Budapest Business Journal 19/13

q&a Elek Straub, former head of Matáv, has emerged from seclusion

BBJ

to head a new business angel fund 〉page 20

HUF 1250 | €10 | $15 | £7.5

62%

Vol. 19, number 13

Budapest Business Journal

I july 1, 2011 – july 14, 2011

of Budapest residents prefer former Moszkva over Széll Kálmán tér 〉page 4

Hungary’s practical business bi-weekly since 1992 | www.bbj.hu

CO2 focus manufacturers are increasingly paying more attention to their ecological footprint in hungary 〉pages 12-17

China and Hungary have a long history of comradeship stretching back to the Socialist era. Now those links could lift Hungary out of its debt trap – and maybe help hungarian businesses make a fortune in trade to China. 〉page 5, editorial page 23 BUSINESS To be taxed chipsless & sugarfree

BUSINESS Hungary the last quiet property market in CEE

TRENDS Healthy eaters after all?

Scientists might not be 100% sure about whether salt, sugar and caffeine are bad for you, but the Hungarian government is. According to a controversial new bill now approved for submission to Parliament, the levy on “unhealthy” food could bring in HUF 20 billion, something that is sure to make the budget healthier, at least. 〉page 6

Hungary, Romania and Ukraine are no longer the bad guys in economic growth, but real estate investors are still waiting to see what will happen with unemployment figures and office vacancies in the region.

Overall, they see growth in CEE, though Hungary lags behind. 〉page 6

Chicken paprikás with a huge dollop of sour cream and fatty gulyás might make you think that the Hungarian diet is unhealthy. However, research shows that households actually spend the most money on fruits and vegetables after meat. It might come as no surprise that potato is the most popular vegetable. 〉page 4

BUSINESS

LIFE

New rules for procurement

Exodus of tourists

Public procurement in Hungary has been locked in inefficiency, lacking strategy and mired in corruption for decades. Bidding could now become much simpler – or a lot more corrupt. Five key issues could decide whether the short and pithy draft law becomes a success or a fiasco. 〉page 8 -9

If you’ve ever wanted to visit the Pyramids, check out the Dead Sea reefs or see the Roman ruins of Tunisia, now is probably a good time to do so. At least if you, unlike other tourists, are not scared away by the revolutions of the Arab Spring. 〉page 18-19

2 news

News for this page is from the Budapest Business Journal’s daily briefing, Hungary A.M.

NEWS in brief

www.bbj.hu

Budapest Business Journal | July 1 – July 14

Transparency International

has criticized a new bill on freedom of information for its measures to integrate the existing four ombudsmen’s offices into one. The organization said the new ombudsman heading the office would be appointed by the president on the recommendation of the prime minister and thus will not be independent of the executive power.

Hungary to cut public debt by 4% Hungary’s government will cut the country’s sovereign debt in a single step by more than HUF 1,340 billion, reducing it as a percentage of GDP to 77% from 81%, Prime Minister Viktor Orbán said. The decision heralds a new era of stable and lasting national debt reduction, according to Orbán. Hungary has reached a milestone, he added. The debt will be reduced by transferring assets from private pension funds, which were earlier nationalized in a controversial move. Hungarian members of private pension funds had until the end of January to opt out of the mandatory private pension fund scheme, along with their retirement savings, and return to the state scheme, or face losing their state pension. About 97% decided to go back, bringing some HUF 2,946 billion in assets with them.

Economy PM sees further budget freezes Hungary may need to freeze some budget funds as Europe’s economy is in “very serious trouble” and Western economies will probably stagnate or slump Prime Minister Viktor Orbán said. The PM approved the freeze of HUF 250 billion ($1.3 billion) of budget funds in February to protect fiscal stability. The government is proposing to permanently cancel funds from budget spending, Orbán told parliament, and may ask to increase budget reserves. Hungary, which received a €20 billion bailout led by the IMF in 2008, is planning to finance itself from the market in the future, Orbán said.

Cost-efficient EU presidency The Hungarian EU Presidency has managed to fulfill its organizational and logistics tasks, to a high standard and in a cost-efficient way, government commissioner for the presidency’s operative management Ferenc Robák said. Hungary had hosted 261 events, including 26 informal and ministerial meetings, 92 senior officials’ meetings and 117 expert conferences in the first half of 2011, Robák added. Last year, only HUF 6.9 billion was spent on the presidency instead of the planned HUF 9 billion, and the budget will not exceed this year’s calculated HUF 15.5 billion framework either, he said.

MNB: 3% inflation in 2012 In spite of cost-hike shocks, inflation may fall back to the National Bank of Hungary’s (MNB) 3% “price stability” target by the end of 2012 without further monetary tighten-

ing, the central bank said. MNB said it expected CPI to come close to 4% in 2011, lifted by commodity prices, but it projected a “gradual easing” of global cost pressures, suggesting a moderation of inflation after firstround effects of the shock wear off.

Labor reforms fall short of plans Employment, labor market and pension measures outlined in the Hungarian government’s restructuring program could improve the fiscal balance by double the targeted amount if they are all carried out, but amendments to the government plans announced since the Széll Kálmán Plan was unveiled could halve the targeted net savings, according to an impact study from the Fiscal Responsibility Institute (KGIB), prepared by former Fiscal Council staff members. It calculates that savings will come to just HUF 144 billion in 2012 instead of the targeted HUF 288 billion.

politics Five new constitutional judges Parliament has elected five new judges to the Constitutional Court.

Mária Szívós, a senior judge at the Municipal Court of Budapest, lawyer and political scientist Béla Pokol, Fidesz lawmaker and former justice minister István Balsai, and lawyer Péter Szalay were elected.

Egon Dienes-Oehm was elected as the fifth member to the body, nominated by Fidesz-ally the Christian democratic KDNP. The Constitutional Court had one seat vacant and the number of its members is to be boosted from 11 to 15 from September 1, under an amendment recently passed by parliament.

NUMBERS

in the news

103 days

worth of crude oil to be found in Hungary’s reserves, according to the registry of the International Energy Agency (IAE). A total of 28 IEA member countries have agreed to release 60 million barrels of oil in the coming month in response to the ongoing disruption of oil supplies from Libya.

749

civil servants were fired from ministries during the period from July 6, 2010 to May 31, 2011, when legislation permitted the dismissal of public servants without stated justification, data from the Justice and Public Administration Ministry shows. The layoffs affected nearly 11% of ministry staff.

About 5% of government officials, including those employed in other government organizations or institutions, were fired without any explanation in the period.

Voter apathy on the rise The proportion of Hungarian voters without a party preference has hit a record high, while opposition parties are losing support, a fresh poll by Tárki revealed. Nearly 50% of respondents expressed uncertainty regarding their choice of party. The ruling FideszKDNP coalition stayed level, while the opposition camp lost support in June, according to the poll. In May, the proportion of undecided voters stood at 44%, but it grew to 48% in June.

“Wage commando” to tred softly The government has softened a plan to sanction companies that fail to top up the wages of earners whose pay fell due to income tax changes enforced earlier this year. Antal Rogán, the Fidesz lawmaker who drafted the government’s compensation scheme, said there would be no “wage commando” set up to enforce fines, but insisted that the government would find other ways to pressure companies into raising those gross salaries below a monthly HUF 300,000 (€1,125).

EU financed anti-abortion ads?

Hungary used EU money to cofinance an anti-abortion campaign, leading to calls from European authorities to return the funds. The sums, taken from EU employment and social solidarity program PROGRESS, provide the bulk of financing for the €416,000 anti-abortion campaign, the report said. EU Fundamental Rights Commissioner Viviane Reding said the campaign did not “conform with the project proposal submitted by the Hungarian authorities”. The commissioner said the campaign went against European values and Hungary must return the funds as quickly as possible.

domestic

MAL out of state watch State control of Magyar Alumínium Zrt (MAL), the aluminum plant that fatally flooded villages with toxic red sludge in west Hungary, has ended.

Zoltán Bakondi, the state commissioner who headed MAL’s operations after the government took control of the firm last October, said the region is no longer threatened by significant ecological risks and MAL has successfully undergone a technological overhaul without losing its market position.

Local councils are most corrupt Local councils have the greatest risk of corruption, according to an “integrity report” by the state audit office ÁSz. The report gauges corruption risk at institutions on a scale of zero to 100. Local councils had 66 points, the highest number of all institutions gauged. Independent state bodies followed with 45 points. The police and army had 43 points as did regional state administration institutions. ÁSz based the report on a survey of a crosssection of 4,111 institutions from more than 14,000 budget-funded bodies.

Arrests after Budapest Gay Pride Two Austrian participants in the Budapest Gay Pride were arrested following the annual parade. As part of a 50-member group that traveled from Austria on a bus to take part in the event, the two were walking back to their bus when they claimed they were attacked by neoNazis with “smell sprays”. However, the Hungarian protesters said it was the Austrians who attacked, and this is what led to the arrests. The two men were eventually released and no charges were pressed.

www.bbj.hu

Budapest Business Journal | July 1 – July 14

News for this page is from the Budapest Business Journal’s daily briefing, Hungary A.M.

COMPANY news Stadler to build plant in Szolnok

Swiss rolling-stock maker Stadler and the city of Szolnok have signed a declaration of intent to establish a joint venture to build a multipleunit train assembly plant at Stadler’s production site in the city.

Construction of the new plant, which will cost about 20 million Swiss francs (HUF 4.4 billion), is scheduled to begin later this year and end in 2012.

Stadler will hire 100 people to work at the new plant, raising the total number of workers the company employs at its Szolnok production base to 300.

news 3

Samsung Cheil Industries, the plastics division of Korean conglomerate Samsung,

has inaugurated a plastics granulate plant in Tatabánya. The 7,000 sqm plant will turn out 20,000 tons of the granulates a year, to be used in the production of electronics and automotive industry parts. The plant employs 80 staff. The size of the investment was not revealed.

The national media and infocommunications authority NMHH called on Magyar Telekom to desist from automatically activating mobile internet packages for new subscribers without their consent.

The authority is investigating similar services offered by Hungary’s other two mobile service providers, Vodafone and Telenor.

GE’s Hungarian lighting unit will retain 600 of 1,000 employees it planned to lay off for another year. The unit said it had postponed the completion of restructuring until the end of 2012 because of a temporary rise in demand for conventional lighting on global markets.

Central European Gas Terminal (KEG) has listed its feed unit Visonka on the Budapest Stock Exchange to get capital for developments independently of banks. However, KEG has a long-term strategy for Visonka and does not want to sell any more than 30% of Visonka shares in the next half year.

Hungary’s Magyar Gumi-újrahasznosító opened its HUF 1.1 billion tire-shredding plant in Tamási. The plant has a capacity to process 10,000 tons of tires a year. The European Union contributed HUF 474 million to the cost of building the plant.

Hungarian agribusiness Master Good said it is carrying out a HUF 4.4 billion capacity expansion at its poultry farms. Master Good will expand broiler capacity at all six farms and open a new hatchery. The investment will raise annual capacity for broiler and farm chickens from 12.1 million to 14.3 million.

German household products maker Henkel has started up a new HUF 750 million production line at its plant in the Hungarian city of Körösladány. The new line will turn out a hygiene product for toilets that will be sold across Europe and later in Israel and Korea.

The plant in Körösladány mainly made detergents until now.

Hungarian-owned contract electronics manufacturer Videoton has acquired a 94% stake in welded machinery maker Ventifilt for about HUF 500 million. Ventifilt has already found two German business partners with the help of Videoton since the acquisition. Ventifilt had revenue of HUF 750 million in 2010. It employs 160 people.

The Hungarian unit of French supermarket chain Auchan will not open any new stores this year, but rather work to re-establish profitability. Technical preparations for five projects – four outside of Budapest and one in the capital – are under way, and the company is working to open up new stores in 2012.

Contract electronics manufacturer Flextronics has added a medical technology service unit to its service center in Budapest. The new unit will be staffed by 40 employees. Flextronics Global Services Budapest has employed 1,500 till now. The center repairs communications network equipment, mobile telephones and computers, among other devices.

Hungarian property developer TriGranit said its building management unit, TriGranit Management (TGM), booked after-tax profit of HUF 1.9 billion in 2010, well over the targeted HUF 770 million. TGM recently took over management of Bonarka City Center in Krakow and Arena Center in Zagreb, and it will start managing the B4B office building in Krakow from Q2 of 2011.

Hungarian electricity distributor EDF-Démász, a unit of France’s EDF laid the cornerstone of a HUF 1.3 billion biogas-fueled power plant in Szeged. The power plant will generate an annual 7.39 GWh of electricity and 6.94 GWh of heat energy.

MOL hits legal hurdles in Croatia

Alcoa-Köfém, the Hungarian unit of US aluminum giant Alcoa, had revenue of more than $600 million in 2010, a level not seen since before the crisis. This year, Alcoa-Köfém expects similar revenue. Alcoa-Köfém employs some 1,700 people. About 95% of its products are exported to markets in northern and Western Europe.

Hungarian state railways MÁV booked unconsolidated losses of HUF 35.8 billion in 2010, almost HUF 2 billion less than planned and well under the HUF 54 billion loss in 2009. MÁV used 39% of its HUF 222 billion stock of loans to cover operating costs last year, down from 61.1% in 2006.

Shareholders of Est Media have unanimously approved the board’s reorganization plan at an extraordinary general meeting. The plan, to be carried out in Q2 and Q3 of 2011, aims to put the group in the black at operating level, excluding the event unit, in the second half of 2011. The plan lists the event unit, which includes festival organizer Sziget, among the activities Est Media will retain. The unit is the main engine for the group’s expansion abroad, according to the board.

The board of Hungarian telecommunications company Magyar Telekom has approved an agreement in principle regarding the conclusion of a negotiated settlement with the staff of the US Securities and Exchange Commission (SEC) on the latter agency’s ongoing investigation into whether the company’s Montenegrin unit violated the US Foreign Corrupt Practices Act. Magyar Telekom noted that the proposed second-quarter 2011 settlement entails neither admission nor denial of alleged corruption in connection to the contracts and is subject to final approval from the company board, the SEC and the US district court.

Geothermal energy company PannErgy could have between HUF 9.1 billion and HUF 9.9 billion of liquid assets to support growth in the coming years. PannErgy expects to grow significantly in the future and plans to continue following a conservative investment path, the first step of which was the sale of plastics unit Pannunion.

Her-csi-hús and Fama Farm have inaugurated a HUF 260 million chicken farm, built with the support of a HUF 100 million European Union grant, in Szabadegyháza-Középpuszta, near the capital. The farm will turn out 720,000 broilers a year. Her-csi-hús processes an annual 11 million chickens a year generating revenue of HUF 10 billion. A family owns 72% of the company while employees hold 28%.

