Budapest Business Journal 19/19

e-commerce: Children and health are the two things people

people

are willing to spend on, even online 〉page 6

BBJ

Vol. 19, number 19

25.6%

Budapest Business Journal

HUF 1250 | €10 | $15 | £7.5

I Oct 21, 2011 – Nov 3, 2011

YANN menetrier ceo, groupama garancia

“It is the responsibility of the government to know what is acceptable and what is not for the development of the sector”

drop in accidents involving HGVs in the past eight months 〉page 4 Vol. 18, number 01 I jan 15, 2010 – Jan 28, 2010

〉page 5

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

batara sianturi

lighting UP?

ceo, citibank

“The biggest change we have seen in our customers’ habits is that they are very careful to pay their credit card debts on time” 〉page 3

mary kier

Hungary’s long-awaited national energy strategy makes it clear that nuclear power is here to stay, though wind power generation is also prominent in the plans.

One thing that we are still in the dark about is what role coal will play in our future 〉pages 8-17

ceo, cook international

“Companies don’t have time to wait for someone to get better: they have to produce right away” 〉page 20

yvonne dederick cfo of tv2

She despises pessimism and small talk 〉page 21

TRENDS

Get debt down

average structural balance (% of GDP)

Hungary’s central bank is recommending a lower debt level target than the current 50% of GDP, as the economy’s reliance on foreign financing and its vulnerability to external shocks may prevail even after Hungary meets the Maastricht criteria for government debt. 〉page 4

gross public debt targets

business

life

New tax pack- Wine revival: age to come Tokaj rebottled The government has submitted another package of comprehensive amendments to Hungary’s tax laws. The budget outlook reveals new information about the government’s intentions regarding the crisis taxes. 〉page 7

Tokaj is one of Hungary’s best-known brand names abroad. But actually visiting the region was for decades a disappointing tour of sad wines and a lack of touristic infrastructure. That is now changing as high-end hotels, restaurants and wineries pop up across the area. 〉pages 18-19

2 news

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

NEWS in brief New decree to force Budapest homeless into shelters

Economy Growth projections scaled back Hungary’s government has scaled back projections for economic growth in the 2012 budget bill compared to forecasts in the country’s updated Convergence Program submitted to Brussels in April. The Convergence Program, based on the Széll Kálmán Plan, put GDP growth at 3.1% in 2011, at 3% in 2012, 3.2% in 2013, 3.3% in 2014 and 3.5% in 2015.

The budget bill shows projections of 1.9% GDP growth in 2011, 1.5% in 2012, 2.9% in 2013, 3.1% in 2014 and 3% in 2015. The budget bill projects household consumption will grow 0.7% in 2011 (Convergence Program 3.1%), stagnate in 2012 (+2.2%), and increase by 1.4% (2.4%) in 2013, 1.7% (2.5%) in 2014 and 1.4% (2.7%) in 2015. The budget bill projects investments will contract 2% (+5.7%) in 2011, before growing 3.2% (5.3%) in 2012, 5.4% (6%) in 2013, 5.2% (5.7%) in 2014 and 5.2% (5.8%) in 2015.

Slowing decline in construction Output of Hungary’s construction sector fell 12.3% in August from the same month a year earlier, dropping at a slower rate than the 15.4% yr/yr decline in July, according to Central Statistical Office data. In a month-onmonth comparison, output in the construction sector rose a seasonally- and workday-adjusted 1.6% after declining 0.7% in July. Output of the building segment fell 21.5% year-on-year to HUF 80.1 billion in August after falling 14.9% in July. Output of the civil engineering segment was down 2.6% to HUF 72.2 billion after declining 18.3% in July. The changes in pace partly reflected base effects in both segments.

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Budapest Business Journal | Oct 21 – Nov 3

Loan sharks convicted committing the crime of usury even once may face a prison term of

up to three years, according to legislation recently approved by Parliament. Repeated usury may entail five years in prison.

From December, people will not be allowed to live on the streets of Budapest; everybody will be provided with heated accommodation and taken to shelters even against their will, the ruling Fidesz party’s newly-appointed commissioner in charge of homelessness told reporters. Máté Kocsis, who is mayor of Budapest’s eighth district, an area heavily afflicted with the problem of rough sleepers, said that he would rather face an uproar triggered by firm measures than the possibility of further people dying of hypothermia. In mid-October, two homeless men were found dead in a park in Budapest’s central sixth district, after a sudden chill during the night. In December, three new homeless shelters will open in Budapest, and “nobody will be allowed to spend the night on the street”, Kocsis said. In the meantime, Máté Szabó, Hungary’s ombudsman for civil rights, appealed to the Constitutional Court against municipal decrees impacting homeless people.

Int’l reserves rise sharply in Q3 The international reserves of the National Bank of Hungary (MNB) rose sharply in the third quarter because of big net EU transfers, a European Investment Bank (EIB) loan and the sale of some assets earlier transferred to the state from private pension funds, the MNB said in its quarterly report.

The reserves rose by €1.8 billion in the quarter despite the €1.88 billion spent by the government on the purchase of a 21.2% stake in Hungarian oil and gas company MOL in July and the fact there were no foreign bond issues in the period. The reserves rose to €38.8 billion, a new record, at the end of September. Hungary’s Government Debt Management Agency took out a total of €490 million development loans from the EIB to finance various projects, the MNB said, listing factors boosting the reserves.

Banks’ liquidity drops The surplus liquidity of Hungary’s banking sector declined slightly in September compared to August, reflected in a HUF 136.7 billion month-on-month decline in the average overnight deposits of financial institutions and a HUF 40.8 billion m/m rise in the average holding of two-week MNB bills during the month. Average external assets rose HUF 695.2 billion m/m in September to HUF 10,970.3 billion, while on the liabilities side, average deposits of the central government rose HUF 254.8 billion m/m to HUF 1,901.7 billion in September and the average currency in circulation rose HUF 45 billion m/m to HUF 2,507.7 billion.

Stock of two-week MNB bills held by residents rose HUF 239.6 billion m/m to HUF 3,893 billion in September, while the stock of two-week

NUMBERS

MNB bills held by non-residents dropped HUF 198.8 billion m/m to HUF 363.8 billion during the month.

in the news politics

1,750

borrowers had declared their intent by the beginning of October to join the government’s fixed-rate repayment assistant program, financial watchdog PSzÁF said.

12%

yr/yr increase was registered in new orders by manufacturing companies in August, data from Central Statistical Office shows.

Ex-commies to pay reparations?

The ruling Fidesz party has asked the government to find a way to oblige political leaders from Hungary’s Communist era to pay reparations, Fidesz group leader Janos Lázár said.

Lázár spoke after a meeting of Fidesz and allied Christian Democratic deputies, in which they discussed a proposal tabled by Fidesz lawmaker Mária Wittner aimed at “increased contribution to the public burden” by central and local decision-makers of the then ruling Hungarian Socialist Workers’ Party. The contribution would be collected as a tax payable from the pensions of former leaders of the Communist party, the party’s youth arm KISz and the Workers’ Militia. Revenues would be used to assist veteran organizations and survivors of the Communist terror, Lázár added. He noted that similar rules had been introduced in the Czech Republic and Poland.

County assets to be transferred Public Administration and Justice Minister Tibor Navracsics has submitted a bill to Parliament that would transfer institutions owned by county governments and Budapest city council healthcare institutions to the central government from the start of 2012.

PM Viktor Orbán and the heads of the county councils signed an agreement on the takeover on October 3. Under the bill, the institutions’ debts would be taken over by the end of 2011 and managed by the Government Debt

Management Agency. The takeover would involve 475 schools, 132 social and youth institutions, 74 civic centers and 25 companies and foundations. It would include 30 healthcare institutions in 18 counties and 13 in the capital. Navracsics also submitted a proposal to Parliament on an amendment to the constitution, allowing the transfer of local council assets to other local councils or the state free of charge.

domestic Gov’t to raise minimum wage Hungary’s government has aimed from the start to raise the minimum wage close to HUF 100,000 a month over four years, Prime Minister Viktor Orbán said in an interview on public radio. The government said in September it wants to raise the basic minimum wage to HUF 92,000 and the minimum wage for qualified workers to HUF 108,000 a month. At present, the basic minimum wage is HUF 78,000 and the minimum wage for qualified workers is HUF 94,000.

Drastic cut in CHF-loan exposure?

Hungary wants to “drastically” cut the ratio of foreign-currency loans by early next year to reduce the country’s vulnerability to exchange-rate swings, Bloomberg reported citing Fidesz’s parliamentary leader János Lázár. Fidesz may back rules and, “if necessary, sanctions” that will encourage banks to allow borrowers to rid themselves of foreign-currency loans, Lázár told reporters on October 14. Hungary, where two-thirds of mortgage loans are in Swiss francs, is struggling to help borrowers after that currency rose to a record high, pushing up monthly payments and boosting defaults.

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Budapest Business Journal | Oct 21 – Nov 3

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

COMPANY news

news 3

HSBC Holdings has agreed to sell 94% of its Hungarian consumer financial portfolio

to the Hungarian branch of Cofidis, Dow Jones reported. Gross assets in the portfolio were $27 million at the end of Q3. The sale is due to be concluded in Q1 2012. Cofidis has also agreed to take over HSBC Credit employees involved in managing the portfolio.

POLICY COMMENT Hankook reaches full capacity

Hankook Tire has announced the completion of its second Rácalmás plant production unit.

The tire maker began to expand the plant in September 2009 and produced its first ‘phase two’ tire in November 2010; now the Rácalmás factory is gearing up to produce 12 million tires per year and boasts a workforce of 1,900. The company spent an additional €230 million to build the second unit, bringing total investments in Hungary to €550 million. The new 58,000 sqm unit has doubled the production volume and allows for the additional daily output of up to 17,000 tires, bringing the total production to approximately 34,000 tires per day.

Batara Sianturi, head of Citibank Q: How do you see the business environment?

A: The general situation is quite tough. Overall, business does not like uncertainty: any changes, be they income taxes or VAT are very hard to plan for. This uncertainty is especially difficult for SMEs and local companies. In many cases, large companies that don’t want to pay more can take more of their business outside the country – they have a lot of pockets to play. But local businesses have nowhere to go. With all the uncertainties, they find it difficult to plan for the next 1-2 years. They are thinking: should I hire in these circumstances? Maybe not.

Q: How have the economic and budget policy shifts of the past year or so affected your business?

A: Citi is a bit different from many banks in Hungary – we do not play in every

segment of the financial sector. We only deal with the middle-upper income market, and we are quite happy with this. We focus on private banking, credit cards and big firms. So far, the biggest change we have seen in our customers’ habits is that they are very careful to pay their credit card debts on time.

All conditions have been met for the closure of a public purchase bid made for the shares of Pannunion , the company said on the Budapest Stock Exchange website. The competition office gave its approval on October 13, 2011 to Pannunity, an associated business of Sun Capital Partners, obtaining control over Pannunion, the statement said. PannErgy and Pannunion announced on May 16 that Pannunity has made a public bid at HUF 210.32 per share for the shares of Pannunion, and PannErgy is to sell all of its Pannunion shares, representing a 95.3% stake in the company.

Magyar Telekom has started network tests of its new fourth generation

Long Term Evolution (4G/LTE) network and will introduce its superfast mobile internet service to clients from January. Tests have started at 80 base stations with the participation of several hundred clients, both retail and corporate. The company did not reveal the cost of the investment, but said it would spend about an annual HUF 30 billion on similar investments in the coming years.

Herendi Porcelánmanufaktúra had pre-tax profit of more

than HUF 300 million in H1, up 10% from the same period of 2010.

Revenue from porcelain sales rose 7% yr/yr, exceeding the target by 11%. Domestic sales increased 6% in the first half of 2011, with exports accounting for 75% of sales revenue. The company had pretax profit of HUF 679 million in 2010, with revenue growing 6% to more than HUF 4.6 billion, and paid a 10% dividend to shareholders from its 2010 profits.

The fourth attempt to sell the assets of solar cell maker HelioGrid Magyarország (based in Rétság, northern Hungary) has been declared unsuccessful, and it is now certain that solar cell production will not resume at the plant. The property will remain the property of its owner, TDK , but the liquidator will go on to sell the moveable assets, estimated to be worth HUF 40-50 million.

Delog , a unit of logistics group Transped has inaugurated a HUF

Huncargo Holding on Friday inaugurated a HUF 800 million terminal at its logistics base in Sopron (western Hungary). An EU grant covered HUF 236 million of the costs of the 5,000 sqm terminal.

Huncargo Holding built 4,000 sqm of warehouse space at the base in 2006 and inaugurated another 5,000 sqm last year. The latest addition marks the last phase of the planned expansion.

