Budapest Business Journal 23/18

Report 3Special

BBJ

SPECIAL REPORT:

State muscling in

12

on the utilities market

Nuclear plans advance

despite worries on

cost 14

Energy

ENERGY is changing State intervention the sector, but the landscape in s still find some private companie room to do business.

OCT 02, 2015 – OCT 15, 2015

VOL. 23. NUMBER 18

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Data power

The state moves in on the energy game The government raised taxes on utilities and made them cut fees, forcing foreign firms to leave. Officials say local energy consumers benefit from state utility ownership, but not everyone agrees.

12

NEWS

Growth projections revised downward A poor season for agriculture and the lack of EU funds mean that GDP growth will not be as rosy as hoped next year, according to several analysts. Depending on who you ask, growth could be 2-2.5% in 2016. 3

SPECIAL REPORT

Concerns about the real cost of Paks plant Joerg Bauer, president of GE Hungary, talks about how big data and the industrial internet are changing the energy game. 15

SOCIALITE

Among the many questions from opponents of the plan to upgrade the country’s nuclear facility is a basic one: Will anyone really need to buy all the excess energy that the plant is likely to produce?

14

BUSINESS

BUSINESS

Székszard bottling plan takes shape

Citi says it’s ready to go commercial

Logistics property market improving

In a concerted marketing move, the southern wine region, which produces some of the country’s finest reds, has decided to set itself apart from other European regions with its own signature bottle.

22

As it is doing in many other countries, Citi is selling its retail business here, to focus on commercial banking. The head of the EMEA region for the bank tells us in an interview that this does not mean Citi is scaling back.

10

The increase in e-commerce is helping drive interest in more logistics centers here and around the region. While demand for industrial real estate may not match that for offices, Hungary is seeing growth.

8

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Budapest Business Journal | Oct 02 – Oct 15, 2015

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3Special

SPECIAL REPORT:

State muscling in

12

on the utilities market

SUBSCRIPTIONS

Report

Nuclear plans advance

despite worries on

cost 14

Energy

ENERGY is changing State intervention the sector, but the landscape in still find some private companies

BUSINESS JOURNAL room to do business.

VOL. 23. NUMBER 18

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HUF 1,250 | €5 | $6 | £3.5

OCT 02, 2015 – OCT 15, 2015

HUNGARY’S PRACTICAL BUSINESS BI-WEEKLY SINCE 1992 | WWW.BBJ.HU

SPECIAL REPORT

Data power

The state moves in on the energy game The government raised taxes on utilities and made them cut fees, forcing foreign firms to leave. Officials say local energy consumers benefit from state utility ownership, but not everyone agrees.

12

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THE EDITOR SAYS

Unanswered questions about Paks nuke plant

NEWS

Growth projections revised downward A poor season for agriculture and the lack of EU funds mean that GDP growth will not be as rosy as hoped next year according to several analysts. Depending who you ask, growth would be 2-2.5% in 2016. 3

SPECIAL REPORT

Concerns about the real cost of the Paks plant

Joerg Bauer, president of GE Hungary, talks about how big data and the industrial internet are changing the energy game. 15

Among the many questions from opponents of the plan to upgrade the country’s nuclear facility is a basic one: Will anyone really need to buy all the excess energy that the plant is likely to produce?

14

SOCIALITE

BUSINESS

BUSINESS

Székszard bottling plan takes shape

Citi bank ready to go commercial

Logistics property market improving

In a concerted marketing move, the southern wine region, which produces some of the country’s finest reds, has decided to set itself off from other European regions with its own signature bottle.

22

As it is doing in many other countries, Citi is selling its retail business here, to focus on commercial banking. The head of the EMEA region for the bank tells us in an interview that this does not mean Citi is scaling back.

16

The increase in e-commerce is helping to drive interest in more logistics centers here and around the region.

While demand for industrial real estate may not match that for offices, Hungary is seeing growth.

8

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As officials charge ahead with plans to build two new nuclear reactors at Paks, there are a lot of nagging questions about the deal, but many of the answers, if they even exist, are state secrets. The government has passed a law stating that documents pertaining to the deal with Russian energy company Rosatom to build the reactors will be classified for 30 years. We are told that this secrecy is necessary to preserve our security.

If we were allowed to ask more questions, we might ask for credible facts on costs. Plans call for the electricity produced at Paks to be sold at market rates, in order to help pay for the plant. But Germany is already exporting cheap power, and it is not clear who would want to buy from us, when our electricity would likely cost more.

According to the REKK research center at Budapest’s Corvinus University, operating the Paks plant will cost taxpayers an additional HUF 190−300 billion over the course of the first 20 years. Meanwhile, we will also be paying back the €10 bln Russian loan that we will need to fund this €12.5 bln project.

Instead of going into debt over Paks, energy experts say we would be much better off if we just bought our energy from Germany.

Although that sounds like a logical answer, the government implies that it would be bad for our “energy security” if we have to get energy from over the border.

Of course, to produce our energy at Paks, we will need to ship uranium in from Russia. This involves passing from Russia through Ukraine, bringing nuclear fuel through an area that is essentially a war zone. To get around this problem, the government is planning to fly the fuel from Russia to Hungary. Even if the planeloads of uranium will

not take the same route as the Malaysian airliner that was apparently shot down by Russian separatists last year, that solution just does not seem very safe.

And while we are worrying about safety, we might ask more about the possibility of a nuclear meltdown. The government says that the best engineers will be making sure the Paks nuclear plant is safe. But Japan’s best engineers were sadly unable to avert catastrophe at Fukushima, and technology from Japan sounds at least as trustworthy as technology from Russia’s Rosatom, whose nuclear engineers have already overseen a meltdown at Chernobyl.

And what about renewable energy? Why are people in the alternative energy sector complaining of a lack of government support? How much renewable energy could we buy with all the money we are spending on Paks?

According to Bernadett Szél an MP with the Green Party, if we simply spent money on improving the insulation in Hungary’s aged homes, we could cut energy use by 50%.

There are plenty of legitimate questions about Paks, but instead of an open dialogue, the government sends the commissioner of the Paks project on a talking tour, in which he flatly denies any criticism leveled at the plant and assures us that – as a scientist – he knows what he is talking about.

This brings us to the biggest question of all: If this government will not share full information on the Paks project with the citizens who will live next to, and pay for, the nuclear plant, why should we believe anything they say?

Our leaders’ rather arrogant stance is that we do not need details; we just need to trust them to take care of everything. Somehow this attitude does not engender a sense of security.

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Above, military personnel race in Orczy park in Budapest’s District VIII in 1937, passing the former Ludovika military barracks at left as their colleagues stand on the sidelines. At left, runners cross the Chain Bridge during a recent Budapest Half Marathon.

The marathon is taking place this year on October 11.

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1 News

NEWS

Refugee diplomacy: No Slovene border fence

4

NEWS

Hungary could store ‘facial data’ of its citizens

5

macroscope

MACRO Speaking X of figures

Photo MTI / Szilárd Koszticsák

The Budapest Business Journal presents some of the most important macro data of the past fortnight.

€500 mln The amount Hungary is receiving in the first phase of a loan approved loan

György Matolcsy, president of the Hungarian National Bank (MNB) addresses a conference on banking in Central and Eastern Europe held at the MNB September 30. While the MNB is lowering it’s growth predictions, it remains more optimistic than others.

by the European Investment Bank

Growth projections revised downward

a September 28 agreement.

ZSÓFIA CZIFRA

The Hungarian economy will slow down next year – that is the common ground among the analysts who have published forecasts recently. While all of them modified their growth projections downwards, some have been less pessimistic than others. But all agree that domestic consumption and exports will continue to drive the economy.

Not surprisingly, the most optimistic scenario came from the National Bank of Hungary (MNB), which foresees some 3.2% growth for this year and 2.5% for the next. The government−friendly research institute Századvég thinks that while this year’s growth could reach 3%, it will fall back to 2.5% in 2016. Another think− tank, Pénzügykutató, puts the figures at 2.9% and 2.4%, respectively. GKI is even less optimistic: In its latest prognosis, it foresees growth of 2.7% for this year, and 2% for 2016.

These various predictions of slower growth are backed up by the latest GDP

Overall, this slow-down can mainly be attributed to the agrarian sector, as last year was an exceptionally fruitful one for farming, while this year has seen more extreme weather conditions. figures: After last year’s dynamic 3.6% growth rate, there was only 3.5% GDP growth registered in the first quarter of this year and 2.7% in the second. Overall, this slow−down can mainly be attributed to the agrarian sector, as last year was an exceptionally fruitful one for farming, while this year has seen more extreme weather conditions.

Low inflation also seen In addition to the poorer performance of the agrarian sector, the closure of the previous European Union funding period and the slow pick−up of the new cycle will also influence the country’s growth potential, said Századvég in its report.

According to the research institute, Hungary’s economic performance will be driven primarily by consumption and exports. Purchasing power could improve considerably due to the low inflation environment and improving labor market conditions, as well as the reduction of the personal income tax rate and the extension of the family tax benefit, Századvég said. Unemployment

is seen falling to below 6% by the end of 2016. Investments could decline in 2016 due to the closure of the previous EU financing period, the think−tank said.

The government’s deficit target of 2.4% of GDP is achievable, it added.

The MNB also lowered its forecast for GDP growth this year by 0.1 percentage points to 3.2%; however, its projection for 2016 GDP growth remained at 2.5%. The central bank also lowered its inflation forecast for 2015 to zero from 0.3% in its fresh quarterly Inflation Report, while the projection for the 2016 consumer price index was lowered to 1.9% from 2.4%.

Like the think−tanks, MNB also believes that domestic demand is likely to make an increasing contribution to economic growth as rising exports, improvements in the labor market, a low inflation environment and the conversion of FX loans also support growth.

The gloomiest prediction, as usual, comes from GKI: It predicts investments to fall back by 5% next year, mainly because of the termination of EU−funded projects as well as some investments in the automotive industry.

According to the think−tank, economic prospects are further dimmed by a slow−down in the Chinese economy and the expected set back in European business activity (due to rising political risks mainly stemming from the current migration crisis). GKI adds that the consequences of the government’s economic policies in the past years can increasingly be felt in Hungary.

It mentions that capital and labor are leaving the country. The research institute emphasizes the increasing risk caused by the disorganization of the European Union and the increasing political isolation of Hungary.

0.8% The drop in Hungary’s industrial producer prices dropped in August, according to data released on September 30 by Hungary’s Central Statistical Office.

6.7%

The average unemployment rate in Hungary in the period of June to August, based on the government’s optimistic counting methods, according to the Central Statistical Office.

HUF 2.6 bln The amount Hungarian venture capital funds invested in the second quarter, 43% less than in the first quarter, the Hungarian Venture Capital Association (HVCA) reported.

Source: KSH, MTI

Three is not the magic number any longer, as several think−tanks have recently projected that the country’s GDP growth will be below 3% next year. The extent of the slowdown varies from research institute to research institute.

totalling €1.5 bln under

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04 News

Budapest Business Journal | Oct 02 – Oct 15, 2015

Refugee diplomacy: No Slovene border fence Hungary has agreed to keep its southern Schengen border open, but may fence off Croatia, as refugees keep pouring in.

border, he added that the country is under huge migration pressure. Hungary started extending the fence on the Serbian border to the Croatian border.

Photo MTI: György Varga

No sign of a slowdown

BBJ STAFF

Refugees continue to pour into Hungary, with 24,258 asylum seekers recorded on the last weekend in September, according to Hungarian police.

The majority of these were recorded on the Hungarian−Croatian border, while near the Serbian border, where Hungary has built a fence, only 636 unauthorized crossings were recorded.

Although it might appear that the fence on the Serbian border keeps refugees from entering there, Hungary agreed to take away the razor wire it had begun to put up inside the Schengen zone, on the Slovenian border, following a September 23 meeting of European leaders in Brussels to discuss the refugee crisis. A bustle of diplomacy in the last few weeks seems to have made it clear that the flow of refugees will continue, and Europe will continue to take them in.

Wire and a gate that were to be assembled along the Slovenian border.

