Meet Lajos Simicska: Fidesz’s enigmatic oligarch

February 10, 2015

simicska_GRIDfekvo“From the time of its founding Fidesz did not have outside supporters.   We wanted to avoid being beholden to domestic and foreign groups, and for this reason had to develop our own sources of income.” – Lajos Simicska, Fidesz economic director, October 1994

“Hungary needs large Hungarian companies in the financial sector, the insurance sector, the building sector, the energy sector, the car manufacturing sector, the pharmaceutical sector, the food sector, in information technology, the hotel industry, as well as in every significant sector.   Yes, we need highly capitalized, successful companies possessing many billions of forints.  If not, then the foreigners will take everything in this country, and I am convinced, whether or not you are aware of this, that in reality when you speak against Hungarian capital, you are conducting labanc politics which I reject.” – Viktor Orbán, Hungarian Prime Minister, in a speech to parliament in 2012.

Although not officially among the richest 100 Hungarians, Forbes recently ranked Lajos Simicska the third most influential person in Hungary after Prime Minister Viktor Orbán and OTP chairman Sándor Csányi (who owns a vast empire of companies ranging from agriculture and meat processing to real estate, much of it financed with loans from his own bank and funded by government and EU subsidies).

After Fidesz won its landslide victory in April 2010, Fidesz chairman (and Prime Minister-elect) Viktor Orbán allegedly spent several days in Székesfehervár conferring with Lajos Simicska on each and every major government appointment, including those at the Ministry for National Development and the National Development Agency (NFÜ) responsible for administering EU development funds.  Over the next four years, not a single government contract involving EU development funds was awarded without Simicska’s knowledge and approval.

Four years later, most of the government employees hand-picked by Simicska were fired in the opening salvo of a behind the scenes war that recently exploded to the forefront of Hungarian politics in a spectacular manner.  Having remained virtually invisible since resigning his position as director of the Hungarian tax authority (APEH) in 1999, Simicska gave a series of interviews to independent media denouncing Hungarian Prime Minister Viktor Orbán for treachery and for trying to build a new dictatorship.

The financial “genius” behind Fidesz

Simicska first met the future chairman of Fidesz, Orbán, at the Bibó István Technical College in 1985.  In 1988 a number of students led by then-law student Orbán formed the Young Democrats (Fidesz), although Simicska was not among the founding members.

In 1990 Fidesz entered parliament after receiving 5.44% of the popular vote, where it sat as part of the liberal opposition.  In 1993 Fidesz chairman Orbán offered Simicska the position of party economic director–a position for which, by all accounts, Simicska was highly suited.

One of Simicska’s early financial coups was arranging for Fidesz to be deeded its current party headquarters overlooking Heroes’ Square.  Far larger than what the small party was entitled to by law, Simicska then negotiated the sale of the palatial building to a state-owned bank for a substantial amount of money, even as Fidesz retained the right of use.

Another coup was the 1994 purchase by B-Reklam Kft., a company whose owners were close to Fidesz, of Mahirt, a state-owned advertising company with a large number of billboards and kiosks.  The company enjoyed substantial revenues in the general election and local elections held later that year and helped Fidesz win 7.7 percent of the vote in the general elections.

In July 1994 Simicska joined B-Reklam’s board of directors and eventually acquired an ownership interest in the company.

In a rare interview given to left-wing Nepszabadság in October 1994, Simicska said

“It is necessary to solve the party’s financial situation in such a way so that Fidesz does not depend on external sources.  . . . Because these are not charitable organizations, from the time of its founding Fidesz did not have outside supporters.   We wanted to avoid being beholden to domestic and foreign groups, and for this reason had to develop our own sources of income.”

Over the next six years Simicska acquired interests in 24 companies “close to Fidesz” for himself.  Ownership interests in a number of other companies “close to Fidesz” were registered in the name of his wife, Zsuzsanna Pusztai.

From head tax man to business tycoon

After Fidesz won the general election of 1998, Orbán appointed Simicska head of the Hungarian Tax Authority (APEH), a position Simicska was forced to resign in August 1999 over a scandal involving the sale of a number of companies close to Fidesz with large tax arrears to two guest workers by the name of Ibrahim Kaya and Josif Tot.  It also came to light that shortly after Simicska’s appointment the official tax records of a number of companies close to Fidesz were either eliminated or altered, although Simicska’s personal involvement in this action requiring the coordinated effort of a number of experts within APEH was never proven.

Always careful to avoid the media spotlight, after resigning from APEH Simicska studiously built up a number of advertising, media and construction companies into a formidable business empire, thanks to a seemingly unending series of contracts from national and local governments and state-owned companies.

Közgép

Between 2007 and 2013, at a time when most Hungarian construction companies were struggling to survive, Közgép prospered, paying substantial dividends every year, for instance some HUF 3 billion (USD 14 million) in 2013.

Under Simicska’s stewardship Közgép went from being a modest erector of metal structures to Hungary’s largest construction company by winning government contracts to build highways, bridges, railroads and most recently radioactive material storage facilities.  Reporting revenues of just HUF 1.8 billion in 2004, Közgép’s revenues increased twentyfold over the next five years: HUF 7.5 billion in 2005, HUF 20 billion in 2008 and HUF 40 billion in 2009.