Hungary’s Nordtelekom signed an agreement to purchase the clients and assets of telco Beltáv, increasing the number of its clients to more than 10,000. Nordtelekom decided early last year to embark on acquisitions to support the company’s growth. As a result of the deal, Nordtelekom could soon provide internet access through its own network in Budapest, Győr and Dunaújváros.

Hungary’s Competition Office (GVH) has fined supermarket chain SPAR about HUF 17 million for failing to supply it with data in an appropriate matter. The order for the fine is not legally binding until its review by the Competition Council , GVH said.

GVH carried out an unannounced inspection at the company’s headquarters on October 13.

Chinese telecommunications equipment maker Huawei Technologies Hungary and contract electronics manufacturer Flextronics will establish a joint plant in the southern Hungarian city of Pécs. Production at the factory, which will make optical networking equipment, will start in December. By mid-2012, about 500 people will work at the plant. The two companies already cooperate in China, Brazil and Mexico.

Hungarian insurer CIG Pannonia Első Magyar Általános Biztosító (EMABIT) said financial market regulator PSzÁF has

licensed it to provide third-party car insurance policies. EMABIT said it would enter the mandatory vehicle insurance market in the fall, aiming mainly at the corporate and institutional markets at the start.

1.3 billion warehouse in Debrecen (eastern Hungary). A grant covered half of the cost of the 10,000 sqm warehouse, said managing director Zsolt Fülöp. Transped expects to close 2011 with revenue of more than HUF 8 billion, up from HUF 7 billion in 2010, he added.

Hungarian telco Business Telekom (BTel) sold HUF 788 million in corporate bonds in a subscription that ended on October 13. Institutional investors subscribed to HUF 500 million of bonds maturing in 2013. Retail investors subscribed a combine d HUF 288

German-owned do-it-yourself chain OBI expects revenue from its Hungarian unit this year to top last year’s HUF 38 billion, based on turnover in Q1-Q3. Hungary’s DIY market has contracted by a quarter since 2008, but OBI’s turnover has not dropped as much. OBI recently opened a new store in the KÖKI transport terminal in Budapest and will open a new store in Győr next year.

Canadian automobile interior maker Eagle Ottawa inaugurated at €2 million warehouse and preparation building at its base in the Hungarian city of Szolnok. Last year, Eagle Ottawa Hungary had gross revenue of HUF 12.7 billion, up 31% from 2009, according to data from the county chamber of commerce and industry.

million of bonds maturing in 2013 and 2014.

4 trends

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Budapest Business Journal | Oct 21 – Nov 3

Defense industry

HGVs

Economy

car sales

Moving east

No overtaking!

Get debt down

Fewer rides

Defense industry benefits from Polish and Ukrainian markets.

Trucks continue to pose the highest risk for traffic.

The central bank is proposing stricter debt targets.

New car sales up, used car sales down.

growth expected in CEE defense spend by 2020

drop in accidents involving HGVs in past eight months

debt target requires a fiscal deficit of 0.5% of GDP

out of every 1,000 people bought a new car in H1

The defense industry in the Central and Eastern Europe region should see a slight growth in expected expenditure from $17.5 billion in 2011 to $17.9 billion in 2020, a study conducted by Frost & Sullivan forecasts. The business research company attributes this to Polish procurement programs and Ukraine’s ambitious maritime plans.

Since joining NATO, the Visegrád Four countries (Czech Republic, Hungary, Poland, and Slovakia) have been focusing on modernization and replacement of Soviet-era weapons and defense equipment to meet NATO interoperability criteria. The global economic downturn and limited defense expenditure have slowed this process.

Most ministries of defense (MoDs) in Europe are currently underfinanced. The majority of armed forces in the region suffer from budget shortfalls and lack of foresight in procurement planning. Large proportions of equipment stocks are reaching the end of their operational life, but MoDs will be unable to finance all modernization programs.

In contrast to most CEE countries, the situation in Poland looks rather promising. Already the main contributor to defense expenditure in the region, the country is expected to increase its share from 52.1% in 2011 to 55.4% in 2020. One of the key market drivers is the Polish government’s legal commitment to allocate 1.95% of the previous year’s gross domestic product to defense spend. Also, upcoming privatization of the defense industry in Poland will likely bolster growth.

Ukraine will also significantly contribute to the CEE defense industry, the study states.

The country’s defense industry inherited a better-developed manufacturing base than many others in the region, as a legacy of the Soviet Union. Even though approximately 20% of the defense sector export is going to Russia, Ukrainian companies have been looking to collaborate with Western European suppliers. PF

Thanks to a measure that bans trucks from overtaking, the number of accidents involving heavy goods vehicles (HGVs) on roads has decreased significantly in the past year.

The measure, which took effect on January 1, 2011, bans all trucks and vehicle combinations of more than 7.5 tons from overtaking on the country’s dual carriageways and motorways between 6 am and 10 pm.

The Hungarian highway regulations were amended in accordance with the ban.

As a result, both the number of crashes caused by HGVs and those involving trucks has decreased significantly says a press release from the National Development Ministry and the National Police Headquarters (ORFK).

The National Development Ministry introduced the ban with the aim of enhancing road safety and increasing the average speed in the second, outer lane. Although it was highly criticized by truck drivers in Europe, the ban seems to have delivered results. Between January and August, 93 accidents occurred which involved trucks: a 25.6% drop from the same period a year earlier. And while 59 of those accidents were caused by truck drivers in 2010, this year has seen a 17% drop in that figure.

According to ORFK, the drop is also the result of police officers checking drivers’ compliance with the obligatory driving and rest periods during peak season. Check-ups took place mainly at night and dawn from mid-June until late August.

Regardless of weather conditions, trucks pose a major risk on roads. The risk factor of trucks is higher than that of other vehicles that, in comparison, are far less protected. Overtaking by HGVs is riskier due to their higher weight and relatively low speed difference during overtaking. In the case of an accident, both material damage and personal injuries are generally more serious. ZsV

In light of the European debt crisis and Hungary’s euro preparedness, it is of the utmost importance that Hungary assess its fiscal room for maneuver as well as its long-term fiscal sustainability, the National Bank of Hungary (MNB) said in its latest analysis of the convergence process.

The cornerstones of the fiscal framework currently applicable to Hungary are represented by the Maastricht deficit (3% of GDP) and debt criteria (60% of GDP), as well as the country’s 50% debt-to-GDP mediumterm budgetary objective (MTO) set forth in the new Constitution.

In the medium-term, the structural position of Hungary’s budget will not get anywhere near the MTO, unless the government succeeds in the full implementation of all measures announced under its various programs, including the structural reform program, the convergence program and the 2012 budget bill, the MNB said in its report.

If all measures are implemented in full and the structural deficit is maintained at 1.5% of GDP in line with EU rules, Hungary’s public debt may fall to 56-57% by the end of the decade. However, even in this case, government debt is likely to exceed the regional average and limit the room for fiscal maneuver for many years.

According to the MNB, a gross debt target of 50% is impossible to achieve unless the medium-term deficit target is defined more strictly than the MTO, at around 0.5%. Reaching a 40% debt level, which is closer to the regional average, could only be guaranteed at a structural surplus of nearly 1%.

The MNB noted that risks related to the implementation of the planned measures are high and that even if the position of the national budget improves over the medium-term as debt levels decrease, the quality issues of long-term sustainability still have to be solved. GL

New registrations of commercial vehicles in Hungary were up 4.5% from January to August, compared to the same period last year, recent statistics from the European Automobile Manufacturers’ Association show. Despite the increase, with a rate of three new car registrations per 1,000 people, Hungary is well below the 18 registrations per 1,000 European average. Only Latvia, Bulgaria and Romania (all at two per 1,000) rank lower than Hungary. Top of the list is Luxemburg, where 7% of the population bought a new car between January and August.

The most popular makes in Hungary were Renault, Chevrolet and Opel, according to online site holvegyekautot.hu. The portal was created with the aim of helping customers find the most favorable offers and without incorporating third-party distributors.

The highest number of cars sold through holvegyekautot.hu is in the HUF 3-6 million range, which sell cars with an average 13.81% discount.

Meanwhile, used car sales dropped 2% to 95.8% of the used car index (which compares the value of all used cars sold during a certain period with the value of used cars in the first quarter of 2009) in the third quarter compared to Q2, but increased 7% year on year, according to Használtautó.hu, an online auto dealer. The price average has been at the same level – HUF 1.6 million – for the past one and a half years, but dropped nearly 16% in the past 30 months. However, planned tax and excise duty changes at the end of the year could give the sector a boost, Használtautó.hu forecast.

Stagnating prices are only in part the result of sluggish demand; an aging car fleet is also a problem. The proportion of cars aged less than two years has decreased to 6.2% from 8.2%, while the ratio of cars older than nine years has risen to 57% from 51.3% in the last year. ZsV

KINGS OF THE ROAD

deficitless

3 IN A THOUSAND

2.3% 25.6% 50%

Brothers in arms

New car registration per 1,000 person (Jan-Aug, 2011)

125

Jan-Aug, 2011

93

Number of accidents caused by trucks

Jan-Aug, 2010

59

CEE defense spending forecast for 2020 ($ million) Source: Frost & Sullivan

Source: ORFK

Jan-Aug, 2011

49

average structural balance (% of GDP)

Number of accidents involving trucks

Jan-Aug, 2010

3

Latvia Belgium Hungary Austria European average gross public debt targets

Public debt targets and the necessary structural balance levels Source: MNB

Source: Holvegyekautót.hu, Használtautók.hu

2 37 3 29 18

business 5

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Budapest Business Journal | Oct 21 – Nov 3

Groupama focuses on direct sales to our existing customers through our new TeleCenter, those who work there need access to our database. Therefore, rather than outsourcing this activity, we made the choice of setting up our own team of professional salesmen of about 30 or 40 employees. This is not a simple call center, since we will provide higher value-added services.

Background Groupama’s priority for next year is maintaining its market share in both the life and non-life segments, as well as sustaining the profit level of 2011, after the payment of the extraordinary financial sector tax. The company launched a new sales channel in October and has several new products in the pipeline.

Q: Has Groupama Garancia been fully integrated into the Groupama Group?

A: Yes. The Groupama-OTP Garancia merger, which took place in March 2009, was followed by the integration of the new company into the Groupama Group. The last step of the integration process, which was moving our server to Groupama’s IT center in France, was completed in mid2010. This is required by all subsidiaries of the group, be it domestic or international, for security and capacity reasons.

According to an employee satisfaction survey carried out after the merger at the end of 2009, more than 85% of our employees were happy with the working conditions and said they trusted the new shareholder, indicating that the integration was successful.

Q: Was the integration process smooth?

A: Yes, of course, although there were some differences in the corporate culture of the two companies. We were aware that it would take about three to five years to build up a common understanding. With 80-90% of the staff coming from the previous OTP Garancia, we also needed “fresh blood” from outside to implement the new corporate culture.

The main difference between the two companies is that OTP Garancia was a very hierarchical organization. In order to train our employees, we appointed them as leaders of various projects, so they had to set goals and procedures and present their plans and the results. I think it was a good way of learning managerial competences.

Q: What are your plans with Groupama’s 8%-plus stake in OTP Bank?

A: This should be a question for the shareholder, and we are only a subsidiary of the shareholder. All I can say is that we signed a long-term partnership with OTP Bank and it is working very well. We have regular meetings with our colleagues at OTP Bank to discuss business plans and new ways to develop the business and make bank customers more satisfied. The cooperation is working at every level, not only between top managements. I find it very important to trust one another, as this is a 20-year partnership. I see this as a win-win situation, with satisfactory results for both of us.

Q: What is Groupama’s most successful business line in Hungary?

A: I would say life insurance, as despite a difficult economic environment, we have been able to reach good results in both the single and regular premium segments. This was due to a renewed product range as well

Q: What kind of new products are you planning to introduce?

A: We are continuously renewing our product range. Due to the financial difficulties of households, we will provide cheaper products for them. We expect a fast increase in the sales of a recently launched product for SMEs and we plan to introduce a new unit-linked insurance product that will be more segmented in line with the different target groups. In addition, we plan new products in accident insurance and agriculture, which poses special risks.

Q: What are your plans for next year?

A: Our priority is to maintain our market share in both the life and non-life segments as well as the profit level of 2011, after the payment of the extraordinary financial sector tax.

The insurance market will probably stagnate next year in non-life and might increase a little in life, depending on the economic environment, which is expected to remain difficult.

〉It is the

responsibility of the government to know what is acceptable and what is not for the development of the sector in the country.

as significant investments in the sales organization. Another successful area is corporate property and liability insurance for SMEs. In non-life, we have had more difficulties.

