Books on Hungary
% of GDP
Update No: 094 - (24/02/05)
Hungary has a new premier in Ferenc Gyurcsany, a politically young man at
43, who is turning into a decided, if perhaps ephemeral, success. Twelve months
are due before the next parliamentary elections in Hungary in April 2006. The
ruling Social Democrats are trailing the centre-right opposition, Fidesz, by
some 12-15 points in the polls; but Gyurcsany is determined to confound those
who think that they are likely to be out of office in just over a year.
A property and manufacturing tycoon who was a communist youth leader in the
1980s, Gyurcsany vowed his Cabinet would be much more decisive and establish a
markedly left-wing tone. "I envision a left wing which has the courage to
be outraged by social injustices and has the strength to do something about
them," Gyurcsany said in an interview in the daily newspaper Nepszabadsag.
"Our government stands by the principle there should be more responsibility
taken above and more opportunities below."
The leader of Fidesz is Victor Orban, former premier and with a striking
resemblance to his namesake, Viktor Yushchenko, in Ukraine. Fidesz only lost by
a narrow margin in 2002 and are, therefore, sure favourites to win in 2006,
given that any government in a transition economy, facing enormous problems, is
bound to disappoint.
If one wanted a foreign comparison for Gyurcsany, it would be Tony Blair; but
the Blair of the late 1990s, when he was sweeping all before him, not of the
Improving relations with Romania
Gyurcsany is a great believer in forging alliances abroad, as was Blair, first
with Clinton, then Bush. Romania is undoubtedly the top priority. Bilateral
relations between Hungary and its southern neighbour, Romania, have long been
strained. This is not least due to the fact that Hungary lost land to Romania
after the First World War at the treaty of Trianon, namely the largely
mountainous territory of Transylvannia (of Dracula notoriety), which has a
Hungarian minority of approximately two million.
Gyurcsány has announced a historic departure that his government will hold
joint cabinet meetings annually with Romania in order to help its neighbour join
the European Union and "ease the historic burden" of the two
countries' relations. On January 17th, the premier met with his Romanian
counterpart Calin Tariceanu in Budapest where they held a joint press
conference. The two said the first joint cabinet meeting will take place in the
fall of this year.
"It is not only an opportunity, but also a duty of Hungary in the upcoming
years to support Romania's European Union entry," Gyurcsány said.
"All debates must be kept within that framework." On January 17th,
speaking to Hungary's international press, Tariceanu said, "My meeting with
Hungarian officials is symbolic of the special partnership between Hungary and
Romania, two countries now reaching a new period - the end of transition from
communism. This period is now characterized not by the problems of the past, but
by our future common projects, such as bilateral political and economic
Tariceanu, who formed his coalition cabinet just only a month ago, chose Hungary
as his first foreign visit since taking office - itself seen as a symbolic
gesture. "I have to underline that we highly appreciate the input Hungary
has given in the recent past to help Romania join the EU and engage in the
negotiation process," he added. Romania is hoping to join the EU in 2007.
Gyurcsány said the Hungarian government would not blackmail Romania by holding
out the prospect of vetoing its EU entry, as suggested by the opposition.
"I would not like to toy with the idea of vetoing - as the opposition does
- Romania's EU entry, sending a message to the Romanian Government that Hungary
is one of the 25 EU members in a position to say no," Gyurcsány said.
Following the failed dual citizenship referendum in Hungary on December 5, the
topic of citizenship for ethnic Hungarians abroad and Gyurcsány's provisional
plans for a national visa for ethnic Hungarians were also discussed by the two
prime ministers. Tariceanu told press that since this issue of visa plans was
raised the Romania Government has asked for more information and an official
answer has now been given. It is now up to officials from the Romanian ministry
of foreign affairs to examine this and better understand what Hungary is
proposing, he said, indicating that any plans are only in their infancy.
Tariceanu also touched on the subject of autonomy, and said he favoured greater
autonomy, but not on the basis of ethnicity. "We need a new mentality.
Hungarians or Romanians are citizens of equal rights and responsibilities. For
me, there are not two categories of Romanian citizens."
Gold mine or gold dust?
