OLAF: Elios Zrt. may have engaged in organized crime under István Tiborcz

February 7, 2018

OLAF report: Tiborcz might be guilty of organized crime
Photo: 444.hu

The public procurement application scheme of István Tiborcz’s Elios Zrt. might constitute criminal conspiracy, reports 24.hu. The online daily managed to obtain a copy of the European Anti-Fraud Office’s (OLAF) report on public procurement irregularities involving a company co-owned at the time by Tiborcz (pictured centre), Prime Minister Viktor Orbán’s son-in-law.

Elios Zrt. was contracted by numerous local governments in the billions of forints to modernize public lighting.  The projects were funded in large part with EU development grants.

OLAF conducted a two-year investigation during which the investigators inspected 35 public procurements awarded to Elios between 2011 and 2015. OLAF found irregularities in many of the procurements and uncovered conflicts of interest in numerous cases. Even though the Hungarian government was at liberty to publish the report, it chose not to do so, presumably to spare the Prime Minister and his family embarrassment.

According to the full report obtained by 24.hu, OLAF found irregularities in all 35 inspected procurements. Moreover, in 17 cases OLAF found that public tenders were awarded to Elios as part of an organized fraud mechanism, meaning they were worded in such a way that it made either Elios or a consortium led by Tiborcz’s company the sole possible bidders. In contrast to similar public lighting procurements, these tenders required bidders to have experience with LED public lighting technology. However, at the time of the call for tenders, Elios was the only company that had such experience.

The report also covers in detail how Elios circumvented procurement requirements on many occasions. The company which handled the tenders required bidders to estimate the rate of return assuming the lights would be used for 50,000 hours over 15 years. According to the report, in all 17 cases, Elios submitted applications that did not meet the required return rate.

However, the procurements provided a loophole to Elios. Namely, before submitting the final application, bidders had the opportunity to make last-minute modifications. During this phase, Elios modified the return rate calculation formula, calculating with 100,000 hours of operation instead of 50,000. Even though the life expectancy of the installed LED lamps was only about 60,000 hours, Elios managed to meet the return rate requirements while offering the highest possible labor cost.

Elios’s claim that the lamps would last for 100,000 hours was examined by numerous experts. According to the OLAF report, even Tungsram-Schréder, the company that supplied the LED technology to Elios, stated in its catalog that their products have a life expectancy of 60,000 to 80,000 hours. As some of the experts considered the 100,000-hour life expectancy valid, Hungarian authorities determined that there was no consensus in the matter.

OLAF found that in every case, Elios aimed to meet the minimum requirements while offering the highest possible price to municipal councils. After submitting its applications, Elios presented “independent” indicative bids to support its own bid. In every case but one, these indicative bids were exactly five and seven percent overpriced compared to Elios’s offer, regardless of the actual costs. OLAF also learned that in every case these comparative bids were written by the same person on the same computer using the same formula.

The report concludes that beneficiaries of the suspected organized fraud scheme were not the municipal councils but the consultants who oversaw the procurements. It was already known that Sistrade, a company owned by former Elios owner Endre Hamar, participated in the preparation of public procurements while Hamar was still a co-owner of Elios. Now, 24.hu revealed based on the report, that the Excel documents that contained the return rate calculations were co-authored by Hamar and Elios employee Ivett Mancz. The reports also determined that Tungsram-Schréder regularly offered its LED lamps to Elios for half-price.

Although the irregularities uncovered by OLAF constitute fiscal fraud according to Hungarian law, the EU anti-fraud office recommended Hungarian authorities investigate the possibility of organized crime.