This segment’s performance depends highly on the state of the economy, so as Hungary’s GDP growth decelerated, the number of new cars and new homes decreased and consumption stagnated. Despite this, we managed to maintain our market share in household insurance.

The most difficult business line is, for sure, car insurance. In order to recover our market share in this segment, we decided to launch a new distribution channel and provide cheaper products. However, we do not want to participate in a price competition,

as current prices are already lower than the costs of risk. While we want to reach our previous market share again, we are not willing to operate at a loss in this segment. Compensating losses here with profits from other segments would not be healthy for the business.

Q: What is your new sales channel?

A: We had been using three main distribution channels, including our agents, a brokerage and OTP Bank’s network. Now we are launching a new direct sales channel called Groupama Direct to provide motor and household insurance to private customers.

Later we aim to sell travel and accident insurance products through this channel, too.

As we are going to provide information

Q: What do you think about the extraordinary financial sector tax?

A: I accept that we have to support the recovery of growth in this country. The problem is not the principle, but the level of the contributions. This is unacceptable in the long-term, as it could endanger the entire insurance industry.

We tried to submit a proposal to the government, but the opinion of the insurers’ association was not taken into account. I think that

Curriculum vitae Yann Ménétrier, a qualified agronomist engineer, joined Groupama in 1988 as deputy CEO of Groupama Toulouse. In 2006, he was appointed director of Groupama’s non-life business, after leading the group’s bank, Groupama Banque, for three years. Ménétrier became the CEO of the Hungarian subsidiary in July 2008, as the company needed an experienced leader to manage the merger of Groupama Biztosító and OTP Garancia.

this is a political issue. It is the responsibility of the government to know what is acceptable and what is not for the development of the sector in the country.

Q: Do you like living in Budapest?

A: Of course I like living in Hungary. It is my third year; I have survived a lot of things, like the crisis and the merger. I have decided to learn the language, which it is not easy.

If you don’t like the country where you live, you won’t try to understand the culture of your partner or how this country works, and then it is impossible to succeed. It is a mistake to believe that things that work in France would work here too, because it is a completely different culture. GL

6 business

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Budapest Business Journal | Oct 21 – Nov 3

Niches electrify e-commerce Hungarian online retailers are having a tough time boosting their revenues amid a number of stumbling blocks on the market, but some players are thriving.

Online retail turnover

2008: HUF 63 billion 2009: HUF 99 billion 2010: HUF 133 billion 2011: HUF 155-170 billion (forecast)

BBJ zsófia végh

Starting an online shop from scratch is fairly simple. After some brainstorming and researching on the internet, finding ideas that are untapped or haven’t been covered well cannot be a challenge. Setting up an online store – versus setting up a physical one – is again no big deal. Making it work, however, seems to be too much for most.

That may be the reason why 91% of online retail turnover in Hungary is generated by slightly more than 3% of retailers. These 100-odd shops have grasped what customers need better than the 76% that don’t even make HUF 5 million in turnover a year.

Kids’ stuff What they sell doesn’t really matter. Serving even a special need can make a company prosperous, if it is done well. Ruhafalva.hu, for example, is an online retailer that specializes in children’s clothing. It is the brainchild of momfriends Rita Szegedi and Dorina Szakolczai, respectively an IT specialist and an accountant by profession, who run the company.

Considering the diminishing child-bearing activity of Hungarians, building a business around kids’ apparel does not sound like a winning idea. Yet Ruhafalva.hu is extremely popular: there is no active mom who has not heard of it. It is one of the handful of sites that has a similarly appealing design and features (for example Facebook and Twitter links, customer service) as the biggest names.

“We wanted to dress our kids with quality, stylish clothes. Evidently, the offering was very poor,” Szegedi told the Budapest Business Journal. They accidentally found a retailer of secondhand baby clothes from England. Satisfied with the products, they searched for a supplier and started their own business.

The site sells both used and new clothes, with a growing emphasis on pieces from outlets. Only two years old in 2009 (with annual turnover of HUF 80 million), the company was among the top ten online retailers of the year, a title it managed to hold on to last year as well. Both times,

Source: GKIeNET

Ruhafalva.hu placed tenth. And it did so in a category whose number of customers – expectant women or mothers of small children – is limited.

Ruhafalva.hu may serve a special need but that has not prevented it from becoming popular. Why? Because it follows the rules of what makes a good brick-and-mortar shop. Customers enter shops whose windows are appealing, whose interiors are clean and make them feel cozy. They like to have a wide selection of goods to browse through and a pleasant assistant to walk them around.

To enhance the experience, the owners of Ruhafalva.hu invested in some special features, such as a shopping cart that allows moms to save items from collections that are renewed each week, and buy them at a later time. This allows customers to have the goods shipped in bulk rather than piece by piece. The cart keeps goods for 14 days. It also allows customers to cancel orders for 24 hours.

This piece of comfort took an IT firm one and a half years to develop, but it was apparently worth it. It seems to satisfy the group of mothers who “shop here for the shopping experience and not the price”, Szegedi noted.

Health e-tailing When it comes to health, price does not matter either. That was the basic idea behind Provitamin.hu, a one-year-old online shop for healthpromoting products. The founder, László Szanyó,

had experience in online retail, although in electronic goods. With the recession, the demand for these goods fell and a company that in 2005 had net income of HUF 75 million saw its profits evaporate. By 2009, turnover had fallen 30-50%.

This was when Szanyó, following his instincts, started the e-vitamin business. In 2010, he widened the number of products on offer from 300 to 1,500 and began selling health-related appliances as well. In one year, Provitamin.hu reached HUF 100 million turnover.

With such results, the company contributes significantly to the industry’s annual turnover, which could reach HUF 155-160 billion in 2011, according to a forecast by market researcher GKIeNET. The firm puts the share of online retail within the country’s total retail sector at 2.2% in 2011, up from 1.8% a year earlier. During the crisis, most traditional retailers would be happy with that (or with the fact of their busi-

Online retail growth

2009: 57% 2010: 33% 2011: 25% (forecast)

nesses are not shrinking), but in the e-retailer world, that represents slowing growth. “The problem is that turnover is generated by the same 1.2 million online shoppers (17% of the total according to GKIeNET) and their number is not increasing,” said Ervin Kiss, director of the Hungarian Alliance for Electronic Retail (SzEK).

True, online retailers can do little about regions with low internet penetration or digital literacy. Or the expansion of shopping malls, which Szanyó sees as a threat to online businesses. Ignorance of credit card safety also holds people back from online shopping. But there are gaps on the supply side as well. The lack of online payment options at two-thirds of online retailers is also a limiting factor. SzEK is working hard to improve that ratio, as well as the ratio of online to offline retail business.

It regularly organizes conferences and workshops to train its members about the ins and outs of e-retailing.

These are independent of the retailer. Whether the premise of a business is to make moms happier or people healthier, the elements needed to succeed in the online retail industry are not that different from those in the offline segment.

Online retailing, unlike traditional retail, was not hit by the crisis. The recession has actually made a lot of people go online, Kiss said, and opened up an opportunity for a lot of people to jump in. Now the retailers only have to make it work. n

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BUSINESS 7

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Budapest Business Journal | Oct 21 – Nov 3

A business of convenience

The latest list of the country’s top 200 companies shows no change among the apex businesses. Hungarian and international companies are both represented in the field, showing that the two do not work against each other.

BBJ gabriella lovas

Hungarian weekly Figyelő has published its latest list of the country’s Top 200 firms, according to which the top three companies in terms of 2010 net revenues remain oil and gas company MOL, followed by German car maker Audi and Finnish handset producer Nokia.

Figyelő also handed out various awards at its Top 200 gala event. The award for the country’s best financial institution went to home savings fund Fundamenta-Lakáskassza Zrt. Plastic and battery producer Jász-Plasztik Kft was voted the best job creator of 2011, while the most successful firm and Hungarian firm, respectively, were communication network provider Ericsson Magyarország Kft and waste management firm Alcufer Kft. The year’s best performer in organizational restructuring was newspaper distributor Magyar Lapterjesztő Zrt. Beauties or beasts Setting multinationals and Hungarian SMEs against one another is wrong and harmful, as both play a key role in the development of the Hungarian economy, concluded the participants of the Figyelő Top 200 conference on multinationals versus SMEs. While multinationals can behave either as “beauties” or “beasts” in an economy, market players need

to strive for win-win situations, said Erzsébet Czakó of the Budapest Corvinus University.

The relationship between multinationals and SMEs is like a marriage – full of conflicts, but still an unavoidable institution, János Csák, Hungarian ambassador to the United Kingdom said. “It is a series of good and bad compromises,” he noted. Among the country’s main strengths, he mentioned that Hungarians’ skills and talents are outstanding and they are “true cosmopolitans with internationalism in their blood”, with Hun-

gary being an open country with several hundred years of trading traditions.

Give and take German car maker Opel has invested over €1.2 billion in Hungary so far, including a new €500 million investment announced last year, said Opel Magyarország brand director Tamás Kovács at the conference. Opel laid the cornerstone of a new engine plant at its base in Szentgotthárd, western Hungary, in April this year.

The 30,000 sqm plant is expected to start making three engine families from the end of 2012.

Like Audi and Mercedes, Opel has contributed to the country’s development through bringing its know-how here, as well as its cooperation with local educational institutions. In its new plant, Opel will use the latest technologies, proving wrong the fears that in Hungary multinationals use outdated equipment that is redundant elsewhere, Kovács stressed.

In terms of employment, 1,000-1,500 families earned a living at Opel during the past ten years.

The company will provide about 800 new jobs in the new facility and several thousand indirectly in the region. The auto industry in Hungary provides jobs for more than 100,000 people through direct or indirect employment.

The value of products supplied by local businesses reached €400 million in 2010, Kovács said. “Despite the already high value, we would like to further increase the proportion of Hungarian suppliers within the total,” he said. In March, Opel concluded an agreement with the Hungarian Investment and Trade Agency in order to facilitate contacts with potential Hungarian suppliers.

Hungary is one of Opel’s most successful markets, Kovács noted. Market share rose 2 percentage points to 11.6% in the first half of this year from the same period a year earlier.

Opel sold 2,980 passenger cars and light commercial vehicles in Hungary in H1. Corporate sales accounted for 70% of the total.

However, the market of new cars in Hungary has been shrinking since 2004, Kovács pointed out. New car sales dropped to 54,000 in 2010, a 70% decrease from 2008. “Seeing the extent to which Hungary’s economy is lagging behind that of the region is shocking,” he said.

In 2010, the number of cars per 1,000 people was only 315 in Hungary, compared to 444 in the Czech Republic, 473 in Poland and 565 in Slovenia. Kovács pointed out that motorization strongly correlates with GDP growth. n

New tax package a mixed bag Tax changes will continue into next year, although there is a silver lining in abandoned crisis taxes starting from 2013.

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National Economy Minister György Matolcsy submitted a package of amendments regarding Hungary’s tax laws for next year to Parliament on October 14. On the same day, the government also filed a new budget outlook, which shed new light on the cabinet’s intentions regarding the so-called crisis taxes that were levied on key sectors after the new government came to power last year.

The increase in the general rate of VAT to 27% from the current 25% is one of the most important changes in the package.

The government is “currently examining” the possibility of lowering the tax on certain food items, according to Matolcsy. He added that reclassifying products under the preferential VAT rate should be preceded by an impact study, consultations

with EU authorities and calculations on its possible effect on the budget.

Municipalities will be able to levy local taxes other than those qualified in the Budget Act, meaning that they cannot tax revenue, income before tax and sales revenue. Municipal property taxes cannot be higher than 3% of the properties’ market value. This could result in a significant increase in revenues from property taxes, as the tax base is now the so-called corrected market value, which is 50% of the market price.

A new item in Hungary’s tax system next year will be the accident tax, which will be levied on vehicle owners. The tax rate would be 30% of the annual mandatory vehicle insurance premium (kgfb). The tax is to be paid by car owners but would be collected by insurers, who would be obliged to pay the tax even if car owners refuse to pay it. With mandatory insurance premiums estimated at HUF 90 billion a year, the government expects the new levy to generate some HUF 27 billion in budget revenue per year.

The recently introduced “chips tax”, a tax on unhealthy foodstuffs that came into force on September 1, will be modified, but despite ear-

lier rumors, coffee will not be taxed, at least for the time being. The tax on flavored beers and alcoholic beverages will be HUF 20 per liter, while the tax on beverages will be up HUF 2 to HUF 7 per liter. Taxes on candied products as well as on salty snacks and condiments will rise by HUF 50, to a respective HUF 150/ kg and HUF 250/kg. The government has targeted HUF 5 billion from the “chips tax” in 2012 and HUF 30 billion in 2013.

