Lucrative MET gas trading scheme gave Fidesz oligarchs something to really cheer about, study reveals

October 28, 2016

Garancsi, Hernádi, Csányi, Orbán
István Garancsi, Zsolt Hernádi, and Sándor Csányi with Viktor Orbán

“The basic idea for the construction came from the leaders of MOL, but the sustainable operation required including Viktor Orbán in on the business as well.”

Translation of “They scientifically demonstrated that the MET affair can be corrupt” appearing in daily online on October 26th, 2016.

A detailed study was published on Sunday about the businesses of MET, which we wrote about in detail previously. (For more explanation, see “Billions diverted fom Hungary state coffers to natural gas broker“- tran.)

The annuity hunters and the crony capitalism models in the Hungarian energy market, 2011-2015, the Hungarian government-MVMP-MET is the title of the work published by the Corruption Research Center of Budapest (CRCB) at the behest of Energiaklub Egyesület (Energy Club Association).

The study examines the suspicious case.  We are only going to highlight those details which 444 has yet to write about in such depth.  The authors used articles which already appeared, referred to ministerial decrees, company documentation and miscellaneous databases, and interviewed eight individuals with intimate knowledge of the matter whose names are kept secret.

According to the final conclusions:

“The decisions of the actors cannot be explained merely on the basis of market logic (profit maximization, market institutions, and market mechanisms) and within the framework of the specific story.  From this it follows that we must assume the existence of other influences and mechanisms when analyzing the government-MVMP-MET case.”

In scientific language this means that the whole thing stinks, and that it is very likely this was a corrupt affair.  They also assume the possibility that government failure led to this strange business, but think it more likely that behind the bad decisions at best originated from a process which eventually can be attributed to “state capture” and “crony capitalism.”

A brief summary of the business

Between 2011 and 2015 state-owned MVMP used, on the basis of ministerial authorization, a significant part of the Austrian-Hungarian gas pipeline.  Normally a public tender should have been held (to determine which companies could transport how much gas at what price-tran.).  The theoretical basis for the authorization was to replace the 585 million cubic meters used to decrease utility costs. However, it was possible to bring much more gas into the country in this way, 2.9 billion cubic meters annually.

The state MVMP used much of the capacity with which it was entrusted to purchase natural gas at the Austrian border from a Hungarian-Russian-owned, Swiss-based company called MET which it immediately returned to it on the other side of the border.  Somehow like this:


Because at that time gas happened to be cheaper in the West than what it cost on average in Hungary, this was an enormous opportunity for MET.  Also interesting is the fact that a significant part of the 585 million cubic meters taken from reserves was sold to MET.

Sándor Csányi and Zsolt Hernádi in the lead roles

The study summarizes the ten individuals its authors believe were the most important between 2011-2014 around MET:

Benjámin Lakatos (one of the owners of MET and later MET Holding)

  • Zsolt Hernádi (MOL CEO and Chairman)
  • Sándor Csányi (OTP CEO and MOL deputy chairman)
  • Megdet Rahimkulov (a former MET owner)
  • István Garancsi (one of the owners of MET)
  • György Nagy (one of the owners of MET)
  • Ilja Trubnikov (one of the owners of MET)
  • Viktor Orbán (Prime Minister of Hungary)
  • Vladimir Putin (Russian Federation President)
  • Csaba Lantos (Chairman of MET and of MET Holding)

It also outlines the network of connections:


They even precisely defined the connections:


They found that Sándor Csányi and Zsolt Hernádi stand at the very center of the network.  “They are the ones who are most directly linked to the the other actors in the network.  Based on their position within the network, they are theoretically the ones able to best influence the government-MVMP-MET affair.”

This is consistent with the opinions we heard from various political and market actors.  On the basis of this, the basic idea for the construction came from the leaders of MOL, but the sustainable operation required including Viktor Orbán in on the business as well.

Viktor Orbán’s possible role in MET was raised by a Swiss paper, however MET chairman Csaba Lantos categorically denied that the prime minister had anything to do with MET.  However, over the course of the interviews conducted by CRCB researchers, they also asked about Orbán’s role. Many were of the opinion that the head of government had something to do with the business.  The following is excerpted from one of the anonymous interviews:

“Question:  There is disagreement as to whether Orbán is behind MET.  While newspapers, without evidence of course, imply this, Csaba Lantos, MET chairman of the board, categorically denies this.

Answer:  Yes, I am familiar with Csaba Lantos’s statement.  I think Lantos is mistaken.  Perhaps he is naive or deceiving himself and believes what he wants to see.”

The interviewee who is introduced as an energy market expert indicates that he has heard similar opinions from others.

The Russian connection

The study addresses in detail the roles of the Russian owners.  MET (at that time the company’s name was Magyar Energiakereskedő) was founded in 2007 by MOL. The company was 100 percent owned by the state.  In 2009 the first Russian joined the ownership of the company.  Then half of the company was purchased by Normeston Trading Ltd., a company registered in the central American country of Belize.  According to an interview with a former MET director, they were needed for their connections with the Russian gas market, which is to say that presumably they could obtain gas.

Megdet Rahimkulov may have had an interest in Normeston.  Between 1994 and 2008 Rahimkulov primarily lived in Hungary.  For a while he led the joint gas trading company founded by MOL and Gazprom, as well as the ÁÉB bank.  For a while he owned 9 percent of the stock in OTP.  He is suspected of being behind hostile takeover attempts, and of playing a role in the transfer to Russian hands by Austrians of shares in MOL, as well as involvement in the hostile takeover of TVK and BorsodChem.