Development sites

for sale Balatonalmádi

9,519 m2 zone: retail + 58,165 m2 – zone: residential

Budakeszi - commercial park

Hungarian gas and oil group MOL has asked the administrative court of Croatia to review and annul the decisions against it by Croatian market watchdog HANFA. In May, HANFA claimed MOL had manipulated the market in connection with its December 2010 public-purchase offer for 8% of the shares of Croatian peer INA. The watchdog suspended trade in INA shares indefinitely until a procedure can establish whether regulations have been broken with regard to “price-sensitive information”. It also filed criminal charges against MOL on suspicion of market manipulation.

MOL contends that it has always acted honestly, clearly and transparently during and after its offer for INA shares and has always observed all capital market regulations and Croatian laws.

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More information:

Tel.: 36 (1) 327 2050, 327 2061 E-mail: valuation@gvarobertson.com www.gvarobertson.com/Properties

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4 trends

www.bbj.hu

Budapest Business Journal | July 1 – July 14

Food

COMMODITIES

budapest

Employment

An apple a day

Last gold rush

Rejected renaming

Welcome to Hungary!

Budapest residents are unhappy with the renaming of streets.

The Hungarian labor market is warming up to migrants.

20 years

62%

20%

is spent yearly on fruit and vegetables

worth of gold still to be found underground

prefer Moszkva over Széll Kálmán tér

improvement in MIPEX in Hungary in 2010

Although the eating habits of Hungarians are often labeled as unhealthy, a recent survey reveals that fruits and vegetables are among the most often consumed foodstuffs in Hungarian households. The list of the most popular foods and dishes contains traditional soups, poultry, potato, fruits and cheese.

The study, conducted jointly by GfK Hungária and Agrár Európa Kft, shows that more than 90% of Hungarians eat such products regularly.

Fruits and vegetables are the second most popular food group when it comes to spending: Hungarians pay a yearly HUF 226 billion for them. The food group Hungarians spend most on is meat.

People buy vegetables once a week, while fruits are purchased once every one and a half weeks on average. Quantity-wise, apple and melon rank first among fruits, and potato among vegetables, the study shows.

Nearly half of the total amount of fruits and vegetables is bought by 16–17% of consumers, who prefer apples, melons, peaches, grapes and potatoes. These are the consumers that prefer going to traditional marketplaces as well as to local producers to get their healthy stuff.

Apple and potato are the two all-time favorites, but many have a more defined taste for tropical fruit as well. Apple accounts for 25%, while melon adds up to 17% of all fruit shopping in Hungary. Tropical fruits made up 37% of all fruit purchases in 2010.

Potato is number one in vegetable consumption, getting a massive 37% of all sales. It is followed by cabbages, red onions, peppers and tomatoes, all with market shares below 10%.

The majority of households, nearly 60%, buy smaller quantities, accounting for only 20% of all fruits and veggies sold. They favor tropical fruit, and do their shopping at super- and hypermarkets and discount stores. PF

The UK’s Standard Chartered Bank expects gold prices to triple in the near future, following a report from the US Geological Survey (USGS). The figures released by the American national resources monitor – as cited by gold market portal aranypiac.hu – show that there is now 51,000 tons of gold that can be extracted from the crust of the earth with the technologies that are currently available.

To date, humanity has dug up roughly 160,000 tons of gold from underground deposits. Based on the figure and the amount that is now seen as still being available, the USGS estimates that untapped gold stocks will disappear in about 20 years.

Assuming a 22,000-ton annual extraction capacity – lacking specific figures from Russia – which is justified by current trends, the precise time span is 23 years. The largest amounts of the precious metal are still coming from countries that are already at the top of the producers’ ranks, namely China, South Africa, the US and Peru.

Although last year’s extraction total of 2,535 tons marked a 5% increase from 2009, it is expected that the findings will now lead to the trend being gradually reversed, putting the actual time of depletion farther into the future.

Another scenario entails that in response to the related spike in global prices, extraction will be stepped up, even though the incurred additional costs would be a strong deterrent.

Whichever outcome happens, the fact remains that precious metals are limited in volume and cannot be reproduced. Accordingly, Standard Chartered – having surveyed 345 goldmines and 30 copper and ore mines where gold is also extracted – believes that the rate of extraction could be increased by a maximum of 3.6% annually in the ensuing five years. Provided the general state of economies worldwide, the bank expects that the price of gold could go as high as $5,000 an ounce. GR

Budapest residents are generally dissatisfied with the recent wave of renaming public locations, with the majority expressing disapproval of every such decision. A study conducted by Policy Solutions found that those happy with having a square named after Elvis Presley, Pope John Paul II and Albert Wass represent a minority to the people who liked things as they were.

The renaming of Moszkva tér was the most strongly rejected, with 62% of respondents saying they do not like the square now bearing the name of Kálmán Széll.

When weighing the results based on the party preferences of the participants, the analyst think-tank found that even voters of the radical Jobbik were against the Moszkva tér renaming, with only 39% in favor. This is noteworthy because earlier, the rebranding was an item of the party’s election campaign.

Respondents loyal to the governing Fidesz party were generally for the new names, while voters of the socialist MSzP and the green LMP were categorically opposed.

In contrast, Budapest residents are happy with the decision to ban the homeless from public locations. Some 72% of respondents approved of the move, making it the most popular among the measures enacted by mayor István Tarlós, who was elected last year. Banning smoking from hospitality locales as of 2012 likewise received strong support, with 60% in favor.

In contrast, the envisioned reduction of traffic in the city through introducing a congestion fee was widely rejected.

The study found 59% strongly disapproved of having to pay for using their cars in the downtown area. The outcome is possibly an unpleasant surprise for LMP. Although the environmentalist party campaigned strongly for reducing traffic in central Budapest this way, the study found that 63% of its voters are also against the solution. GR

Hungary scored 70 out of 100 points on migrants’ access to labor market based on the Migration Integration Policy Index (MIPEX) in 2010, a 20% increase from 2007.

MIPEX assesses countries’ integration of migrant populations in areas of employment, education, anti-discrimination and healthcare. Based on public laws, policies and research it serves as a guiding tool for European policy makers in evaluating existing and developing new policy frameworks.

Ranking 26th out of 31, Hungary is not well prepared for future labour migration needs compared to others in the region, according to MIPEX, and has yet to decide on a comprehensive strategy for migrants’ integration. There has been some improvement in separate areas. On January 1, 2010, Act 115/2009 came into force, granting immigrants from non-EU countries equal rights as EU and Hungarian citizens in terms of self-employment.

According to Martin Kahanec, deputy program director of the migration program area at the Institute for the Study of Labor, immigration is not as pressing for Hungary at the moment as it is for many other European states. Immigrants are mainly comprised of ethnic Hungarians, and they constitute 1.8% of the population with third-country nationals representing only 0.8%. However, like other European states, the country is facing a demographic crisis in the future. Its population of ten million is expected to shrink by 13% in the next 50 years according to Eurostat’s prognosis.

Hungary’s natural birth is at -34,000 persons per year, while net migration is at 17,300 according to the EC’s demography report. Combined with a low population mobility within the EU, Hungary must eventually confront the need for strategic planning in regard to thirdcountry immigrants. SA

precious metal

Address change

migration patterns

Fruits and vegetables are the second most popular food group.

HUF

226 bln

paprika wins again

The world’s gold reserves could be depleted in a matter of years.

Global gold production (tons) 2009

2010

Remaining

China

314

341

1900

Australia

227

266

7300

USA

216

240

3000

South Africa

205

200

6000

Peru

180

170

2000

2410

2535

50690

Global total Breakdown of fruit purchases in 2010 (of total amount bought) Source: GfK Hungária Consumer Tracking, 2010

Source: US Geological Survey, aranypiac.hu

2007 Opinions on renaming Budapest squares (%, new name shown) Source: Policy Solutions

2010

Migrant Integration Policy Index: Migrants’ access to labor market Source: MIPEX

politics 5

www.bbj.hu

Budapest Business Journal | July 1 – July 14

China and Hungary eye mutual interests Viktor Orbán’s government scored a major diplomatic victory by being the first European host nation on the Chinese premier’s latest European walkabout. Besides signing a dozen agreements in various fields, Wen Jiabao expressed China’s willingness to invest in Hungarian state bonds.

With a financial presence through the Bank of China, companies like IT firm Lenovo, or telecoms suppliers Huawei and ZTE have also established a presence and represent serious job-creating potential. Even before the time

of the second Orbán cabinet, Asia Center, the Asian-themed shopping complex in Budapest was tapped as the eventual headquarters of the country’s economic and business relations with the European Union. n

Transport, logistics, business development and cultural cooperation, these were the main topics that were discussed at a top level bilateral meeting between Hungary and China. Kicking off his official European Tour, Chinese Prime Minister Wen Jiabao and his entourage of politicians and more than 300 businessmen arrived in Budapest for a formal gathering that resulted in the signing of 12 (more or less) specific agreements, which the government hopes will improve economic relations as well as the country’s general financial state.

The Chinese delegation and the memoranda signed during the visit underlined that China genuinely considers Hungary a beachhead in its EU expansion efforts, marked by the focus on logistics and transportation. The direction of the talks also supports speculation that China is interested in buying ownership in companies like troubled Hungarian national airlines Malév as well as state rail firm MÁV. Jiabao also pointed out that his country’s government is open to buying “a certain sum” of Hungarian state bonds while the China Development Bank would make available a special €1 billion credit line meant to promote joint business investments. The move is anticipated to boost the aggregate of bilateral trade to $20 billion by 2015.

“We have received historic assistance from China,” PM Orbán said. He also highlighted that the commitment expressed by Jiabao to invest in state bonds will prove a huge milestone in achieving Hungarian fiscal stability.

“From my side, I see the mid-term uncertainties regarding the financing of the country disappearing,” he said.

The Chinese connection Orbán’s government made no secret of how much it favors active and strong economic and political relations with the world’s most populous country. After taking office National Development Minister Tamás Fellegi’s very first official trip was to the Asian nation, something that was reportedly frowned upon by Hungary’s traditional partners in Europe.

And this forceful drive at friend-making is nothing new. Besides the extensive array of Chinese products, clothing and electronics mostly sold at smaller retailers or marketplaces, and the eateries that seem to be found on every corner, China is now also one of the most important business investors.

photo: Szilárd Koszticsák/ MTI

BBJ gergő rácz

The inked deals 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

Memorandum of understanding on aerial and maritime commerce Memorandum of understanding on incentivizing investments Memorandum of understanding on developing rail commerce Strategic agreement on expanding the European supply center of telecoms technologies manufacturer Huawei Mutual establishment of cultural centers Setting up a bilateral business council Establishing China’s CEE logistics and commercial platform and cooperation in related developments Financial cooperation to the value of €1.1 billion between Bank of China and Hungarian chemicals company BorsodChem Zrt, owned by China’s Wanhua Memorandum of understating between logistics, transport and real estate conglomerate HNA Group and Magyar Tőketársaság, an affiliate of the Demján Group controlled by property magnate Sándor Demján Agreement on the CEE-Hungary-China commercial and logistics cooperation beltway Cooperation agreement on creating a citric acid factory with an annual capacity of 60,000 tons in the industrial park of Szolnok Cooperation agreement on establishing the European production base of lighting technologies supplier Canyi

Sideline advances Besides the dozen-deal package signed at the Hungary-China prime ministerial meeting a handful of other ventures also received a boost, from wine-making to property development.

State secretary for regional development Zsolt Németh, and Wang Shiyuan, Deputy Minister of China’s Land and Resource Ministry signed an agreement on harmonizing the land administration of the two countries to promote joint agriculture ventures, such as fruit farming and horse breeding. Goose farming company Hortobágyi Lúdtenyésztő recently opened a unit in Anhui, and the two countries’ agricultural work group had a joint session in Beijing in April.

Talks have also begun with Hungarian representatives on state support for a €10.5 million solar cell and solar panel plant in Berettyóújfalu to be realized by Orient Solar, a HungarianChinese joint venture. The JV envisages a 14,000 sqm plant with production capacity at 800,000 solar cells per year. The company can expect to get 25-60% of the cost of the investment from the state as it will employ 800 people in the region, said managing director Ferenc Galló.

The wine industry has high hopes for a raised profile in China, following a business forum where vintners from Hungary’s Danube wine-growing region served their best wines, said state farm products promoter Agrármarketing Centrum. The region accounts for 40% of Hungary’s total wine production.

Shortly before the arrival of Wen Jiabao, the Hungarian-Chinese Mixed Economic Committee, led by National Development Minister Tamás Fellegi, focused on establishing concrete business agreements and expanding job-creating Chinese investments in Hungary in such areas as air cargo, research and development, environmental protection, the use of water purification technologies, cooperation in the automotive industry sector and the supporting joint investments.

Finally, the Talentis Group and Shandong Imperial International Investment signed a framework contract on the establishment of the Central-European Sino-Hungarian Business and Trading Cooperation Zone, which put Talentis Group on the map of Chinese investors and large enterprises. SA

6 business

www.bbj.hu

Budapest Business Journal | July 1 – July 14

Hungary passes on EU Presidency to Poland

Hungary: the last Real Vienna, aimed at the com-

“Today, Hungary does not contribute to the mercial property markets of CEE, weakness of the EU, but rather to its strength,” Prime Minister Viktor Orbán said. “I consider provided a snapshot of the ecothe Presidency to be a great success from the nomic state of the region and perspective of Hungary as well, and I hope that how attractive it is to internaHungary’s European policy will be kept on the tional investors and developers same track,” he added.

At the same time, the presidency was some- in the post-crisis environment. times overshadowed by controversial legislation that the Fidesz-led government passed. The govBBJ david lawrence Hungary passes the reins to Poland ernment and Orbán personally were harshly criticized for a new media law that was considered in July on a high note, being able to an infringement on the freedom of the press and In general, there has been more activity at boast a number of political and eco- seen as a step to create government dominance events than last year as the economic downturn nomic steps reached under its sixover the media. The government eventually gave alleviates and CEE is again attracting increasmonth term. Nonetheless, the period in – despite earlier clearly stating it would not do ing interest from international developers and so – made amendments, but certain passages are institutional investors. However, there is some will also be memorable for domestic still deemed to be in violation of basic liberties. reluctance on the part of international comThe Orbán cabinet was also targeted for ratify- panies to invest in Hungary due to concerns matters that turned Continental. ing a new constitution that it drafted without the over the economy, the limited supply of instituinvolvement of the political opposition. The doc- tional-grade investment buildings, the negative BBJ gergő rácz ument was scrutinized because it gave the govern- image of the country and the cost of lending. ment jurisdiction and opportunities to assume Thus, Poland and the Czech Republic remain Hungary lists among its successes the control of every significant regulatory or judi- the stars of the region. ratification of a Roma strategy as well as ciary institutions through appointments and also “Unfortunately, there is nothing going promoting expansion of the Schengen to essentially cement their nominees in posts for on in Hungary, which is the only one of zone for Bulgaria and Romania and also periods that will reach well into the term of the our core countries where the market is clearing the EU accession of Croatia. It next government. quiet at the moment. There have been no is generally accepted that Hungary perDespite the altogether successful presidency, investment opportunities in the last few formed well in forwarding talks on other civil liberties monitor Freedom House said these months,” said Manfred Wiltschnigg of the important issues like the adoption of the and other steps greatly weakened the rule of law Austrian investor/developer Immofinanz six-pack economic package as well as its in the country and marked the greatest setback Group at Real Vienna.