The 239-page package includes several other changes, such as a one-percentage point increase in health insurance contributions payable by employees, to 8.5% from the current 7.5% of their wages. Company car taxation will change, too. Business gifts and business entertainment will be taxable.

HUF 187 billion in total receipts in 2012.

Revenues from extraordinary taxes on the energy, retail and telecommunication sectors are expected to drop to HUF 1 billion in 2013 from HUF 155 billion in 2012 and will be zero from 2014, the outlook shows. In the revenue forecast for the 2011 budget, the government planned to collect HUF 85.5 billion from crisis taxes in both 2013 and 2014.

The government introduced the sectoral taxes as a temporary measure in 2010. That year, revenues from the so-called crisis taxes reached HUF 151.7 billion. The European Commission recently said that the crisis tax on telecoms was in violation of EU rules.

Crisis taxes to disappear?

According to the budget outlook, the ‘Robin Hood tax,’ an 8% tax on profits to be paid by energy suppliers and traders, will also be scrapped from 2013. Thus, energy companies will not have to pay either the special sectoral levy or the Robin Hood tax from 2013. Revenues from the Robin Hood tax were to be used to support the modernization of district heating systems. n

According to the revenue forecasts of the central budget submitted to Parliament on the same day as the tax package, the government does not plan any revenues from the extraordinary taxes beyond 2012. The only exception is the financial sector tax, which is expected to drop to HUF 90 billion starting 2013, from

Robin Hood tax gone too

BBJ ENERGY special report

Coal ideas:

the revival of Hungary’s mining industry – or not?

Hungary’s mineral resources are plentiful, and there is great potential in utilization. But can the country utilize it in a way that is both sustainable and economical?

Hungary is not in a position to abandon fossil energy; in particular, natural gas purchased at fair prices will continue to play a major role, while domestic coal and lignite stocks represent the strategic reserves of Hungary’s energy industry, according to a text available on the government’s website. Hungary’s action plan for exploiting its mineral assets is expected to be submitted to the government in the first half of 2012 as part of the National Energy Strategy.

Coal mining was once a booming industry in Hungary, ensuring the livelihood of many, mostly in underdeveloped areas. But after the collapse of communism, all that changed: mines were privatized and soon after, many closed down due to their uneconomical operation and the then lower prices of other energy sources, Ákos Zoltay, general secretary of the Hungarian Mining Association told the Budapest Business Journal.

There were eight coal mine companies in Hungary in 1990, but only a few are left in operation. Twenty years ago, the mining industry employed 81,000 people (of which 52,000 worked in coal mines; today, the few existing mines give jobs to about 2,000 people only, and the number of employees in the entire industry has dropped to 22,500.

Underlying potential

resources: its geological asset is 10.6 billion tons of coal. According to industry professionals, 3.3 billion tons of this could be exploited economically. The annual output of coal mining is 9-10 million tons.

“With the current output pace, such reserves could be enough for a few more centuries, and could reduce Hungary’s dependence on imports,” András Perger, project leader at Energiaklub told the BBJ. But for the time being, exploration is uneconomical and raises several environmental issues. The concession procedure itself is also extremely time-consuming.

The other big problem the industry faces today is that there is no adequate training for miners.

As a result of all these factors, mining development has come to a near standstill.

Going deeper in the ground In spite of such hurdles, there are some signs of the revival of Hungary’s mining industry.

With the upgrading of coal, the Mecsek coal basin, located in the south Transdanubia region, has come into the limelight.

After several years of preparation, Hungarian engineering company Calamites Kft has just started trial operations in its open pit in Nagymányok, where there is more than 2 million tons of black coal buried underground.

During the current trial phase, the mine employs 10 people, but if production is ramped up to full capacity, staff will be increased to 40, István Kalmár, co-owner and business development director told the BBJ. Although preliminary plans include selling the coal to power plants, such options are rather limited in Hungary at the moment, therefore the mine currently sells coal to local residents.

But despite the difficulties, the company has further development plans. It wants to open a deep-mine in Mátra-Váralja, an area with 250 million tons of black coal underground. After spending hundreds of millions of forints from its own resources on the project, Calamites is not about to give up.

“We are determined to continue the project,” Kalmár said. “We are currently gauging the market and will go on with development in line with market needs.”

Clean future

The future of the coal industry is inevitably But in spite of the decline of the min- clean coal technology, professionals say. Enviing industry, Hungary is still rich in fossil ronmental concerns are pushing the indus-

try to develop and employ technologies that reduce harmful environmental impacts so that the sector can meet the European Union’s 20-20-20 goals (20% increase in energy efficiency, 20% reduction of CO2 emissions, and 20% renewables by 2020).

“In the midst of the global crisis, such goals are a bit unrealistic,” Zoltay said. “They seriously hurt the competitiveness of the sector, which has the potential to contribute to creating employment and generating income for the state in the process.”

But he agrees that clean coal technology is inevitable for the further development of the sector. “It is utterly important for Hungary to be able to join the framework research program of the EU,” Zoltay emphasized.

There are promising signs though: preparations for an international committee in which Hungary would be a member have started at a government level. The aim of the committee is to further develop and realize clean coal technology in Hungary. patricia fischer

Clean coal technologies Coal, which is primarily used for the generation of electricity, is the second largest domestic contributor to carbon dioxide emissions.

Clean coal technology (CCS) is a collection of technologies being developed to reduce the environmental impact of coal energy generation. Carbon capture and storage (CCS) is a process based on capturing carbon dioxide (CO2) from large point sources and storing it in such a way that it does not enter the atmosphere.

the atmosphere and oceans. Geological formations are currently considered the most promising sequestration sites.

Another effort to reduce the environmental impacts of coal mining is the use of the methane released in coal mines from the coal seam and the surrounding disturbed strata during mining operations. It is a potent greenhouse gas, with a global warming potential 23 times that of carbon dioxide. While coal is not the only source of methane emissions – agricultural activities are major emitters – methane Storage of the CO2 is envisaged from coal seams can be utilized either in deep geological forma- rather than released to the atmotions, deep ocean masses, or in the sphere with a significant environform of mineral carbonates. But mental benefit. The so-called methin the case of deep ocean storage, anol economy is the brainchild of there is a risk of greatly increasing Hungarian-born Nobel Prize-winthe problem of ocean acidification, ning professor György Oláh, and an issue that also stems from the such projects are currently in the excess of carbon dioxide already in research phase.

▶www ▶ Energy .bbj.hu news Business Journal | June 4 – June 17 ▶Budapest ▶ Energy in numbers

▶▶ Can Hungary become an electricity exporter? ▶▶ Government steps up influence ▶▶ LIST: Electricity traders ▶▶ Powering through the changes ▶▶ Can Hungary become an electricity exporter? ▶▶ A CEE power exchange ▶▶ LIST: Universal service suppliers

〉page 10 〉page 11 〉page 12-13 〉page 13 〉page 14 〉page 16 〉page 12-13 〉page 16 〉page 17

special report 9 This special report is sponsored by

Despite its drawbacks, coal remains a major energy source in the world, accounting for 40% of the world’s electricity production. Most of the new coal demand comes from the developing world and is used for electricity generation. China now accounts for more than half of the world’s coal production and consumption. But coal consumption is also on the rise in the developed economies. In the EU, coal consumption increased by 4.8% last year and coal provides around 29% of the EU’s electricity. Europe is also an important producer of brown coal, with almost half of world production coming from the continent last year. Coal provides nearly half of the power demand of the US, but it also contributes a third of the country’s climate-changing gas emissions.

Top Ten Hard Coal Producers (2010e) 1. China

3162Mt

2. USA

932Mt

3. India

538Mt

4. Australia

353Mt

5. South Africa 255Mt

Coal More than 6,185 million tons (Mt) of hard coal is currently produced worldwide, along with 1,042 Mt of brown coal (lignite). The largest coal-producing countries are not confined to one region – the top five hard coal producers are China, the US, India, Australia and South Africa. Much of global coal production is used in the country in which it is produced; only around 15% of hard coal production is destined for the international coal market. ZsV

6. Russia

248Mt

7. Indonesia

173Mt

8. Kazakhstan 105Mt 9. Poland

77Mt

10. Colombia

74Mt

[ expert opinion ]

Diversification of gas supply in Hungary Péter Simon, dr.

Partner CMS Cameron McKenna LLP

Hungary’s dependence on Russian natural gas is a fact widely discussed by politicians, businessmen and industry experts. This only reflects that in any debate over a strategy aiming to secure adequate natural gas supply to Hungary political, economical and even social concerns are mixed.

As per the facts, indeed, Hungary’s dependency on Russian gas is noteworthy and salient even in our closer region: in Hungary’s fuel mix natural gas takes a predominant place and an overwhelming part of it’s approximately 9 bcm import need in excess of it’s more-or-less 3 bcm own production is delivered

by Gazprom. Not being blind to geopolitical and economic circumstances, some might consider this level of dependence fairly disadvantageous.

Looking at these figures we should not forget though from where we started. Natural gas production started in Hungary decades ago, with an almost

continuously growing production capacity reaching its peek by 1985 with about 7.6 bcm. In the meantime, domestic consumption kept growing. From the ’70s until the late ’90s this growth was mostly fuelled by the connection of more and more households to the system that were keen on cheap energy in a period when the price of natural gas was kept artificially low by political will. Later new gas fired power plants increased the demand in the country – further deepening Russian dependency. Up to the commissioning of the Hungarian-Austrian gas pipeline (HAG), Hungary’s sole import possibility was the pipeline connecting to the East with Russian gas flowing in it. In the meantime, domestic production fell by half in a decade.

Such were the conditions when, in the mid-’90s, the Hungarian gas wholesaler MOL entered into the currently applicable long-term gas supply agreement with the Russian supplier. At that moment the most important concerns were security of supply on longer terms and calculable prices, without the possibility of any alternative import. No matter how disadvantageous it seems today, the long-term gas supply contract with Russia might have satisfied the criteria of that time. The pricing formula of the agreement that connects the price of natural gas to the world market price of crude oil and that makes us feel that gas is expensive to us was market standard in those days.

But the world (or at least the natural gas market) has changed a lot since then. In the last decade the price of crude oil has exploded – having a direct effect on the import gas prices in Hungary through the applicable pricing mechanism. Simultaneously, novel technologies evolved in the US for the exploitation of natural gas, such as shale gas, and LNG gas also found its ways to Europe in vast amounts. This supply increase, together with the emerging of spot

markets, decreased natural gas prices in Western Europe and made Hungarian gas prices look oddly high in comparison.

As if economic disparity had not been enough in the last decade, the strategic and political side of the problem came to the front. In the winters of 2006 and 2009 a number of European countries – and particularly Hungary, having a common border with Ukraine –experienced during the ‘Gas Wars’ what it is like when Russia wants to put pressure on a transit country for legitimate or questionable reasons and uses gas as a means for such.

Although the ‘Gas Wars’ did not cause very serious damage or supply problems to the country – thanks to Hungary’s significant storage capacities – they did forge thinking on the reduction of dependency on Russian gas in the region and led to the construction of the Romanian (2010, 1.75 bcm / year) and Croatian (2011, 6.5 bcm / year) interconnectors and the strategic gas storage (1.2 bcm), in addition to the already existing Serbian (1979, 4.1 bcm / year only transit) and Austrian (4.5 bcm / year, both directions) interconnectors. Further interconnectors in the direction of Slovakia and the extension of the HAG connection towards Austria are also in the pipeline.

The various Hungarian governments have so far been unanimous in that they supported all pipeline and other initiatives that could ease dependence and enhance a more diversified gas mix for the country. Of these initiatives, the Nabucco pipeline, the North-West Gas Corridor and the Adria LNG terminal projects are certainly in the spotlight nowadays.

What then are the possibilities for Hungary to decrease its dependency on Russian gas? Due to the geographical location of Hungary, some kind of new gas import agreement with Gazprom will certainly be needed after the expiry of the current

supply agreement. There are already various ideas about whether such an agreement should be short-, medium- or long-term with oil related or spot market pricing, etc. What seems fairly important from the Hungarian point of view is to avoid the use of rigid take-or-pay formulae in any such future agreement. The minimum and maximum volumes should also be determined carefully and in a flexible way so as there would be room for purchasing gas from alternative sources in the case of more favorable prices. Clearly, the Russian counterparty will be less interested to grant such concessions. As the critical date of 2015 is approaching, Hungary should carefully evaluate what measures can realistically raise the Hungarian bargaining power by this time. Certainly, the larger scale projects, such as the Nabucco pipeline and the planned Adria LNG terminal may not be completed by 2015.