Another topic the Romanian premier was keen to respond to was Hungarian
concerns over the planned gold mine at Rosia Montana. The mine, if built, will
extract over 300 tons of gold and 1,600 tons of silver.
The Hungarian public and environmentalists are anxious not to see another spill
such as the one in 2000, when a Romanian gold mine in Baia Mare spilled cyanide
into rivers and destroyed 30-40% of the flora and fauna in the river Tisza. The
accident created toxic pollution 200 times the maximum safe limit. Romania has
pledged to involve Hungary in the official licensing process of the mining
project. "The project is in an initial stage and a study of the possible
impact of the project has been ordered and we await these results. The ministry
of environmental protection will analyse this project from the perspective of EU
The prime minister acknowledged that the mining project has also been questioned
in Romania, where the media raised questions concerning environmental impact,
archaeological heritage and the "origin of the money invested".
Tariceanu said that these issues were more than enough to warrant an attentive
analysis of the project. When questioned about houses being levelled on the mine
site and the suggestion that the project was in fact already underway, Tariceanu
said, "The project has not in fact started, but the land has been
"At present it is more like a real estate project than a mining one."
The project, he said, cannot continue past this initial land purchase stage
until it receives the "necessary clearance" following results of the
Linamar deals with Opel
Auto parts maker Linamar Hungary Rt announced on January 6th that it has entered
into an agreement with Opel Hungary Powertrain Ltd, regarding the financial
compensation for a HUF 3bn order cancelled by Opel last year, the Budapest
Business Journal reported.
Gyorgy Furqr, Linamar CFO, said that while the exact amount of the compensation
is treated as trade secret, the forecasted significant losses arising from the
lost order have been reduced. Furar warned that the amount received should not
be considered as profit as it will only be enough to offset the effect of asset
and stock write-offs.
Malev to save on younger fleet
Hungarian Airlines Malev withdrew its last Boeing 737 Classic on January 3rd, as
part of a replacement project aimed at considerable savings on maintenance and
operation, the company's technical director was quoted as saying by MTI
recently. Viktor Hajso said Malev had started replacing its aircraft in 2003,
reducing the fleet's average age from 9 to 3 years, adding that the operation
would result in a 15% drop in maintenance cost saving the company HUF 1.5-2bn
(€6-8m) a year. Cost of operation is also expected to go down by 15%, leaving
an annual HUF 7bn (€28m) with Malev, the director said.
So far the company has returned 12 Boeing 737 Classic planes on lease from
International Lease Finance Corp (ILFC) and from another leasing firm. Classics
are withdrawn to be replaced by Boeing 737 Next Generation, of which Malev
currently leases 18 from ILFC, the first was received in January 2003 and the
last to be handed over next March. Despite rumours that the emergence of
European low-budget airlines has caused a shortage of pilots to Hungary's
airlines company, Malev pilots are even loaned to some foreign companies,
including a Chinese airline, the company's communication chief said.
Over the last few weeks only a few of the more than 300 Malev pilots quit the
company to work for other airlines, Krisztina Nemeth told Nepszabadsag,
dismissing rumours that Hungary's EU entry and the spread of no-frills airlines
had led to a shortage of highly qualified pilots in the company. "Although
Malev has felt the impact of market liberalisation, it will not become short of
pilots in the future either," she said.
KESZ closes 2004 on high note
Hungarian construction company KESZ Kft ended a very successful 2004 with
turnover increasing 16% year-on-year and pre-tax profit rising 28% on 2003
figures, the Budapest Business Journal reported recently.
The trend is expected to continue in 2005, as a number of promising orders have
already been received, said KESZ spokesman Gabor Morva. In 2005 the company will
construct a campus costing HUF 4bn commissioned by the Szeged University of
Sciences, providing accommodation for over 1,000 students. KESZ will also be
entrusted with the operation of the new facilities.
MOL finds new oil & gas discoveries in Pakistan
Hungarian oil and gas concern MOL on January 10th announced that it had made a
new discovery of oil and gas in the Tal Block, located in the Northern Western
Frontier province of Pakistan, Interfax News Agency reported.