Strategically located where some of the approach to the crises that emerged in the in Hungary’s democratic development since the major CEE investors such as Immorent, Erste eurozone, Japan and the Arab countries. transition in 1989. n

Group, Invesco and Bank Austria are based, Real Vienna aims to provide a meeting place for CEE-based companies and the major investors, banks and consultancies. Vienna obviously provides a pleasant networking environment and a neutral venue for the country representatives competing for the attention of potential investors and developers.

According to organizers Reed Exhibitions, Real Vienna 2011 attracted 6,463 participants for the sixth edition of the event. From the CEE region, exhibitors were the city of Budapest, as well as Poland, Slovenia, the Russian Federation and Serbia.

In spite of doubts on the part of a number of companies over entering some CEE countries,

Being taxed chipsless & sugarfree The government has approved for submission to Parliament a controversial new levy on food products deemed unhealthy. The cabinet anticipates HUF 20 billion in annual revenues that would go directly to improving public health, but there are also worries the measures may have a vastly different effect.

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Claimed to be an effective tool in improving the troubling general state of public health in Hungary, a new tax will have you digging deeper into your pockets when buying snacks and treats. The national health product fee, or the so-called hamburger tax – which incidentally does not affect the price of hamburgers – will boost the cost of energy drinks, salty snacks, sweets and instant soups, in some cases by as much as 62%.

The measure is to introduce a fixed tax amount on the product groups that are deemed harmful based on the amount of salt, sugar and caffeine they contain. According to a text of the bill obtained by the Budapest Business Journal, for some of the products the government will propose a two-step increase, one after ratification – now expected sometime during the summer session of Parliament – and another effective January 1, 2012.

What this translates to in specifics is HUF 10 per liter of soft drinks in additional costs, rising to HUF 15/l next year. For packaged sweets the tax will be HUF 200 per kilogram, rising to HUF 250/kg in 2012. The largest leap is set to come in the category of salted snacks, where the additional HUF 400/kg will constitute a 61.9% rise in prices, a study released by the IDEA think-tank found.

The biggest rise in numeric terms is planned for powder-based packaged foodstuff with HUF 500/ kg, but lacking consumption data there is no available basis of comparison to provide percentages.

Ambitious plans Given that it would only be in effect for a relatively short period of time this year, the government’s revenue plans mostly involve 2012, especially with the revised and raised tax brackets coming in January. The National Economy Ministry estimates that while the takings will amount to HUF 3–5 billion this year, the amount will rise to HUF 15–20 billion in 2012.

The tax will be introduced to “reduce the volume of food products that damage the general state of public heath, promote the consumption of healthy alternatives and improve healthcare services, especially financing public health programs,” the wording of the bill indicates. However, it is widely accepted that the additional funds will go straight to filling the gaping holes in the finances of the healthcare sector. This is underlined by IDEA’s conclusions, namely that if the goal is to produce awareness campaigns, than the planned amounts are excessive and therefore unnecessary.

The changes introduced under the Hungarian version are to be significantly larger and are therefore set to generate a bigger drop.

Manufacturers also have the opportunity to react by promoting alternative product lines, such as sugar-free beverages over their sugar-containing and thereby taxed counterparts. Though this would reduce the amounts of sugar consumed by the public, since the volume of sold sugar-rich drinks would drop, it would not allow the state to boost revenues. Also, it is feared the tax will invigorate the black market, especially in towns near the border.

Double standards Conspicuously, the bill is very clear that its provisions will only affect packaged foodstuffs. What this means is that buying a box of ice cream at the grocery store will cost more, whereas getting two scoops from the parlor on the corner will not, Furthermore, there are doubts as to whether even if they happen to contain the exact same the government has factored in the ensuing drop amount of sugar. Accordingly, retailers will have in consumption when calculating the figures. to take on the burden whereas hospitality is in the Research by the BDO Forte financial consultancy clear, once more putting into doubt whether the found that if consumers responded with a 10% government is aiming for better public health or decrease in overall consumption of the affected just looking for easy money. products groups, the related drop in VAT earnAnother seemingly unfair aspect of the bill ings for the treasury could result in an overall neg- which BDO Forte pointed out is that it mainly affects the price range of cheaper products. For ative tax balance for the budget.

Based on international examples, IDEA a single item of packaged food covered in the bill likewise predicts that consumption, and which currently costs less than HUF 100 apiece, thereby the volumes of tax collected, will drop. the increase could come to 10%. This change will For instance, studies found that a 1% price be most detrimental to the less-affluent shoppers, increase on salty snacks in the United States who choose cheaper and in most cases unhealthy led to a 0.2% to 0.7% drop in consumption. products out of necessity, the company said. n

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Budapest Business Journal | July 1 – July 14

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quiet property market in CEE above 12% in Croatia, which is taking longer to come out of the crisis.

Foreign direct investments have also picked up, as in Hungary the negative trend has been reversed and FDI into the country reached about 2% of GDP in 2010. FDI in the Czech Republic almost doubled in 2010, making it the highest in the region at almost 4% of GDP. However, the preference remains for Poland and Czech. “I think you get the same answers from everybody: Czech and Poland are the investment destinations and possibly later Romania. Budapest is a bit weak at the moment and therefore we are not investing there at the moment. We have just financed an office project in Poland,” said Franz Paul Bauer, managing director of the developer S+B Gruppe.

Although doubts remain in the eyes of investors and developers regarding Hunthe economic fundamentals would appear to be to 1.8% and 2.8% for Czech and an outstanding gary, developers such as Raiffeisen Evolution in place. At a breakfast briefing at Real Vienna, 4% and 4.3% for Poland, the only EU country (RE) and Skanska are going ahead with projImmorent (a member of the Erste group), the not to have moved into negative GDP growth ects. “The biggest problem is finance as with Austrian investor that concentrates its activities during the economic crisis. a high equity requirement and the high cost on the CEE region, argued that the CEE econoFurther east, Romania, which was badly of lending it is difficult to persuade a board mies are “back on the growth path.” hit by the crisis, is expected to show GDP to invest. The equity requirement from lendAccording to Günther Anter, co-head of growth of 2% and 3.9%, respectively. Growth ers for a project can be almost twice what it is CEE Equity Research at Erste Group AG, in EU candidate Croatia is forecast by the in neighboring countries,” said Rudolf Riedl, GDP growth for the next two years stands company to be 1% and 2.1%. managing director of RE Hungary. at around double that in Western Europe.

The average growth forecast for what Real estate investment turnover in CEE “Although nobody feels this so far; it will take Immorent describes as the CEE8 (consist- continues to rise as it reached €4.4 billion some time before they realize it is back on ing of Croatia, Czech, Hungary, Poland, in the first five months of 2011, according track. Hungary, Romania and Ukraine are no Romania, Serbia, Slovakia and the Ukraine) to CB Richard Ellis. This is an increase of longer the bad guys,” he said. is 3.1% and 3.9% for the next two years. 180% compared to the same period of 2010.

Hungary is expected to record growth of However, unemployment remains high in Despite investment activity spreading into 2.7% for 2011 and 3.1% in 2012. This compares Hungary and Poland at above 10%, and a wider range of CEE markets, investor

focus has remained on Poland, the Czech Republic and Russia.

Significantly, office yields have fallen in Poland and the Czech Republic and there remains a significant yield differential between these leading countries and Hungary. However, there remain distinct signs of improved sentiment towards CEE as a region. Forecasts show potential for further yield compression in CEE as office vacancy of slightly below 15% should have seen its peak and continue to fall.

Immorent sees long-term growth potential in the CEE office markets. “The office market in Erste Bank’s core region is characterized by a historically low modern office stock, as the sqm per person is only a fraction of what it is in Western Europe.” The company argues that the high level of demand from consumers will continue to stimulate the retail market as existing space is still low.

Despite concerns over high vacancy rates and the wider economic crisis, the Austrian Erste Group Immorent AG is due to complete the Laurus office complex in Budapest later this year. The €37 million development consists of three separate buildings providing 15,000 sqm of office space and 1,000 sqm of retail space. Developers in Budapest are looking to 2011–2012 for a fall in vacancy rates to a more manageable 16%.

Seasoned observers of the markets realize that the positions of different countries can very quickly change and investors could again shift their focus as the Polish and Czech markets become overheated. n

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Budapest Business Journal | July 1 – July 14

Five ways the new procureme The National Development Ministry has recently presented the draft law on public procurement to Parliament. If passed in its current form, the law will consist of some 200 paragraphs, halved from the current more than 450, and aims to simplify public procurement processes.

BBJ Patricia Fischer

The law currently in effect is not regarded by experts as a bad one, but its application has raised many questions. Some say its nontransparency allows corruption and thus the excessive spending of public money.

Corruption, obviously, can not be stamped out with any single law. Even if the legal framework helps to reduce corruption, its application into practice is always a weak point.

While most experts welcome the government’s efforts to fight corruption, the general view is that this new bill leaves too much room for uncertainty.

Public procurement in Hungary is still a strikingly large market. According to data from the Public Procurement Council, more than 10,000 tenders were completed last year, a 60% increase from the previous year.

While the number of public procurements and their value showed a fairly steady increase in the period between 2000 and 2006, and peaked again in 2009,

last year saw a decline in the amount spent through such procedures.The total of the procedures decreased more than 17% to HUF 1,500 billion, still a strikingly huge sum. The contracted public procurement value compared to GDP is about 5.5%, which leaves a lot of room for development when compared to some other EU states. (It is 17% of GDP on average in the EU).

More than half, 52%, of tenders in 2010 were related to construction, a four percentage point growth from the year before. Services accounted for a quarter of the procedures, and the purchase of goods had a 22% share.

The President of the Public Procurement Council put the decline down to narrowing state and market resources: while there were 25 public procurement procedures above the value of HUF 10 billion in 2009, last year there were only 10 cases of this scale. According to Transparency International, the reduced spending on public procurement derives from the modification of the act in 2010, when several areas became exempt from public procurement procedures.

The deadline for passing the new law was set in the New Széchenyi Plan, but lawmakers have exceeded the January target. It is currently being discussed in Parliament. n

Simplified, but not more transparent

The government aims to create a less complicated, more transparent law by cutting back the length of the act Although experts welcome the fact that the number of paragraphs have been cut back to 150 in the draft from the current 400, they argue that it leaves several important areas to be regulated in separate laws and government decrees, potentially endangering transparency and speed. “The proof is in the pudding,” Dániel Gera, attorney-at-law and public procurement expert from the Gide Loyrette Nouel d’Ornano Law Office, noted. The current law has been criticized for being too complicated and has raised several worries regarding its application. Lawmakers have come up with a simpler and shorter version, but only time will tell whether its brevity will help or harm the solving of procurement problems. One painful issue is the matter of competence. “Now, when and how a bidder may be requested to certify its competence is regulated by law. If the draft law is passed, it will be governed by a government decree, and no one knows yet what this decree will say,” Gera said.

public procurement in hungary

National procedures

The draft would allow a specific procedural regime to be created and used for national procedures

number of procedures Source: Public Procurement Council

value of procedures (HUF bln)

A critical element of the bill is the misinterpretation of the principle of flexibility, TI said. Given that three-quarters (in 2010, 73.8%) of the procedures, the value of which is 26.5% (about HUF 400 billion) of all the public procedures, were conducted by the contracting authority under EU thresholds, the extremely flexible regulation makes the possibility of abuse more likely, TI noted.

“Flexibility can have a positive result,” said Zsófia Perczel, lawyer and public procurement consultant. “For example, it often happens that a public entity can only get a product or a service above the market prices due to strict regulations in the procedure. By creating its own procedure, it might save on costs,” Perczel said, warning that this could only work if applied correctly. “Otherwise, it could indeed increase the risk of corruption.”

National procedures will simplify the procurement process, and can create opportunities for smaller companies as well, the National Development Ministry said. Also, such procedures can only be applied in the case of services and goods, but not in the case of (typically higher value) constructions.

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Budapest Business Journal | July 1 – July 14

nt bill might create an abyss Shifting power

The draft plans to replace the Public Procurement Council with the Public Procurement Authority, a body under direct government supervision The 10-member council is currently subordinated to Parliament, and headed by an independent president. The members of the council are designated by the major actors of public procurement: three members represent public interests, three the general interests of the contracting authorities and three the general interests of the bidders. If the draft passes in its current form, the new authority will operate as a government body and will also have a controlling function.

The main criticism is that the body will automatically lose its independence if overseen by the government. The new authority would be the employer of the procurement officers. “This way, the executive body will have a chance to influence the body that deals with first-instance review,” Transparency International (TI) noted.

Staying in-house

The period for in-house contracts (when no public procedure is required by law) is planned to be increased to five years from the current three In-house procurements, when a company otherwise subject to public procurement can contract with its own subsidiary without the procedure, have been a convenient way to find the legal loophole in the system. One example for this was the new car fleet of Magyar Posta: it planned to lease the fleet from its own subsidiary, which, it is not subject to public procurements, could purchase the cars directly from the market. Thus, in two simple steps, the public procurement procedure was avoided.

According to critics, extending the period of in-house contracts would give ground to further misuses.

The National Development Ministry argues that the law should allow long-term planning for companies subject to public procurement.

Favoring the small

The draft aims to provide a competitive edge to small- and medium-sized companies. It allows the application of negotiation procedures based on invitation below the HUF 25 million threshold in cases of products or services and HUF 150 million regarding constructions Providing opportunities for the SMEs is important, said Gera, but doing so in public procurement is not necessarily the best way to reach this goal. “Small- and medium-sized companies can’t always provide cheaper prices or better services or products, and one wonders why taxpayers’ money should be spent on supporting small firms,” he said. Others agree that it might create imbalanced competition, and could induce more shady businesses both for tenderers and bidders. It could even contradict EU regulations on public procurement if there are EU grants involved.

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The future of nuclear energy Following the nuclear crisis in Fukushima, European countries are rethinking their approach to atomic energy.

BBJ zsófia végh

Time is a tricky thing. The same period can feel completely different depending on what it refers to. In energy production, short-term means 30–50 years. In politics however, where one can plan ahead for four years at best, short-term can be just a matter of days.

This probably accounts for the decision of the German government in late May to shut down all working nuclear power plants in the country by 2022. Why would a government otherwise reverse a decision, taken less than a year ago, extending the lifespan of its nuclear reactors by 12 years on average? The extension was unpopular in Germany even before the radioactive leaks at the Fukushima plant, but after it, thousands protested against nuclear power.

The German response to the Japanese catastrophe was – without doubt – political. It was not only Germany, though, that reversed earlier decisions. In Italy, where nuclear energy’s popularity has been low for a long time, ten new reactors were to be built that would have increased the share of nuclear energy in the country’s electricity mix to 25% by 2030. But after a recent poll and bowing to public pressure, the government scrapped those plans.