At the Brussels meeting, German and Austrian leaders reportedly said that they would prefer to see the refugees continue to go to their countries instead of seeing fences go up in Schengen, and Orbán was quoted as saying that Hungary should “consider” that point of view. For now, Slovenia and Hungary have agreed to cooperate on defending their mutual border, but there will be no fence.

On September 29, while in New York for a United Nations gathering, Orbán reportedly told the Wall Street Journal. “I don’t like fences. Who likes fences?” He did, however, note that other countries,

such as Spain and France, had built border fences to prevent immigrants from coming into the country. “That’s clear evidence of hypocrisy in European politics,” he said, according to the Wall Street Journal. “Our wall is the number five wall.”

The number six wall could be built on Hungary’s border with Croatia, which is a member of the European Union but not a member of the Schengen free−border zone, Interior Minister Sándor Pintér, pointed out. Although Pintér said on September 28 that there is “no exact date set” for Hungary to close the Croatian

Croatia has been busing refugees to the Hungrian border, and from there they are sent to the Austrian border, and this arrangement seems likely to continue for the foreseeable future.

Officials with the United Nations High Commission for Refugees have said that the flow of refugees are likely to slow as the weather gets colder, but they say the huge numbers pouring into Europe are likely to continue unabated.

At a summit on the refugee crisis in New York on September 29, Hungary’s Foreign Minister Péter Szijjártó said Europe’s “migration” crisis cannot be solved without solving the conflict in Syria.

Russia’s decision to start bombing in Syria on May 30 is considered by observers as unlikely to help end the conflict soon. “Russia’s intervention will most likely prolong and complicate the war, as it could keep (President Bashar) al−Assad in office and adds Russia to the already complicated patchwork of forces deployed there,” according to The New York Times.

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News 05

Budapest Business Journal | Oct 02 – Oct 15, 2015

NEWS Hungary could store the ‘facial data’ of its citizens Hungary’s Interior Ministry published a proposal for bill last week that would establish an authority exclusively responsible for storing the “facial data” of Hungarian citizens, based on identification photos, Hungarian online daily index.hu reported on September 30, adding that the authority would provide this information to Hungarian law enforcement authorities, such as police and intelligence services, on request. According to a report on the proposal for the bill, the authority would store encoded “profiles” generated from the identification photos of citizens, containing letters and numbers. Following the encoding process, the actual digital photos would be destroyed. As such, the profiles of citizens will not contain actual photos but a set of data, the proposal says, which cannot be converted back into photos.

This data, however, will be used by a facial recognition program. The profiles would be created after an identification photo of a Hungarian citizen is taken, in the process of obtaining an official document, such as an ID card, passport or a driverʼs license.

In a letter sent to index.hu, the Hungarian National Authority for Data Protection and Freedom of Information (NAIH) said that it is “understandable” that the government is trying to increase the role of biometric identification in law enforcement, however, it is an exaggeration that the basis of this would be outlined in an “incomplete” proposal such as this bill. Last November, NAIH raised issues in connection with a database of identification photos, index. hu reported. One such issue mentioned

by NAIH is the difficulty in using a type of encoding that would in turn make it impossible to retrieve actual photos from the data generated in the initial process.

NAIH was also concerned about what might happen if the original photos were inadvertently not destroyed or were passed on to law enforcement authorities in an unauthorized way.

Minister: Hungary produced 2.5 mln engines that are part of the VW scandal Audi Hungária’s plant in Győr turned out approximately 2-2.5 million diesel engines of the 11 million that are involved in Volkswagen’s emission scandal, National Economy Minister Mihály Varga said on September 29 on state-owned Kossuth Rádió. The scandal involved Volkswagen installing software in diesel cars to help cheat on emissions tests. The minister said he believes that even if the scandal causes a drop in production, the Hungarian plant will be less affected by repercussions because the facility is “one of the Volkswagen Group’s most modern”. He said it is “unclear” how vehicle sales will be affected by the scandal; however, he believes that diesel engines will

continue to be used around the world “as they are more efficient than gas engines”.

The minister added that the Hungarian government is planning to decrease the dependence of the country’s economy on the performance of the automotive sector, and it is helping with the expansion of other sectors such as medicine, medical equipment and the manufacture of industrial parts. The minister said that the automotive sector is responsible for 13% of Hungary’s exports, and comprises 22% of the country’s industrial manufacturing, giving it “serious weight in the national economy”.

Tax authority to fall under state secretariat Hungary’s National Tax and Customs Authority (NAV) will be supervised by the state secretariat of the National Economy Ministry, minister Mihály Varga said in an interview with Hungarian daily Magyar Idők, published on September 29.

The leader of the authority will be the state secretary of the ministry, the economy minister added. Changes are expected to take effect on January 1, 2016, the minister said. The changes will make it possible for taxpayers to take care of taxation issues in governmental offices that are closer to their place of residence, the daily reported. The minister added that the authority would see layoffs; currently approximately 23,000 people work at NAV.

KSH: Hungary’s jobless rate down to 6.7% The average unemployment rate in Hungary dropped to 6.7% in the period of June to August, with the number of unemployed, in absolute terms, averaging 303,800, Hungary’s Central Statistical Office said on September 29. The rate was down from 6.8% in the previous period of May-July, and from 7.7% in the same period a year earlier, KSH data shows. The figure includes people with all forms of employment contracts who have worked more than one hour a week during the period or are on sick leave or paid absence, and also include fostered workers employed by the government. K&H Bank chief analyst Dávid Németh told Hungarian news agency MTI that the unemployment rate was likely to be under 7% for the rest of the year and put the average annual rate at around 7%. Erste analyst Vivien Barczel also put the average annual rate at around 7%.

Although the rate could edge up a couple of tenths of a percentage point in the coming months, it will not reach the 7% threshold, she added.

MNB revises 2016 deficit forecast in line with budget target The National Bank of Hungary revised its projection for next year’s general government deficit to 2% of GDP in its quarterly Inflation Report published on

Photo: MTI / Tibor Illyés

IN BRIEF

MNB to revamp HUF 20,000 note A reworked version of the HUF 20,000 banknote was brought into circulation by the National Bank of Hungary (MNB), which announced that the old notes would be accepted until December 2016. While the size of the bill and the portrait of Ferenc Deák will remain, the color of the note is changed, with multiple colors on the front giving an overall blueish-green tone.

September 24, in line with the target in the budget. In the previous report, published in June, the MNB put the deficit at 2.2%, because it was “not aware of any actual government plans” on a HUF 133 billion revenue item from “other asset sales and utilization”. The MNB said it had revised its forecast mainly due to the government’s announcement in August that it would initiate the sale of at least 300,000 hectares of state-owned farmland this year. “The sale of state-owned land may bring a significant revenue surplus, in addition to the value of HUF 133 bln of the revenues from other asset sales and utilization related to state property included in both the Budget Act and our baseline scenario,” the MNB said in the report. It added that fiscal spending to address the migrant crisis could cause additional budget expenditures in 2016.

The MNB noted that its forecast assumes the cancellation of the full amount of reserves in the National Protection Fund, which would improve the balance by 0.2% of GDP. ADVERTISEMENT

MNB projects steeper fall in investments for 2016 The National Bank of Hungary sees investments growing at a faster rate this year than earlier expected, but it projects an even steeper fall for next year in its quarterly Inflation Report. The MNB raised the forecast for growth in gross fixed capital formation in 2015 to 2.7% from 2.2% in the previous report published in June.

Investments by the government and quasifiscal sectors using EU funds expanded, while the performance of the corporate sector producing for domestic and export markets decreased in the second quarter, and households’ investment activity remained unchanged, the MNB said.

The MNB projected investments would decline by 3.2% in 2016, even more than the 2.1% drop forecast in the previous report.

Investments showed marked growth of 11.7% in 2014 as utilization of European Union monies peaked when the 2007-2013 funding cycle wound up.

BBJ

2Business COMPANY NEWS

Government, MTel reach agreement on expanding broadband access Magyar Telekom, the subsidiary of telco giant Deutsche Telecom, has agreed to bring broadband internet to a further 230,000 Hungarian households with its own money in exchange for a promise by the government not to give its competitors European Union grant money for geographically parallel investments, state secretary Ákos Kara told journalists on September 24, according to Hungarian news agency MTI. MTel will build the

networks, with speeds of at least 30 Mbit/s

by April 15, 2018, Kara said. Similar commitments, to provide a further 270,000 homes with broadband internet, are being made by Invitel, UPC, Tarr and 70 other service providers, he said.

Horizon Development receives International Property Award Horizon Development was recognized as the best developer in Hungary for its Eiffel Palace Office Building, at the International

Property Awards 2015-2016 ceremony held at the Grosvenor House Hotel in Park Lane, London, on September 22, a press release reveals. Entrants were judged by a strict set of criteria and evaluated by a panel of more than 70 experts from all over the world chaired by two active members of the House of Lords: Lord Caithness (development) and Lord Best (real estate), the announcement said.

Wizz Air ‘trades well’ in H1 of financial year Hungary’s low-cost airline Wizz Air “traded well” in the first half of its financial year ending on March 31 and “is on target to deliver operating and net profit margins ahead of the same period last year”, the airline confirmed on September 29 in an announcement prior to its AGM. Due to the continuous expansion of its network, Wizz Air expects to grow its capacity by approximately 18% in this financial

year. With the continued expansion of its network, Wizz Air estimates that it will grow capacity by around 18% (previously 17%) in the 2016 financial year. In line with previous estimates, lower fuel prices are feeding through to lower air fares.

NNG expects to make 90 more hires this year Hungarian firm NNG, the developer of world renowned iGO Navigation, is planning to make 90 more hires this year, exceeding a total number of 900 employees, an announcement published on September 25 by the company reveals.

The announcement added that, since 2013, the company’s headcount has been increasing by 20-25% on a yearly basis, which means more than 200 hires.

NNG’s strategy, the announcement adds, is to continue to focus on innovation, and expand both its revenue and its headcount in the future. The increase in staff in the past few years is chiefly due to the dynamic expansion of the firm. NNG recently opened offices in Japan and the United States, and a development center in Szeged. Despite its expansions abroad, the company is committed to keeping its development team in Hungary, and to continue recruiting Hungarian professionals for such jobs, however, this has posed a big challenge for the company. “The greatest challenge for NNG lately has been recruiting, as the firm has been expanding at an incredible pace,” Andrea Magyari, NNG’s head of HR, said.

CBRE Hungary wins ‘Best Research’ Award, once again

Photo: MTI / Tamás Kovács

CBRE Hungary’s team received the “Best Research Award”, while parent CBRE Group was named top global real estate advisory firm at the 2015 Euromoney Real Estate Awards, according to an announcement published on September 23. CBRE has received the top award for four consecutive years, and eight times since the awards program was launched 11 years ago, while globally, CBRE was also ranked highest overall in the Sales/ Leasing and Valuation categories, the announcement said. In addition to the global awards, CBRE was named leading real estate advisory firm in Western Europe, North America, Latin America and Africa and in 20 countries, it added.

BT opens innovative technical design studio in Hungary

Chemiumʼs HUF 800 mln solution to help disabled users

Workers chat in the new ‘Technical Design Studio’ in the Hungarian unit of communications services and solutions provider BT, which was opened on September 29, according to a statement from the company. The studio, which is embedded in BT’s existing European Service Center, will bring together the expertise of more than 100 qualified engineers, who will be responsible for the design and detailed planning of high performance networks and solutions for BT’s corporate customers, the company said.

Hungarian high-tech company Chemium on September 28 unveiled an HUF 800 million solution to help people with disabilities use the internet. Chemium is employing transcoder software to assist people with impaired sight, color blindness, epilepsy and other physical disabilities. The service is scheduled to start test operation at eselyegyenlito.hu within a month and a half.

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2 Business

Budapest Business Journal | Oct 02 – Oct 15, 2015

PwC Hungary welcomes new directors PwC Hungary a n nou nc e d September 30 that it has appointed three new directors: Dóra Erőss, Enikő Könczöl and Kornélia Lett, who Dóra Erőss. will serve in their new roles in the Assurance service line.

Erőss joined PwC Hungary in 2004, where her main areas of expertise are risk assurance, and providing audit services to Hungarian and Enikő Könczöl. foreign-owned companies in the energy sector. In recent years, she has also gained experience in PwC’s global network in Kazakhstan and Australia in the fields of risk management consulting and Kornélia Lett. auditing.

