and secured many of its public procurements under suspicious circumstances. In the period between 2010 and 2016, 84 percent of the company’s public procurement income came from EU funds, and, in 2016, the European Anti-Fraud Office (OLAF) launched a 2 year long investigation into Elios, ultimately recommending legal action over “serious irregularities” and “conflicts of interest.”
Even though the name of Elios Zrt. and its former co-owner, István Tiborcz dominated the news in Hungary in the past few weeks because of its street light modernization projects, it is important to remember that Elios won many other public tenders as well.
In the wake of the OLAF investigation, in early 2018, the Hungarian investigating authorities were required to reopen their own investigation into Elios, but it was terminated by the end of the year. Needless to say, the government refused to follow OLAF’s recommendations. In order to avoid a legal battle with the EU, the Hungarian government has decided to foot the bill for nearly €40 million in public procurements that were supposed to have been paid for through EU funds: instead of the EU, Hungarian tax payers were saddled with the nearly €40 million bill.
From the get-go, the Pécs project was financed by the municipal government rather than EU funds and was therefore outside of the purview of the OLAF investigation. However, in Pécs there were also a number of suspicious circumstances that arose surrounding the procurement process, which led Balázs Berkecz (a politician of the, since disbanded, Together party) to file a complaint alleging fraud, negligence, and abuse of office in March 2018.
Following Berkecz’ complaint, the police opened an investigation into Elios’ activities in Pécs, which were initially investigated in conjunction with Elios’ other EU funded work.
However, in October 2018 Berkecz was informed that the case in Pécs would be dealt with in a separate investigation due to the fact that Elios’ contract with Pécs was funded through Hungarian taxpayer, rather than EU, channels. A month later the authorities terminated the investigation on the grounds that: “with regards to this investment, the process of public procurement and its implementation was carried out properly, in accordance with legal requirements.”
The opposition led local government has initiated an internal investigation
Pécs entrusted its street lighting modernization project to Elios in 2014, at a time when a Fidesz politician, Zsolt Páva, was the mayor (he held the position between 1994-1998 and 2009-2019). In 2019, an opposition politician, Attila Péterffy, won the mayoral election. Although national authorities had terminated their investigation into the case the previous year, he promptly opened his own internal investigation into the city’s affair with Elios.
Pécs is one of the biggest Hungarian cities outside the capital, in which Fidesz, the governing party of Hungary lost the local elections on Sunday. Voters elected the opposition candidate for mayor, and the unified opposition won an overwhelming majority in the city council as well.
According to our sources, the documents on the Elios affair are still under official investigation, and a final report has yet to be completed; however, thanks to the request filed by “Everyone For Pécs,” we already have access to their content. This nearly 150-megabyte collection of documents details many important facts regarding Elios’ activities in Pécs, including the extent to which Zsolt Páva threw himself behind the project.
Zsolt Páva introduced and championed the project
At the meeting of the local assembly on June 19th, 2014, the Fidesz mayor personally introduced the proposal to replace the old street lighting with LEDs, citing the fact that LEDs were more energy efficient, and therefore cheaper.
Páva’s proposal advised the replacement of around one third of the city’s streetlamps in the first phase of modernization and estimated that the required investment would amount to €2.45 million. Notably, there was no explanation offered regarding the basis of this calculation.
Despite the lack transparent accounting, it is evident that the mayor arrived at this assembly session with an extremely clear vision of the project, given that, in his proposal, he advised the replacement of exactly 7023 of the outmoded streetlamps with LEDs and annexed a preprepared call for tenders.
Páva also proposed that the local government finance the project using a €2.83 million loan to be paid back over 15 years, and, naturally, he also annexed the necessary call for applications. The assembly accepted both of the mayor’s suggestions: they wrote out a call for applications for both the loan and the streetlighting modernization project.
A nominally open public procurement process without real competition
It was exceedingly easy for Elios to win the public procurement given that the call for tenders published on July 11th, 2014 stipulated that only companies with net revenue of at least €1.36 acquired through LED and public lighting modernization in the previous 3 years would be considered for the tender.