Recent European energy policy has not only been shaped by the nuclear crisis in Fukushima.

“The economic recession and a smaller EU budget, the uprisings in North Africa and the related supply uncertainty in the region as well as energy market liberalization have all made an impact on it,” explained Edit Herczog, a Hungarian MEP who sits on the Committee on Industry, Research and Energy in the European Parliament. However, Fukushima triggered stronger reactions than the other factors.

In March, Günther Oettinger, European Commissioner for Energy, said the EU should abandon nuclear energy. He also proposed the introduction of a tax on nuclear energy use when addressing the Environment, Public Health and Food Safety committee of the European Parliament.

Later, he pushed for stress tests within Europe to enhance the safety of existing plants. (see boxes) The German reaction to Fukushima, as well as Oettinger’s comments, were surprising as a complete omission of nuclear energy from the energy mix could have serious repercussions. First, dependence on other energy sources would grow significantly. The proportion of oil

and coal-based energy supplies, the use of which most countries in the EU are trying to cut back, would rise significantly. So would vulnerability of the Union towards suppliers.

Also, phasing out nuclear power plants entirely could destroy a country’s competitive edge. “In the energy market, those with technology and production are the decision makers,” Herczog pointed out. Should Europe chose to abandon this form of power generation, it would only promote China’s expansion in nuclear energy.

Leaving nuclear behind would be undesirable from a professional viewpoint as well. This is an extremely small industry with just a handful of highly specialized professionals. “Dismissing them would equal to wasting precious and rare expertise which is hard to replace,” Herczog said.

The reasons above do sound weighty, but are only one side of the argument. The other is the destruction and the far-reaching effects of Fukushima, Chernobyl or Three Mile Island. No government would dare to question that. Especially now that, according to a recent Ipsos study, support for nuclear energy versus other sources is at its lowest point ever; even coal is ahead of it.

Worldwide, 38% of people support nuclear energy for electricity production, a number that has dropped 16 percentage points since Fukushima. Also, 73% of people see nuclear power plants as temporary solutions. Interestingly, 71% of the Japanese still support this technology.

Those opposing the use of nuclear power argue that power plants can never be made completely safe – and they are likely right. So what could

Tests will be carried out at three levels:

be the answer to the dilemma of supplying an energy-hungry EU safely and continuously?

One alternative – which is probably the most supported – is the enhanced use of renewable resources. The EU is already a huge fan: by 2020, it intends to draw 20% of its energy from renewables and 100% by 2050. However, even though solar energy ranks first in terms of public support (see chart) it is still a rather costly option.

Plan B could be to build nuclear power plants that are far safer. This should not pose a big challenge, as the next generation of power plants is designed to work with nature, not against it.

They are called “walk-away safe” in nuclear language, that is, no human interaction is needed should something go wrong. These power plants are much safer – but also much more expensive.

So in countries that have decided to continue to pursue nuclear energy production, such as Sweden – where last June the government reversed a 30-year-old policy of phasing out nuclear power plants and decided to replace existing plants with new ones –, it may be a solution.

“Nuclear energy has always had its supporters and opponents: and not even Fukushima has changed that,” said András Gyürk, a Hungarian MEP of the European People’s Party and member of the Committee on Industry, Research and Energy. “However, supporters have realized that no compromises should be allowed when it comes to safety.”

Hopefully, in the long-term, responsibility and not politics will decide the future of atomic energy. n

Worldwide popular support for various methods of energy production (%)

1. Pre-Assessment: The plant operators have to fill in a stress test questionnaire, describing how the plant would react in different situations, and they must submit engineering studies.

2. National Report: The national regulator will check the credibility of the preassessments.

3. Peer Reviews: The national report of the regulator will be reviewed by other regulators within the European Nuclear Safety Regulators’ Group (ENSREG), which represents the 27 independent national authorities responsible for nuclear safety.

The results of the test will be made public by April 2012. Even though the findings of the report are not binding, and could not be enforced at an EU level, experts believe that public pressure could be strong enough to make governments review or close plants if necessary.

Source: Ipsos

Nuclear power plant stress tests methodology Following the nuclear catastrophe in Fukushima, Japan, the countries of the European Union agreed to review the safety of their nuclear power plants. The tests started on June 1 and the results will be published early next year. The reviews, or stress tests, will test plants for a set of additional safety criteria besides existing ones.

The aim is to find out whether the safety margins used in the licensing of nuclear power plants are sufficient to cover unexpected events.

What will be assessed in the stress tests?

Whether the nuclear power plant can withstand the effects of the following events: 1. Natural disasters: earthquakes, flooding, extreme cold, extreme heat, snow, ice, storms, tornadoes, heavy rain and other extreme natural events.

2. All man-made failures and actions: these accidents include: airplane crashes and explosions close to nuclear power plants, whether caused by a gas container or an oil tanker approaching the plant. Comparable damaging effects from terrorist attacks (airplane crash, explosives) are also covered.

3. Preventive and other terrorist and malevolent acts: Preventive measures for terrorist attacks – meaning all measures that should stop an attack from happening in the first place – will be dealt with separately, involving anti-terrorism experts and officials of ministries for national security.

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Energy News

Co-generation in the cold Subsidies for natural gas-fuelled power plants co-generating heat and electricity have been abolished after an amendment passed in April.

While the government seems to have found a backdoor solution to keeping cogen producers subsidized, electricity providers should not get their hopes up.

BBJ András Zsámboki

Earlier in June Parliament passed an “amendment” to the regulation on combined heat and power generation (CHP). This means that all power plants which are excluded from CHP subsidies will still receive money from a fund via electricity grid operator Mavir. The fund will comprise of payments from the so-called “production system re-organization” fee built into the price of electricity. This could mean the return of CHP subsidies through the back door.

But it is unclear what the government’s intensions on supporting CHP are. The idea behind subsidizing co-production of the same amount of heat and electricity is that it can be done at a lower cost and with less carbon-dioxide emission than in the case of separate production. On the other hand, single-furnace heat generation is in itself more efficient than when it is combined with electricity production, while standalone electricity production is significantly less efficient.

Still, despite the rise in efficiency, smaller heat producers would not consider starting up CHP on their own; but if the state subsidizes the complementing of their furnaces with electricity generators, and even helps them sell the surplus power, they would be incentivized to invest in such improvements. That is the reason why CHP is centrally subsidized in 28 countries in Europe.

District heating as a disaster This is not, however, the case in Hungary, where CHP is about the subsidization of district heating. Given the financial state of the country, district heating costs are difficult to cope with and since the technology is widespread, bailing these people out has always been an important political motivator. “In Europe, district heating is the most desirable heating method possible: it is comfortable, environmentally friendly, and it can easily be switched to any renewable fuel,” Tamás Zarándy, leading expert of the industrial energy consumers’ association IPENERG told the Budapest Business Journal. “In Hungary, however, district heating is a major disaster: the biggest chapter in the maintenance budget, which seriously reduces the market value of an apartment,” he added.

There are several historical and social reasons behind the relatively high price of district heating in Hungary: from the poor

insulation of residential buildings constructed under communism, the declining number of industrial consumers and the fact that residents of remotely heated homes are usually not the wealthiest. These factors, however, should not necessarily cast a shadow on the future of district heating.

In Zarándy’s opinion the problem is that the energy sector has not defined a district heating strategy to this day, and politicians pounced on the issue instead: they cross-finance district heating from the electricity prices. “The reduction of the approximately 600,000 district heating consumers’ costs is put on the shoulders of several million electricity consumers,” the IPENERG expert said.

“As the financial consequences of this are spread out evenly, electricity consumers are not aware of the additional burden. What is even more important, they are unable to represent their interests in a concerted way,” he noted.

The situation is somewhat different in the case of big industrial consumers. Their competitiveness is seriously impaired by the fact that electricity in Hungary is the most expensive in the whole Central European region. Across all of Europe there are only six countries where the price of electricity is higher than in Hungary.

Bone of contention Conflicting interests related to CHP led to rarely-seen clashes within governing party Fidesz in January this year.

State secretary in charge of energy affairs at the National Development Ministry János Bencsik wanted to keep the district heating subsidies, although on a 15% lower level, even after scrapping CHP subsidies in 2011. In fact, he managed to reach an agreement about this with municipalities that also own heat producing and providing companies.

At the same time János Lázár, leader of the Fidesz parliamentary group, introduced a modifying bill according to which fossil-fuelled power plants would be excluded from CHP subsidies. At this point Bencsik openly turned against Lázár in a Facebook post. He pointed out that if CHP subsidies are eliminated, district heating fees may rise by as much as 40%. This, in Bencsik’s opinion, would represent an unbearable burden on district heat consumers. The central budget would then have to support these people, which would, in turn, increase national deficit. Lázár argued that the CHP system had originally been designed in 2002 in a way that investments would be recouped by 2010. If it is maintained any further it would simply mean a public contribution to investors’ profit.

The debate ended in a sort of compromise: the combination of the scrapping of CHP subsidization in April and, the introduction of the fee that would go to the Mavir fund in June. The latter was not discussed at all by the parliamentary committees concerned; it was introduced as a motion by an MP instead of a government proposal, allowing it to be ratified easily without much debate. The impact of the modification is impossible to determine.

Many experts think the two laws mean not so much a compromise as postponing a conflict. “It all depends on what will be included in subsidiary regulations,” they think. The question of who the new system will favor will be decided by how the new fees built into the price of electricity will be distributed.

The BBJ has asked the Hungarian Energy Office (MEH), the supervisor of the sector, but received no relevant answer. “We will complete the detailed regulations of the division of Mavir funds by the end of summer,” Csaba Vigassy, head of MEH’s economic analysis department said. It is a safe bet that as the BBJ hits the newsstands they will not be ready, as July 1 is the end date of the subsidization system’s existence; that means there will be a foreseeable hiatus in the provision of subsidies. On the other hand, they must come up with a detailed regulation by autumn, the beginning of the heating season, or else heat producers will be unable to draw up their price tables.

Pros and cons According to an analysis of the regional energy research center REKK – held in high esteem by the profession – the CHP system has three weak points. As far as legal modifications are concerned, it is quite promising that all of them are mentioned in the June amendment. Their final solution, however, is up to MEH’s upcoming regulation.

REKK’s researchers consider it problematic that the KÁT regime (short for mandatory power off-take tariff) is applied uniformly to CHP and all sorts of electricity generated from renewable fuels.

Their public benefits differ greatly.

Wind and water power plants have no carbon-dioxide emissions at all, which is not the case for natural gas heated CHP power plants.

What’s more, since 2002 CHP has had a growing share of the common subsidy, by now reaching almost 70%. The modifying act has put an end to this process by abolishing CHP subsidies.

On the other hand, if “production system reorganization fees” will not be available to CHP power plants only and there is no timeline for how long it will stay in effect, then for all intents and purposes the abolishment was pointless.

Another aspect REKK researchers noted is how subsidies exceeded energy investors’ expectations in CHP. Looking at state bonds as a benchmark and the calculated market prices, CHP investors received a surplus profit of HUF 10 billion annually in the form of subsides.

This had no further stimulating effect on CHP investments. It has, however, contributed to the distortion of electricity prices.

Finally, researchers say that in 2007 an extension of the subsidy system to existing giant CHP power plants like Budapesti Erőmű’s Kelenföld plant was foredoomed to failure. It had no stimulating impact on investments, and it produced a profit for its French owner EdF for an investment that had been recovered by the time it was eligible for subsidies. Now, all these huge CHP power plants, like those in Budapest, Debrecen and Nyíregyháza, are excluded from the subsidy system by law. n

E.ON inaugurates Gönyű power E.ON Erőművek Kft, a unit of Germany’s E.ON group, has officially inaugurated a 433 MW combined-cycle gas turbine (CCGT) power plant in northwest Hungary’s Gönyű, following a €400 million investmen.

Construction of the plant, E.ON’s biggest in Hungary to date, started in early 2009, with Siemens Energy acting as the main

contractor. The Gönyű plant will have an efficiency rate of 59%, among the highest in Hungary’s power generation sector.

Its capacity accounts for almost 5% of the nationwide total of around 9,000 MW. “This is one of our major power generation investments in this part of Europe,” Bernhard Fischer, CEO of E.ON Generation GmbH, said at the inauguration ceremony. “The plant is setting a new benchmark for power generation in Hungary.”

The power plant site was designed and built so that it can accommodate another

similar-sized power plant block, which would take total capacity to more than 800 MW. While many industry players assume that a second Gönyü unit will indeed be built later this decade, company officials stressed that no decision has yet been taken.

“We are constantly monitoring market developments to see if we can invest profitably in a new unit,” said Zoltán Katona, managing director of E.ON Erőművek Kft. As the plant’s output can be raised or lowered flexibly, it will operate mostly as a peaking plant, meaning it will run mainly

during the daytime on weekdays, when demand for electricity is highest and can change quickly.

The opening ceremony was also attended

by Hungarian President Pál Schmitt and state secretary for energy affairs János Bencsik, who both highlighted the power plant’s role in the reliable supply of electricity to Hungarian households and industry.

“The plant will significantly improve the flexibility of the Hungarian power system,” Bencsik said. “The Gönyű plant is filling an important gap." BSz

BBJ CO2 strategies CORPoRAte

focus

industry is getting s There are many ways for companies to reduce their harmful emissions, whether it be through the installation of new, more sustainable technologies or simply making better use of the gear and procedures they already have in place.

Here’s how some of them go about doing it.

Profile:

Telecommunications technology and related services to mobile and fixed network operators.

Product portfolio:

End-to-end solutions for all major mobile communication standards.

Ericsson can boast that globally its systems service 2 billion subscriptions accounting for 40% of the world’s mobile traffic.

Operation in Hungary:

Profile:

Providing post-manufacturing repair and supply chain services.

The company’s activity is targeted at meeting specific requirements of a clientele operating within the computing, consumer digital, infrastructure, industrial, mobile and medical markets.

Product portfolio:

Distribution, product transformation, reverse logistics and repair, service parts logistics.

Based in Budapest, the company employs 1,500 people with a program announced in March that is set to add another 400 to the headcount.

Operation in Hungary:

Footprint reduction:

Footprint reduction:

The new base is fitted with solar panels that can cover 55% of annual hot water demand. The design ensures that natural light is available to every employee while also reducing the need for artificial lighting; but even that is provided through modern, energy-efficient T5 bulbs.

The Hungarian arm is also bound by a group-level commitment made in 2009 to reduce its carbon footprint through assuring a lifetime operation of delivered products as well as optimizing company activities. The target is to reduce the carbon intensity for these categories by 10% a year, or 40% added up over five years compared to the 2008 baseline. Last year, the 10% reduction target was successfully achieved. In fact, indirect emissions per capacity from delivered products were reduced by 14%, resulting in a 26% total drop compared to the 2008 base.

In 2010, the compressed air system was reconstructed, upgraded and resized to meet actual needs and requirements. During the process, two inefficient compressor units were replaced by a new and more cost-effective compressor. With this improvement the electricity cost of compressed air dropped by 38.2%.