Könczöl joined PwC in 1998. She is a qualified actuary and auditor. She became a member of PwC’s CEE IFRS (International Financial Reporting Standards) Accounting Advisory group in January 2010. She provides IFRS accounting advice for banking and insurance clients across the CEE region.

Lett is a Hungarian and internationally qualified (ACCA) auditor.

After graduation, she started her career at the audit department of PwC’s predecessor, Price Waterhouse. She specializes in the automotive sector, where she provides audit and advisory services to German-, Swiss and Austrian-owned companies.

Eaton Enterprises moving to Krisztina Palace Cushman & Wakefield in its exclusive representation of Union Investment has successfully secured 2,300 sqm of office space at the Krisztina Palace office building in Budapest for Eaton Enterprise, which said it would open a new Business Service Center, according to an announcement issued on September 25. As a result of the new transaction, Krisztina Palace is now more than 73% occupied with tenants such as Emirates, Mazars, Deutsche Leasing, Granit Agriculture, and Johnson & Johnson, the announcement added.

Budapest Airport launches Greenairport Program Budapest Airport, the operator of Liszt Ferenc International Airport, is launching an environmental protection scheme called the Greenairport Program, in order to reduce the environmental impact of the capital’s airport, an announcement issued on September 25 reveals. The program is due to be implemented with the help of organizations working at the airport, to improve its international recognition,

07

innovativeness and operating efficiency, the announcement added. Since the program was launched, several partners have joined, including: Heinemann Duty Free; the Airport Directorate of the National Tax and Customs Authority; Lufthansa Technik Budapest; and Hungarian taxi company Főtaxi.

Unilever, government sign cooperation agreement The Hungarian government signed a “strategic cooperation agreement” with the local unit of consumer goods giant Unilever on September 23 at Unileverʼs household chemicals plant in Nyírbátor, northeastern Hungary, national news agency MTI reported. State secretary László Szabó signed on behalf of the government, and regional chief Harm Goossens on behalf of Unilever. The company, which has three plants in Hungary, considers the country an important production base for the longterm, Goossens said.

FDA approves Richter and Allerganʼs cariprazine The U.S. Food and Drug Administration (FDA) has approved VRAYLAR™ (cariprazine) capsules produced by Hungarian Gedeon Richter and Dublinbased Allergan, the two firms said in a joint announcement. VRAYLAR™ (cariprazine) is an atypical antipsychotic, for the acute treatment of manic or mixed episodes associated with bipolar I disorder and for treatment of schizophrenia in adults. “We are pleased with the FDA approval of VRAYLAR™, which represents an important new treatment option for adults living with bipolar I disorder and schizophrenia to help address the unmet medical needs of people with these complex conditions,” said David Nicholson, executive vice president and president of global R&D of Allergan.

Gebruder Weiss investing HUF 210 mln in Hungary in 2015 Austrian-owned logistics company Gebruder Weiss (GW) Magyarország is investing HUF 210 million this year in its Hungarian operations, managing director Thomas Schauer has said. GW is considering building a warehouse in southern Hungary, as the company sees great potential for development in the region due to Serbia’s planned accession to the European Union, he added. The Hungarian unit of GW had first-half revenue of HUF 7.1 billion and expects annual sales to be over HUF 14 bln.

Quaestor suspects to remain in remand The Budapest Municipal Court has overturned a district court decision allowing three suspects in pre-trial custody in the case of failed boutique brokerage Quaestor to be placed under house arrest, a spokesperson for the Chief Prosecutorʼs Office told Hungarian news agency MTI on September 29.

The Municipal Court also extended the period of remand for the suspects till December 29, 2015, said Bettina Bagoly.

Quaestor came under the scrutiny of the fi nancial market watchdog early this year for issuing HUF 150 bln of unsanctioned bonds. According to investigators, brokers at Quaestor defrauded their customers early this year.

Monika Karas, president of the governmentʼs media authority, speaks at the opening of the conference.

Internet Hungary shines again The leading event for the online sector in Hungary hosted the cream of the industry crop for two days of thought sharing in Siófok for the 16th time, and premium content was again on offer.

LEVENTE HÖRÖMPÖLI-TÓTH

The motto of this year’s Internet Hungary, the industry’s leading summit in the country, was “The Pleasure of Change”.

Change in this sense equals digital transformation, and it’s so fast that the focus of the conference had to be restricted to giving a snapshot of now.

“We are not discussing the future here, but rather the present and day−to−day business. We are looking ahead to the upcoming three to four years at the most.

We are examining the impact of this digital transformation on the economy and the market,” Ákos Csermely, founder of Internet Hungary said of the event, which took place September 29−30 in the Lake Balaton resort town of Siófok.

In launching Internet Hungary for the first time in 2000, Csermely created a unique brand on the domestic conference landscape. It now attracts more than 1,500 visitors, and has become a must−go−to gathering for every professional even partially concerned by developments in the online world around here.

Csermely himself puts the schedule together; in fact, that’s all he works on all year long, apart from his other annual trademark conference, Media Hungary. As a result of such immaculate preparation, the amount of quality content presented was mind−boggling.

Five conference rooms hosted speakers for two full days till the late evening hours. Not less than 31 foreign experts from global innovation hubs and dozens of Hungarian specialists held presentations in the field of digital media, e−commerce, logistics, online trade and many more related subjects.

As was pointed out by Drew Banks from Prezi, “Disruptive innovation is the driving force behind development and great ideas deserve the attention of investors.” Whilst the Hungarian higher education system was hailed, the urgency of making critical thinking part of the curriculum was also stressed.

“It’s high time to embrace the culture

of gathering inspiration from failure in the CEE region,” Raffi Balian, Science & Technology attaché of the U.S. Embassy in Hungary added.

Even with intensive networking on the part of the participants, audience turnout at presentations remained massive, and particularly at the neuromarketing venue.

This young science carves out ever−larger chunks of companies’ advertising budget as cutting−edge research clearly shows that customers’ decisions are influenced mostly by emotive power. Therefore, creativity in ad making can make or break a campaign.

Players on the online market place had no reason to complain about information scarcity, either.

Executives from multinational corporations and emerging dynamic businesses alike talked about methods to boost sales by combining the full potential of web−based and bricks− and−mortar services.

“Ultimately, however, more transparency will be needed as customers are curious to get to know the story behind the products: The people producing them and the manufacturing process,” Liz Wald from Silicon Valley said.

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08 2Business

Budapest Business Journal | Oct 02 – Oct 15, 2015

REAL ESTATE NEWS Hungary’s logistics market warms up An increase in e−commerce and decrease in vacancies are driving demand, but there still isn’t much in the way of speculative development.

€20.90 for the U.K. One concern, however, is the need for a qualified labor force. In CEE this is often lacking in the secondary cities favored by manufacturing, with too much concentration on capital cities in terms of amenities, housing and higher educational facilities.

One solution is the development of industrial parks in regional cities with an abundance of land and the need for employment possibilities and inward investment. “We have a large industrial park of more than 200 hectares in Pécs and we are trying to bring industry to the south Trans−Danubia region; this is pre−developed with infrastructure,” said Antal Pőlya, managing director of Ipark Pécs. “This is not an easy task because everybody is concentrating on Budapest rather than regional cities. The project is financed by Austrian businessmen and the City of Pécs. Our target is essentially light manufacturers.”

GARY J. MORRELL

As e−commerce increases the need for logistics, and regional economies show signs of improving, demand for both logistics and light manufacturing is increasing Europe−wide, and attracting increasing investor interest in industrial real estate. Still, developers are thus far taking a cautious approach in Hungary.

“With regard to logistics there are many structural changes in the industry such as e−commerce. The compound average European take−up has been 15% over the last ten years compared to GDP in Europe of around 2%. In this way, far more space has been taken up than would logically correlate to GDP. This would suggest that it is structural drivers that are pushing take−up. This is why a lot of private equity is coming into the CEE industrial sector and why investors are paying aggressively for logistics,” said Troy Javaher, director of CEE capital markets at JLL. Industrial development in Hungary is still limited to build−to−suit and this has helped in the re−balancing of the market and a fall in vacancy to 13.7%, whereas it had been as high as in the 20s in recent years. However, there is now a scarcity of large floorplates, which in turn is seen as limiting the provision of space for larger requirements. Supply of modern logistics stock in the Budapest area remains at 1.88 million sqm according to the Budapest Industrial Forum (comprising CBRE, Colliers International, C&W, DTZ, Eston International, JLL and Robertson Hungary). Around 90% of stock is located in logistics parks in the vicinity of major motorways, with the remainder consisting of inner−city schemes.

“The industrial market has taken off and there is a lot more demand and transactions. The question is whether the market can keep up, as there is a scarcity of space, not enough supply and there are practically no schemes that are due to be launched in the near future. There are positive signs in industrial with a lot more assembly and manufacturing, even in regional cities,” commented Balázs Czifra of Cushman & Wakefield at the CEE Property Forum 2015 in Vienna, organized by Portfolio and RICS. Total leasable industrial stock as of the end of the first half−year in Central Europe

Space available: An aerial view of Ipark Pécs.

500,000 sqm is estimated to be under “The Hungarian and Romanian construction. Speculative development is very much in the minority and one of the markets are slowly beginning limited number of completed speculative projects is the first 29,000 sqm building at to experience a revival that Prologis Park Prague Airport. goes hand-in-hand with Current industrial stock in Bucharest stands at around 1.9 million sqm positive development across according to JLL figures, and approximately 160,000 is expected the Central European region to deliver by the end of the year. The and Europe as a whole.” confidence of developers in Romania is improving; the 40,000 sqm LOG IQ Bucharest is the first major speculative (Poland, Czech, Slovakia, Hungary, and logistics project.

Romania) stood at 18,500,000 sqm, with “The Hungarian and Romanian markets take−up of 2,100,000 sqm in the period. are slowly beginning to experience a New supply for the first half of 2015 was revival that goes hand−in−hand with 601,000 sqm and an average vacancy positive development across the Central rate of 6.8% according to Cushman & European region and Europe as a whole,” Wakefield. Take−up in the second quarter commented Hlobil.

Prologis, Panattoni and CTP are the reached 75,000 sqm, representing a 124% quarter−on−quarter rise. The biggest leading CE industrial developers with recent letting is a 16,000 sqm built−to− regard to market share. In Hungary, suit facility at Prologis Park Budapest.

Prologis is pursuing a dual strategy of development and acquisition and has a portfolio of 617,000 sqm of space. The Poland still the regional leader company has an additional 20,000 hectares Poland continues to be the leading CEE of development land that could deliver industrial market: Total quality industrial 100,000 in GLA development according stock in the Warsaw area alone stands at to László Kemenes, country manager for almost three million sqm. “Poland has Hungary and Romania at Prologis. been the leader of the development market CTP’s business director, Jaroslav for the last ten years and will remain so, Kaizr, noted: “We do pre−leases and not just on a Central European level, but no speculative development. We are also on a European level,” said Ferdinand considering Hungary; after our activity Hlobil, head of Central European in Romania there are some offers coming industrial at Cushman & Wakefield. “This from there and we are thinking about is primarily due to its constantly growing investing there.” economy and the pro−active approach of Hungary – and Central Europe in the country’s government.” general – benefit from a relatively low cost Total industrial stock in Czech Republic of labor per hour according to Eurostat and stands at a little more than five million Cushman & Wakefield: €7.40 for Hungary sqm according to JLL, while an additional compared to €34.30 for France and

Investment revived With regard to investment, Hungary formed part of the regional Aviva deal when the latter sold ten office, retail and industrial assets across Central Europe for a reported €185 million to Lone Star.

Further, in an industrial transaction Prologis (through the Prologis Targeted Europe Logistics Fund) has purchased the 69,000 sqm M1 Business Park Hungary from CA Immo and Union Investment.

“Budapest has seen a revival and the number of investors looking at industrial [projects] in Hungary has increased over the past 12 months, and there will be a wave of industrial deals that will create investor confidence,” commented Tim O’Sullivan, head of capital markets for Hungary and SEE at CBRE. “There has been limited new supply for a long time: Rents are starting to increase and vacancy is falling, and investors are going to start taking advantage of this with the difference in prime yields between Hungary and the neighboring countries being attractive.”