Hydrocarbon exploration has been carried out in this block since 1999 by a
consortium of companies including Oil and Gas Development Co Ltd (OGDCL),
Pakistan Petroleum Ltd (PPL), Pakistan Oilfields Ltd (POL) and Government
Holdings Ltd (GHPL), with MOL as an operator of the joint venture.
MOL has a 10% interest in the consortium. Exploration activity already resulted
in a discovery (Manzalai-1 well) in December 2002, and following the first
discovery, the consortium decided to continue the exploration in the block.
Seismic acquisitions performed in 2003 resulted in another attractive geological
prospect, so the consortium decided to drill a new exploratory well (Makori-1)
in 2004. "The well tests are in progress and the well has already produced
significant volumes of oil and gas," MOL said.
So far the tests of three zones proved the presence of hydrocarbon, with test
results showing a combined 1179 bbl/day condensate production and production of
688,000 cubic metres of gas per day. "Testing of the remaining prospective
zones is in progress. After that the consortium will be conducting further
extended tests to evaluate the size and economic potential of the
reserves," the statement added.
Vertes ends retrofit project
The Hungarian state-owned Vertes Power Plant inaugurated on January 13th a new
desulphurisation unit at its Oroszlany power plant (western Hungary), thus
completing a three-year, HUF 20.4bn retrofit project, Interfax News Agency
The retrofit included an upgrading of Oroszlany's furnaces as well as its main
machinery, while the combined capacity of its four generating blocks was raised
to 230 MW. As a result, the lifespan of the power plant has been extended until
2020. The second phase of the project included the building of the
desulphurisation unit for HUF 8bn, which will help nearly eliminate harmful gas
emissions, and bring environmental performance in line with EU levels. The plant
accounted for nearly 40% of the country's SO2 emissions in recent years. Vertes
CEO, Vilmos Hollo, said the company financed the developments mostly from loans,
with the state providing a HUF 10.3bn guarantee.
Axelero expands server hosting site
Axelero Internet, the ISP subsidiary of the Matav telecom group, has more than
doubled its server hosting capacity and targets dynamically growing sales
revenues from its server hosting division in the coming year, the company
announced recently, New Europe reported.
Axelero opened, a new, 405 square metre server room in its Budapest Adatpark
server hosting site on January 12th, which can hold up to 2,000 servers in
addition to the 650 already located there.
Axelero currently has a 26% share of the Hungarian server hosting market, while
sales revenues from the segment reached HUF 192m (US$948,000) in 2004, up from
HUF 123m in 2003. Of Adatpark's current clients, some 50% come from the IT
industry, while the rest are from the financial, commercial and content
providing sectors. The company's largest clients include content provider
Publishing Factory Kft, which operates the online editions of several daily
newspapers and commercial TV stations; IT firm Kirowski Rt; and online
advertising provider Adverticum Rt, which places one billion ad banners on
Hungarian websites each month.
In addition to the new server room, Axelero has also widened the bandwidth
available at its Adatpark facility. The server hosting site is now hooked up via
10 Gbps connections to Matav's IP backbone network domestically, while
international connections are provided by a 622 Mbps connection to Matav parent
Deutsche Telekom's international backbone network, a 1 Gbps connection to
Telia's international network, and a 155 Mbps connection to Vienna-based hub VIX.
Risks seen in Matav's new bid
Hungary's largest telecom, Matav Rt, is likely to acquire Montenero's state
telecom company, but this might not be a very advantageous deal for Matav and
needs to be followed by some larger buyouts, analysts said recently, the
Budapest Business Journal reported.
"Matav has a good chance of acquiring the Montenegrin incumbent, though it
could end up paying a bit over the odds," said Monika Tabanyi, an analyst
at Concorde Securities Rt.
Matav offered €114m for a 51% stake in Telekom Crne Gore (Telekom CG), said
Branko Vujovic, head of Montenegro's Restructuring and Foreign Investment
Agency, Reuters News Agency reported.
Matav's bid also included investment funding of €67m over the next five years,
as well as a promise to buy the remaining 49% of Telekom CG from small
Matav which is owned by Deutsche Telekom announced in late December 2004 that it
had submitted a binding offer in the public tender process for the sale of
shares in Telekom CG.