What may physically become operational is the Hungarian-Slovakian interconnector, some extension of the HAG pipeline and possibly a Slovenian interconnector. The planned combined import capacity of these pipelines (assuming that the Slovakian-Polish interconnector is also completed) will certainly grant a better feeling for the Hungarian delegates when meeting the Gazprom people to negotiate gas supply after 2015. And the fruits of the pipeline building efforts will most probably be more advantageous contractual conditions and gas prices.

www.cms-cmck.com

10 special report

www.bbj.hu

Budapest Business Journal | Oct 21 – Nov 3

energy news The state-owned Hungarian Electricity Works (MVM) has completed the buyout of its partner’s stake in the Bakonyi Villamos Művek Termelő power plant. MVM bought the 49.5% stake from Euroinvest, owned by construction magnate Sándor Demján. The price of the transaction was not revealed, but it was set following an assessment by independent international experts. The MVM-Euroinvest joint venture took out a €63 million loan to build the plant, Econews reported earlier. The loan covered about 80% of the cost of the plant with two 58MW blocks.

Ovit, a unit of the state-owned Hungarian Electricity Works (MVM), has taken over production at a power plant machinery maker owned by troubled TE GanzRöck, business daily Világgazdaság wrote.

Ovit started leasing the plant, in Kiskunfélegyháza, central Hungary, at the beginning of 2011, more than six months after TE Ganz-Rock, under liquidation, shut it down.

Ovit CEO Péter Gopcsa, who headed TE Ganz-Röck for five years, told the paper the plant was the only one in Hungary that can make the full range of power plant equipment. Capacity at the plant is at 25%-30% at present and just it employs just 21 people, but output will be increased and headcount could reach 100 by the end of the year, Gopcsa said.

The city of Pécs’s (south Hungary) district heating plant, owned by a unit of Dalkia, will put a HUF 24 billion ($113.3 million) biomass-fueled block into operation at the end of 2012, Pannonpower Holding told MTI. The 35-megawatt block will be the biggest straw-fuelled block in Hungary, burning 240,000 tons a year. The power plant also has a 50MW wood-fueled block. When the strawfueled block is completed, the plant will power down its two gas-fueled blocks, using them as a reserve source of heat only.

A fourth attempt to sell the assets of solar cell maker HelioGrid Magyarország (based in Rétság, north Hungary) has been declared unsuccessful, and it is now certain that solar cell production will not be resumed at the plant, business daily Napi Gazdaság wrote. Liquidator Miklós Balázs told the paper that there had been several interested applicants and negotiations were held with foreign and Hungarian companies, but finally none of these submitted a bid. The property housing the plant is owned by TDK, HelioGrid was only leasing it.

The liquidator will go on to sell the moveable assets, estimated to be worth HUF 40-50 million ($189,000-$236,000), the paper said. The plant employed 36 workers before liquidation.

Első Hazai Energia-portfolio (EHEP) Nyrt has received a natural gas trading license from the Hungarian Energy Office. The license, granted in a resolution dated October 11, 2011, is valid for an unspecified period. EHEP is a Hungarybased company mainly involved in portfolio management. Its portfolio contains both listed and non-listed shares, complemented by derivative collateral and speculative instruments.

The company also invests in the energy sector.

The Nabucco gas pipeline, meant to wean Europe off of its dependency on Russian gas, could become operational a year later than planned, in 2018, stakeholder OMV has said, according to the Austria Press Agency (AFP).

Gerhard Roiss, CEO of the Austrian oil and gas giant, told AFP the first gas deliveries to Europe from central Asia would occur in 2018.

Officially, Nabucco has until now said that the pipeline would begin operations in 2017.

Roiss is touring central Asia to discuss possible supply deals for Nabucco. Construction of the pipeline is meant to start in 2013 with the aim of bringing gas from the Caspian region to Austria via Turkey, Bulgaria, Romania and Hungary. OMV is one of six equal-share partners in Nabucco alongside Bulgaria’s BEH, Hungary’s MOL, Romanian Transgaz, Turkish Botas and RWE from Germany.

Hungary could start subsidizing electricity and heat generated from renewable and alternative energy sources with base prices and bonus prices under a feed-in tariff mechanism, a draft plan published on the government’s web-

A new photovoltaic plant will be built in Debrecen-Haláp, in eastern Hungary, Sándor Bodó, president of the local government of Hajdú-Bihar County announced at a press conference in Debrecen. The cost of the nearly 0.5 MW capacity plant is HUF 330 million (€1.12 million), 50% of which comes from non-refundable grants from the European Union and Hungary’s central budget.

The technology will be provided by South Korea. State secretary in charge of climate and energy issues János Bencsik, who attended the press conference, said that 28 successful tenders in the county were awarded with a total support of HUF 950 million. site shows. The mechanism would replace the mandatory purchase system in place at present. Under that system, electricity generated with renewable and alternative fuel is purchased at prices higher than market prices. The draft plan, from experts at the National Development Ministry, could come before the government at the end of November, said state secretary for energy affairs János Bencsik.

French-owned Hungarian electricity distributor EDF Démász Hálózati Elosztó has made investments of more than HUF 46 billion since 2007, as a result of which, power outages have been halved over the past three years. EDF Démász’s 740,000 clients were without electricity for just 101 minutes on average last year.

Péter Szalma, who heads EDF Démász’s development department, said 38% of the investment spending was necessary to meet demand by new clients. About half was to improve the quality of service, he added.

Hungary has submitted a request to the European Commission for a derogation that, if approved, would temporarily allow the country’s electricity generators a specific CO2 quota free of charge, documents published on the government’s website show. Hungary is one of ten EU members that can apply for the derogation allowing the distribution of free European Union Emissions Trading Scheme (ETS) quotas to electricity generators. Eight of those

member states, including Hungary, have asked for the derogation. Hungary’s National Development Ministry has attached a plan to the request for the derogation that outlines investments Hungary would make in pumped storage power plants, intelligent network pilot projects and an interconnector between the gas networks of Hungary and Slovakia. Another attachment to the request for the derogation shows free quotas would go to plants owned

by AES, Bakonyi, EDF, Alpiq, E.ON, Electrabel, Dunaferr, RWE and Pannonpower, as well as three project companies being established by the state-owned Hungarian Electricity Works (MVM).

Centrally regulated retail gas prices will not rise in the fourth quarter, according to the National Development Ministry. It means family budgets will temporarily avoid a further rise in spending on utilities, the ministry said. The decision was taken on the basis of current social conditions, however the temporary freeze in prices should be replaced in the mid-term by a new subsidy system, based on solidarity, it said. The government said earlier it would start central regulation of water, trash and sewer fees. The ministry said it had started work on the necessary regulations and would complete them by November 30, 2011, allowing their introduction from 2012. The government already regulates some retail natural gas, electricity and district heating prices.

Hungary has about 3.9 million Removal Units (RMUs), issued under the Kyoto Protocol, that it may sell, the National Development Ministry told MTI. State secretary for energy and climate affairs János Bencsik said earlier that Hungary would be among the first countries to bring RMUs to market. Revenue from the sale of the units may only be used to support environmentally-friendly investments. Each RMU allows the emission of one metric ton of CO2. The units are issued on the basis of land use, land-use change and forestry activities such as reforestation.

The European Union must make a drastic shift from fossil fuels and derive more and more of its power from renewable sources, driving up electricity costs over the next two decades, Reuters reported citing a draft document. The 2050 energy road map to be published by the end of the year complements a 2050 low carbon road map released by the European Commission earlier this year, which seeks to chart a way to reducing carbon emissions by more than 80% by the middle of the century. “Currently, Europe’s power system is based mostly on fossil fuels.

This has to change,” the draft energy 2050 road map writes. The draft also says, that scenarios suggest electricity prices will rise to 2030, but fall thereafter.

Pakistan’s Mari Gas Company Limited has announced it discovered oil in a block in which Hungarian peer MOL’s local unit owns a 40% stake. A well spudded in the Karak Block in January flowed at an average rate of 1,700 barrels per day, Mari Gas said. MOL Pakistan Oil and Gas Company acquired its 40% stake in the block from Mari Gas in 2008. MOL confirmed the discovery in an announcement late Friday, after the end of trade on the Budapest Stock Exchange.

The city of Zalaegerszeg, southwest Hungary, will use biomethane produced at Zalvíz Zrt for operating its public bus fleet.

The city and Zalavíz Zrt have signed an agreement on the cooperation. Currently, the city operates 136 local bus lines. Altogether, the buses emit 1,500 kilograms of soot a year, Zalaegerszeg mayor Csaba Gyutai said. If the bus fleet was operated with CNG technology, soot emission could be reduced to 15 kilograms a year, he added.

Zalavíz Zrt set up its own car fleet that uses fuel processed from its own waste water in early September. As a result, fuel costs have fallen to one-third at the company, Zalavíz CEO András Nagy said.

special report 11

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Budapest Business Journal | Oct 21 – Nov 3

The energy strategy in numbers Security, competitiveness and sustainability are the keywords of Hungary’s national energy strategy, which was approved by Parliament in October.

The strategy aims to reduce the country’s dependence on energy imports.

Areas covered include growth in the use of renewable energy sources, maintenance of nuclear energy capacity at the current level, increases in energy efficiency and energy savings in buildings, development of regional energy infrastructure, and a new institutional framework for energy.

The document contains detailed proposals for both the government and the energy sector through 2030, and suggests a greater role for the state.

The government has drawn up six scenarios. Although a nuclear-coal-green trinity is the most likely to become reality for the time being, the government might yet turn to another scenario if internal and external circumstances change.

Sources for Hungary’s electricity output in 2010; expectations for 2020 and 2030

Source: Electricity Information, IEA, 2010

Source: REKK

Hungary’s renewables potential (PJ)

water

SUN

1838

Sources for the EU27’s electricity output in 2008

14.4

TOTAL Source: National Energy Strategy

geothermal

biomass

wind

63.5 203-328 532.8

2600-2700

Energy saving options until 2030 Building energetics program

Replacing coal-fueled power plants

Replacing gas power plants

Reducing losses in electicity grid

Replacing low-efficiency renewables

Total primer energy savings Source: National Energy Strategy

111 PJ 24 PJ 37 PJ 12 PJ 5 PJ 189 PJ

12 special report

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Budapest Business Journal | Oct 21 – Nov 3

Can Hungary become an Is a Hungarian government energy scenario that considers exporting electricity once Germany’s nuclear power plants are closed realistic?

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Although many actions of the current government are driven by a declared policy of independence from foreign pressure, when it comes to energy distribution, dependence is exactly the right word to describe the country’s position. Hungary, like most of Europe, is painfully reliant on foreign energy resources. That is particularly true of gas, but also of electricity – even though Hungary produces plenty of its own electricity, it is cheaper to import it.

So when Germany announced at the end of May that it would shut down all its operating nuclear power plants after the catastrophe at the Fukushima power plant in Japan, the Hungarian government’s proposition that it could start exporting electricity came as a surprise.

Export power The ministry, grid operator Mavir and an energy research institute made a study

on the impact of closing seven German power plants. The findings were included in Hungary’s new national energy strategy, approved on October 3.

The Budapest Business Journal also found the idea worth toying with. Is an energy scenario in which Hungary becomes an electricity exporter, turning on its head its current status as net importer, realistic?

It doesn’t look like it is, at least in the short-term. The current capacities at Paks are not sufficient to serve Germany and would not be competitive with Czech or Polish electricity. Besides, “no country would build a nuclear power plant for export purposes only”, says András Perger, an energy expert at research firm Energiaklub. “Even if the expansion of the power plant in Paks started soon, it would be well overdue by 2022.

The building of a reactor takes at least 15 years. By that time, Germany will have already solved its problem.”

Edit Herczog, a Hungarian Socialist MEP who sits on the Committee on Industry, Research and Energy in the European Parliament agrees. “Building a plant in ten years is difficult. So the path for the EU to follow is to better exploit its existing capacities.” She believes the German decision may speed up the building of power

special report 13

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Budapest Business Journal | Oct 21 – Nov 3

electricity exporter? plants already under construction, but that will not favor Hungary either. “The whole region is very active: Poland has just issued permits for two new nuclear plants,” she added.

András Gyürk, another Hungarian MEP on the EU committee, representing the European People’s Party, also ruled out this possibility. “After shutting down seven German nuclear power plants, Germany has become a net electricity importer country. Phasing out the remaining nuclear capacities by 2022 would cause an overall 23% decrease and these might be replaced by renewable, and additional gas-fire production capacities domestically within Germany.”