Industrial yields for Poland are put at 7.25% and 6.75% for Czech Republic.

These compare to 8% for Slovakia, 8.75% for Hungary and 9.25% for Romania.

Poland’s industrial investment market recorded €143 mln in deals in the first half year according to JLL, while Czech Republic saw €85 mln in four investment transactions in H1. Romania’s industrial sector has become particularly lively after a period of inactivity, and several deals are expected to close this year. PointPark Properties (P3) has purchased Europolis Logistics Park Bucharest from CA Immo as part of a regional acquisition; this deal is regarded as important in that a long−term specialist industrial investor/ developer has invested in Romania. In addition, Lone Star purchased the Phoenix Logistics center close to Bucharest.

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Budapest Business Journal | Oct 02 – Oct 15, 2015

2 Business

REAL ESTATE NEWS

09

Surprising success at Prestige Hotel The new high−end facility is drawing customers and beating managers’ expectations.

“Such positive growth I have never seen before” Géher said of the hotel’s first months.

“For me it was a niche market – people who like Cavalli sofas and chandeliers with Swarowski crystal,” he said.

BBJ STAFF

The management of the Prestige Hotel Budapest, the newest entry in the capital’s high−end accommodation market, said they were shocked by what happened shortly after they opened.

“We made a feasibility plan and a budget about our expectations but it was not accurate,” said Zoltán Géher, brand manager of Zeina Hotels, which also includes the Continental Hotel on Dohány utca in Budapest. Géher explained that the plan was not accurate because Prestige’s revenue was 60% higher than the plan anticipated. “Such positive growth I have never experienced before,” Géher said.

Within five months of its April 1 opening, positive reviews on Tripadvisor website gave the new 85−room hotel fifth− place ranking of all hotels in Budapest, right up there with the five−star luxury facilities.

“Prestige is a premium quality four− star hotel,” said Miklós Gaál, who is general manger at the hotel. He said that

‘Passionate service’ A room at the Budapest Prestige Hotel. the Prestige is smaller than a typical five−star, although he noted that it has a lot of special features, including being situated inside a structure designed by famous 19th−century architect József Hild, having custom−made Cavalli sofas and many other “elegant” touches. “The interior designers did an excellent job,” Gaál said.

According to Géher, the design, and the proximity to the river, something that many guests seem to ask about before booking, helped to make the hotel more attractive. “The vicinity of the Danube makes a big difference,” he said. Still, he added that he was surprised to see how quickly the hotel could start filling all its rooms and making good revenue.

Gaál said the decor is appreciated, but what really sets the hotel apart is the way its guests are pampered. “We are able to add value to the beautiful hotel with the human side – with passionate service,” according to Gaál. He said that pleasing customers requires positive attitudes by all the staff, who must be ready to take the initiative to be helpful.

Both Gaál and Géher said that the exclusive feel of the Prestige is also enhanced by the hotel’s restaurant, Costes Downtown, which is overseen by the same executive chef who made Costes on Ráday utca Budapest’s first restaurant to win a Michelin star. While it is a shade less fancy and little less expensive than the original restaurant, Costes Downtown is still an exclusive venue for fine dining – and a place where the massive staff can sometimes outnumber the guests. And as both the brand manager and the hotel

manager noted, it is unusually fancy for a regular hotel restaurant.

“Bringing in Costes involved a one− year negotiation,” according to Géher.

He noted that it was even a challenge to determine the right approach to breakfast, which hotel guests can get with their room. The ultimate solution was sufficiently elegant: a cold buffet, but no warming trays – instead guests order their breakfasts from the wait staff.

The breakfast solution is satisfying guests, something that Géher and Gaál say is essential. Both managers noted that reputation, including online reputation via social media and comment boards, proves to be the biggest determinant of whether anyone will stay at a hotel. That is why they are very aware of their reviews on Tripadvisor, Expedia and other such sites. They say the reviews have been good, and that keeping positive comments coming is a matter of offering the best service possible. “I always ask the staff, how would you treat a guest in your home?”

Géher said. “We need to treat our guests that well, and even better, because they are paying to be here.”

For Gaál, it is a matter of ensuring the staff enjoys their work and wants to do it well. “A guest can see that we like our jobs,” he said. Géher agreed, adding, “We spend too much time here to not enjoy it.”

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2 Business

Budapest Business Journal | Oct 02 – Oct 15, 2015

Citi puts focus on SMEs and MMEs Following the strategic sale of their local retail buisness, the bankʼs head of Europe, the Middle East and Africa talks about her companyʼs focus on the commercial business in Hungary.

“I look across and compare Hungary’s performance to some of the others like Turkey, Czech Republic, Russia, Poland: Hungary is doing relatively well in terms of growing from an economic perspective. The political and economic environment is overall stable, I would say.”

ROBIN MARSHALL

The news, confirmed on September 2, that Citi has agreed to the sale of its Hungarian retail banking and consumer investment business – along with its consumer loans, cards, and microenterprise businesses – to Erste Bank Hungary, underscores the U.S. global bank’s determination to divest itself of non−core operating businesses. In Hungary the focus will be on corporate and commercial banking, a fact emphasized by a two−day visit from Europe, Middle East and Africa head Tasnim Ghiawadwala.

She spoke exclusively with the Budapest Business Journal about what the future holds here.

“Our overall regional and global strategy is to still look for growth in key segments where we feel we have a valid proposition that is relevant and applicable to the target markets, and I think the decision to focus our efforts in Hungary on the corporate and commercial businesses is further emphasizing our alignment with that strategy,” Ghiawadwala says.

The decision to sell off the retail banking business while keeping the corporate and commercial operation is part of the global strategy and it clearly points to where Citi sees the greater potential in Hungary. Indeed, Citi insists “the financial impact of the sale is not material” on its business here.

But once the deal with Erste comes into force (likely in Q4 of 2016), this country will be far from unique in having a standalone commercial operation. Citi Czech Republic announced a similar deal, with Raiffeisen Bank the buyer, on September 14.

“Citi is in 100 plus countries; consumer banking, even before this recent sales announcement, was only in 35 – it was never in all 100. So, we do have a tried and tested model of just the institutional businesses operating in a country, and making the network work from both the customers’ and the company’s perspective. The consumer bank will be in 24 countries with the largest scale and highest growth potential, that creates the focus. It is always a challenge to explain to customers when we exit a segment in a country, but they also, I hope, understand that it is always better for companies to focus on things that they do well.”

Clearly, Citi thinks it does commercial banking well. But before we get further into that, a couple of definitions ought

Clearly, though, the future will be as important as the present. What does Ghiawadwala’s crystal ball tell her? “We do a survey every year that we call ‘The Voice of the Customer’. We surveyed around 4,500 customers across the region on a whole range of things, and the items that resonated with us in terms of feedback were the quite large proportion, around two−thirds, who told us that they expect to be looking at cross−border activity over the next three to five year time horizon. Within that two−thirds, half said they were looking at other European countries as a destination; the other third was looking worldwide, Asia was the next region they were targeting. These results really encourage us that we are on the right strategic focus to align ourselves with those aspirations.”

Why should a Hungarian company choose Citi as its banking partner? “I Tasnim Ghiawadwala is a Citi managing director and the head of think the first thing is we provide a lot of credibility, particularly if a customer commercial bank EMEA (CCB). EMEA CCB manages a portfolio of is wishing to go global. We have the 11,000 customers with deposits of $4 billion and assets of $3 billion, strongest brand recognition across the and has a direct presence in nine EMEA countries. world, I would say, amongst all banks.

I think we provide a lot of credibility to a customer if they can say to their own to be clarified. “Our definition of supply chain and all of their order books suppliers and customers that Citi is their banking partner. Their own value chain commercial is quite different to our are still going up.”

That growth potential comes despite will feel more comfortable. The second competitors: What we call a small− and medium−sized enterprise (SME) an uncertain global economic outlook, thing is we can provide amazing global is a company with annual turnover of Ghiawadwala acknowledges. “Clearly products. Our uniqueness comes from between $5 and $50 million; MMEs Europe, and the world as a whole, the network we can provide and our (middle market enterprises) have $50 to has somewhat difficult pockets of globality. Our online banking platform $500 mln on sales turnover. What we call circumstances. You have got China can provide a global view across 100 an MME some of our rivals would call slowing down, the EU crisis of 2010− countries. We are investing quite corporate. We have a separate corporate 11 not fully resolved. So, given that heavily in our online banking platform, department for companies with more there are still lots of headwinds out both for cash management and for FX. than $500 mln, the global subsidies of there from different quarters, we feel The other area we are investing in is the likes of Procter & Gamble.” that the SME and MME spaces are still mobile, making our online banking So what does the SME/MME market high value segments for us to focus available on smartphones. We are also look like in Hungary? Ghiawadwala lists on. If you look at the GDP on average looking at how we can leverage tablets, the usual key attractions: A relatively of any economy, and Hungary is a case because we do not really see branches low−cost/high−skill workforce and a in point, about 60−70% of the economy as the way in which people transact good geographical location. “That means is driven by SMEs and MMEs. Those now; more and more of it is being done there is going to be a continuing foreign two segments get a lot of support from online.” investment coming to Hungary. We governments – in Hungary around 50% That mention of FX may be of see it already: If I look at my customer of the GDP is contributed by SMEs and particular interest in Hungary, which base, we are seeing more and more SSC they employ 70% of the workforce. I cover has seen notable foreign exchange types. We were talking yesterday as a nine countries in EMEA. I look across volatility at times. “We look together team about opportunities in the payroll, and compare Hungary’s performance with our clients at their import/export or e−commerce space, as well as there to some of the others like Turkey, Czech business, how they can manage their FX being some opportunities in software Republic, Russia, Poland: Hungary is exposure through hedging. For volatile development. There is already a very doing relatively well in terms of growing times on the FX markets, we offer clients big expertise in manufacturing in the from an economic perspective. The both an online FX platform and we also auto space. I think that will continue to political and economic environment is have experts in our treasury department expand. We have many customers in the overall stable, I would say.” that customers can talk to.”

CV

BBJ

3Special Report State muscling in on the utilities market 12

Nuclear plans advance despite worries on cost 14

Energy

State intervention is changing the landscape in the sector, but some private companies still find room to do business.

12

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3

Budapest Business Journal | Oct 02 – Oct 15, 2015

Burning concerns about state’s fo The Hungarian government says it is pushing out foreign firms to keep utility bills low and ensure a secure energy supply, but critics say their interference does more harm than good.

ANIKO FENYVESI

Proclaiming a goal of keeping prices low and ensuring energy security, the current Hungarian government is reshaping the country’s gas and electricity markets by pushing out foreign firms so that the state can take control of utility companies.

The European Commission and other critics have said the government’s interference in the market could lead to a situation where state aid is used to subsidize below−market energy prices, something that is against European Union law. Opponents of the effort also maintain that, in their aim to reduce prices, state−backed utilities could be forced to cut services and maintenance, eventually leading to a situation where the local energy infrastructure will become unreliable in serving the country’s needs.

In effect, critics have said, the government’s approach could set back the developments in infrastructure that have been made since privatization of the energy system began in the 1990s.

The government has countered these critiques with the claim that its strategy is necessary to undo injustices caused by privatization, when the country, eager for foreign investment, sold utilities to private buyers for less than market value.

But according to Attila Holoda, a former state secretary and current managing director of local consultancy Aurora Energy Ltd., the utilities were sold cheaply in the 1990s because they involved some risk and needed a lot of work.

“The state did not have money to modernize these companies,” Holoda explained. “The privatization agreements were not based on the proper valuation of these companies, as purchase prices were discounted by the unreasonably high risk factor. Furthermore, buyers were obligated to modernize the companies they purchased.”

Whether or not its actions are fair, the government is going ahead with a strategy to make it unprofitable for foreign investors to stay in the market, and these firms have been forced to sell to the state. In the latest such deal, closed on September 29, state gas company Főgáz acquired the universal service arm of GDF SUEZ Magyarország, including its related technical systems and infrastructure.