In 2011, the company installed a new cooling system technology for customer-specific heat chambers. As a first step, instead of dissipating the heat directly into the operational area, which generates additional need for cooling, the new solution ensures that the generated heat goes directly outside the building through the newly installed external heat exchangers. This represents savings of 90.9% in electricity, which means a 230,400 kWh energy consumption decrease annually. The next step on the agenda is to find a way to re-use the dissipated heat (e.g. for heating in winter time).

The company prides itself on its new Budapest HQ, the Népliget Center developed by a compatriot of its parent, Swedish property firm Skanska. Through incorporating a broad range of environmentally sustainable solutions that lead to various certifications, through the move alone, energy consumption was reduced by 25%.

1,500 people on sites spanning 50,000 square meters in Budapest and Gyál.

In the summer of 2009, it replaced the majority of its T8 fluorescent overhead lighting system with more efficient T5 units. Altogether, 675 fixtures were changed. With this action, lightingrelated electricity consumption decreased by 57.4%.

focus 13

www.bbj.hu

Budapest Business Journal | June 4 – June 17

▶▶ Driving the green business machine ▶▶ Trendspotting: geothermal plants ▶▶ LIST: Largest sustainability reporting firms ▶▶ Market analysis: Manufacturers take part

〉page 14 〉page 15 〉page 16 〉page 17

marter and greener Companies are under increasing pressure to pitch in when it comes to reducing harmful emissions, whether it is to meet state requirements or to improve their image. Whichever the case, no well-known brand can say it just doesn’t care about the subject.

BBJ Gergő rácz

Profile:

Contract manufacturing for partners in a broad range of industrial areas.

Product portfolio:

Electronics, metal and plastic components utilizing in-house technologies used in manufacturing, repair and assembly.

Operation in Hungary:

Based in Székesfehérvár, the company employs 7,900 people.

Footprint reduction:

The company has an ISO-certified corporate management system and has invested extensively in reducing its electricity and heat consumption over the past years. Since 2005, it has spent HUF 307 million on infrastructural upgrades that are projected to lead to HUF 103 million in annual savings. Also on the agenda is another HUF 450 million worth of energy-efficiency spending for which the firm was also approved grants.

As a result of these tweaks, CO2 emissions were reduced by 1,503 tons. In the past years, the company cut back its electricity consumption by 19%, assuming 2005 as the benchmark. This translates to 7,923 kWh per capita in 2010, from 9,735 kWh five years earlier.

Although not yet utilizing renewable energy sources, an energy audit is underway that is meant to pave the way for introducing solar solutions, geothermal, biomass and other alternatives to produce electricity. The main focus of the survey is to produce a cost-recouping estimate of going green in heating and power.

In the meantime, it continues to focus on smaller upgrades that contribute to the eventual total. These include the installation of energy-efficient LED bulbs for lighting, switching to better insulation on walls as well as doors and windows that conserve heat, and modern solutions that allow heating and consumption in separate buildings and rooms to be measured and regulated individually.

The European Union has made considerable headway in meeting its emission targets to the point that companies have joined environmentalist calls to raise the targets. The EU requirement was to reduce overall CO2 emissions 20% by 2020. However, the rapid spread of new technologies and investments in the area – aided by reduced energy consumption during the peak crisis years – indicate that this target will easily be met.

According to environmentalists at Greenpeace, if the EU were able to realize the goals it has already laid out regarding sustainability and renewable energy, it would lead to a 31% drop by 2020. Citing an Ecofys study, the group stated that in light of the trends the 20% reduction target is outdated, not to mention the fact it is in itself insufficient to meet the longer-term target of reducing emissions by 80-95% by 2050.

Environmentalist mentality The issue is now also getting support from prominent players of the private sector. Greenpeace claims among the drive’s supporters heavyweights such as Magyar Telekom, Vodafone, Tesco, Ikea, Nestlé, Google and Axa, which are also urging governments to increase the margin to 30% and are willing to lobby to that end.

Companies like Ericsson from the bestpractices compilation on the previous pages have actually shaped their corporate image around environmentalism. The websites of numerous firms – especially Scandinavian ones – now feature “corporate responsibility” tabs or various green manifestos explaining the importance of reducing the impact of their operations.

Companies exhale Businesses still have plenty to do though, since, as one would expect, the industry is a major contributor to the world’s overall CO2 output. A 2010 report from the International Energy Agency shows that in 2008, the electricity and heat sectors generated a total of 41% of the global aggregate, with transport producing 22% and industry 20%.

About 93% of CO2 globally originates from the combustion of fossil fuels, and the remaining 7% from specific industrial processes, European Environment Agency records show, underlining the significant impact of energy companies and transportation. The other most common greenhouse gases – that are blamed for global warming – methane (CH4) and nitrous oxide (N2O), mainly products of agriculture and waste management, account for about 8% and 7% of total emissions, respectively. Fluorinated gases (F gases) from industrial processes represent 2% of total emissions.

Sustainability is especially important in urban settings. Today, around half of the entire global population are city-dwellers but the UN predicts that by 2050, the figure will have risen to 70%. The urban centers of the world produce nearly 80% of CO2 emissions but only cover 2% of the land. With the further concentration of the populace, the impact is set to increase dramatically in the coming three decades.

Staying sustainable Companies are now striving to offset these effects, not only through the products they make, but also in their operation. Power utility Elmű has begun advocating the use of electric cars, while earlier, gas utility Főgáz begun doing the same for gas-fueled counterparts. Such vehicles are almost certain to be added to the portfolios of a growing number of carmakers given the high percentage of emissions that are linked to transportation.

Telecoms companies are advocating the impact that the industry they represent could have on reducing emission simply by paving the way for better coordination and less unnecessary vehicle use. They, along with utilities, are also leading proponents of so-called smart grids, intelligent electricity grids where consumption is coordinated and optimized through the use of telecoms technologies. This technology is hoped to take-off globally as well as in Hungary, with energy major E.ON having already called a pilot tender while there is also research going on in the topic at the Dunaújváros University.

Money in the green bank Businesses are also coming to realize that investing in sustainability developments, despite the additional costs pays off. Property developers are now incorporating sustainable solutions into their projects from the drawing board, which lead to investments like Skanska’s office building that boasts a 25% reduction in energy. Spending on upgrades is also a good idea, as shown by the example of Videoton, which was able to reduce its annual expenses by HUF 103 million. n

14 focus

www.bbj.hu

Budapest Business Journal | July 1 – July 14

Driving the green busin Logistics service providers and major multinational retail chains are realizing that going green provides them with a competitive edge.

Environmentally friendly mechanisms and vehicles may be a major cost at the time they are adopted or purchased, but they provide a much more cost-efficient operation mode in the long term.

BBJ anna szaniszló

Logistics is one of the sectors that is potentially responsible for much in the way of CO2 emissions, and creating an extensive amount of waste due to its complex administrative processes. In the meantime, adopting environmentally friendly solutions and vehicles present a major cost for companies that are already suffering from major losses during the economic crisis. Yet logistics service providers and their clients have both started investing in green solutions, which they see as something that could give them a competitive edge.

“The less emissions a car releases, the less road fees the company has to pay.

And the less road fees the company has to pay, the larger its profit margin will be,” Gábor Kiss, managing director of Deltasped told the Budapest Business Journal. Being more profitable in the long run guarantees a sustainable good price in the eyes of large multinational customers, Kiss explains.

Retailers’ demands However, in the cases of multinational companies, it is not only a good price that matters. Service providers are expected to meet strict environmental criteria, too. Often, the parent company sets certain rules or prescribes quotas for goods that have to be delivered via environmentally friendly methods. It may also define the environmental grade of vehicles that its subsidiaries can work with.

The logistics partner of hypermarket chains Auchan and Tesco for example makes all deliveries with Euro5 trucks. “Greenness was very important for us when we chose our logistics partner”, Katalin Gillemot, external communications director of Auchan told the BBJ. Tesco, first among food retail chains on the BBJ’s Book of Lists in 2010, agrees that green

[ case study ]

Honda contributes to preserving the climate While international organizations wrangle with each other about setting new carbon emission reduction targets, firms like Honda are flying over benchmarks and setting ever more ambitious new targets.

I

n 2006, Honda set a goal to reduce global CO2 emissions from use of its motorcycles, automobiles and power products by 10% by the end of 2010 (compared to year 2000 levels). In 2010, this goal was achieved by all products.

Now it has set out to reduce CO2 emissions from its global products by a further 20% by the end of 2020 (compared to 2000 levels). In addition, the company has pledged to reduce CO2 emissions during production and through the supply chain and in its offices. Honda will also reinforce its efforts in advancing technologies in the area of total energy management to reduce CO2 emissions in people’s everyday lives.

Hybrid power In Honda’s view, the ideal way to reduce its environmental impact is to earn the support of consumers by promoting the use of products with small environmental footprints. As the company puts it in its annual environmental report, it mostly wants to achieve this through the creation of attractive and affordably priced products with extremely low CO2 emissions and fuel consumption.

Last year saw the global launch of the PCX, a low-priced 125 cc scooter that provides dramatically improved fuel efficiency thanks to the addition of a computer-controlled fuel injection system and idle stop system.

Fuel-saving: game on It also launched the Insight, a compact, lightweight hybrid automobile equipped with the Honda IMA

hybrid system, which delivers superb fuel efficiency.

The same system was utilized in the CR-Z compact car. This vehicle incorporates features designed to combine fuel efficiency with driving fun, including the world’s first 6-speed manual transmission in a hybrid vehicle, and it has contributed significantly to the global popularity of hybrids.

In fact, it makes driving look like a game by allowing you to choose whether you wish to boost your enjoyment or economy on each trip out or get the perfect mix of both – where each driving mode is also linked to the meter lighting, changing from red (SPORT) to blue (NORM) to green (ECON). By switching between modes, the CR-Z will automatically alter the responses of the throttle, steering, idle stop time

and climate control, and the level of support from its IMA (Integrated Motor Assist) system.

Ecologically assisted However, it is with the hybrid version of one of its most popular designs, the Jazz, that Honda might do the most to change people’s relationship with hybrid cars. It is one of the world’s first alternative hybrid small cars, yet it is also one of the best priced ones at the moment.

Under some conditions, the Jazz Hybrid can even run on electric power only, using its Electric Vehicle (EV) mode. The result is improved fuel economy and a more refined drive. So whether you’re accelerating, cruising or slowing to a stop, the electric motor and battery pack maintain a lively, efficient flow of power.

The Jazz Hybrid also comes with automatic Continuously Variable Transmission (CVT) as standard, which delivers optimum fuel economy and ensures that the most efficient drive ratio is always selected. This means your Jazz consumes less fuel, releases fewer

emissions and, ultimately, saves you money. This goal is also helped by the Eco Assist system, which is designed to show you how you’re driving to help you keep improving.

And whichever way you’re driving, you can enjoy the flexibility of the Jazz’s famous one-button magic seats to make the inside of your car adapt to your needs.

Blue Skies for Our Children Honda engineers who took on the challenge to meet the stringent new emissions standards of the 1970s U.S. Clean Air Act, used the phrase “blue skies for our children” as a passionate rallying cry to devote themselves to this effort. Honda wants to pass on the joy and freedom of mobility to the next generation, therefore, we want to realize a sustainable society where people can enjoy life. This slogan continues to represent Honda’s environmental commitment, which has not wavered and will remain resolute in the future.

The circular graphic represents the earth and sun with blue skies (clean air), clean water, and lush green land expressing the bounty of nature that is necessary for us to realize a sustainable society where people can enjoy life. The white line through the middle represents a road where freedom of mobility is realized, while the heart represents Honda’s thinking and passion toward our environmental commitment.

For more information http://world.honda.com/environment/

focus 15

www.bbj.hu

Budapest Business Journal | July 1 – July 14

ess machine

Market eagerly waits for geothermal power plants Hungary has good potential for generating electricity from its underground thermal water reservoirs, but the current legal environment is scaring away investors.

BBJ Patricia Fischer

Geothermal energy is at the forefront of the government’s interest, János Bencsik, state secretary in charge of energy and environmental affairs ,said at a press conference recently. Currently, geothermal energy is usually used to generate heat, but by the middle of the decade, minerals from the bowels of the Earth might also be used to generate electricity, he said. Currently, there are only a small number of ongoing geothermal energy plant projects in Hungary.

Generating electricity from geothermal energy is less widespread than heating with it: 70 countries use it for heating, and only 24 for producing power.

History

solutions in logistics pays off in the long run. “Some solutions, like trucks with Euro5 engines, may be more expensive than regular ones, but we can also increase the efficiency of our delivery,” Tesco said. Thus the company can reduce the number of kilometers driven and still deliver the same amount of goods, or decrease the fuel consumption on the same route. In the end, it all costs less. effectiveness against CO2 Although green technology may be most important in saving money and reducing emissions, there are other contributing factors. Increasing the efficiency of logistics processes can achieve the same result. The “Full Truck” program at Auchan, for example, is meant to minimize “deliveries of air.”

This means that they try to send only fully loaded trucks.

Liegl & Dachser, a logistics service provider with €3.8 billion annual revenue in 2010 worldwide and 311,894 deliveries in Hungary last year, is attempting to reduce its fuel consumption, and therefore CO2 emissions, by utilizing a route planning program and maximizing haulage.

The optimal location of warehouses is also an important factor. Auchan did extensive research on the most favorable location for warehouses. “The analysis showed that delivering to our shops from a single warehouse is more favorable from an environmental point,” Gillemot of Auchan said.

Some companies go even further in being green, and use zero carbon emission vehicles. Gebrüder Weiss, a company which has an annual 7.6 million deliveries worldwide and 700,000 in Hungary, operates a train to deliver goods in an environmentally friendly way from its Hungarian logistics center to west Austria, south Germany and Switzerland.

The company is able to forgo annual 15,000 truck deliveries due to this, saving 2.5 million liters of petrol and 9,000 tons of CO2 emissions a year. cutting back on paperwork Companies are also trying to cut back on the negative environmental effects of extensive administration. Liegl & Dachser tries to reduce its paper-based administration by channeling an increasing amount of administration materials to its electronic system. Other companies go even further.

Gebrüder Weiss has been using paper-free communication methods with its customers and subsidiaries for years thanks to an optical archive, mobile scanners and an electronic system for submitting orders.

Light and moving air Companies are also modernizing storage methods in logistics warehouses to cut emissions. The warehouse of SPAR in Üllő, handed over in 2008, does not use any fossil energy sources at all. Its heating and cooling system is operated with thermal water, which circulates in a closed system, and after being used is released back to nature in an unchanged condition. Therefore the CO2 emission of the warehouse is reduced to close to zero. Liegl & Dachser uses geothermal heat and the heat produced by the air conditioning machines of its warehouses for heating the offices, too.