(Interestingly, Rahimkulov sold his shares in MOL and BorsodChem to Heinrich Pecina, the Austrian businessman who arranged the closure of Népszabadság a few weeks ago as the owner of Mediaworks.)


In summer 2012, Normeston sold its shares in MET.  At that time it was already conducting suspicious business with the state.  The buyer was another Russian-backed company, RP Explorer Ltd.  The sale is interesting because if we can believe MET’s directors, Russians did not need to be in the picture on the basis of the original concept.  They were brought in to help obtain gas, even though in 2011-12 the company stressed that they were buying gas from the western European markets which, in theory, required no Russian connection.  This change is also interesting because the new Russian company quickly sold its shares to Hungarian businessmen.

Several months after RP Explorer appeared, the Russians and MOL each sold 10 percent of their shares to MET director Benjámin Lakatos, who prior to that was a MOL employee and a confidante of Zsolt Hernádi.  Lakatos once declared that creating MET was his idea.

Lakatos was not required to immediately pay for his shares.  Instead, he used HUF 11 billion of dividends he received in 2013 for his 20 percent ownership of the company to pay off his debt.  He would not have received dividends had he not already had shares in the company.  In other words, essentially he got the money from the company in order to become an owner.

If one believes MOL wanted to reward the manager who came up with the idea and built the company, it is not at all clear that this generous gesture was good for the Russians.  In any event, the offer was very generous, considering as the study finds:  “If we calculate Lakatos’ monthly salary at HUF 20 million (USD 70,000), then this bonus (the dividends paid Lakatos in 2013 after his 20 percent stake amounted to HUF 11 billion) was the equivalent of 46 years’ salary.”

The authors of the study do not write it down, but it is not necessary to suspect that Lakatos bought the shares in his name for somebody else.

Lakatos Benjámin. (Viktor Orbán's strawman?-tran.)
Lakatos Benjámin. (Viktor Orbán’s strawman?-tran.)

At the end of August 2013 the ownership changed again.  MOL retained its 40 percent interest.  However, the remaining 60 percent came to be owned by the following individuals:  Benjámin Lakatos (24.7%), István Garancsi (10%), György Nagy (12.7%), Ilja Trubnikov (12.7 %).  How they entered the picture is not clear, only that RP Explorer (whose Russian owners remain unknown) sold its shares.

Among the new Hungarian owners, Garancsi was previously a business partner of Zsolt Hernádi, and Nagy had mutual businesses with Sándor Csányi.

The remaining Russian thread was represented by Ilja Trubnikov.  What we learned about her previously was that she had a Canadian-Russian company that dealt with the maintenance and inspection of gas lines.  From the study we learn that Offshore Leaks Database ties her to Moscow’s S.M. Systems Limited via an offshore company registered in the British Virgin Islands by the name of Commonwealth Trust Limited.  The director of S.M. Systems Limited is Dubai resident Matthew Charles Stokes, who, according to the Panama Papers and other leaked databases, is an officer in at least 1256 offshore companies.

Seen in this light, the remaining Russian ownership is suspicious, and the authors of the study point out that those participating in such businesses often want to hide money laundering

The western gas was actually cheaper

Several weeks ago an interesting hearing took place in the Pécs court, because MET sued socialist member of parliament Bertalan Toth for speaking against it. Witnesses summoned by Toth’s defense team included MVMP and MET directors, and among other things they asked them whether western or eastern (Russian) gas was cheaper at the time in Hungary.  The reason this was important to the case was because if western gas was cheaper, then it proves that MET earned a lot of money with the opportunity provided it by the state company.

All managers summoned to testify said they did not know which gas was cheaper.  However, two former development ministers, Mrs. László Németh and Tamás Fellegi, both answered without hesitation that at the time western gas was cheaper.

The CRCB study claims on the basis of studies and articles at that time, that “During the examined period (2011-2015) the price of Russian gas on the Hungarian market was higher than that of that listed on the Dutch exchange.” (The Dutch exchange price is the benchmark price of gas purchased from the West).

According to their conclusions, the MET group realized significant profits from its joint business with MVMP, although there is only indirect evidence of this in the company’s profit/loss statement.  Obtaining direct proof is difficult because after the first year the profits were probably realized on the Swiss side of the group, and this does not appear in the public database.

The demand for capacity was great

The MET directors claim that this was a risky business, and that they were not the beneficiaries of an exceptional situation arising from the fact that mainly they could use the capacity provided them by the state.  However, it is clear from the study that there was a very great competition for the remaining capacity in the Austrian-Hungarian pipeline which was auctioned off.

According to a study made at the time, those winning the right to use the pipeline paid between 4.5 and 6 times as much as MVMP paid.  (These figures pertain to 2011 and 2012).  MVMP charged MET for this fee, but from this it can be deduced that MET was able to use the pipeline very advantageously.

What was this?

The authors of the study did not find any data or sign to indicate that the MET owners lobbied the 2011 ministerial decree making possible their own business.  They think it conceivable that this is a failure of government, or that the whole thing began with a bad decree, which MET cleverly took advantage of.

At the same time a number of developments suggest that behind the affair was not stupidity.  The authors think it possible that the affair was indicative of crony capitalism and a kleptocratic state.