The First National Utilities Company (ENKSZ), the main state company involved in buying utilities, told the Budapest Business Journal that it cannot say if there will be any more such purchases, but added that it will assess whether new acquisitions are needed to achieve its goals – namely keeping utility prices low and becoming more cost effective.

Ultimately, market intervention

by ENKSZ could create a vertically integrated utilities system that would tend to reduce the country’s dependence on foreign resources.

Squeezing private utilities In its effort to dominate the market, the government has been squeezing private utilities by increasing the special taxes on utility providers while reducing the fees they are allowed to charge.

In 2013, the government required 20% cuts in consumer prices for gas, electricity and district heating, and further cuts in 2014 of 6.5% for gas and 5.7% for electricity.

“The yield on energy was first cut back to 4% and today it is less than 1%, which is less than capital costs,” said an expert in the energy sector who asked not to be named.

In 2008, the previous, Socialist government passed an 8% tax on the utilities sector. In 2012, in the first term of the current Fidesz government, that tax was increased to 31%. Currently, taxes levied on energy companies can amount to as much as 50% of a company’s revenue, including a crisis tax, a utilities tax and a corporate tax, the expert told the BBJ. “The crisis tax, which was 1.05%, was based on turnover and companies had to pay that tax even if they were in a loss− making position,” the source said.

On March 31, Parliament passed a bill providing loss−making utilities with an opportunity to get out of their predicaments. The law allows universal service providers, utilities that are licensed to sell gas or electricity to the public, to walk away from their contracts and give up their licenses.

Having made it so companies would want to sell, the government made it easier for them to do so, and then started buying.

The government had been buying parts of utilities for state ownership for the last couple of years, but early this year, the effort was given a formal mechanism. The Hungarian government launched ENKSZ, with share capital of HUF 1 billion and capital reserves of HUF 14 bln, in February. ENKSZ, the government said, would act as an efficient, predictable and cheap utilities provider for Hungarian households. By April, 300 ENKSZ customer service points had begun operation across the country.

A representative of ENKSZ told the BBJ that the company’s aim is to “guarantee a high level of service and maintain low fees based on utilities price cuts, as well as to provide unified billing for gas, electricity and district heating services”.

Forced to leave Years before the state−mandated cuts in utility fees, universal service providers had already been recording losses due to high taxes. When fee cuts came, these firms knew that their days were numbered and they began planning accordingly.

France’s GDF SUEZ (now ENGIE) was already looking for an exit strategy following the introduction of utility fee cuts in 2013, according to the expert we

interviewed. GDF was in the process of separating its universal and free market activity into GDF SUEZ Energia Hungary and GDF SUEZ Energia Holding Hungary, respectively, the expert added. At the time, GDF SUEZ Energia Holding Hungary was a major player with 11−12% of market share and a valuable client portfolio.

Now, no longer able to take advantage of a broad vertical reach in the market, the company’s position in Hungary is tenuous. “In the case of these so−called vertically integrated companies, if one or two legs are eliminated, it doesn’t make much sense for them to stay in the region,” the expert explained. The firm may soon leave the country, but when GDF first entered the market, it had a very different vision. “Their massive investment in infrastructure was a sign of their long− term plans in Hungary,” the expert said.

GDF SUEZ and Germany’s E.ON handed over their universal service provider licenses to supply gas in June, followed shortly after by Tigáz. These firms had invested heavily in infrastructure to deliver their gas, but their only option was to sell, and the only buyer was the government.

The state distributor of public utilities, MVM, finalized the acquisition of Főgáz, which was owned by Germany−based RWE, in July of last year for a reported $187 million. During negotiations, RWE reportedly felt that they were being strong− armed into handing over their assets.

RWE East Chairman Martin Herrmann was quoted as complaining that the Hungarian government was engaging in “expropriation”.

By the summer of 2015, Főgáz, now state owned, was winning tenders with

ease, and taking over the clients of both E.ON and GDF SUEZ, making Főgáz the sole universal service provider of gas in Hungary. The company currently supplies gas to approximately 3.3 million households in the country.

With much of the foreign−owned universal gas providers having been bought by the state, the acquisition of universal electricity providers is the next step for ENKSZ, which says it hopes to enter the electricity market by the beginning of 2016.

Public vs. private ownership In a country were the net wages are among the lowest in the EU, the price argument has the strength to win many battles. “Utility bills are a daily issue for households in Hungary, so price volatility affects most households significantly,” Holoda explained.

According to statistics compiled by the Hungarian Energy and Public Utility Regulatory Authority (MEKH), Hungarian households spend 4.7% of their income on electricity and gas, one of the highest levels in Europe, while Luxembourg is the lowest at 1.3%.

By buying up universal service providers and pushing their free market affiliates out of Hungary, the state is paving the way for a vertically integrated utilities system, but the government’s motivation is different from the firms it is replacing. In private enterprise, vertically integrated systems are designed to disperse the risk of market presence.

In the case of the government, its aim is control. “ENKSZ has an interest in

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every level of the energy value chain and this plays an important role in its representation of national interests within the energy policy,” ENKSZ told the BBJ. “Hungary’s logic is in line with Eastern European logic, in that domestic supply shall be used to satisfy much of domestic demand,” Holoda said. “In contrast, European thinking supposes that a free and unlimited market must be established.”

ENKSZ also said that “its primary goal is to guarantee reliable service and stable prices”, but critics argue that the two are not mutually compatible. In the event of global energy price increases, ENKSZ would be put in a loss−making position, at which point it would likely have to compromise service, such as maintenance, or dip into state subsidies to cover losses. “State subsidies are strictly monitored and the EC will not allow these to be disbursed,” said Holoda, though he acknowledged that the EC’s enforcement of these regulations might take years if the Hungarian government decides to bend the rules.

Hungary is not the first government to get involved in the energy business, according to Attila Chikán, of energy services company Alteo Group. “The state taking part in securing the population’s energy needs via ownership in a company, is not unprecedented; several providers, with partial or total state ownership, work around Europe to serve customer’s needs successfully and with high standards,” he said.

The bigger issue, according to Chikán, is that the government, as regulator, faces conflicting interests: It must create a strong

“Privatization agreements were not based on the proper valuation of these companies, as purchase prices were discounted by the unreasonably high risk factor. ” and predictable legal environment, even while it is focusing on its primary strategic goals of reducing the cost of energy.

A private, for−profit company has a tendency to be leaner, more efficient and more competitive than its state−run counterpart. Consumers tend to have more rights in a competitive market because they have more choice.

“Consumers are not aware of their rights and of what they can expect and demand from their utility company,” according to Holoda.

Given that the process of amalgamation has already begun, critics are doubtful that a strong regulator will be established, and according to our unnamed source, energy authorities do not appear to be intervening in the process, least of all in defending consumer rights.

Critics fear that, if prices are kept artificially low and ENKSZ begins moving toward a loss−making position, elements of service will be compromised. Hungary may become less dependent on foreign resources but that does not mean that taxpayers will be spared the expense in the long term – even if that expense shows up in the form of poorer service.

EXPERT OPINION

THE INCREASING SIGNIFICANCE OF LNG – ALTERNATIVE FUEL REVELATION? ports has to be finished including LNG terminals, tanks, mobile containers, bunker Dr. Péter vessels and barges. The member states Gullai of the EU should ensure an appropriate Attorney at law distribution system between storage SCHOENHERR HETÉNYI stations and refuelling points for LNG. To ATTORNEYS AT LAW meet the above deadline it is a necessary condition to enable the transportation The three letters “LNG” stand for between the different member states of liquefied natural gas that is produced the EU e.g. by way of development of the in a very simple approach by cooling inland waterways on the big rivers of Europe, the exploited natural gas in special Rhine, Main and Danube. This implies many regulatory questions and licencing issues LNG plants. The advantage of this regarding the construction of the industrial technology the “green” qualities facilities such as plants handling LNG in as fuel on the one hand, and the huge amounts. Some of the requirements simplified transportation of the gas are of an environmental nature, others are through the main waterways around in connection with safety while special rules apply on construction works too. the World on the other.

In Hungary, an explicit regulatory framework is not available regarding LNG The transportation is easy because the LNG yet, as the Hungarian Gas Act covers only is dense and thus bare space is enough to natural gas in gaseous state. However, carry huge amounts of it. The LNG value when planning a liquefaction plant, before chain is the following: exploration and observing the general permission rules of production, liquefaction, shipping, storage construction, one should consider that an and regasification. Until regasification, IPPC permit has to be obtained primarily.

LNG is stored in double-walled tanks that The European Agreement Concerning the meet the demands of high safe standards. International Carriage of Dangerous Goods Upon regasification LNG is warmed and on inland waterways (“ADN”) regulates the this way turns to natural gas at the special transportation of dangerous goods on inland regasification stations typically located at waterways. ADN has been implemented to harbours. Afterwards, the natural gas is Hungarian law system by the Act No. VI. of ready for intake into the transmission grids 2010 and the Min. dec. 49/2002 on the basis and distribution pipelines for the ultimate of which harbours and piers to be used for use by consumers and industrial end- loading and unloading dangerous goods users. The advantage of LNG technology (including LNG) must be licensed for ADN compared with natural gas in its gaseous activities. state: much more flexible to handle and to In order to ensure the spread of LNG as spread in inland waterways. The price of shipping fuel the Directive mentions that the LGN in general is also competitive. It helps Commission has established the European to reduce energy dependence compared to Sustainable Shipping Forum in order to assist natural gas pipelines as well. it in implementing the Union’s activities in the Another field of utilization of LNG as fuel area of maritime transport sustainability. This literally is shipping, so it serves mostly as Forum helps the Commission to develop the propellant of large ships and tankers standards or rules for marine LNG as ship crossing the ocean, and it is becoming more fuel covering technical, operational, safety, and more suitable for smaller vessels, too. security, training and environmental aspects It is somewhat extraordinary that a tanker of LNG bunkering. For inland waterways in hauling LNG can be operated with LNG. As, Europe, Central Commission for the Navigato a certain extent, LNG became an available tion of the Rhine has been established as an and proven alternative of diesel oil, and the international organization dealing with all the number of ships equipped with gas engines issues of inland navigation. It is also worth or at least bi-fuel engines is expected mentioning the Danube Commission, an to increase. One of the biggest benefits inter-governmental organization which may of using this energy is that it supports ensure the free navigation of the Danube. sustainable development by way of helping It seems inevitable that the Commission to reduce the SOx and NOx emissions. will consult with the experts of the above What is more, it also reduces CO2 emission mentioned bodies, before preparing legal by 20% according to several sources. materials regarding inland shipping of LNG. The developments of the above technical matters and the availability of the LNG challenged the decision makers of Europe.

The 2014/94/EU Directive (the “Directive”) gives a brief summary on the expectable developments of the sector of this alternative fuel. Until 2030 the latest the core network of the refuelling stations at maritime and inland www.schoenherr.eu

NOTE: ALL ARTICLES MARKED EXPERT OPINIONS ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

foray into energy

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Nuclear planners say costs not a problem

Photo: MTI/István Filep

Although experts say the project could create a huge financial burden for the state, the government is pushing ahead with its proposal to build two new blocks at the nuclear power plant in Paks. But it will have to get the plan approved by the EC. LEVENTE HÖRÖMPÖLI-TÓTH

When the Hungarian government signed an agreement with Russia in January 2014 to add two new blocks to the existing nuclear power plant at Paks, there was a broad range of opposition to the deal.

Greens were perplexed as to why renewables did not receive long−term backing instead. Economists stressed the staggering burden of the costs. Others expressed fears over a growing Russian influence as a result of Moscow’s loans for the project. Energy experts projected heavy losses down the road because of the huge energy surplus that would be generated. And critics were upset at the lack of transparency: The documentation of the entire deal was classified for 30 years this March.

Despite these objections, preparations are in full motion. Yet, there are still obstacles ahead. Most importantly, the investment is subject to European Commission approval.

Convincing the EC, and Europeans Dr. Attila Aszódi, government commissioner in charge of the project is confident about the positive outcome of the ongoing EU proceedings. “We have been fully cooperating with the European Commission from day one. So far we have got their consent in several aspects, now we are awaiting the decision to declare that no state aid is at play,” Aszódi told the Budapest Business Journal. “We firmly believe that the electricity to be generated by the newly built units can be sold under market conditions and no outside capital injection from the government would be necessary after the commissioning of the plant.”