The lighting system of the Üllő based SPAR warehouse was also created to minimize its impact on nature. The performance of artificial light sources can be regulated based on natural light conditions; and some parts of the warehouse have rooftop windows which provide natural lighting throughout the year. n

The first geothermal power generator was built in Larderello, Italy in 1904, when fresh demand for electricity led to the consideration of geothermal power. Prince Piero Ginori Conti’s generator successfully lit four light bulbs. Seven years later, the world’s first commercial geothermal plant was built there. In the 1920s, experimental generators were built in Japan and California, but Italy remained the world’s sole commercial producer of geothermal electricity until 1958, when it became more widespread.

According to data from the International Geothermal Association (IGA), these 24 countries altogether have 10,715 megawatts (MW) of geothermal power capacities online, which all together churned out approximately 67,246 GWh of electricity in 2010.

Capacities are growing fast: there has been a 20% increase in geothermal capacity since 2005.

The IGA projects that there will be a growth to 18,500 MW by 2015 due to a large number of projects under consideration, often in areas previously assumed to have little in the way of exploitable resources.

One such area is Hungary. Electricity generation requires high temperature reservoirs that can are only available deep underground. Therefore, geothermal plants have until recently been built exclusively where there are high temperature resources near the surface – and Hungary is not located in such an area. But the development of binary cycle power plants (see box) and improvements in drilling and extraction technology may allow a much greater geographical range.

At full steam Hungary’s geothermal reservoirs are mainly used for generating heat and agricultural purposes such as heating greenhouses or fish ponds.

But the new binary cycle technology allows the utilization of lower temperature water for generating electricity, too. Renewable energy company PannErgy uses such technology in Berekfürdő in north-east Hungary.

The company extended its alternative energy portfolio last September by acquiring a 100% stake in Berekfürdő Energy Production and Services Kft. Now PannErgy operates a methane-burning power generation plant to produce electricity from meth-

ane gas extracted from thermal water and sells heat to local consumers. Its electricity production can reach 320 kW, while heat production is around 450 kW. The produced electricity is sold to MAVIR under the feed-in tariff system and to local consumers, while the heat is also purchased locally.

“The power plant gives new ways of utilizing geothermal resources and enables PannErgy to establish energy producing facilities operating along similar lines,” said PannErgy president Balázs Bokorovics. The plant thus avoids the emission of an annual of 400 tons of methane, dozens of times more harmful to the atmosphere than CO2. Pannergy thinks that Hungary will open its doors to geothermal plants in the near future: in its mid-term strategy it plans to build five geothermal plants in the next five years, it announced to reporters.

Power lines Geothermal energy regulation is currently scattered across more than 120 pieces of legislation and decrees. The government is now in the process of creating a new, simplified legal environment that will greatly boost Hungary’s geothermal competitiveness when compared to other countries in the region.

The industry is cautiously optimistic as it is not happy about the current state of affairs. Geothermal drilling is regulated in the mining law, which limits research and drilling to 2,500 meters below the ground surface to holders of state concessions.

So far, no permits have been handed out, but the government is expected to announce the first such tenders this fall.

Hungarian oil company MOL started research and test drillings in 2002 in Zala county in order to map the potential for development. The company spent some HUF 1 billion on the project in the hope of building a power plant of three to five megawatts. Although it found thermal water of 140°C at a depth of 3,000 meters, it turned out that the well’s water output is not sufficient. The power plant could only produce about 0.8 MW electricity – such a plant would not be economically viable in light of the prices of the feed-in tariff system.

Market players are sure that the potential for good geothermal plants is out there; however, they are waiting for the promised government tenders for concession rights before commencing test drillings. n

How does it work?

Geothermal power plants have much in common with traditional power stations. They use many of the same components, including turbines, generators, transformers, and other standard equipment, thus the technology of generating electricity from heat is well-established.

There are three types of geothermal power plants. Dry steam power plants are the simplest and oldest – they are basically steam engines.

Flash steam power plants pull high-pressure 180°C water from deep down into lower-pressure tanks and use the resulting rush of steam to drive the turbines. This is the most common type of plant in operation today.

The most recent development of the industry, binary cycle power plants, can accept fluid temperatures as low as 57°C. The moderately hot geothermal water is passed through a fluid with a lower boiling point. This causes the secondary fluid to flash to vapor, which then propels the turbines. This is the most common type of geothermal electricity plant being built today.

the lists . .1

. .

Budapestfocus Business Journal | March 12 – March 26 16 www bbjonline hu

www bbj hu

Budapest Business Journal | July 1 – July 14

largest sustainability reporting companies

The BBJ’s Book of Lists contains 100+ sector-specific listings of leading companies. The Book of Lists comes free with a BBJ subscription, or can be ordered separately by e-mailing Eva.Bercesi@bbj.hu

Rank

Ranked by total net revenue 2010

1

2

3

Total net revenue (HUF mln): 2010 in 2009 (HUF mln)

Year of last report

Major areas covered in report

Steps taken to help sustainability

4,324,548 3,366,738

2010 (part of the annual report)

Environmental protection, energy efficiency, clean air protection, employee support, social subsidies

Study on the opportunities and dangers of transition into a decarbonized economy, enhancement of staff’s ethical conscience with communication and e-learning, biogas project of biodiesel plant, integrated international brand strategy on a group level, CO2 emission reduction, 10% water consumption cut, Új Európa foundation, MOL talent program support, Al-Marqab project support in Syria, Free Eye medical camp in Pakistan

609,579 643,989

2009

Company presentation, client relations, communications, employees, cooperation, sponsorship, subsidies, content service, data protection

10% CO2 reduction until the end of 2011, DELFIN-prize established for committed, sustainable and innovative generations, Jelmondó service to allow deaf people’s phone communication, trips replaced by audio and video conference to cut CO2 emission, 15% of all office paper is recycled, T-Mobile Bringaszerviz in Budapest, support of T-Home Gyereksziget and Telekom Adományvonal

573,309 576,534

2009–2010

Retail from suppliers to customers, fight against climate change, waste management, corporate social responsibility

Transition to electronic-invoicing with suppliers, employment of 4-5 physically challenged employees per store in Hungary, solar panels in department stores, recyclable bags and environmentally friendly bags for customers, Tesco Fitt days, Mosoly foundation support

www.tvk.hu

367,464 267,421

2009

Company management, economic sustainability, environment protection, health and security, HR management, corporate social responsibility

Olefin-1 plant upgrade with environment friendly materials, 62% of waste recycled in 2009, “Egy nap alatt a TVK körül” education program, ethical code for staff, petrolchemical consulting for clients, water use reduction, education and training programs for staff, support of Tiszaújváros Jövőjéért foundation, Miskolc International Opera Festival, Hungarian Triathlon Association

Sanofi-Aventis Zrt/ Chinoin Zrt[1]

334,676 353,752

2008–2009

Company presentation, awards, HR figures, company social charter, energy consumption

1,771 employees with physical challenges in 2009, MOZAIK program, EgészségVonat program, water consumption reduction Establishment of Telenor House, selective waste collection, electronic document management, printing on recycled paper, fresh fruit every day for staff, free medical check-ups, collection of old mobile phones, support of Hungarian Ice Hockey Association and Hungarian Handball Association, Pannon Példakép foundation, Múzeumok Éjszakája sponsorship

Company Website

MOL Nyrt www.mol.hu

Magyar Telekom Nyrt www.telekom.hu

Tesco-Globál Áruházak Zrt www.tesco.hu

4

5

TVK Nyrt

www.sanofi-aventis.hu

6

7

8

9

11

13

14

15

17

19

25,534

1117 Budapest, Október huszonharmadika utca 18.

(1) 209-0000 (1) 209-0164 –

1991

6,863

Christopher Mattheisen Thilo Kusch István Király

1013 Budapest, Krisztina körút 55.

(1) 458-0000 (1) 458-7177 ugyfelszolgalat@t-home.hu

1989

22,600

Gerry Gray – –

2040 Budaörs, Kinizsi utca 1–3.

(20) 827-0000 (23) 449-201 internet_feedback@ hu.tesco-europe.com

1991

1,176

Zsolt Pethő – –

3581 Tiszaújváros, TVK-Ipartelep, TVK Irodaház 2119/3.

(49) 522-222 (49) 521-322 tvkinfo@tvk.hu

399

Christophe Gourlet Massimo Festa –

1045 Budapest, Tó utca 1–5.

(1) 505-0050 (1) 505-0060 kapcsolat@sanofi-aventis.com

1994

1,214

Christopher Laska Fridtjof Rusten –

2045 Törökbálint, Pan– út 1.

(1) 464-6000 (1) 464-6100 ugyfelszolgalat@telenor.hu

1996

2009

Vodafone Hungary Zrt

128,525 143,977

2009–2010

Responsible corporate operation, economic and social effects and responsibility, environmental protection, customer, satisfaction, goals

Code of Conduct for employees, Főállású Angyalok program, Vodafone social responsibility prize, Gyermekzár to limit children’s internet use, support of Budaörs air rescue center, recycled paper use in offices, selective waste collection, collection of old mobile phones, electronic invoicing

1999

1,275

György Beck Frank Krause Péter Lakatos

1096 Budapest, Lechner Ödön fasor 6.

(1) 288-3288 (1) 288-3726 ugyfelszolgalat.hu@vodafone.com

Egis Nyrt www.egis.hu

118,915 116,142

2009–2010

Company presentation, commerce, innovation, environmental protection, employees

Biker-friendly employer, cafeteria system of the year, support of Hungarian Cardiologists’ Society, medical check-ups

1913

3,725

István Hodász Csaba Poroszlai –

1106 Budapest, Keresztúri út 30–38.

(1) 803–5555 (1) 803–5529 mailbox@egis.hu

Grundfos Magyarország Gyártó Kft

90,520 72,374

2009

Company presentation, leadership, employees, partnership and community involvement, environmental responsibility

Local community support, CO2 emission cut, selective waste treatment, own well in Székesfehérvár, drawing competition for employees’ children

1999

1,787

László Török – –

2800 Tatabánya, Búzavirág utca 14.

(34) 520-100 (34) 520-109 info_ghu@grundfos.com

www.nestle.hu

80,428 81,632

2009

Company presentation, creating common values, healthy nutrition, food safety, employee training, responsible procurement, charity, packaging

Sugar, salt and fat cut in products, Nutriki nutrition education program for kids, medical check-ups for staff, employees’ equal chances program, fair trade coffee and cocoa purchase

1991

1,329

Andrea Zambelli – –

1095 Budapest, Lechner Ödön fasor 7.

(1) 224-1200 (1) 224-1216 –

Duna-Dráva Cement Kft

48,745 63,350

2009

Company presentation, industry presentation, environmental protection, soil, water and noise protection, technology development, sports field and playground construction

Transition to alternative fuels, e.g. old tires, plastic waste, biomass, reduction of NO, CO2, dust emission, soil and noise protection, DDC sports gala

1990

434

János Szarkándi Ferenc Sövér –

2600 Vác, Kőhídpart dűlő 2.

(27) 511-600 (27) 511-760 info@duna-drava.hu

Alpiq Csepel Kft

37,313 34,531

2009

Company presentation, energy security, corporate responsibility, employee safety, environmental protection

Medical check-ups for staff, damage remediation practices, study preparation on Csepel power plant’s air pollution effects, operation of soil water watch equipment

–

Ÿ

Gábor Briglovics – –

1085 Budapest, Kálvin tér 12.

(1) 429-1030 (1) 268-1536 info.csepel@alpiq.com

Dreher Sörgyárak Zrt

31,834 30,886

2007-2010

Company presentation, water saving, energy cut, packaging recycling, corporate responsibility, human rights, ethical business

Biogas produced by company, 99% of waste is recycled, 59% of products packed in recyclable materials, responsible alcohol consumption program, environment-conscious water management, preference for Hungarian suppliers, Kõbányai Családokért foundation

–

700

Andrei Haret – –

1106 Budapest, Jászberényi út 7–11.

(1) 432-9700 (1) 432-9799 ugyfelszolgalat@dreher. sabmiller.com

Zwack Unicum Nyrt www.zwack.hu

28,082 32,387

2010

Company history, company presentation, responsible alcohol consumption, employee appreciation, cultural and sports subsidies, ethical business

“Zwack minőséget, de mértékkel” program, operation of well and water management plant, energy measurement system establishment, recycled packaging materials, support of Aranyág foundation, Minden Gyermek Lakjon Jól foundation, Baráthegyi Vakvezetõ és Segítõ Kutya Iskola, Hungarian national waterpolo team, “Bringázz a munkába!” movement

–

271

Frank Odzuck – –

1095 Budapest, Soroksári út 26.

(1) 456-5200 (1) 455-7845 @ zwack zwackunicum.hu

Holcim Hungária Cementipari Zrt

23,836 29,040

2009

Company presentation, chances of CO2 reduction, waste management, environment protection investments, employee appreciation, labor protection

Dust, NO, SO2 reduction, audited environment-conscious management system introduction, alternative fuels, environment-friendly mining, water consumption cut, family day for employees, “Safe drive” program

1999

629

Richard Skene – David Gangell

2541 Lábatlan, Rákóczi Ferenc utca 60.

(33) 542-600 (33) 461-953 –

www.sinergy.hu

12,625 12,122

2009

Company presentation, contacts, environmental effect cut, ecological footprint, health protection and security, HR management, social responsiblity

CO2 emission trade, water consumption cut, reduction of gas engines’ pollution, noise protection, employees health preservation program, Kazincbarcika Város Kulturális Fejlôdéséért foundation, Kazincbarcika sports association

1999

130

Gábor Bercsi – –

1138 Budapest, Váci út 76.

(1) 238-2210 (1) 238-2219 info@sinergy.hu

Magyar Villamos Mûvek (MVM) Zrt

10,706 10,508

2009

Environmental protection, waste management, noise control, corporate social responsibility, human resources

Air pollution reduction, hazardous waste production cut, water consumption cut, noise control, sponsorship of the National Forestry Association, Zuglói Filharmónia, Szent István király symphonic orchestra, Hungarian Museum of Fine Arts

1963 (1992)

165

Csaba Baji Balázs Gábor Lehőcz –

1011 Budapest, Vám utca 5–7.

(1) 224-6200 (1) 202-1246 mvm@mvm.hu

ALAPOK program to improve financial and career management skills at secondary school, bicycle-friendly infrastructure, introduction of solar collectors, support of Szemünk fénye foundation, OTP Esély Program, OTP Lendület program, Veszprémfest, Operalia, OTP Fáy András Foundation

1990

6,586 (Dec. 31, 2009)

Sándor Csányi László Bencsik Zoltán Péter Nagy

1051 Budapest, Nádor utca 16.

(1) 473-5000 (1) 473-5951 informacio@otpbank.hu

Energy savings, green bank branches, construction of new environmental friendly HQ building, K&H gyógyvarázs program, K&H running days, Sziget festival sponsor

1987

3,632

Hendrik Scheerlinck Attila Gombás –

1051 Budapest, Vigadó tér 1.

(1) 328-9000 (1) 328-9696 bank@kh.hu

www.telenor.hu

www.vodafone.hu

Nestlé Hungária Kft

www.csepel.alpiq.hu

www.dreherzrt.hu

Sinergy Kft

www.mvm.hu

18

1991

Zsolt Hernádi József Molnár Dóra Somlyai

Company presentation, employee and supplier responsibility, environmental protection, innovation, sports, Pan– Példakép foundation, culture

www.holcim.com

16

Address Phone Fax Email

165,749 174,270

www.duna-drava.hu

12

Top local executive Finance director Marketing director

Telenor Hungary Zrt

www.grundfos.com

10

Average no. of full-time employees in 2010

Year established

OTP Bank Nyrt

9,781 [2] 9,755

2009

Company presentation, sustainability challenges, committment, achievements and future objectives, customer relations, risk management, responsible financial service provision, environmental impact

K&H Bank Zrt

3,223 [2] 3,048

2009

Company presentation, CSR committee, environmental protection, children's health, mass sports, Olympic movement, Sziget festival, responsibility for employees and clients, media contacts

www.otpbank.hu

www.kh.hu

notes: (1) The two companies issued a common sustainability report. (2) Consolidated total assets.