Although rumored to be the owner of Közgép, Simicska was able to conceal this fact through an elaborate ownership structure.  It was not until 2012 that origo.hu revealed the majority of the company’s shares were owned by companies owned by Simicska and/or his wife, including Neo-Met Kft. and Pro Aurum Kft., which also owned shares in pro-government daily Magyar Nemzet.

After Fidesz-KDNP swept the general elections in 2010, Simicska’s business empire flourished, thanks primarily to government orders and copious EU funding in the form of development funds.  In 2010 and 2011 Közgép is reported to have directly won HUF 287.8 billion (US 1.3 billion) worth of government contracts through public tender for total construction revenues exceeding HUF 680.5 billion (USD 3.4 billion), including

  • the construction of a railway between Sajol and Puspokladany for HUF 99 billion
  • a country-wide public road development project for HUF 41 billion
  • renovation of rail lines in Gyoma and Bekescsaba for HUF 39 billion

Between 2008 and 2013 Közgép Zrt. and Közgép-led consortia won over HUF 900 billion (USD 4.2 billion) worth of public tenders, including 90 public tenders in 2013 worth HUF 380 billion (USD 1.8 billion) and five tenders worth HUF 32 billion awarded between 23 December and 26 December 2013.

In 2013 Közgép or Közgép-led consortia won 17.2 per cent of public tenders issued by the National Development Authority (NFÜ), including a HUF 65 billion (USD 300 million) contract to build a 33.4 km section of the M86 between Hegyfalu and Csorna.

State-owned companies

During this period Simicska’s companies also received some HUF 288 billion worth of contracts from various state-owned companies.  One of his advertising companies, Publimont Kft., went from losing money in 2009 to paying over HUF 1 billion in dividends in 2011, thanks largely to advertising revenues from state-owned lottery and gambling company Szerencsejatek Zrt. (HUF 800 million) and Hungarian Tourism Zrt. (HUF 470 million).

Media mogul

Thanks to an abundance of orders from the government and various state-owned companies Simicska’s media and advertising holdings have flourished and expanded to include EuroAWK, Mahir Cityposter, Euro Publicity and A Plakát, which together posted pre-tax profits of HUF 432 million in 2011 alone.

Other companies related to Simicska’s business empire also posted record profits in 2011, including Hung-Ister Zrt (HUF 715 million) and Mahir Kiállitásszervező Zrt. (HUF 80 million).  The 2011 acquisition of Metropol added HUF 648 million to the profits of his business empire.

In addition to daily pro-government Magyar Nemzet, Simicska’s media holdings subsequently grew to include Lanchid Radio, Class FM (Hungary’s largest commercial radio station in terms of market share) and reportedly TV2, whose revenues increased five fold from just over HUF 2 billion in 2013 to well over HUF 10 billion in 2014 primarily due to government and Fidesz advertising.

Magyar Nemzet

Simicska’s pro-government newspaper, Magyar Nemzet, has not only faithfully toed the government line, but on several occasions has demonstrably manipulated and distorted the news to make the government look good and its opponents look bad.  Very bad.  In addition to leaking confidential information and documents obtained from its governmental contacts, for the past five years or so Magyar Nemzet‘s editorial staff has only been too happy to manipulate the news to order.  One especially disgraceful example of this was an article appearing last summer in which it claims that a draft report prepared by Ernst and Young at Ökotárs’ behest contained grounds for believing that fiscal malfeasance and embezzlement had taken place, when, in fact, the study concluded the opposite.  Similarly, in November 2014  Magyar Nemzet  dutifully reported that the Government Control Office (KEHI) investigation into Ökotárs had confirmed there were grounds for suspecting fraud had taken place, when, in fact, anyone taking the trouble to read the body of the report realized that, actually, there were no grounds for such accusations.

Dividends

Simicska and his wife’s advertising and media companies reportedly paid out dividends of HUF 1.27 billion in 2011.  In the same year Neo-Met Kft. and Pro Aurum Zrt. paid out dividends of HUF 2.5 billion and HUF 2.1 billion, respectively.   Although much of this money was used to expand Simicska’s business empire through the acquisition of numerous media and construction companies (including several competitors who had miraculously beaten out Közgép to win public tenders), it is believed a substantial part of this money was remitted, either directly or indirectly, to Fidesz, Fidesz politicians and the Fidesz Political Action Committee in the guise of a pro-government civil organization, the so-called Civil Unity Forum (CÖF).

The political opposition finally takes notice

In May 2012 then-LMP MP Gergely Karacsony complained in parliament that the Fides-KDNP government was promoting the interests of oligarchs despite claiming to have brought the era of oligarchs to an end, to which Prime Minister Orbán responded:

Hungary needs large Hungarian companies in the financial sector, the insurance sector, the building sector, the energy sector, the car manufacturing sector, the pharmaceutical sector, the food sector, in information technology, the hotel industry, as well as in every significant sector.   Yes, we need highly capitalized, successful companies possessing many billions of forints.  If not, then the foreigners will take everything in this country, and I am convinced, whether or not you are aware of this, than in reality when you speak against Hungarian capital, you are conducting labanc politics which I reject.