This assertion is countered by the calculations of REKK, a Corvinus University of Budapest research center that is projecting HUF 140−190 billion may have to be paid from the state budget in the first ten years of operation and the second decade would require additional financing of HUF 50−117 bln.

What can be taken for granted is that eurocrats know exactly what to look for when they are on the hunt for hints of state aid, Attila Holoda energy expert and former state secretary pointed out to the BBJ. But the government is likely to get lucky. “The EC is a very bureaucratic institution, so any investigation aimed at imposing sanctions may drag on for

Attila Aszódi, government commissioner in charge of the Paks project, speaks at Vienna University on September 23 in a public hearing about the plans organized by the Austrian province of Burgenland.

“Actual costs are bound to exceed initial calculations.

And by the time construction takes place, new technology will have emerged for which the costs cannot be predicted now. It’s irresponsible to deny such factors.” years. In the meantime the construction may even be completed,” he said.

However, there’s a long way to go until the Paks 2 blocks start functioning in early 2026, if things progress smoothly.

“It’s a very complex process where a total of 6,000 permits and licenses are needed.

There are five bigger sets of them from which the construction license should be in our hands by the beginning of 2018,” Aszódi said.

The Russians are doing their part by starting the planning phase, while the Hungarians have requested the international environment license. A key part of the effort is touring European countries where detailed information will be given on the impact of the investment.

“Even though there are no cross− border effects at play, 30 states were invited to participate and in the end 11 of them signed up. Under this initiative, we are holding expert consultations and public hearings in order to answer every question that may arise in relation to environmental concerns,” Aszódi said.

The communication campaign has been operating at full steam within the national borders as well. At first, public forums were organized in 41 dwellings in the area surrounding the nuclear power plant, then targeted information was published in print media. Young people were approached at major summer festivals.

A rendering of how the completed Paks project would look.

Quarrels over costs The most hotly discussed issues about the whole construction are profitability and financing, though. REKK estimates costs would reach HUF 3 trillion, the equivalent of more than 10% of Hungary’s GDP in 2012.

“Such projects have an evolutionary process, which means actual costs are bound to exceed initial calculations. And by the time construction takes place, new technology will have emerged for which the costs cannot be predicted now.

It’s irresponsible to deny such factors,” Holoda said.

The overall profitability of the venture is further questioned by losses projected by REKK not least because the new blocks will operate in parallel to the old ones for around ten years.

Immense surplus energy will be generated which could well be hard to

sell. The government dismisses criticism concerning profitability, claiming that future energy market prices are underestimated and investment costs are exaggerated.

Many also frown upon the fact that the project is financed through Russian state loans. “Their involvement is driven by political intentions as they are keen to build reference power plants abroad. It’s far from rational to lend money at 3.95− 4.95% to Hungary if financing Russian debt, through selling Russian government bonds, costs 16−18% per year,” Holoda noted. “The bottom line is that if it was worth it from ordinary loans and under normal market conditions, investors would jump at the opportunity. That’s not the case, however,” Holoda pointed out.

Despite his, and other critiques of the deal, the current government seems determined to get the new blocks built, however.

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GE uses IT and iron to stay a power player Already involved in a broad range of energy undertakings in Hungary, the multinational expects its acquisition of Alstom to boost its importance in the sector locally.

The firm’s president in Hungary and the CEO for CEE explain more.

BBJ STAFF

In announcing that it had received European Commission approval for the acquisition of French power company Alstom, General Electric suggested it was getting back to basics.

“Over the last year, GE, which makes everything from CT scanners to jet engines and power plant turbines, has been bulking up its industrial core,” according to a GE statement. “The company plans to add more big iron to its portfolio by acquiring Alstom’s businesses.”

But when you hear Joerg Bauer, president of GE Hungary, describe the firm’s activities, it sounds like they are as much about IT as iron.

“We are investing in data−driven, value−added services,” Bauer said, noting that, in Hungary alone, GE employs – directly and indirectly – roughly 1,000 programmers and IT staff, many of whom are working on developing new digital technology.

In an interview with the Budapest Business Journal, Joerg Bauer and Peter Stracar, the CEO for General Electric in Central and Eastern Europe, described how their firm is using technological advances to shape developments in energy and other fields. They also noted that GE’s pending acquisition of Alstom would help strengthen the multinational’s position as a major player in the power field in Europe. “With this deal, we would cover almost all needs in the energy sector,” Stracar said. “It is a good deal for Europe and a good deal for GE.” Because more than 20% of the region’s GDP comes from manufacturing, Stracar said GE’s efforts to improve energy security, affordability and sustainability are vital to Central and Eastern Europe.

“Most of the power grids in the region are 30−plus years old, and we have a regulatory environment that still needs to catch up,” he said. “The countries and Europe need to unify laws to open space for private investment.”

Big in Hungary GE has obviously already found some space for investment here. One of the first American firms to come into Hungary as the Iron Curtain was falling, GE is also the largest U.S. investor in – and one of the largest exporters from – this country. Company officials say

Joerg Bauer, president of GE Hungary.

“Most of the power grids in the region are 30-plus years old, and we have a regulatory environment that still needs to catch up.”

GE will be focusing more on industrial activities and getting out of peripheral areas like banking – as it did by selling Budapest Bank to the Hungarian government this summer, in line with the company’s global strategy.

Currently, GE Hungary employs more than 10,000 people working at a dozen manufacturing plants, three technology centers, three regional business headquarters and one shared services center. The firm’s activities in the country are focused on the fields of lighting, healthcare, power and water, aviation, energy management, oil and gas, and shared services.

As Bauer explained, the heavy equipment that GE manufactures here employs the “industrial internet” concept of putting sophisticated software sensors onto sophisticated hardware to create smarter machinery that can produce valuable data.

For example, Bauer said, at GE’s office at Váci Greens in Budapest, developers are working on a system that analyzes big data gathered over the years by the company’s line of sophisticated medical equipment, such as MRI scanners. Using “biomarkers that are early indicators of a disease”, they can develop algorithms that help predict a patient’s future potential for a disease and assist in diagnosis.

“We are using data to enable management of health and reduce the cost of treatment. Very often health systems nowadays use the general practitioner as a gatekeeper with improved diagnostic capabilities,” Bauer explained.

Peter Stracar, CEO for General Electric in Central and Eastern Europe.

At the core of GE’s industrial internet is a company−developed platform called Predix, which allows for communication between heavy machinery and, for example, a laptop or smartphone.

The platform also permits use of big data gathered from all the connected machinery, to make intelligent analysis and predictions. GE has opened up this platform, so that other firms will use it, basically turning Predix into the Windows of the industrial internet.

In the energy field, GE is using the platform to enhance renewables, by employing big data to predict wind patterns. As Stracar explained, power− generating wind turbines can be turned to face the breeze, so they will be more effective. “Improved steering in the wind parks can improve efficiency and over the course of a year, even a 1% improvement can really add up,” Stracar said.

He added that GE is also using digital technology to reduce the downtime of power grids, which is one of the best ways to improve their efficiency. He explained that better information and use of data makes it possible to use smaller power grids, even micro−grids, which can employ more renewable energy because “you move closer to the source of power”.

Gas and renewables When it comes to ensuring a stable power grid, Bauer noted, it is also possible to use derivatives of big aircraft engines to drive portable power plants, which are being assembled in Veresegyház.

“GE Power & Water’s innovative power solutions developed and manufactured in Veresegyház give businesses and communities the ability to generate reliable, fast and efficient power using a variety of fuels anywhere, whether on or off the grid. In Israel, for example, GE Advanced Aero derivative Gas Turbine Technology is helping Israel meet its urgent power needs,” according to a statement from GE. “The technology

“The technology from Hungary is also being used in Algeria and Egypt; it has helped the victims of Typhoon Haiyan; and it is being used in the recovery works following Hurricane Odile.” from Hungary is also being used in Algeria and Egypt; it has helped the victims of Typhoon Haiyan; and it is being used in the recovery works following Hurricane Odile,” Power generation through natural gas, which is the most efficient and plentiful fuel that we take out of the ground, is important for future energy production, according to Stracar. “We believe that gas will play a bigger role,” he said.

He also sees renewables increasing their importance in the near future. “You have countries in Europe that produce close to half their energy from renewable sources,” Stracar said. He noted that the biggest challenge is finding a way to save the energy produced by sun or wind, so that these sources can feed the grid with the same consistency of a fossil−fuel power plant. “The next huge breakthrough will be commercially viable energy storage,” according to Stracar.

He added that GE’s work in the field of renewable energy in Hungary is set to increase with the acquisition of Alstom, which can take advantage of Hungary’s location over thermal water reservoirs to produce thermal energy here.

“We see Alstom as very complimentary to what GE does. Alstom is very strong in water, energy and grid management,” said Stracar.

That deal, which is expected to go through by year’s end, will put GE in charge of even more iron and IT here in Hungary.

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Budding engineers compete with green cars Hungarian firms seeking young talent are eager sponsors of this unusual racing circuit.

ZSÓFIA VÉGH

Car enthusiasts who want to see some of the fanciest vehicles up close in Budapest are well advised to visit the Gresham Palace Hotel on Széchenyi tér. In front of one of the country’s most prestigious five−star hotels, Maseratis, Mercedes S class coupes, and Bentleys are regularly parked.

On September 19, custom−built vehicles using alternative fuel complemented this luxury line−up, as the loop in front of the hotel was the scene of a race for cars entered in MVM Hungarian Electricity’s Fifth Energy Race. The state power company, MVM, started the series of races between unconventionally powered vehicles to promote environmental development, innovation and the work of young engineers. The vehicles run on anything but petrol or diesel: Some use electricity, others compressed air or human power, and are a mixture of prototypes or transformed from an existing model.

Perhaps as interesting as the cars, though, are the young people who build

Action from last year’s race at Széchenyi tér. them. Contestants are college teams and individuals who build the cars in their spare time. Part of the reason for this race is to encourage young people with the right mindset to go into engineering.

A former MVM Energy Race winner, BME Formula Racing Team, didn’t enjoy such success this year – the electric car from the Technical University of Budapest (BME) stopped during the race. The 250− kg electric vehicle, which can reach 100 km in 3.5 seconds and has a top speed of 120km/h, has finished about five races, mostly in Europe, on the Formula Student (FS) circuit, an international competition series where college students design, build and compete with a race car. The idea behind FS is to create a car as if teams were building a prototype for mass production.

The BME Formula Racing Team car.

FS ranks teams based on their car’s racing ability but also their budget planning and business skills. Therefore, beyond the core team of 20−30 engineering students who work on a car every day, others from business management faculties are also needed in the team.

BME Formula Racing Team is sponsored by firms such as Audi, Bosch, and car part suppliers, which support the team financially, as well as providing it with materials, parts or help in manufacturing.

The investment, which can amount to tens of millions of forints annually, pays back multiple times as firms screen and secure talented engineers. Most of the contestants – graduates or undergraduates – already have a job waiting at a large firms or a domestic SME.

With Hungary reportedly having vacancies for 4,000 engineers, mostly in the electrical and mechanical fields, events such as this are popular with employers. Firms like Ericsson, MOL, Audi, and LEGO, all members of the Future Engineer Association (EJMSZ), run online campaigns and road shows targeting students of all ages in an effort to generate more interest in this career.

They also focus on parents who are often unaware of what engineering involves in practice.

It is not just the employers who have a stake in increasing the number of engineers. EJMSZ calculates that, if the 4,000 engineering vacancies were filled, Hungary’s output would grow by HUF 50 billion.

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Hungary picks up its pace in the electric car race There are only a few hundred e−vehicles in Hungary now, and fewer than 100 charging stations, but a new plan is pushing for closer to 100,000 such vehicles in a few years. Norway, here we come!

ZSÓFIA VÉGH

If you can judge a man by looking at what he drives, than Magyar Telekom CEO Christopher Mattheisen is an eco−conscious pioneer with good taste.