Ÿ=

This list was compiled by researcher Mihály Kovács from responses to questionnaires received by June 29, 2011. To the best of the Budapest Business Journal’s knowledge, the information is accurate as of would not disclose, NR = not ranked, NA = not applicable press time. While every effort is made to ensure accuracy and thoroughness, omissions and typographical errors may occur. Additions or corrections to the list should be sent on letterhead to the research department, Budapest Business Journal, 1075 Budapest, Madách Imre út 13–14., or faxed to (1) 398-0345. Mihály Kovács can be contacted at mihaly.kovacs@bbj.hu.

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Budapest Business Journal | July 1 – July 14

Manufacturing sustainability reports BBJ

+16%

sustainability reporting firms

Change in total net revenue of listed firms on previous page

So far, it has been mostly banks and insurers, but now, an increasing number of Hungarian manufacturers are also opening up about their efforts to reduce their environmental impact.

Egis is one of Hungary’s largest firms, and it is in an industry where the protection of the environment is a key issue, namely pharmaceuticals manufacturing. It has published a sustainability report before, but now it is also investing in having it certified according to international guidelines by B&P Braun & Partners, a sustainability specialist.

Egis’s decision to audit its activities is an example of how Hungarian manufacturers are increasingly paying more attention to establishing more sustainable operations. “We are sure that the tendencies and expectations related to reporting corporate sustainability that are now seen in the US

and Western Europe will have an intensely growing influence on Hungarian practice,” Mariann Menthy, Egis’s head of communications told the Budapest Business Journal.

Banks and other office-residing branches of business were quick to adopt sustainability reporting in Hungary, but, as many skeptics pointed out, they had it easy: their emissions were low to begin with. Now, however, industrial companies that traditionally gobble up resources and pour out waste are also taking part.

In fact, Hungary is leading Central and Eastern Europe in the number of businesses releasing such reports through the Global Reporting Initiative (GRI) with 27 in total, which is nine times more than in 2002. However, it is still lagging behind such countries as Spain, Sweden and the Netherlands, which, combined, produce 38% of the reports in all of Europe.

Audited efforts Although the majority of sustainability reports are self-declared, a growing number of companies opt for a third-party certification in order to guarantee the reports’ credibility.

Alignment of the performance reports with international guidelines, such as the GRI, is another new but potentially influential trend in the country as it offers an opportunity for crosscompany and cross-sector comparisons.

As Mandy Fertetics, sustainable development manager of Dreher Breweries, shared with the Budapest Business Journal, “We evaluate our performance by the three pillars of sustainability, the

GRI principles, and indicators, and the UNDP self assessment tools for companies on CSR.” looking for new ideas The benefits of publishing sustainability reports are extensive and are not limited to basic brand promotion and risk management. In addition to boosting a company’s transparency, they give an opportunity to gather feedback from all stakeholders, who pay increasing attention to CSR performance, as well as to provide the public with a non-financial assessment of achievements.

Katalin Szomolányi, head of Magyar Telekom’s corporate sustainability department, identified another reason. “The responsible assessors of investments take this report as the basis for rating shares for responsible investment funds, which are a good opportunity for Telekom shares to excel.”

Sharing information helps the development of the most efficient and innovative models.

Businesses’ perception of sustainable development practices is gradually shifting from that of a short-term burden towards that of a long-term cost-cutting solution. As Richárd Halmay, senior corporate responsibility consultant of Telenor Hungary, points out, “Considering the costs we save by being environmentally friendly, our choice to pursue sustainability actually helps us succeed financially, too. Our shareholders are able to enjoy positive results with a clear conscience.” As a result, sustainability projects are emerging as a structured part of everyday practices with businesses setting specific goals with deadlines, strategies and models. For example, in 2009 K&H established a CSR

committee in order to coordinate CSR activities in the entire organization. how responsible can you be?

However, a number of challenges in sustainability practices and reporting remain. Many Hungarians have yet to fully embrace the meaning and value of CSR as well as to set up guidelines and standards that would assist companies in undergoing the learning process and adjusting their operations.

According to research conducted by consultancy firm and political analyst Nézőpont Intézet, 60% of the companies believe that the Hungarian legal framework does not encourage corporate responsibility, while 41% still regard it as an ethical obligation rather than a competitive advantage.

Finally, CSR culture is still mostly limited to multinational corporations, while SMEs rarely engage in systematic CSR activities. SA

BBJ LIFE LIFE & PEOPLE

Events

Better know a CEO

Who’s news

▶ page 21

▶ page 22

▶ page 22

Conferences and networking

Philipp Bodzenta, head of communications and public affairs, Coca-Cola

People on the move

An exodus of tourists If you want to see the Pyramids without thousands of Russian tourists stepping on your heels, there is no time like now. The uncertainty caused by the revolutions of the Arab Spring is keeping tourists away from North Africa – to the consternation of the locals and Hungarian travel agencies.

I

t is an early June day like any other in the Valley of the Kings. It is only 9 o’clock in the morning, but the temperature is already above 40oC. The limestone into which the tombs of ancient Pharaohs were carved reflects all the heat it had absorbed earlier, making our sweat evaporate instantly.

Egyptian men from the ages of six to sixty rush to the tourist bus drawing in to hawk their scarabs, scarves, books and postcards.

This has been pretty much the same ever since Thomas Cook first brought British tourists to visit Egypt in the 1880s, at the dawn of mass tourism.

Millions of tourists come to look at the desert-preserved monuments of one of the cradles of civilization every year, scratching their names into the old reliefs. (It used to be famous Egyptologists like Jean-Francois Champollion, one of the decipherers of the Rosette Stone, who left their marks, now the graffiti is increasingly in Cyrillic.) Yet in one respect, today’s picture is very different. Just last

year, there might have been dozens of busloads of tourists waiting to view the tomb of Tutankhamon, at the time of the BBJ visit, there were maybe three in the parking lot.

The price of freedom The reason for this is ironically one that was celebrated all over the world: the Arab Spring, when independent revolutions swept through Arab countries. The movements started in Tunisia in December 2010 and were followed by Egypt in January 2011. Later on the unrest spread to Libya in February, with Syria joining the wave in March. The popular movements challenged the governments, citing high unemployment, spiraling food prices, corruption, the lack of freedom of speech and other political freedoms as well as poor living conditions in general.

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Budapest Business Journal | July 1 – July 14

The freedom brought by the revolutions has, however cost the North African economies dearly in terms of cash. According to Egyptian officials, the number of tourists has dropped sharply. In 2010, Egypt saw 14.7 million visitors, while the first half of 2011 showed a 50% drop, the Egyptian State Tourist Office told reporters in Hurghada, one of the country’s beach resorts. Of the around three million Egyptians employed in tourism, one of the country’s most important sources of revenue, more than a mil-

lion are thought to be unemployed due to lack of demand from hotels and other tourist infrastructure providers.

And the situation is far from over: according to the Economist Intelligence Unit, real GDP growth in Egypt will drop to around 1.2% in fiscal year 2010/11 (July 1 to June 30) owing to the continuing impact of the political crisis.

The number of tourists is comparatively low despite government and industry efforts to spread the word that the army has restored order and that all tourists are safe. Egyptians are also doing their utmost to convince returning tourists that they are highly valued by “normal” Egyptians. And indeed, the tourist who stays in beach resorts and visits Cairo, the pyramids, and the Valley of the Kings on day trips, and maybe goes snorkeling to Giftun Island to view the Dead Sea coralls is probably completely safe.

But “probably” is enough to scare many of the families who usually visit the area.

Marshalling celebrities Fear is difficult to dispel, and the government is limited in what it can do to fight it, especially while foreign ministries in many countries – among them, Hungary – are advising caution.

“We are inviting famous people, diplomats and journalists, and we think they will spread the word that it is safe,” an official from the tourist office told reporters. However, it can only rely on the people who have already been there to

act as testimonials to Egypt’s safety – and there are not too many of these at the moment.

The government is also intervening to keep the players of the sector afloat. In order to encourage agencies to start charters, for example, the government is paying the airfare for all seats left empty. It is also giving a tax break to the gigahotels on the beach.

Less travel from Hungary Egypt is not the only one that struggles with the radical drop of tourism after the political instability in North Africa. Tunisia has gone through a similar revolution and tourists are still careful about the rest of North Africa. This is also causing pain for Hungarian tourism agencies, who are heavily reliant on business to the area.

Hungarian market players agree that they expect a 20-25% decrease in the number of

trips this year based on the current data on passenger numbers and incomes. Mihályné Füri, head of Kartago Tours told the Budapest Business Journal that she had expected a 15% growth for this year, but after the North African crisis lead to charters to Tunisia stopping from January to April, and those to Egypt stopping in February and at the end of March, the agency is suffering from a 25% drop in traffic.

“We have expanded the number of our destiations for the summer and Tunisian and Egyp-

Despite the current disappointing data, market players are seeing an end to the crisis, even if not in the short-term. “Passengers seem more confident, and they are slowly returning to trips to Tunisia and Egypt,” Mihályné Füri explained. Another agency,

tian bookings are also picking up, so we hope that we will be able to close the year with a 15% drop altogether,” she added.

Another tourism agency, Best Reisen expects a 20-25% drop in income. Tibor Zám, head of the agency said that so far there were 20% less passengers to Tunisia in this season than in the previous one. He adds that the company had around HUF 6.7 billion income in 2010, while this year, he hopes that it will stay above HUF 6 billion, a 10% revenue drop.

However, the political crisis in North Africa is not the only cause of plummeting passenger numbers. The economic crisis has tightened people’s budget for traveling all over the developed world, and Hungary is no exception. “The economic crisis is causing a lot more damage to the tourism industry than the North African crisis,” he added. Since the economic crisis hit, off-season trips have basically disappeared, he says. Now, 70% of the trips in the entire year are

Neckermann confirmed this, and said trips to Egypt started becoming popular again.

This is underpinned by data from Anubis Travel, an agency which specializes in oragnizing trips to Middle Eastern countries. According to Ahmed Bahgat, the head and owner of the agency, all of their Malév charter flights to Egypt in June were fully booked by the beginning of the month. “We are pretty sure that by the peak season, which is in October, things will be back to normal,” he said.

Most think that if the political situation in Tunisia and especially in Egypt stays under control, and general elections put an end to the history of the time of political uncertainty, the second part of the 2011 season will at least partly make up for the losses suffered in the spring.

The mummies, meanwhile, wait patiently. They know that whatever happens, interest in them will come back to life. After all, if they’ve waited this long, they can stand a few more months – or even centuries. ASz-MTD

restricted to the three months of summer, the peak season.

Spring seen in October

20 life

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Budapest Business Journal | July 1 – July 14

Returning as an angel 〉we aim to contact

Background

foreign investment centers that finance start-ups.

We are seeking partners mainly in Germany, the UK and the US

After resigning from the position of CEO as well as the board of the leading Hungarian telecom services provider Magyar Telekom (then called Matáv) over a scandal at the company’s Montenegrin unit in 2006, Elek Straub disappeared from the public eye. Five years later, he has returned as partner and chairman of the board of investment company Day One Capital. The firm is in the process of launching the first institutional angel fund in Hungary. At the press conference announcing the introduction of the new fund, Straub revealed that he has been one of the most active individual angel investors in Hungary.

Q: What have you been doing since you left Magyar Telekom in 2006?

A: I have been working with the Day One Capital team for about a year. Previously, I acted as a private business angel and also advised smaller teams and entrepreneurs. The idea of the four founders (Straub, Csaba Kákosy, György Simó and András Molnár) of Day One Capital working together in an institutionalized form came after each of us realized that investors who work alone face serious limitations. It is much better to share risks and ideas, as well as tasks.

After I left Telekom, I was contacted mostly by telecom experts from my previous professional and social network to discuss their work and their ideas, some of which led to closer cooperation or even investment. These were mainly internet or technology firms, but I also became a founding shareholder of insurance company CIG Pannónia. I was certainly not involved in the daily operations of this company, but I was more active than a typical shareholder, especially at the earlier stages.

Q: Are you still a CIG shareholder?

A: Yes, of course, and I intend to be one for a long time, as, in my opinion, the company’s performance has been outstanding. I have also kept my investments made as a private business angel in the other companies. However, at Day One Capital, I work on day-to-day tasks, similar to the other founders. This, I believe, gives an important added value to our partners compared to other investment companies.

Q: Jeremie fund managers keep complaining about the lack of attractive investment targets in Hungary. Are you optimistic about finding good businesses to invest in?

A: A good venture always starts with finding a market gap. The gap we have found is the market of those businesses and ideas that have the potential to grow to be an attractive investment opportunity for a venture capital firm, such as the Jeremie funds. There are basically no investors active in the segment of businesses in need of seed capital from business angels. I certainly do not want to underestimate the activity of private business angels, but at the moment we do not have com-

petitors operating in an institutionalized form in line with current capital market regulations.

What I mean is that if there are schools, but no kindergartens, than only a few kids will be ready for school. Now, we would like to help pre-schoolage businesses grow, thus increasing the pool of targets for Jeremie funds. This is exactly why there is room for cooperation with these funds.

Q: Do you work only with OTP venture capital unit PortfoLion or with other funds, too?

A: We have reached an agreement only with PortfoLion so far, but we have contacted almost all of the Jeremie funds. Cooperation with them can take many forms. For instance, when a company does not meet the requirements necessary to obtain finance from a Jeremie fund, it could be directed to Day One Capital. Another option is a co-investment in certain businesses to reduce risks and share responsibilities.

Q: Will Day One Capital look at investment opportunities outside Hungary as well?

A: Step by step, we aim to contact foreign investment centers that provide finance for startups. We are seeking partners mainly in Germany, the UK and the US. We have already contacted some German funds and now aim to strengthen ties with them.

