HVG: Every tenth contract awarded by Pallas Athéné foundations unlawful

September 13, 2017

Photo: Index.hu/István Huszti

The following is a translation of Anna Szalai’s article “Every tenth contract signed by the Hungarian National Bank was unlawful” appearing in hvg.hu on September 10th, 2017.

The Budapest attorney general’s office and the State Auditor’s Office have launched over 100 investigations into procurements undertaken by the Hungarian National Bank’s Pallas Athéné foundations without soliciting competing bids. The Public Procurement Arbitration Committee (Közbeszerzési Döntőbizottság) found that dozens of violations had taken place. So central bank foundations intended to serve as a model of proper finances broke the law with every tenth contract they signed. These join the ranks of omitted public procurement procedures. They got away with this relatively cheaply, paying HUF 86 million (USD 325,000) in penalties to date for the nearly 100 infractions. But new judgments involving fines are likely in the future.

Most of the violations are related to the foundations’ real estate matters. So far the foundations have acquired 18 buildings and renovated them within the framework of the HUF 90 billion (USD 350 million) program, including the Ybl villa situated in Budapest’s Castle District. The exceptionally panoramic Csónak street building was purchased three years ago by the Pallas Athéné Domus Animae Alapítvány (PADA) for HUF 4.6 billion (USD 16.5 million) from Budapanoráma Kft. which had failed to obtain a building permit since 2000. This did not present a problem to the foundations. True, they paid through the nose: the plans were prepared and delivered by Bord Építész Stúdió for HUF 90 million (USD 320,000), and project management was overseen by Raw Development Kft. For HUF 5.9 (USD 21,000) a month, later HUF 3 million, HUF 20 million (USD 71,000) was spent on interior design plans, and HUF 24 million (USD 86,000) on plan inspection. Elios Innovativ Energetikai Zrt. installed the exterior lighting for HUF 5.2 million (USD 18,500), and DVM Design Kft. was paid HUF 27.1 million (USD 97,000) to oversee the work of the main contractor Magyar Építő Zrt., which was contracted for nearly HUF 1 billion (USD 3.5 million). All of this was documented on video by the Frank Digitál Kommunikációs Kft. for HUF 5.4 million (USD 19,000). (The same company created a creative concept for an additional HUF 6.8 million).  Of the procurements listed above, the City Attorney General’s Office investigated nine at the behest of the Public Procurement Arbitration Committee, of which seven were found to be unlawful. The largest penalty was assessed in the case of the Raw and the Bord contracts — HUF 1 million (USD 3,500) and HUF 900,000 (USD 3,200) respectively — which is peanuts for the foundations. Similar contracts were concluded with Magyar Építő, Frank Digital, Hetedik Műterem, and DVM Design in connection with the conversion of the building at 21 Úri street. In this case total penalties exceeded HUF 13 million (USD 46,000).

These companies are often accompanied by the same companies. Raw Development received orders from the foundations totaling HUF 100 million in under a year for project management. This is perhaps not independent of the fact that the first owner of the company when it was founded in 2014 was T.2-Invest Kft., in which [central bank governor] György Matolcsy’s cousin, Tamás Szemerey, had an ownership interest. Another company of Szemerey’s, Bankonzult Pénzügyi és Gazdasági Tanácsadó Kft. (Bankonzult financial and economic advisory Ltd.) managed to sell an analysis entitled “Domestic and global economic and financial trends” to all five foundations. PADA, for example, paid HUF 750,000 a month for 35 months, although the no-bid contract resulted in a fine of HUF 260,000.

The foundations tend to copy one another’s procurements like twins. For example, Friday Creatív Kft. simultaneously serves as project manager of the conversion of the Pallas Athéné Domus Scientiae Foundation’s Kálmán Imre street educational base for HUF 70 million (USD 250,000), PADA’s Úri street school for doctoral studies for HUF 17.7 million (USD 186,000), and the university city quarter project in Kecskemét for HUF 10.2 million (USD 36,000) a month. Fines assessed for omitting public procurement have resulted in penalties approaching HUF 5 million (USD 18,000). The second favorite of the foundations is a company that appeared out of nowhere: Made in Heiszler Kft. The company engages in a broad spectrum of activities and has been contracted by the foundations for activities ranging from acquiring furnishings to developing informational systems and even interior design. So far the public procurement authority has examined 18 such contracts and assessed fines of HUF 1.4 million (USD 5,000).

Expensive liability insurance was purchased for the heads of the foundations without soliciting bids. In the same manner office furniture was purchased, presenters engaged, and studies ordered. “This belongs to the past” claims the foundations’ joint spokesman. “Last year the Pallas Athéné foundations volunteered to adhere to public procurement guidelines, and they immediately started reviewing and terminating contracts. Since then everything is handled in the way of a public procurement.”

But the end result is that this is not very evident. Two years ago PADA bought 16 carpets from Art-Kelim Kft. for HUF 139 million (USD 480,000) without soliciting bids of any kind. Because of this they paid a HUF 800,000 (USD 2,800) penalty in May of this year.  That same month they announced a tender to acquire four carpets, and then in July they contracted with the same company for HUF 23 million (USD 82,000). And the second phase of the renovation of the Csónak street villa was awarded through public tender to Raw and Építő, the very same companies awarded the first phase. And Made in Heiszler, Friday Creatív, and DVM Design and others continue to win contracts, except now the foundations needn’t pay any fines after such orders.

The company names are familiar to readers interested in Fidesz and the central bank foundations. Most of the no-bid contracts were awarded to the highly profitable Magyar Épitő, one of the builders of the Puskás Ferenc Stadium: a total of HUF 3.7 billion (USD 13.2 million) between 2014 and 2016. The foundations were not discouraged from placing “friendly” orders by the occasionally serious penalties. The HUF 1.19 billion (USD 4.25 million) contract to renovate the old Buda city hall for example resulted in PADA having to pay a fine of HUF 12 million (USD 43,000). Last year Magyar Épitő bought Köröszsafalt Zrt., whose parent company, Duna Aszfalt Kft., is referred to as the “new Közgép” (shorthand for Lájos Simicska’s interests in the construction industry-tran.) The latter is owned by László Szíjj who jointly owns a number of ventures with Felcsút mayor Lőrinc Mészáros. WHB Befektetési Kft. (WHB investment Ltd.) bought into the company this year. This company now possesses [Hungarian Prime Minister Viktor Orbán’s son-in-law] István Tiborcz’s former company, Elios Kft., which has also worked on many occasions for the foundations.