For work, Mattheisen drives a Lexus 450Gh, a hybrid luxury sedan. Magyar Telekom’s corporate fleet contained 92 hybrids and three electric vehicles in 2014 according to the company’s communications directorate. Two of the three electric vehicles serve as a corporate pool car, one as a service car for downtown Budapest. Magyar Telekom aims to increase the ratio of alternatively powered cars in its fleet to 6% by 2015.

There are nearly 330 plug−in hybrids, enhanced range and purely electric cars already on the Hungarian roads, and their number is also on the rise. While in 2013 the total number of newly registered electric cars in Hungary was 16, last year it reached 43 – a 69% growth year−on− year, data from the European Automobile Manufacturers Association (ACEA) shows. Promising as this growth may be, it is still several thousand shy of the figure PwC forecasts for 2023 in its latest report, based on Q3 2015 data. According to the firm’s more conservative calculations, the number of vehicles powered by the electricity grid in Hungary will exceed 55,000 in eight years. Under a second, more optimistic scenario, PwC envisions 81,000 vehicles by 2023. This scenario takes into account the impact of the Jedlik Ányos Plan, a national policy framework drafted for the development of alternative fuels and e−mobility.

Using the more modest figures, the ratio of electric cars would account for 1.4% of all motor vehicles, projected at 3.9 million in 2023. (Currently, there are around three million cars in use). That looks good on a regional comparison, but rather low when compared to Norway where, already, every fourth car in use is electric, and electric vehicles constitute 70% of new car sales. Along with Germany, the UK and the Netherlands, Norway began investing massively in e−mobility five years ago to become a global leader in car number terms.

“Every car technology that is coming in, whether it’s ABS, a navigation system, or air-conditioning, started at the expensive end.”

Catching up with Norway In theory, the Norwegian figure is not unattainable, said János Ungár, vice president of the Hungarian Electromobility Association. The Jedlik Ányos Plan introduces similar measures to those undertaken

by Norway In 2010, Ungár told the Budapest Business Journal.

Ungár’s association officially joined the European Association for Electromobility (AVERE) at a Budapest conference on e−mobility on September 17. “One main reason for joining was to get into the European e−mobility network,” Ungár explained, and thus get access to information and opportunities. “This way the country can also grow as an industrial player, not only as a market.”

Hungary entered the market late, which hampers the dissemination of e−mobility. So does the high purchase price of cars. Even though the cost of the battery, the main component of the price tag, has been declining by 20% per year according to Bert Witkamp, secretary general of AVERE, price is still a key obstacle to sales, and Hungary has always been a very price sensitive market. “Every car technology that is coming in, whether it’s ABS [anti−lock braking system], a navigation system, or air−conditioning, started at the expensive end,” Witkamp said.

Another major obstacle is a haphazard recharging infrastructure. The capital’s 58 charging points serve today’s e−car drivers well, but more will be needed, Tamás Jászay, corporate development director of ELMÜ told the BBJ. He didn’t reveal how many more stations the company is planning to install in the near future, only that most will be housed in commercial outlets, hotels, malls, etc. Like those already inaugurated by ELMÜ, these will be intelligent charging points, the use of which is supported with a user−friendly smart phone app that allows you to find and reserving a charging station currently not in use free−of−charge. Jászay debates whether the country needs to follow the Western European trend of trying to introduce a high number of rapid charging points, which can refill the battery in up to 30 minutes. “Today, cars are driven for two hours per day, and are parked for 22 hours; why not take the time to charge it?” Jászay said. In the meantime, the

Magyar Posta tests electric vehicles Different types of electric cars and motorcycles sit in the courtyard of Magyar Posta National Logistics Center, in Budaörs on September 25. Hungarian state-owned postal company Magyar Posta is testing out several models of electric vehicles between August 2015 and January 2016 to help it reach a decision on possible purchases, CEO Zsolt Szarka said on September 25, according to Hungarian news agency MTI. The CEO said that the postal company is looking for cost-effective and environmentally friendly solutions for logistics operations and package delivery.

government will divert HUF 7 billion from carbon credit sales in 2015 to infrastructure development for electric vehicles, National Economy Minister Mihály Varga announced earlier this year.

Varga said the government is planning to increase the number of charging stations to 150 in the coming months and promised that the ministry would submit legislative proposals to Parliament about tax incentives to lower costs associated with electric vehicles. The government will soon begin purchasing electric vehicles for its own use, Varga added.

Cars still adding range Range also remains an issue. Witkamp said it would take about five years until cars with a 400−600 km range become widespread. According to a report by PwC, historically low oil prices, recent volatility across several key automotive markets and the onset of economic decline among the BRIC (Brazil, Russia, India and China) countries will likely delay the turning point in global e−mobility to 2019.

The pace of growth in Hungary largely depends on legislation. “It is not quite clear to what extent the objectives [set in the Jedlik Ányos Plan] and the

means created to achieve them are in synch,” Ungár said. The major challenge is to make all those who need to be involved interested. Local authorities, whose one major source of income is parking fees, may not be thrilled by the idea of making parking free for e−cars, one incentive proposed under Jedlik Ányos. The use of bus lanes for cars with a green number plate (available in Hungary since this July) is another incentive used in some countries.

Yet the National Development Ministry is worried about congestion, citing Norway, where e−cars last summer caused hold ups in traffic.

Ministry has concerns about the elimination of road tolls for e−car drivers and would make operating charging points subject to license, news site portfolio.hu reports. It is natural that certain bodies like the Ministry of National Development or the Budapest transportation authorities would have their concerns, said Csaba Poór, head of press for the Jedlik Ányos Cluster, a committee working on harmonizing EU and Hungarian legislation and devising plans. The cluster submitted its proposal on incentives to the National Economy Ministry on September 30; the government is expected to decide on the package on November 30.

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Trading energy in today’s market in Hungary MET Hungary ZRT. is a major player in the changing energy market here. CEO Gergely Szabó responds to questions about his company and the market.

BBJ STAFF

Q

What is MET Hungary’s position in the Hungarian gas market and what is its position in international gas market?

A: When we established our company back in 2007, our goal was to be a major player on the Hungarian gas market with our innovative and flexible product portfolio combined with commodity trading logistics. We knew what we were doing, as our team members played significant roles in the gas market liberalization starting in 2004. Basically, all we did was try to understand the needs of local clients in our region and provide them with solutions that were already available in Western markets. We later established subsidiaries focusing on gas in Austria and Romania, then in Slovakia, Croatia and recently in Turkey, and we are active in more than a dozen major trading points.

Gergely Szabó: ‘All we did was try to understand the needs of local clients in our region and provide them with solutions.’

A: Having offices in ten countries, we You are currently concentrate on both retail and wholesale, expanding into the as well as trading. But our group’s electricity market. How and activities expand to broader territories why are you making this transition? and numerous additional trading points, A: We had the expertise and the market more than a dozen. knowledge as gas traders, so why not integrate, diversify, and take the most out How important is a of further energy products as well? The predictable, stable regulatory year 2013 was when we entered the power environment for MET? segment with the aim of capitalizing on A: It is not only the energy sector that cross−commodity opportunities. Now we craves a stable regulatory environment. can say that it is not only an ever−changing We do realize though that there is environment, it has very challenging no perfect environment nor market characteristics as well. But we are a fast, conditions, but rather environments that dynamic company that does not rest, are changing all the time. So dreaming and we have newer and newer ideas and about a stable environment would be solutions that create value for the group. unrealistic. What we are really good at is adapting to the changes no matter Can you explain what what environment we face. Because of is involved in being an our adaptability we are able to define integrated trading house in success criteria, and when necessary the electricity and gas markets? we can adjust both our strategic and A: Integrating power as a new business line tactical plans quickly to best deal with meant that our group was ready to transform environmental changes. from a sole commodity trader into a real integrated multi−commodity player along the What are MET’s expectations whole gas and electricity trading value chain with regard to new in the region. Not many other companies regulations in the long run? could have done the same at that time, A: All international trading companies which gave us a unique selling proposition face huge risks every day. Given our compared to our peers. And do not forget that complex value chain and the scope of our MET has entered the oil market as well, with activities, we need to manage our way offices in London and Moscow. through all kinds of risk types, whether it be cost optimization or changes in Which market segments are regulations. We follow the regulations the most important for MET and laws and prioritize contingency and what is the expected planning to ensure the best outcomes to growth in each market segment? new situations.

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for many industries. Two thirds of our group’s revenue comes from abroad.

What are MET’s main competitors in the domestic and in the international market?

A: We compete with everyone. I could name companies like the Dutch Trafigura.

However, our strategy is not to follow others but to follow our own strategy and be an industry leader and a benchmark.

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How does MET differentiate itself from its competitors?

A: The key to MET’s success lies in the ability to play the role of a small business on a large−scale. Our experts are familiar not only with industry practices but we approach traditional markets from a financial perspective. We try to be as creative as we can, better than our competitors, and faster when it comes to decision−making.

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Do you believe that the government is using non− market and regulatory pressure to improve its position at the expense of private businesses?

A: I don’t think so. We need to understand that the government has much more responsibility to its “shareholders”, i.e. the taxpayers. And this is what they prioritize when they make decisions – risk avoidance.

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Is there profit to be made in this business if the state is doing all it can to bring down energy prices?

A: If you concentrate only on one market or one commodity, then you may become too dependent, but that is also true

Do you believe that private firms will totally be pushed out of the mix?

A: No, as I said, the government and private companies can have a “shared vision”. One that benefits them both.

Who are the majority investors behind MET Magyarország Zrt.?

A: Investors, whoever they might be, take high risk with their investment, especially in an industry where we trade 24−7 and face huge risks in the transactions. Looking back, it seems they have made a lucrative business but we cannot forget the big risk of failing either. We are very thankful to have them as investors and do hope we have earned their trust by now and so they will continue to be our investors. Our owners are: MOL (40%), Benjamin Lakatos (24.67%), György Nagy (12.665%), Ilya Trubnikov (12.665%), István Garancsi (10%).

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How is MET dependent on geopolitical factors, especially in the East?

A: It is pretty difficult to find a gas molecule in this region that is not of Russian origin. Our job is not to demonize the Russians but to cooperate with them and to make the most of our trading positions. We account for peaks and valleys in geopolitical factors through our strategic plan, quick decision−making cycles and diversification of portfolio.

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4 Socialite WHAT’S

ON

Fun things to d o in Budapest for the nex t t wo weeks.

MUSEUM FALL FESTIVAL On through November 15, various venues

Czech folk and a more contemporary selection of Hungarian tunes. oktoberfestbudapest.hu

Being held for the tenth time this year, the annual Museum Fall Festival celebrates the wealth of museums across the country with programs for both professionals in the museum sector and the general public. Events include a tour of the city’s museums and surrounding neighborhoods, an international drawing competition and several conferences and workshops. oszifesztival.hu

CAFE BUDAPEST CONTEMPORARY ARTS FESTIVAL October 2−18, various venues

OKTOBERFEST October 1−4, Felvonulási tér ANDRÉ KERTÉSZ AND SZIGETBECSE Through to October 31, Mai Manó House of Photography In 1984, Hungarian photographer André Kertész sent 120 original photographs to Szigetbecse, now the home of the André Kertész Photo Museum, and requested that in the event of his death some of his personal belongings and pieces of furniture also be donated to

the museum. This exhibition honors the great photographer and the tradition of preserving his memory with the remaining photographs from his collection. These will be on display alongside movies, interviews, documents, books and small printed items. This is a showcase of rarely seen pieces of the artist’s oeuvre and public life. maimano.hu

Beer varieties will be well−represented at this year’s Oktoberfest, held in a cluster of tents on the large square adjacent to Heroe’s Square. Apart from the original Erdinger Oktoberfest beer, 30 local craft beer producers will present 100 varieties of their brews while more than 50 beers from Czech Republic will be on offer.

Savor the many hopsy flavors alongside traditional melodies of Schrammelmusik,

CAFe Budapest, formerly Budapest Autumn Festival, is being organized for the 24th time this year and will host musical acts from all over Europe and America including the Balkan− rhythm inspired New York Gypsy All Stars, electronic experimental band Hauschka with Finnish percussionist Samuli Kosminen, France’s Diotima string quartet, the king of gypsy swing Django Lassi and singer John Pizzarelli.