Transport hopes Still, the expansion of Hungary’s nuclear energy capacities is on the table.

The upfront investments of such power plants are by far the highest, but the cost-to-energy-unit ratio is still the lowest of all energy sources, so it sounds reasonable to keep them.

The government also mentioned the transportation industry as a potential user of nuclear energy. In the next couple of years, the electricity market of the

EU is projected to increase by 40%, Herczog said, 20% of which will be due to electric vehicles. This translates into increased demand for the lithium batteries that fuel such cars. “The countries that become part of the production chain will greatly benefit from the process.”

Perger disagrees. “It is just another excuse for the government to pursue its nuclear plans. The market for electric cars in Hungary is small and their price is not competitive. I don’t see that this segment could take up the energy generated by new reactors at Paks, and neither will public transport do so.”

Who would finance the construction of the new reactors mentioned in the National Energy Strategy is far from clear. Experience shows that investors are more willing to get involved with other energy sources: the building of a gas plant could be done entirely without state subsidies, while a nuclear plant usually requires heavy government participation. Hence the opposition would like to see nuclear energy phased out of Hungary as well.

But that is not going to happen. The government is set to diversify, so nuclear energy is likely to remain a stable element of the national energy portfolio for quite some time. n

Government steps up influence The electricity providers’ market is already showing some signs of the government’s increasing participation in the energy sector, according to market players.

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Hungary’s recently adopted long-term National Energy Strategy calls for strengthening the state’s role in the energy sector through the nationalized Hungarian Electricity Works (MVM). The government claims that this is the way to meet the goals of the strategy, such as guaranteeing the secure energy supply of households at affordable prices. The government also plans to help MVM expand on the natural gas market.

Market players are already seeing the signs of increasing government participation. “There is a sense of uncertainty on the market due to the planned strengthening of the state’s role,” said to Csaba Kovács, KPMG director in charge of energy sector advisory.

Regarding the planned new renewable electricity support scheme, on one hand, the government’s claim that the preparation of the new rules takes time is understandable. However, as other Eastern European countries also need new investments to achieve their renewable targets, investors might go elsewhere in the region in the case of further delay.

MVM: changing role

PPAs out

Prior to energy sector privatization in Hungary, MVM was operated as a big trust unifying all electricity-related activities. After privatization, MVM retained activities like electricity generation, wholesale trading, and transmission system operation as well as some development activities, and expanded by setting up its own free-market energy trader.

Privatization in the Hungarian power sector, which started in the 1990s, is now very advanced. Currently, the majority of power stations and all the electricity distribution companies are privately owned. The electricity market, which was split into a liberalized market and a public utility market, was unified into one liberalized, competitive market in 2007. Public-utility electricity suppliers became universal service providers (USPs) and the electricity public utility wholesaler MVM started to work as a freemarket electricity trader. Besides their universal service activity, former incumbents are also active in the free market.

However, wholesale competition is still not considered complete. Kovács of KPMG pointed out that many power plants had operated under long-term contracts in Hungary, thus were little affected by market forces.

MVM’s dominant market position is based on the ownership of the Paks nuclear power plant, which accounts for about 40% of the country’s total power generation, as well as on its new free market-based contracts with the largest Hungarian power plants, even after the elimination of long-term purchase agreements (PPAs), Kovács said.

The European Commission called for the termination of PPAs, considering them to be one of the main obstacles against market development because of their effects on competition and the transparency of electricity pricing. PPAs were introduced in Hungary in the 1990s, with some valid until 2020, and they covered about 80% of the power market.

All earlier PPAs were thus eliminated and some of them replaced with market-based contracts in 2008. The Commission said the companies could be compensated for “stranded costs” that cannot be recouped from investments in assets that have become non-economical because of the termination of the PPAs. Besides MVM, which is active primarily in the domestic market, the main wholesalers include regional or European companies, like Czech CEZ or the Swiss Alpiq, Kovács noted. MVM’s contracts with the USPs account for approximately one-third of the Hungarian market.

A special-status member of the MVM group is the Hungarian transmission system operator (TSO) Mavir. Its status is in line with the EU rules of legal and functional unbundling. Mavir is responsible for maintaining the secure operation of the Hungarian power system, including the required reserve capacities for ancillary services. In addition, Mavir prepares the Hungarian Network Development Plan, which has to be in harmony with the European Ten-Year Network Development Plan.

EU Energy Package The implementation of the EU’s third Energy Package, which was announced in August 2009, is now underway. Member states had 18 months to implement the stipulations of the directives and 30 months for implementing ownership unbundling, should they opt for this possibility. n We would like thank KPMG director Csaba Kovács for his help in researching this article

Main provisions of the EU’s 3rd Energy Package New unbundling regime - three options for transmission: - ownership unbundling - independent system operator (ISO) - independent transmission operator (ITO) Improving the functioning of the internal electricity and gas market Establishment of the Agency for the Cooperation of Energy Regulators (ACER) Enhanced powers and independence of national regulators Efficient cooperation between TSOs Measures to reinforce security of supply

. .

14 report Budapestspecial Business Journal | March 12 – March 26

the lists . .1

www bbj hu

www bbjonline hu

Budapest Business Journal | Oct 21 – Nov 3

electricity traders

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 circulation@bbj.hu

Ranked by total net revenue

5

6

7

8

9

10

11

12

Ÿ=

www.mvmtrade.hu

GDF SUEZ Energia Magyarország Zrt www.gdfsuez-energia.hu

Magyar Áramszolgáltató Kft www.masz.co.hu

EDF Démász Zrt www.edfdemasz.hu

Észak-magyarországi Áramszolgáltató Nyrt www.emasz.hu

MVM Partner Energiakereskedelmi Zrt www.mvmpartner.hu

ISD Power Kft www.isdpower.hu

BC-Energiakereskedő Kft www.bcenergia.hu

EFT Budapest Zrt www.eft-group.net

GEN-I Budapest Kft www.gen-i.si

JAS Budapest Zrt www.jas.hu

Emissions certificates

4

MVM Trade Zrt

Coal

3

www.eon-energiaszolgaltato.com

Oil

2

E.ON Energy Provider Kft

Gas

1

Company Website

Electricity

Rank

Types of energy traded

526,774





–

–



E.ON Hungária Energetikai Zrt (100) –

Balázs Lehoczki, Norbert Pál – –

1051 Budapest, Széchenyi István tér 7–8.

(1) 472-2300 (1) 354-3890 info@eon-hungaria.com

344,754



–

–

–



MVM Zrt (100) –

Bally Attila László Görbicz –

1031 Budapest, Szentendrei út 207–209.

(1) 304-2000 (1) 202-1246 mvm@mvm.hu

278,850





–

–

–

(0.10) GDF International SAS (99.90)

Patrick Eekelers, Péter Csiba, Franck Neel – –

6724 Szeged, Pulcz utca 44.

(62) 569-600 (62) 473-943 ugyfel@gdfsuez.hu

162,643



–

–

–

–

Elmű Nyrt (50), Émász Nyrt (50) –

Zoltán Nagy Tamás Karaba –

1132 Budapest, Váci út 72–74.

(1) 2377-877 (1) 238-2803 masz@masz.co.hu

144,785



–

–

–

–

– EDF International SA (100)

Thierry Le Boucher – –

6720 Szeged, Klauzál tér 9.

(62) 565-565 (62) 568-800 riporter@edf.hu

97,707



–

–

–



(19.45) RWE AG (54.26), EnBW (26.29)

Marie-Theres Thiell – –

3525 Miskolc, Dózsa György út 13.

(46) 535-000 (46) 535-110 emasz@emasz.hu

69,100





–

–



MVM Zrt (100) –

Major György – –

1031 Budapest, Szentendrei út 207–209.

(1) 304-2169 (1) 202-0134 info@mvmp.hu

47,544





–

–

–

ISD DUNAFERR Zrt (100) –

Péter Sándor – –

2400 Dunaújváros, Vasmű tér 1–3.

(25) 581-186 (25) 412-658 isdpower1@isdpower.hu

34,447





–

–

–

BorsodChem Zrt (100) –

Sándor Varga – –

3700 Kazincbarcika, Bolyai tér 1.

(48) 511-816 (48) 511-891 energiaker@borsodchem.eu

33,267



–

–

–

–

EFT Holdings (100) –

József Turai – –

1051 Budapest, Sas utca 10–12.

(1) 301-8724 (1) 269-5183 –

30,870



–

–

–

Ÿ

– GEN-I trgovanje in prodaja elektricne energije d.o.o. (100)

Igor Koprivnikar – –

1125 Budapest, Tusnádi utca 39.

386 (0)1 58 96 400 386 (0)1 58 96 429 info@gen-i.si

22,800





–

–

Ÿ

Ferenc Arató (50), Edit Molnár Aratóné (25) Theoharidis Thalia (25)

Ferenc Arató – –

1141 Budapest, Mogyoródi út 168.

(1) 460-9300 (1) 460-9301 jas@jas.hu

Total net revenue (HUF mln) 2010

Ownership (%) Hungarian Non-Hungarian

Top local executive Finance director Marketing director

Address Phone Fax Email

This list was compiled from responses to questionnaires received by Oct 18, 2011 and publicly available data. To the best of the Budapest Business Journal’s knowledge, the information is accurate as of press would not disclose, NR = not ranked, NA = not applicable 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. The research department can be contacted at research@bbj.hu

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Powering through the changes

A CEE power exchange The Czech, Slovakian and Hungarian power exchanges are preparing for the launch of a trilateral linked market.

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As a result of the extraordinary sector tax and fierce market competition, electricity providers see their profits falling in 2011.

BBJ gabriella lovas

Although the energy industry was hit less by the crisis than other sectors, market players are facing the twin challenges of decreasing demand and profits, as the extraordinary crisis tax bites into energy providers’ bottom lines. As household burdens mount, energy theft is also presenting a serious problem for providers.

In the wake of the Fukushima nuclear catastrophe and the consequent shutdown of many nuclear power plants, fundamental changes are expected in power plant portfolios as well as in energy prices through electricity imports, German-owned power and gas company E.ON told the Budapest Business Journal. Other negative trends include a deterioration in clients’ willingness to pay, as well as increasing outstanding debts and even power theft. Besides retail customers, non-payment is also a critical problem at government institutions and municipalities, as they are unable to pay their energy bills without state support, E.ON noted.

Short circuit As a result of the extraordinary tax and fierce competition, E.ON expects falling profitability in 2011. The company is trying to

increase market share by offering innovative products that meet customer needs and by strengthening cross-sales. Several market players now see major synergies in cross selling. E.ON notes that innovative solutions like electric cars, pure green energy, decentralized energy production, smart meters and smart grids have already appeared on the Hungarian market, but are still at a very early stage.

There has been no major change in the structure of the domestic electricity market, E.ON said, adding that the role of the Hungarian Power Exchange (HUPX) is slowly increasing. Besides the four universal service providers (USPs) – RWE’s Elmü and Émász, E.ON and EdF Démász – there are several companies with full or limited power trading licenses on Hungary’s electricity market. Universal providers are obliged to supply electricity to household end-users and small enterprises at regulated prices if they are not willing to enter the liberalized market.

Electricity traders could theoretically provide their services to small household consumers, but such offers are so far limited, KPMG’s director in charge of energy sector advisory Csaba Kovács said. There are some plans on the part of providers to enter this market, but they would then have to be able to compete with the USPs’ prices, he added.

Falling demand The crisis hit the power sector less than others, because, as a necessity product, electricity is less dependent on income, according to a KPMG analysis of the electricity market. How-

ever, the decrease in industrial production and increased caution of households in their consumption resulted in falling electricity demand.

In Hungary, the decrease in consumption was mainly due to large industrial consumers, with only a marginal decline in households. In the short-run, electricity consumption is expected to fall further. However, according to the longterm strategic plan of Mavir, the Hungarian power transmission system operator, there will be an average annual increase of 0.5-1.5%.

Lower electricity prices hurt profitability and resulted in the delay of several investment projects, Kovács said. In addition, financial resources have been shrinking, although the sector is still considered to be an attractive target by financial investors. He pointed out that conditions have become tougher and financing is available only for the best projects.

Potential exits Potential exits by market players providing services to end-users depend on the duration of the freeze the government imposed on USPs’ prices for gas and electricity delivered to households, small consumers and public institutions, Kovács said. “Providers swallowed the bitter pill in the short-run,” he noted. However, their long-term plans depend on the details of the new energy market regulations.

The freeze on end-user prices is causing fundamental profitability problems at several players along the value chain, E.ON said. On the other hand, the restructuring of the feed-in tariff system presents a chance to set up a genuine renewable energy subsidy system. n

The Czech, Slovakian and Hungarian power exchanges, together with their relevant transmission system operators (TSOs), announced the launch of a trilateral market linking the three countries in May 2011. The initiative is open for other markets to join.