The labanc were Austrian troops loyal to the House of Hapsburg in the latter part of the 17th century, so-called for their wigs.

EU Development Funds

In January 2014 the Budapest Beacon reported the following:

Közgép’s future prospects are good, especially if the current government is returned to power in April.  Within the framework of the Transportation Improvement Operative Program (KOP) Hungary is to receive HUF 900 billion (USD 4.2 billion) in EU funding over the next seven years to fund the kinds of large, government projects (highway construction, rail reconstruction) Közgép has proven adept at winning at public tender.

An additional HUF 800 billion (USD 3.7 billion) in EU funds will be made available via the Environment and Energy Efficiency Operative Program (KEHOP). Közgép reportedly owns a number of companies dealing in renewable energies.  One such company, Elios Zrt. (formerly E-OS Innovatív Zrt.), won HUF 2.5 billion (USD 12 million) worth of public tenders in 2013, both individually and as part of various consortia.  Perhaps this explains how Prime Minister Viktor Orbán’s son-in-law, Istvan Tiborcz, came to sit on that company’s board of directors.

The break

After the general election of 2014 there were sporadic reports of an alleged falling out between Orbán and Simicska.  Although various explanations were offered, the most probable is that Orbán felt he no longer needed Simicska’s business acumen to “ensure Fidesz’s future financial independence from domestic and foreign contributors”, as Simicska himself had so delicately put it twenty years earlier.

Another possible explanation is that having developed his own web of business contacts involving numerous straw men fronting for him, including his son-in-law, Orbán no longer needs Simicska to enrich either his party or himself.

After the third Orbán government was formed in May a sweep was made of the Ministry for National Development in which hundreds of ministry officials who had Simicska to thank for their jobs were fired, including Minister for National Development Mrs. Laszlo Németh, one of the few members of the second Orbán government not to be reappointed.  (Before heading the Ministry for National Development Mrs. Németh had worked as a lawyer for one of Simicska’s companies).

Simicska responded to this by arranging for Magyar Hirlap to publish a series of articles critical of Mrs. Nemet’s successor,  Miklós Seszták, who, by all accounts, is a petty, white-collar criminal in the guise of a KDNP member of parliament who has parliamentary immunity and political connections to thank for the fact that he has yet to be investigated or indicted.

In June 2014 the parliament passed a law levying a progressive tax on the advertising revenues of private media companies.  Although German-owned RTL Klub was to bear the brunt of the tax, Simicska’s media empire was also heavily impacted, so much so that his media flagship, daily pro-government Magyar Hirlap, immediately discharged 30 editors and writers, including a number of notorious pro-Orbán hatchet men, such as Gergély Huth.

Although generally perceived as a government move to force RTL Klub’s owners to sell Hungary’s largest private broadcaster to one Fidesz oligarch or another, it was also seen as an attack on Simicska’s media empire.

In September 2014 the government suspended further reconstruction of Budapest’s ring-road motorway M0, on the grounds that it had already spent the HUF 30-35 billion (USD 125-147 million) “earmarked for the project on an emergency basis.”

The M0 project would have renovated 11.5 km of road and fully replaced the metal elements in its two Danube bridges. Despite officially being an open tender, Közgép was the only company with the expertise and facilities to produce the metal parts while carrying out the construction work.

At the time left-wing Népszabadság suggested the tender was cancelled over the widely reported falling-out between Orbán and Simicska.  However, the European Commission’s suspension of European Union development grants for highway construction in Hungary may also have contributed to the decision.

A bizarre meeting

In January it was reported that Orbán had met with the editors-in-chief of various private, pro-government media outlets to inform them of plans to transform state media into the main government mouthpiece, meaning the government- and state-owned companies planned to spend considerably less advertising in private media in the future.  Because government- and state-owned company advertising has compromised the bulk of advertising revenues over the past five years in the case of the right-wing, pro-government media owned by prominent Fidesz oligarchs, the announcement was viewed as another step on the part of Orbán to ensuring his party’s freedom from domestic and external parties.

In light of Friday’s mass resignation of right-wing media editors-in-chief, it now seems that in addition to informing them that the government was taking the financial legs out from under their right-wing publications, Orbán may have offered Simicska’s media people a job either at competitor Magyar Hirlap or at state media MTVA, which is in the process of “renewing itself” though the purge of 177 employees, most of whom are to be replaced with new hires.

The resignations prompted Simicska to break his virtual media silence with a vengeance.  Giving a series of telephone interviews to a wide range of independent media, he denounced Orbán in no uncertain terms.  In a lengthy interview given to liberal news magazine Magyar Narancs (an implacable critic of Fidesz ever since Orbán abandoned his party’s liberal roots and recast it as a conservative, nationalist, Christian party), Simicska condemned Orbán for cozying up to Russia and trying to “build a new dictatorship.”