The Danish Black Box Dance Company will perform their piece “PUSH”.

Exhibitions will also be held as part of the festival at Budapest’s Bálna as well as at the Ludwig Museum of modern art including a show entitled “Ludwig Goes Pop”, featuring artists Jasper Johns, Roy Lichtenstein, Claes Oldenburg and Andy Warhol. cafebudapestfest.hu

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CAFe Budapest brings together contemporary artists CAFe Budapest awaits enthusiasts of contemporary art for a two-week long event series in the heart of Hungary’s capital, featuring contemporary artists from the world. The Budapest Business Journal interviewed Teodóra Bán, member of Executive Board of CAFe Budapest Contemporary Art Festival.

Who do you think would enjoy the Contemporary Art Festival Budapest (CAFe)?

To answer in one word only: Anybody. I can say this because we are organizing a city festival for a wide range of arts. Every age group can find events to suit their tastes, and all types of art are being represented. All those exceptional cultural offerings and contemporary art pieces that characterize our every day life will be represented, and in decades and centuries to come, these pieces will be the treasures of our era. Exciting events await everyone who is interested in culture, from music to dance, from theater to handcraft, or even fashion.

For how long has the festival series been organized?

How has it changed from year to year?

The series is being organized for the 24th time this year. A few years ago, the so-called Budapest Autumn Festival was rejuvenated and was named Café, in deference to the café culture of the beginning of the 20th century, when coffee houses nurtured contemporary artists, giving them a place where they met, mingled and inspired each other. Last year, the organizational structure of the festival was changed, and we started involving all of the most important cultural institutions of Budapest. Budapest Festival and Tourism Center Nonprofit Ltd. handles the events of institutions maintained by the capital city government, and the Müpa Budapest handles events of institutions maintained by the state. We started building the brand abroad as well, which is why we altered the name of the festival to CAFe, which is an acronym for Contemporary Art Festival. As a special feature this year, we are putting a special emphasis on world renowned Béla Bartók’s works, as he is still a main inspiration for our contemporary musicians.

Where are the main venues?

As a city festival, we will be available in many places, including Müpa, Budapest Music Center, Budapest Jazz Club, Trafó, Várkert Bazárban, Ludwig Museum, A38 Hajó, Bálna, just to mention traditional places. New venues include Akvárium Klub, Art Quarter of Budafok, theaters in the capital, exhibition halls and also public places.

Can you mention some interesting artists who will appear as part of CAFe Budapest?

Balkan-rhythm inspired New York Gypsy All Stars will be performing in Bálna Budapest. Electronic experimental Hauschka with Finnish percussionist Samuli Kosminen will perform there as well, just like Moroccan OUM, taking the audience to the magnificent world of deserts. Bálna also features exhibitions like Élő Festészet (Live Painting) being organized by Magyar Festészet Napja (The Day of Hungarian Painting).

To mention some of the most innovative contemporary artists, French Diotima string quartet will perform, as will Ensemble Geneamus and Lutosławski Quartet. As the uncrowned king of gypsy swing Django Lassi will make the audience dance, while John Pizzarelli with his radiance and virtuoso voice will thrill music enthusiasts. Danish Black Box Dance Company will perform PUSH, while Philippe Saire Társulat brings Black Out to Hungary, featuring extraordinary arrangements.

Beyond musical appearances, there will be many exhibitions available for visiting, like Ludwig Goes Pop by the Ludwig Museum, including artists Jasper Johns, Roy Lichtenstein, Claes Oldenburg and Andy Warhol.

This year, once again, Art Market Budapest and MercedesBenz Fashion Week Central Europe join CAFe Budapest with their event series.

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Budapest Business Journal | Oct 02 – Oct 15, 2015

ELECTRONIC BEATS FESTIVAL October 6−18, various venues This yearly event is a must see for fans of electronic music. With 44 music events at many of the city’s most noteworthy clubs, the genre will be well represented. Main shows with Nina Kraviz, Subotage and S. Olbricht are on at the Akvárium while the Floating Sounds exhibition at Anker’t features an interactive sound installation that is a collaboration between Berlin design studio flora&faunavisions and electronic music artist Julian Ganzer. Volkova Sisters, Fatima, Omar Souleyman and Hercules & Love Affair perform at the A38. For information on further shows visit the festival’s website. electronicbeats.net JOE SATRIANI October 9, Budapest Congress Center Legendary American American guitarist Joe Satriani will play material from his 15th studio album “Shockwave Supernova” for which he invited three gifted musicians into the studio and on tour, including keyboardist Mike Keneally (James LaBrier, Steve Vai), drummer Marco Minnemannt (The Aristocrats, Steven Wilson, Kreator) and star bass guitarist Bryan Bellert (James LaBrier, Steve Vai). Satriani made his name with 1987ʼs “Surfing with The Alien”, and has since sold over ten million records. ticketexpress.hu

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SERGEI KRYLOV AND THE LITHUANIAN CHAMBER ORCHESTRA October 10, Palace of Arts World−renowned violinist Sergei Krylov, winner of the Stradivari and Fritz Kreisler (Vienna) competitions and currently the conductor and soloist of the Lithuanian Chamber Orchestra, will perform Mendelssohn’s Violin Concerto in E minor, Arvo Pärt’s emblematic Fratres for violin, string orchestra and percussion, Saint−Saëns’ Introduction and Rondo Capriccioso, Op. 28 and Bizet – Shchedrin’s Carmen Suite. mupa.hu

CAFe Budapest presents the New York Gypsy All Stars.

FASHION WEEK CENTRAL EUROPE October 10−11, Várkert Bazár One of the largest fashion events in the region, Fashion Week, organized

by Budapest’s Design Terminal (DT), features established and up−and−coming fashion designers from Czech Republic, Poland, Slovakia, Serbia, Croatia and Hungary by offering them a professional platform to showcase their collections.

The closing gala will feature the collections of the 20 shortlisted finalists, followed by an awards ceremony. Design Terminal is also organizing the Gombold Újra! Central Europe fashion competition for the fifth time this year. DT is a public agency set up to foster creative industries in Budapest. mbfw−centraleurope.com

Young swineherder in Becse, Szigetbecse, May 5, 1914/1971 © André Kertész Emlékmúzeum, Szigetbecse.

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Budapest Business Journal | Oct 02 – Oct 15, 2015

Szekszárd pops open a new bottle As Szekszárd rightfully earns a broader reputation for its wonderful reds, winemakers from the region unveil what they hope will be the shape of the future in international markets.

ROB SMYTH

Szekszárd is a Hungarian wine region that is making the most of its natural endowments, with the winemakers clearly working together in pursuit of a common goal. This willingness to cooperate and move the region forward can be clearly seen in the release of a new bottle shape, which will be the vehicle in which many of the region’s finest wines will be taken to market.

At the launch in Szekszárd last month during the town’s supercool “Szekszárdi ADVERTISEMENT

“Since these wines are about elegance, fruitiness and spiciness, it was completely clear for us that the ideal choice for our wines should be a Burgundy bottle type.”

Szüreti Napok” wine festival, vintner Zoltán Heimann Sr. explained that he and his Szekszárd peers have been seeking to create their own unique red wines that follow neither existing national or international wine styles.

Indeed, ever since the Szekszárd crew stopped trying to imitate its southern neighbor of Villány and set sail off on its own voyage of discovery, the wine itself has become much more exciting.

This has thankfully seen more emphasis placed on the local grape varieties of Kékfrankos and Kadarka, as well as on the wine in which they both serve, along with the international varietal brigade: Bikavér (Bull’s Blood). However, it is harder to express yourself when it comes

to the shape of the bottle. “Since these wines are about elegance, fruitiness and spiciness, it was completely clear for us that the ideal choice for our wines should be a Burgundy bottle type,” opined Heimann. Comparisons to international benchmarks are inevitable when it comes to wine styles and Szekszárd’s fruity− cum−spicy mélange may be considered much closer to the southern Rhône in style than to Burgundian earthy finesse.

All is fine, however, as the Rhône bottle is a similar shape to the Burgundy one anyway, and the way the town of Szekszárd (which also provides the name of the wine region) is embossed onto the neck of the bottle is both a neat touch and can be taken as a nod to the southern Rhône’s Chateauneuf− du−Pape appellation. While I ultimately care more about what’s in the bottle than the outside appearance, it’s a smart move to create a unified appearance for the region’s flagship offerings of single varietal Kékfrankos and Kadarka, and Bikavér blends. Hopefully more producers will come on board.

Kékfrankos gets respect Kékfrankos, which is Hungary’s number one red wine grape in terms of

land under vine, was long treated as a second−class citizen in both Szekszárd and Villány, while international varietals like Cabernet Sauvignon and Merlot were treated like royalty. However, it is most certainly the future as global, and increasingly domestic palates, look for wines of individual character that are made from indigenous grapes, rather than copy pasted Bordeaux blends.

Furthermore, Kékfrankos is typically medium−bodied, which makes it easier to drink than Cabernet Sauvignon, which clocks the scales at the top end.

Kékfrankos’ relatively high acidity makes the wine it produces anything but limp and lazy, as well as ripe for long ageing. There are just a few bottles of older Kékfrankos around from earlier Hungarian vintages but tasting some of them, such as a Márkvárt’s 2009, as well as outstanding wines from Austria’s Blaufränkisch (the same grape), reveals how the tannins become finely chiseled and the flavors more complex with time, while still retaining good measures of fruitiness and freshness. Things have indeed come full circle. Szekszárd has already shown in droves the kind of exciting wine that Kékfrankos can conjure up and now it is the Villány vintners who are following suit, with

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Budapest Business Journal | Oct 02 – Oct 15, 2015

similarly impressive though not identical results. Szekszárd’s Kékfrankos exudes really vibrant sour cherry and Morello cherry notes, while Villány’s is more characterized by riper and more jam−like red fruit, with some black fruit creeping in to the flavor spectrum.

Kadarka, which is even lighter than Kékfrankos, is an altogether harder sell to uninitiated palates, although it is in its element in adding aromatic lift and spice to Bikavér. As a single varietal wine, it is very light bodied but can be seriously spicy and fruity (think rose hip, cranberry and raspberry). This is providing it is not masked in oak or over extracted should winemakers try to ramp up its concentration, which can lead to good wine, albeit one that has little in common with the character of the grape.

A taste of youth The launch of the new bottle was accompanied by a tasting of the first wines that are to be released in the new shape. They are still in the first flushes of youth and are hard to definitively judge at this early stage. In order to make it into the new bottle, the wine must be approved by at least two−thirds of a committee consisting of 12 Szekszárd winemakers. The wines are blind tasted and must be “flawless, should represent a grape variety or a style, and should reflect the terroir as well”. While loess soil dominates most of the region’s growing areas, differences in the wines ADVERTISEMENT

mainly stem from the exposure and altitude of a given terroir, notes the press release on the launch of the bottle.

Among the new releases, Heimann’s 2013 Alte Reben (German for old vine) Kékfrankos was every bit as good as the groundbreaking 2012 with its interplay between fruits of the forest and tangy spices, as well as serious length. János Eszterbauer, who was also a key player in the development of the new bottle, also impressed with his cellar’s “Tanyamacska” Kékfrankos 2013, which was fairly oaky but had plenty of ripe fruit to carry it. Takler’s Családi Birtok Kékfrankos 2013 was a bit on the tight and oaky side, but their big wines certainly reward patience.

Tasted a couple of weeks earlier, Takler’s flagship Regnum 2007 blend, which has a bit of Kékfrankos in it to accompany the mainly international varietals, was in stunning shape: still intense but nicely polished and rounded out with delicious tertiary notes of mushroom, tobacco and undergrowth alongside dark chocolate, plus ripe black and red fruit.

Tüske Pince’s Bikaver 2013 was on the light side in terms of intensity but great to drink, exuding juicy pomegranate.

Bodri’s Bikavér was full−bodied and rich with plenty going on but nothing sticking out. Heimann’s Bikavér 2013, which interestingly has some of the Umbrian grape Sagrantino in the mix, was the most complex and accomplished with great balance between acidity, tannins, fruit and spice.

The new Szekszárd bottle.

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