EPEX Spot, the operator of the power spot markets for France, Germany, Austria and Switzerland, has been chosen by the participating power exchanges as the facilitator and provider of the price coupling services. These services will consist of implementing and operating the coupling solution, relying on the Price Coupling System (PCS) and the COSMOS algorithm.

COSMOS has been developed and used

by EPEX Spot to solve the problem of coupling spot markets including block orders.

The algorithm is able to embrace all the different constraints and product types that exist on the Czech, Slovakian and Hungarian markets. In addition, it allows for the simple extension into new market areas or products.

The cooperation is a another step for the further integration of spot markets, the Hungarian Power Exchange (HUPX) said in a statement. All the partners are committed to preparing a smooth connection of these markets to the Western European market as soon as possible in line with the 2014 EU objective.

Steering group confirms target date The steering group of the market coupling project agreed on the main principles and governance organization of the integrated markets at its meeting held in Bratislava in August. The group also confirmed a target go-live date in the second quarter of 2012.

The three power exchanges approved the selection of COSMOS as the algorithm for market coupling in order to ensure compatibility with the solution implemented in the Central West/North West Europe (CWE/NWE) region. Current activities on implementation of the algorithm and future arrangements are in line with the set time schedule.

“We believe that our project will contribute to the creation of the European Internal Electricity Market according to the binding goal set by European Council in February 2011,” steering group chairman Jiří Strnad said. “Apart from coupling the Czech, Slovak and Hungarian markets, we will endeavor to connect simultaneously with CWE/NWE region with the launch of NWE Market Coupling at the end of 2012. n

lists 17 1 specialthe report

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Budapest – March 26 Budapest Business Business Journal Journal | | March Oct 2112 – Nov 3

universal service suppliers

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Ranked by total energy sold

2

3

NR

Total energy sold (GWh) in 2010 H1, 2011

Total net revenue (HUF mln) 2010

Average no. of full-time employees in 2010

Ownership (%) Hungarian Non-Hungarian

Top local executive

Address Phone Fax Email

Free market

1

Company Website

Universal service

Rank

Breakdown of total energy sold (2010)

6,293

7,660

526,774

170

E.ON Hungária Energetikai Zrt (100) –

Balázs Lehoczki, Norbert Pál

1051 Budapest, Széchenyi István tér 7–8.

(1) 472-2300 (1) 354-3890 info@eon-hungaria.com

5,891 2,917

4,236

1,655

254,117

583

Magyar Villamos Művek Zrt (15.18), Individuals (2.32) RWE mbH (55.25), EnBW (27.25)

Marie-Theres Thiell

1132 Budapest, Váci út 72–74.

(1) 238-1000 (1) 238-3848 elmu@elmu.hu

Észak-magyarországi Áramszolgáltató Nyrt

2,209 1,028

1,708

501

97,707

241

(19.45) RWE AG (54.26), EnBW (26.29)

Marie-Theres Thiell

3525 Miskolc, Dózsa György út 13.

(46) 535-000 (46) 535-110 emasz@emasz.hu

EDF Démász Zrt

Ÿ Ÿ

Ÿ

Ÿ

144,785

–

– EDF International SA (100)

Thierry Le Boucher

6720 Szeged, Klauzál tér 9.

(62) 565-565 (62) 568-800 riporter@edf.hu

E.ON Energy Provider Kft

13,953

www.eon-energiaszolgaltato.com

Ÿ

Budapesti Elektromos Művek Nyrt www.elmu.hu

www.emasz.hu

www.edfdemasz.hu

LIFE

PEOPLE Q&A with Mary Kier

CEO, Cook International

▶ page 20

Tokaj rebottled?

One of the world’s oldest wine regions is trying to reinvent itself – but it is not proving to be very easy.

Near Castle Boldogkő, the sun’s last rays flow over the hills almost vertically, highlighting the ripe yellow-green that the grape leaves reach as the autumn harvest draws closer. There is little sound but the whistle of the wind and the few dog barks it brings.

According to legend, the castle was built on the happiness of seven men who married the seven beautiful daughters of a fruit-dryer who had helped a Hungarian king hide from the

Turks. The grateful king then gave the fruitdryer land, provided that he help the men to build a fort against the Turks. The clever fruitdryer offered the hands of his daughters to get the construction going – thus both father and sons-in-law earned their happiness. (Boldogkő means happy rock in Hungarian.)

The striking colors, the vines, the hills and the view from the top of the romantic castle have been here in Hungary’s oldest wine

region, Tokaj-Hegyalja for several hundred years. Now, however, they are increasingly put on display as well as other points of interest in the region as Tokaj tries to reinvent itself as a high-end tourist destination.

Five-star tourists One of the most remarkable symbols of this is the Andrássy Residencia, a five-star wine & spa hotel. A former residence of the Andrássy family, the historic yet simple facade of the building hides a large swimming pool, various saunas, a colorfully lit cave bath with various types of jacuzzis, as well as a massage and wellness center. It also employs a chef who worked with the famous Brit Gordon Ramsay and formerly cooked for Hungary’s first Michelin-starred restaurant, Costes. “It wasn’t an easy decision, but as a former country boy, I decided to risk it. I haven’t regretted it since,” Attila Nagy told us while flipping an omelet.

According to the staff, many Slovakians drive across the border just for the spa. The hotel, which is owned by CIB Bank and managed by Accent Hotel Management, is trying to cooperate with wineries and restaurants in the region in order to raise the average number of guest nights.

“If we want to raise our 1.8 average guest night to the ideal 2.2, the region needs to provide enough entertainment for a long weekend,” Imre Csordás, head of Accent Management said.

According to Csordás’ vision, the region could be turned into something similar to Austrian Wachau, a town that attracts connoisseurs and epicureans. For this to happen, the bicycle route infrastructure would need to be developed between wineries, the roads leading to the region would need to be improved and there should be a shuttle bus service for wine tasters as well. Also, the mentality of the towns involved would need to change. “Life stops here at 6 o’clock in the evening. Obviously, for city dwellers, this does not work,” he pointed out.

Changing times But even if the change of Tokaj into a high-end tourist destination is not very fast, there is little doubt that it is taking place.

Ten years ago, tourists were mostly limited to kayakers and canoeists on the River Tokaj and the River Bodrog – they would stay in camping sites and find that there were very

few open cellars and they would be selling third-rate wine.

Winemaking was a completely different business, too. Factory workers or farmers from nearby would grow grapes for income to supplement their day job wages. It was good money in those days – a good harvest would buy a new car.

“Of course, if you asked a grower back then about his grapes, then he would reply ‘It’s going to be a good harvest, there is a lot of fruit’,” as Zoltán Bihari, head of the Tokaji Borvidék Szőlészeti és Borászati Kutatóintézet, a wine research institute pointed out. (More high-quality growers would talk about the grapes’ sugar-content or other chemical attributes, as they only leave a few clusters of grapes on each plant, quantity is almost never an issue.)

Of course, Tokaj has a very long history. It was a grape-growing region when the Magyars entered the area on their horses and it was the first site in the world where grape-growing areas were ranked. It is because of its largely unaltered role that UNESCO accepted it as a World Heritage site.

Drinking business However, this millennium-long heritage also means that change is difficult. High-end wineries such as Disznókő, Oremus and Degenfeld, to name a few, are usually backed by foreign investors and are somewhat suspiciously viewed by the local winemakers. One cause of the undisplayed but nonetheless existing animosity towards them is that these wineries are financially strong enough to support making the best wines, even if they make a loss. Degenfeld, for example, has not had a profitable year since 2007 – while its revenues remain stagnant at below HUF 200 million, and several other big names are in a similar position. This would be untenable for small-scale wineries.

Of course, Tokaj wine is not necessarily bad business. A renowned Hungarian win-

OPINION

life 19

The “Nem tetszik” video verbalizes something that we are hearing increasingly often: the wish to leave a country of bad growth perspectives, unpredictable policies and ever-rising taxes. ▶ editorial, page 23

ery, Szepsy, had revenues of HUF 101 million, with a profit of HUF 68 million. Oremus drew in revenues of more than HUF 440 million last year with a profit of HUF 18 million. But for most winemakers, spending – or earning – this much is simply unimaginable, leading to a vastly different view of the region’s present and future needs.

High-paying tourists are at least seen by many as a good source of revenue. This is especially obvious if you compare the economy of TokajHegyalja with that of a much smaller wine region, Villány-Siklós. In Villány, Bock Borászat, one of the most well-known in the area, had revenues of a whopping HUF 840 million (a sixth of which is profit), rivaled in Tokaj only by Tokaji Kereskedőház Zrt. Villány’s Csányi Pincészet turned over even more, HUF 1.3 billion, though at a loss. Still, Tokaj does have something to offer that no other Hungarian wine region can: several hundred years old wines. In a wine museum that will be opened to the public soon, several hundred thousands of bottles of Tokaji have been stashed away by enthusiastic collectors throughout the ages. A sip of a 1972 Tokaji might not be a big treat in terms of a contemporary wine (it is past its peak), but it is an experience worth shelling out for all the same.

It is a taste of the past, with a somewhat murky, but interesting future – just like Tokaj itself. MTD

PEOPLE Wanted: nice strategists Background Finding the right person to steer a company is a tough proposition even in times of prosperity, let alone now. Mary Kier, the head of executive search firm Cook International, came to Hungary at the invitation of Dr. Pendl & Dr. Piswanger Kft, the local partner and shareholder of Intersearch Worldwide, to talk about a recent international study on how firms’ expectations towards a post-crisis CEO have changed.

〉executives that

don’t fit are being let go faster than ever. Companies don’t have time to wait for someone to get better

Q: Steve Jobs, the founder and CEO of Apple, passed away recently. Is a leader like him replaceable?

A: Steve Jobs was an icon. He literally started his company out of his garage and built it into a multibillion-dollar business. He had not just the creativity but also the skills and the talent to carry it out. We have worked with him, our company was involved with a couple of significant hires there. He will be hard to replace. Steve Jobs helped to pick his successor. Tim Cook knows the business well. Will Apple continue in the way that Jobs wanted? Absolutely. But will they change and evolve because the world will change and evolve? I am certain of that.

Q: In Apple’s case the reason for choosing Cook was to guarantee continuity. But today, most CEO changes are made with the goal of saving the company. Recently, we have seen CEOs named in industries where they had no previous experience.

General Motors’ head Daniel Akerson had never been in the auto industry before, and for the first time its history Nokia has hired a CEO who is not Finnish.

A: We are just finishing a search where a CEO wants to retire and replace himself. But there is no one in the company who has the qualifications to step into the role. So he wanted to go outside to see what candidates were available and I

Curriculum vitae Kier began her search career with the firm in 1984 and has been promoted several times to her current position of CEO of Cook Associates Executive Search. In addition to her own search practice in consumer products and services, she leads the consumer and retail practice, managing an integrated team of consultants specializing in consumer services, consumer durable and non-durable goods, CPG and FMCG. In addition, Kier serves as the firm’s diversity and inclusion practice leader, and is actively involved in the firm’s partnership with InterSearch - one of the top ten worldwide executive search consortiums. She coordinates relationships with international search partners and speaks at annual global summits. She is also a member of InterSearch’s board of directors.

Her search work encompasses CEOs, COOs, CFOs, CMOs, divisional presidents as well as functional heads of sales, marketing, finance, HR, and operations.

Kier received her BS degree in management and industrial relations with high honors. She is a member of several industry organizations.

said to him: if you could pick among the functions – finance, operations, manufacturing, sales – would you like to see a heavier emphasis on one versus another? He said: “I don’t care what function someone comes from, I want a strategic thinker.” It also reflected what the Intersearch survey said, in which we asked people to pick the top characteristic of leaders. Professional and personal characteristics combined – it was strategic influence. So when you look at what companies are doing today, the idea of having a stra- the economic circumstances, there is no pertegic thinker leading the firm, as long as it is not fect candidate. Another thing that is happentoo far off the field, is a good concept. ing is that executives that don’t fit are being let go faster than ever. Companies don’t have time Q: Was the ability to think strategically to wait for someone to get better: they have to the top-rated quality five years ago? produce right away.