Only Elios Zrt. (previously under the names, ES Holding Zrt. and E-OS Innovatív Zrt.) satisfied this requirement. In the years since 2009, Elios has been responsible for the public lighting modernization of dozens of Hungarian municipalities, mainly through EU funding. Pécs was not unique; in most of Elios’ other projects, the call for tenders was also written in such a way that only Elios, or a consortium led by Tiborcz’ company, could apply for and win the procurement.
In its bid submitted to Pécs, Elios recorded €2.36 million of net revenue in the previous three business years from lighting modernization projects, citing the Siófok and Hódmezővásárhely projects as references. (Incidentally, OLAF found serious irregularities in both projects.)
News broke in January that the European Anti-Fraud Office (OLAF) finished a two-year investigation into EU-funded street light modernization programs in Hungary.
Pannon Nívó Zrt. also applied for the tender in Pécs; however, key details (e.g. net revenue, references, technical capacity) were missing from the company’s offer, and the municipality didn’t even bother to send documents attempting to address these deficiencies. Consequently, Pannon Nívó’s (cheaper) offer was disqualified, and, Elios, which had submitted a bid amounting to €2.43 million, was declared the winner of the public procurement.
At the time, István Tiborcz, the son in law of Prime Minister Viktor Orbán was one of the owners of Elios, as is even stated in the company’s July 29th, 2014 offer.
Hungarian authorities are working hard to make sure that the details of the so-called Elios-case do not become public. This means that Hungarian citizens still cannot learn what exactly happened when a company owned by PM Orban’s young son-in-law won a series of lucrative, EU-funded tenders.
The municipality took out a €2.83 million loan to pay Elios
The Pécs municipal government was required to apply for national governmental approval in order to take out a loan of the required magnitude (€2.83 million). Naturally, they received it: Prime Minister Viktor Orbán allowed the city to drown itself in debt in order to pay his son in law’s company.
The city announced that it was looking for credit and initiated a negotiated procedure, to which only two banks applied: UniCredit and OTP. However, UniCredit suddenly and unexpectedly withdrew its offer, and OTP won. As Hvg.hu wrote at the time, the interest on this €2.83 million loan amounts to €1.14 million and must be repaid in installments until 2029.
“The notary examined the need for the loan on the basis of obligations under the law governing the handling of public finances and found that the loan was necessary for the safe operation of the public lighting system, but that it posed a risk to the finances of the municipal government due to its size and duration.”
The above clause even found its way into in the September 25th, 2014 municipal assembly resolution, which nevertheless declared OTP as the winner of the negotiated procedure for the loan and Elios as the winner of the tender for the streetlight modernization project.
News broke in January that the European Anti-Fraud Office (OLAF) had finished a two-year investigation into EU-funded street light modernization programs in Hungary. OLAF found that there were serious irregularities and possible conflicts of interest concerning 35 such contracts.
Visibility at pedestrian crossing has suffered
In mid-March 2015, as the Pécs project was nearing completion, all that was left was to hand over the operation of the streetlights to the city. At that time, the local government – based on the determination of the company responsible for the management of public utilities, Biokom Kft. – reached out to the contractor, saying that something was wrong with the new lights, because visibility had actually worsened at a number of pedestrian crossings.
“At yesterday’s meeting both the police and the transport authority claimed that pedestrian visibility has deteriorated at several pedestrian crossings. They asked for a review of all of these crossings in the spring. Please include this in the official handover report. Obviously, the new lighting can’t be worse than the old.” – a representative of Biokom wrote to the municipality on March 12th.
Elios’ subcontractor, SMHV Kft. responded to the comment writing that, “the project to modernize public lighting was not tasked with the standardization of pedestrian crossings affected by the project.” Of the 285 pedestrian crossings affected by the project, there are also several (number not reported) in which the streetlamps are positioned incorrectly.