Curriculum vitae Straub was the head of the Magyar Telekom Group (Matáv Group at the time), the leading provider of fixed and mobile telecommunications and internet services in Hungary and other countries in the region, between 1995 and 2006. At Matáv, he oversaw multiple rounds of the company’s privatization, its IPO on the Budapest and New York stock exchanges, the introduction of state-of-the-art telecommunications technologies and the start of its international expansion.

Straub resigned during an investigation after Telekom’s auditor expressed concerns over consultancy contracts at the company’s foreign subsidiaries. Before joining Matáv, Straub was country general manager of IBM Hungary. Straub has been deputy chairman of the GermanHungarian Chamber of Commerce since 2004.

In 1999, Straub was elected “Manager of the Year” in Hungary and in 2000, CEO of the year in emerging markets. In 2004, the President of the Federal Republic of Germany, Johannes Rau, awarded him the 1st Class Cross of Distinction of the Order of the Federal Republic of Germany. In the same year he was awarded the Order of Merit of the Republic of Hungary, Officer’s Cross.

Q: Do you plan to launch more funds in the foreseeable future?

A: If there is demand from both potential investors and investment targets, we will launch a new fund within a year. The costs of building out an infrastructure in the segment we are active in can barely be covered by the management fees charged by the fund. Thus, it would be favorable for both investors and Day One Capital to use the existing infrastructure for a significantly bigger investment portfolio. But this is just an idea which depends on the success of the first fund.

tetési Zrt. However, cooperation with the government is very important for us, as there are several government programs to help SMEs. We have already started talks with state funds that manage both EU and domestic funds. We hope to find synergies, as we see that supporting start-ups is an important part of the current economic policy.

Q: Do you plan to seek state funds, too?

A: At the moment, we are expecting private investors who can join the Fund at Equilor Befek-

Q: What is your experience of working with the management of Hungarian companies?

A: In the case of start-ups, we do not work with a traditional management team that has been leading a successful business for several years.

Companies at the beginning of their life cycle are much more open to cooperation.

More of an issue is that these firms have not yet built those corporate structures and frameworks, that are necessary for any capital market investor. We are often faced with a lack of document management and proper accounting systems. Implementing the basic conditions of transparent operation is unavoidable, otherwise the business cannot be understood by external investors. I accept that document management is not the first thing to consider when someone launches a business based on an idea using his or his family’s savings, but as soon as there are external funds involved, the basic corporate structures must be in place.

Q: What is your opinion of the extraordinary tax on the telecom sector?

A: The extraordinary tax has the same effect on the telecom sector as the other similar levies on their respective segments. The levy will significantly restrict the ability of Hungarian businesses to obtain extra financing. A less crucial consequence is the impact on dividend payments, as shown by Magyar Telekom, which seriously cut its dividend on 2010 profits. What is more worrying is the slowdown in developments. In the banking sector, this leads to the dampening of lending activity, which drags down economic growth. In the telecom sector, the introduction of new technologies and developments will be delayed or cancelled, while prices cannot be raised due to the fierce competition in the industry.

There are no miracles. When funds are withdrawn from the economy, businesses will automatically tighten their belts through layoffs and cost-cutting measures. This is unsustainable in the long-run, because while the major Hungarian companies, including Magyar Telekom, were able to remain profitable, smaller firms already suffered losses. All in all, I hope that these levies are only temporary.

Q: How do you see the performance of Magyar Telekom?

A: Magyar Telekom has successfully retained its leading position on the market under much more difficult circumstances than ten years ago.

The current management deserves credit for this (most of them used to be my colleagues). Competition has become fiercer in the sector, with drastically falling prices. I cannot even think of another example where such systematic price cuts took place every year. GL

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Budapest Business Journal | July 1 – July 14

BUSINESS EVENTS AmCham: third conference on advertising law

photos: Péter Kőhalmi

June 1, Hilton Budapest

Nicola Philippi, compliance manager, Committee of Advertising Practice, Advertising Standards Authority with Dr. András Szecskay, managing partner, Szecskay Attorneys at Law

Conference Audience

photos: Jenő Varga

Canadian Chamber of Commerce in Hungary: 2nd Great Canadian BBQ, June 16, Gundel Terrace

UPCOMING

events July 3

▶ AmCham Independence Day Family Celebration 2011 Location Ramada Plaza Budapest, Budapest, Dist. 3, Árpád fejedelem útja 94 Organizer American Chamber of Commerce in Hungary Contact email: ildiko.takacs-berka@amcham. hu; phone 428-2084 July 5 ▶ All Nations Lions Club description Meeting the first Tuesday of each month. location Art’otel, Dist. 1, Bem rakpart 16–19 Fee HUF 22,900 + VAT time 7 p.m.

Contact Ákos Sass, A.Sass@wppg.hu; www.anlcb.hu July 5 ▶ Business Forum with György Mosonyi, chairman of the supervisory board, MOL Nyrt; former CEO of MOL Group location Budapest Marriott Hotel, Budapest, Dist. 5, Apáczai Csere János u. 4.

Time 12:30 a.m. – 14:15 p.m. fee AmCham members HUF 10 000 + VAT; non-members: HUF 25 000 HUF + VAT organizer The American Chamber of Commerce in Hungary Contact Anita Árvai, email: anita.arvai@amcham.hu; phone: Work+36 1 428-2086 July 6 ▶ Forum about the reduction of administrative burdens Location Magyar Telekom Headquarters, Tölösi Conference Center, Budapest, Dist. 1, Krisztina krt. 55 time 9 a.m. organizer Joint Venture Association fee free of charge, but registration is required Contact www.jointventure.hu July 6-8

Citibank Europe plc Hungarian Branch Office From left to right: Éva Bán, branch manager, Oktogon Branch, Janka Rábóczki, Citigold Club program manager, Noémi Németh, marketing communication manager small and medium-sized enterprises, Koperniczky Dóra, sales team leader small and medium-sized enterprises

Lajos Boros, János Voga, Gábor Bochkor: broadcasters of Neo FM’s Bumeráng

AmCham: Community Volunteer Day June 18, Devecser

▶ 17th International Conference on Thermal Engineering and Thermogrammetry (THERMO) Location Budapest University of Technology and Economics (BME), Budapest, Dist. 11, Műegyetem rkpt.3 HUF 120,000 + VAT Contact www.mate-net.hu July 11

location fee Organizer Contact

▶ EuCham Boat - Gala reception celebrating Hungary’s EU presidency period Európa Boat (moored at Szilágyi Dezső tér during the whole evening) BCCH members: HUF 15,000+VAT; non-members: HUF 18,000+VAT (payable in cash on the spot) The Permanent Commission of the European Bilateral Chambers in Hungary www.bcch.com

photos: Tamás Valkó

The Budapest Business Journal is happy to publish news on business, social or charity events in its Calendar section.

Please submit your request at least two weeks in advance of publication date to mihaly.kovacs@bbj.hu The AmCham Foundation asked for help from members to support Devecser and Kolontár after the red sludge tragedy. The member companies and the foundation donated HUF 7 million to rebuild a gym and two playgrounds. Volunteers traveled to the venue in June to give a facelift to the local school in Devecser.

For community events visit our partner:

22 life

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Budapest Business Journal | July 1 – July 14

WHO'S NEWS

Name György Zolnai Current company/position Budapest Bank/CEO Previous company/position GE Capital/ head of Russian unit

Name Andrea Major Current company/position PwC/partner Previous company/position -/-

Zolnai succeeds Sean Morrissey, who left as CEO after two years to head the Czech unit of GE Capital.

Zolnai joined the Russian unit of GE in 2006 and was later promoted CEO of the company’s Russian bank. Earlier, he worked in Poland as managing director of Bank Pekao, a member of the UniCredit group. Prior to that, he worked at the Hungarian unit of McKinsey & Co. for seven years. He started his career in London with Kleinwort Benson. He is a British-Hungarian dual citizen.

Major, who leads the system and process assurance department at PwC, was made a partner on July 1. She holds a degree in economics (MA), information technology (MSc) and is a CISA certified IT security auditor. She joined PwC as an IT auditor in 1997, then worked in PwC’s London practice between 2000 and 2003. While in London, she worked in the SAP implementation and integration practice, gaining expertise in design and implementation of ERP systems and business process and security controls.

[ better know a ceo ]

Philipp Bodzenta

head of communications and public affairs in the Alpine region and Hungary The Coca-Cola Company

Bodzenta joined The Coca-Cola Company in 1997 as brand manager, and has held various management positions since. Among others, he was communications and public affairs manager, and spokesperson for Austria between 2000 and 2004; project manager for Europe, Eurasia and Middle East in 2003 and 2004; and director of global marketing communications in 2005 and 2006. Before joining The Coca-Cola Company, he worked as a fundraising coordinator at the Wirtschaftsuniversität Wien (University of Economics and Business Administration in Vienna). He holds an MBA from the Wirtschaftuniversitat Wien; earlier, he participated in a joint study scholarship program at the University of Illinois. His hobbies include running, aikido and reading.

Do you know someone on the move?

Send information to whoiswho@bbj.hu

Name Márta Hegedűsné Szűcs Current company/position PwC/partner Previous company/position -/-

Name David Williams Current company/position PwC/partner Previous company/position -/-

Hegedűsné was appointed as partner of PwC’s assurance department on July 1. After completing her studies as an economist specialized in finance, she joined PwC in 1995, and obtained ACCA qualifications in 1999. She became a registered auditor in Hungary in 2006. She provides services to various companies, especially in the infocommunication and technology market, but also has experience with manufacturing companies and in the energy sector. She is a key member of PwC’s technology, infocommunications, entertainment and media group.

Williams joined the Budapest office of PwC on June 1 as a tax management and accounting services (TMAS) partner and will take over responsibility as TMAS Western subcluster leader. He will concentrate on growing compliance delivery and consulting services, as well as being TMAS leader for Hungary. He graduated from the University of Adelaide as a Bachelor of Law and Bachelor of Economics. He began his career at Arthur Andersen, where he advanced from intern to partner in ten years.

Name Dóra Máthé Current company/position PwC/partner Previous company/position -/-

Name Tamás Kálózdi Current company/position Signal Biztosító/ president-CEO Previous company/position Allianz Hungária/deputy CEO responsible for sales

Máthé became a partner of PwC’s tax advisory department on July 1. She has been working at PwC since 2002, and is responsible for Hungarian and international tax advisory for multinational companies. She completed her legal studies at the University of Miskolc, and obtained her executive MBA diploma at the University of Bristol after her bar exam. Following a two-year secondment in New York, where she was responsible for developing PwC’s Eastern European representative office, she returned to Hungary last year.

Kálózdi takes over the reins from István Filvig, who is retiring after spending the last 20 years as president-CEO of the insurance company. Before joining Signal, Kálózdi was with Allianz for more than two decades. He was managing director of the vehicle division of the insurance company from 1996, and was named head of the sales division in 2003. He was also a member of the executive board of Allianz Bank and Allianz Hungária. In addition to his native Hungarian, he speaks English and German.

▶ Who is your favorite

▶ What is your favorite

▶ What three things

Dr. (Indiana) Jones

Dobos Cake

A satellite phone with connection, food and drinks (preferable ice cold Coke) and some good books and magazines to make myself comfortable until rescue arrives

hero in fiction?

Which talent would you most like to have?

To be able to learn languages much faster.

What is the trait you most disapprove of in others?

Being not trustworthy - dishonesty

What kind of job did you dream of when you were a child?

Hungarian dish?

What was the most extravagant thing you’ve done in your life?

How does your dream dinner party look like?

Having had an exceptionally expensive lunch with my wife during our honeymoon

Every year we meet once or twice as a family which accounts for roughly 30 people. That is pretty close to a dream dinner – if I could add a couple of close friends it would be even closer.

What living person do you most admire?

I am fascinated by my wife.

Which living person do you most despise?

I wanted to run a bank.

Each person should have something positive.

What is your greatest regret?

What is your most treasured possession?

I have had some missed opportunities

Material things are important but should not taken too seriously.

What is your greatest fear?

That we are not learning from history

What makes you sad?

If children are crying

When and where were you the happiest?

At the birth of my three children

would you take with you to a deserted island?

What are the activities that help you to cope with stress?

To go running in nature – having a real long jog.

Which word do you tend to overuse?

What is it your dream to live to see?

The birth of my grandchildren

What would you do with €1 million?

I think I would donate a big chunk to the Homeless Worldcup organization.

What is the weirdest thing you have experienced in Hungary?

An Amnesty International concert in Budapest in 1988 where Bruce Springsteen, Sting, Peter Gabriel and Tracy Chapman performed – the closing theme performance was Bob Marley’s “Get Up, Stand Up.”

Okay

What is your favorite gadget?

Business wise definitely my Blackberry PF

life 23

www.bbj.hu

Budapest Business Journal | July 1 – July 14

GREAT 〉

〉

QUOTES

The historic visit of President George Bush in 1989 helped us Hungarians to establish democracy in our country.

Your visit may help us to prevent its demolition today A group of Hungarian intellectuals urging US Secretary of State Hillary Clinton to speak out against what they called their country’s “autocratic system”

〉Ronald Reagan is one of the people we have to thank for our freedom

Deputy Prime Minister Zsolt Semjén commemorating the 100th birthday of the former US president

〉Hungary has acknowledged that it has

lost the 700-year battle against Romania and nobody believes that we could take back Transylvania or parts of Transylvania besides 20,000 idiots in Hungary Hungarian Ambassador to Bucharest, Oszkár Füzes

[ editorial ]

One above all?

T

wenty years ago, all Hungarian politicians talked about was the West and becoming part of “Europe”. Now all they talk about is the East and retaining independence within Europe.

Hungary has just concluded its six months as president of the EU and did a decent job, beating expectations. Yet while Viktor Orbán’s government was running the bloc, it was also busy seeking out new friends outside it – sometimes at the expense of older ones.

Orbán took a hardliner approach when being criticized for controversial legislation passed in Hungary and even though he eventually yielded, he made it clear to other member states that he thinks there is indeed life outside the EU and it might not be all bad.

For instance, the adoption of the euro has all but vanished from the agenda, even though it was a priority to governments before, at least in theory if not in practice. According to the latest forecast, Hungary might introduce the common currency in 2022, a time so far away in political terms that it might as well be in an alternative universe. Also, the country’s new constitution states in no uncertain terms that the forint is the national currency.

The government is probably right in not being too eager to board what could easily turn out to be a sinking ship. Its dedication to making allies with China is probably also commendable.

From a business perspective, being friends with the world’s soon-to-be strongest economy and not having to rely so much on Germany seems like a good idea.

However, it remains to be seen whether Hungary’s new friendship with a sometimes controversial world player will in the end make it more popular, or less so.

〉No payment or agreement on any payment

was ever made, directly or indirectly, either in the course of INA’s privatization or thereafter to any actor or decision-maker on the Croatian political scene Energy company MOL in a statement rebutting accusations that its CEO resorted to bribery in acquiring a stake in Croatian peer INA

〉Freedom of expression is okay, scandals or trouble-making is not

Prime Minister Viktor Orbán responding to queries on why human rights protests were not allowed during the official visit of Chinese counterpart Wen Jiabao

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