A: We didn’t do the same study five years The role that poor character and dishonesty ago. If I were to guess though what it looked played in creating the crisis we are in has really like five years ago, given the world economy been an awakening to organizations who realthen, a lot of it was about what you might call ized that they will have catastrophic results if they “change agent”. To get where they are today, hire someone who is technically skilled but morcompanies had to go through a metamorpho- ally bankrupt. We had so many scandals, espesis. Even if you took a look at the personality cially in the US, and many people are rightfully mix or professional characteristics that were in prison for their tactics. People realize more needed in 2009 or 2001, which was a very dif- than ever before that leaders cast a very long ficult period in the US, much of it was about shadow. Employees really watch not only what change: being able to build new teams, work- leaders say but also what they do. So it is really ing out new ideas of how to change the busi- important that they have that level of integrity. ness. It will be interesting to continue these studies and see the angles that companies Q: Has executive search become will be looking for. Will an analytical ability harder as a result of the unpredictable be more important? Will creativity come into environment? play? I do think though that strategic thinking A: The basics behind what we do are the is probably going to always be around because same regardless of what the economy is doing. that is what builds businesses.

The only way it is harder during uncertain economic times like today is that we share equally Q: Has the crisis changed companies’ the challenge [of making sure that we are hiring selection criteria in other ways? Does the the right person]. Maybe there is more emphapressure on companies – especially those sis on making certain that the candidates are that were bailed out – force them to mod- who they say they are. We do a lot more investiify their choices? gation than earlier. In the US, we do an impact A: The difference today is that there are so study: we analyze what impact all the candimany unemployed people. Clients think that dates we placed made at the company. As execbecause there are more people available, it utive search people, what we have to look at is should be so much easier. Well, no matter what how our recommendations panned out. ZsV

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life 21

Budapest Business Journal | Oct 21 – Nov 3

WHO'S NEWS

Do you know someone on the move?

Send information to research@bbj.hu

Hídvégi has been appointed senior consultant at international executive search firm Pedersen & Partners. He will be responsible for managing relationships with clients and managers, and execution of senior level recruitment assignments across the organization. Hídvégi has more than 17 years of experience in the financial information services in CEE. He worked at Dow Jones Telerate Hungary and later had senior regional management roles at ISI Emerging Markets.

Percival has been appointed partner at KPMG in Hungary. He joined the firm in the UK in 1998 and moved to Hungary in 2008. He is head of operations at KPMG’s Indirect Tax Compliance Center, based in Budapest. He has extensive experience in financial management, business process transformation, shared services implementation, optimization of technology and in the management of significant change at pace. Percival was previously head of Shared Service Centers and Sourcing Advisory Practice at KPMG in CEE.

Name Péter Hídvégi Current company/position Pederson & Partners/ senior consultant Previous company/position ISI Emerging markets/ regional manager

Name Géza Réczei Current company/position PwC/director Previous company/position -/-

After having worked at Hungary’s tax authority and in the Finance Ministry for nearly a decade, Réczei joined the corporate tax business of PwC in 2006. As a director, he will be heading the group of experts at PwC in charge with automotive and energy industry issues as well as tax authority revisions. Réczei has been a lecturer at the finance legal faculty of the Eötvös Loránd University since 1996. He is also supporting the work of PwC’s Tax and Legal Academy.

[ better know a cFo ]

Name Alec Percival Current company/position KPMG/partner Previous company/position KPMG CEE/head of shared service centers

Name Csaba Somfalvi Current company/position Gemius Hungary/client service director Previous company/position HVG/online key account manager

SPONSORED BY

Name Ali Shah Current company/position Ericsson Magyarország/ CEO Previous company/position Ericsson North America/director of broadband strategies

Somfalvi has joined online research company Gemius Hungary to head its sales and key account activities.

He started his career nine years ago at Index.hu as ad engine operator and was also responsible for media relations. He joined HF Media Zrt in 2008 where he worked as sales manager. He went on to HVG to the position of online key account manager and was promoted to new business manager in March 2011.

Name Anita Mekler Current company/position PwC/director of transfer price group Previous company/position -/-

Mekler joined the tax division of PwC 11 years ago. She spent two years at the Zagreb office of PwC and later she worked in the US at the New York office of the company as member of the transfer price team. In addition to her current role as director of the Budapest office transfer price team she will also coordinate the work of the retail and FMCG teams.

▶ Which historical

▶ Who is your favorite

▶ What is your Bugs.

Joan of Arc.

Scarlett O’Hara in Gone with the Wind.

person do you most identify with?

fictional hero?

Yvonne Dederick

What is your motto?

Smile and the world will smile back.

children on an outdoor stage at our summerhouse.

Dederick was appointed as CFO of national TV broadcaster TV2, the Hungarian subsidiary of the ProSiebenSat1 Group, in April. She has almost 20 years of professional experience in finance, business development and strategy. As a US qualified CPA, she came to Hungary with Arthur Andersen in 1991, where she worked in both audit and advisory roles. In addition, she has served as CFO for RJ Reynolds and as director for business development at Pepsi.

During the past 14 years, her roles have mainly been with media companies, including HBO Central Europe and Emmis International (the parent company of Sláger Radio), where she was the International CFO responsible for all non-US operations. She speaks English and Hungarian fluently.

Which talent would you most like to have?

A sense of direction while driving.

What is the one thing without which you cannot imagine your life in Hungary?

My family.

chief financial officer, TV2

Shah succeeds Roland Nordgren at Ericsson Magyarország. Nordgren will continue his career in Stockholm, at Ericsson’s headquarters. Shah, who arrives from the US, joined Ericsson in 1996. He was promoted to head the radio frequencies engineering services in 2003. Four years later, he was named director of broadband strategies at the strategy and marketing organization in Ericsson North America. He received his doctorate from the George Mason University School of Information Technology in Virginia in 1996.

What is the trait you most disapprove in others?

Pessimism.

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

Art promoter-producer.

What is your greatest regret?

Not enjoying the simple moments, always focusing on the next thing.

What makes you sad?

A lack of teamwork.

When and where were you the happiest?

When my children were born.

What was your favorite game when you were a child?

Putting on cabaret shows with neighborhood

What is your favorite TV program?

Jóban-Rosszban and Megasztár in Hungary, Glee in the US.

greatest fear?

Which Hungarian habit did you get accustomed to most easily?

Strong friendships and real meaningful conversations, not small talk.

Which word do you tend to overuse?

Aha. What is your favorite gadget? iPad.

What is your favorite Hungarian dish?

Paprikás csirke.

What is it your dream to live to see?

The children of my grandchildren.

What is your favorite Hungarian word?

Imádom.

What three things would you take with you to a deserted island?

Hair conditioner.

What is the weirdest thing you have experienced in Hungary?

Lomtalanítás (a community event once a year when citizens dump unwanted stuff onto the street in front of their houses and local municipalities dispose of it).

What activities help you to cope with stress?

Running.

What is your greatest extravagance?

Shoes.

What is your favorite holiday destination?

Cape Cod. What would you do with €1 million?

Make donations to children’ charities.

PF

22 people

www.bbj.hu

Budapest Business Journal | Oct 21 – Nov 3

AmCham Communications School

with Zoltán Kovács, Minister of State for Government Communication, Ministry of Public Administration and Justice October 17, 2011 Zoltán Kovács with András R. Nagy, moderator of the series

UPCOMING

events Oct. 25 Business Lunch with Zsigmond Járai, Head of the Fiscal Council Location Budapest Marriott Hotel, Budapest, Dist. 5, Apáczai Csere János u. 4 Time 12 a.m. – 2 p.m.

Fee BCCH and JVSz members: HUF 14,000 + VAT, nonmembers: HUF 18,000 + VAT Organizer The Joint Venture Association; British Chamber of Commerce in Hungary Contact www.bcch.com; www.jointventure.hu Oct. 27 AmCham Morning Seminar: Introduction of the Hungarian Investment and Trade Agency (HITA) Location Nemzeti Külgazdasági Hivatal, Budapest, Dist. 5, Honvéd utca 20, conference room Time 9 a.m. – 11 a.m. fee Exclusively for AmCham members; there is no participation fee Organizer American Chamber of Commerce Contact Anita Árvai, anita.arvai@amcham.hu; 428-2086

Business Forum

with Pál Schmitt, President of Hungary October 4, 2011

AmCham Career School

with Christopher Mattheisen, Chairman and CEO of Magyar Telekom Nyrt October 6, 2011

AmCham Communications School

Oct. 27 The UK Bribery Act and its implications and relevance for operations in Hungary Location British Embassy, Budapest, Dist. 5, Harmincad u. 6 Time 9:45 a.m.

Fee Attendance is free of charge, but registration is needed Organizer British Chamber of Commerce in Hungary, the British Embassy, and Réti, Antall & Partners PwC Legal Contact www.bcch.com Oct. 27 DUIHK Jour Fixe Location Laurus restaurant, Budapest, Dist. 12, Csörsz utca 18/b Time 6 p.m.

Organizer German-Hungarian Chamber of Commerce and Industry Contact Németh Marietta, 345 7626, nemeth@ahkungarn.hu gusztav.rapp@ccch.hu; www.ccch.hu Oct. 28 Halloween Party Location Merlin theater, Budapest, Dist. 5, Gerlóczy u. 4 Time 10 p.m. fee HUF 500 in costume; HUF 1,500 without Organizer British Chamber of Commerce in Hungary; Funzine Contact www.bcch.com

with Pál Győrfi, communications and PR director, Hungarian National Ambulance and Emergency Service

October 3, 2011

DUIHK

Project management based on examples of large-scale investments in Hungary October 12, 2011 Burkhard Kalk, Daimler AG

Nov. 8 Fifth Annual Conference on Diversity featuring the “AmCham Women of Excellence Award” Ceremony Location Hilton Budapest, Budapest, Dist. 1, Hess A. tér 1-3 Time 9 a.m. – 3 p.m.

Organizer American Chamber of Commerce in Hungary Contact Anita Árvai, anita.arvai@amcham.hu, 428-2086

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 news@bbj.hu

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〉

OPINION QUOTES

〉The world has lost a visionary. And

there may be no greater tribute to Steve’s success than the fact that much of the world learned of his passing on a device he invented

US President Barack Obama, speaking after he learned about the death of Apple founder Steve Jobs on October 5

〉Hungary is the first example of a member country that has not just dragged its feet on the path to democracy – it has back-pedaled

a Financial Times blog, in a commentary titled ‘Hungary’s new path is the hidden danger to Europe’

〉Guns like these are highly illegal to

transport even if they were to be used as stage guns, which hopefully they weren’t,

said János Hajdú and Zsolt Bodnar, director and deputy director of Hungary’s Anti-Terrorism Unit, after the unit confiscated more than 80 weapons at the airport in Budapest. The guns were props for a Brad Pitt zombie movie being shot in Hungary.

〉We cannot imagine a situation where

we smoothly ratify the Association Agreement with Ukraine when the legal system there is not functioning and Tymoshenko is in prison

[ editorial ]

Fighting for a future

Z

ealots they probably aren’t, but they sure are unhappy. Unhappy enough to make a catchy music video about how they aren’t comfortable with the current state of affairs – it’s called “Nem tetszik a rendszer” – and post it on Facebook. The HUF 30,000 video has to date been shared by more than 30,000 people, mostly in Hungary. It has allegedly even made it onto CNN’s front page, though our efforts to search for it on the website turned up no results. The video calls for Hungarians to participate in a October 23 gathering against the government’s policies.

This will not be the only sound of complaint on October 23, arguably Hungary’s most important national holiday. Viktor Orbán, who has probably not missed a national holiday speech opportunity in the past ten years, will be notably absent – ironically, as some see it, in Brussels. This has led to Fidesz cancelling its own gathering on the occasion.

However, what we find most worrying is not the fact that the day will probably not be as celebratory as the governing party might like. We are worried about the rising sentiment against the government’s policies. The “Nem tetszik” video is certainly political, but it also verbalizes something that we are hearing increasingly often: the wish to leave a country of bad growth perspectives, unpredictable policies and ever-rising taxes.

It is not “just” doctors and nurses. It is Hungary’s young professionals. Those clever, multilingual, cosmopolitan youngsters in their 20s and 30s who are the backbone of any country.

When they see no opportunity, no future for themselves, then a country really has a problem.

Maybe this is what politicians should be thinking about on the anniversary of Hungary’s 1956 fight for freedom. After all, having a future was what that was about, too.

Czech Prime Minister Petr Necas talking to reporters in Prague following a meeting with Polish Premier Donald Tusk and Hungarian PM Viktor Orbán, after former Ukrainian premier Yulia Tymoshenko was convicted of abuse of power and sentenced to seven years in prison by a Kiev court

〉The insurance profession is uncertain, and

it is difficult for it to follow the direction of the ship of Hungarian economic policy, which is not a large sluggish European Union submarine but a quick sloop Prime Minister Viktor Orbán speaking at a conference of the Association of Hungarian Insurance Companies

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