The handover took place on March 17th, and the municipality certified that Elios had satisfied the terms of the contract. The fact that pedestrian visibility had suffered due to the project never made it into the official report. Incidentally, this problem was not unique to Pécs: in several settlements where public lighting was modernized by Elios, there have been complaints that visibility is now worse than it was prior to the “upgrades.”
One of the biggest political scandals of the past few months was the so-called Elios scandal in Hungary. OLAF, the European anti-corruption agency sent the result of two years of its work to Hungarian authorities in the winter, recommending legal action over “serious irregularities” and “conflict of interest” connected to Elios Zrt.
Elios was also involved in the second round of modernization
Needless to say, the Fidesz mayor, Zsolt Páva, was apparently quite satisfied with the project, and around a year later he decided it was time to continue modernizing Pécs’ public lighting. In his June 23rd, 2016 submission to the municipal assembly, he proposed a second project involving the installation of 12,337 LED lamp posts (including the replacement of 12,190 old lamps and an addition of 147 new lamps) using a 10 year long lease to pay for the project.
Zsolt Páva stated that the estimated cost of phase II. was €3.8 million, but once again failed to provide any calculation justifying the amount.
As with the first phase, the large cost of this second project also required approval from the Hungarian government. One of the most incredible parts of the Pécs Elios file is the letter that the Fidesz mayor penned to János Lázár (at the time the Minister of the Prime Minister’s Office) asking for said approval.
“Pécs will be able to request the preliminary governmental permission in this matter after the conclusion of the public procurement process. However, due to the significance of the investment I consider it important to inform you in advance of our intention and to request your support and assistance so that this project can be realized and so that, following the conclusion of the public procurement process, our municipal government can receive the necessary national government approval.” – Zsolt Páva to János Lázár on July 6th, 2016.
Naturally, the governmental approval was obtained, and, at the end of November 2016, the call for tenders for the second phase of public lighting modernization was announced. The procurement was won by the sole applicant, K&H Bank.
K&H’s offer shows that the bank brought in three companies as subcontractors: Elios, SMHV, and Isor 2000 Bt.. In other words, these companies completed the work itself, the bank payed them, while the municipal government is paying back the bank over the course of 10 years.
Police seals on the documents
As mentioned at the beginning of this article, in March 2018, opposition politician Berkecz Balász filed a complaint alleging fraud, negligence, and abuse of office in connection with Elios’ work in Pécs. Following his report, the police opened an investigation, and, for some months, the work in Pécs was investigated alongside Elios’ EU funded work in other municipalities. However, in October 2018 the police separated the investigation in Pécs from Elios’ other work, citing the difference in the source of funding. In November, they closed the investigation entirely, with the authorities claiming that everything was in order.
The seal of the Corruption and Financial Crimes Unit of the National Bureau of Investigation featured repeatedly in the nearly 150 megabytes of files acquired by the “Everyone for Pécs” association. These seals appeared to indicate that the files were seized by the authorities on June 27th, 2018 during their investigation. Apparently, these documents were returned after the investigation was closed, and it now falls to the new city administration to investigate the files.
Although the police and the prosecutor’s office supervising the Elios investigation claim that Elios was not guilty of any violation of law, last year we detailed why there are convincing reasons to believe that the impressive financial gains of the Prime Minister’s son in law in connection with Elios Zrt. show signs of being the result of a criminal conspiracy to commit public procurement fraud.
István Tiborcz, the Hungarian prime minister’s son-in-law entered the exclusive club of the 100 richest people of Hungary. Moreover, with his 33 years, he is the youngest of the richest Hungarians. According to the list, Tiborcz is worth 35 billion Hungarian forints (approximately 109 million euros at today’s exchange rate).
It is difficult to explain Elios’ success except through the lens of corruption, abuse of office, and complicity on the part of the law enforcement authorities. It remains to be seen if anything will come of the report currently being prepared by the opposition government in Pécs.
Written by Katalin Erdélyi, translated by Milan Kende Loewer. You can read the Hungarian version of this article here.