Tabanyi said her estimates put the fair purchase price of the stake at around
€100m. "The reason begind Matav's highest bid is that it has a proven
track record in restructuring inefficient telecoms though its ownership of
(Macedonian telco) MakTel, and it can afford it without too much of an impact on
dividend payments," said Tabanyi.
"Montenegro has a population around one-third of that of Macedonia or
Budapest, and its sales are one third of MakTel's" she noted. "The
acquisition would add just 3% - 5% to Matav's overall sales."
Montenegro's incumbent fixed-line operator serves around 191,000 customers. The
company generated standalone revenues of US$72.1m, with EBITDA of US$22.8m, in
There are not many potential add-on acquisitions around for Matav, Tabanyi said.
"Mobtel (the mobile wing of Serbian Telekom, Srbija) has an insufficiently
transparent ownership structure for Matav, though this might change. MobilTel in
Bulgaria looks to be going to Telekom Austria. There are not many incumbent
operators left to buy," she said.
Last May, Szabolcs Szikszai, then an analyst at Takarekbank Rt, said that Matav
may be readying a bid to buy Telekom Srbija.
"Matav's primary target could be Telekom Srbia. The sale of Telekom CG is
likely to reveal potential buyers of Telekom Srbija," Szikszai said at that
Serbia has a population of approximately 10 million, while Montenegro has just
The tender board will pass on the list of bidders to Montenegro's privatisation
agency for approval, and talks will start with the best bidders in due course.
Officials disclosed that the buyer will be chosen on the basis of both its cash
offer and its business and social program. The cash element will count for 75
points during the assessment of the tender, while business and employment plans
will carry 25 points.
Pannon taps Ericsson for 3G
Hungary's number two mobile operator, Pannon GSM Rt, is paying telecom
manufacturer Ericsson Ft 5bn as its main partner for the first part of the
construction of Pannon's high-speed, third-generation mobile network, the
Budapest Business Journal reported.
"Winning the biggest 3G licence allows Pannon to offer the broadest
bandwidth to its customers," said Ove Fredheim, CEO of Pannon. Unlike its
rivals, Pannon secured a 3G licence which also contained extra 2G frequencies.
Under the contract, Ericsson will supply equipment providing the core
infrastructure of the UMTS-based mobile telecommunications system, said a joint
press release for the companies. Third-generation services are expected to be
widely available in Budapest in the second half of 2005, and the network will be
rolled out to other parts of Hungary in late 2005 and early 2006, said the press
Pannon used Ericsson's rival Nokia for the construction of much of its 2G
network, and the Finnish company will still have a role to play in the network
"Nokia has been our partner on 2G for a long time and we continue to work
with Nokia, which will also work with us on our 3G network. Ericsson is the
major partner," explained Dora Somlyai, communications director at Pannon.
The UMTS radio network delivered by Ericsson is a future-proof solution, since
it is already prepared for the migration to HSDPA (high-speed downlink packet
access), a faster network than 3G, added Fredheim.
Pannon and Ericsson also signed a contract on the upgrading of Pannon's GSM EDGE
network - a technology also known as 2.75G. In separate news, market rumours
recently implied that France Telecom-owned mobile giant Orange is buying Pannon
from Norwegian owner Telenor. This was strongly refuted by Somlyai at Pannon.
"Our owner is in more of a buying mood than a selling mood. With Pannon
performing well, there is absolutely no reason for Telenor to sell Pannon,"
NABI meets bus sales target
Hungarian busmaker NABI sold 349 buses in the fourth quarter of 2004, bringing
total sales for the year to 1,227 units, 7% more than in the same period last
year and in line with the company's target of 1200, NABI announced in a recently
statement. Sales in the United States were level at 686 units, while UK sales
increased by 77 buses or 17.4% to 519 units. NABI also sold 22 buses on the
Hungarian market in 2004, compared to 19 in the base period. The group plans to
build some 1,000 buses in 2005. NABI has received fixed orders from customers in
the US for 522 buses and approximately 1,700 buses could be ordered under
options, the company said. "Overall, the US transit bus market remains flat
due to macroeconomic pressures and the uncertainties over future engine emission
technologies," NABI noted. The public transport industry continues to be
challenged by budget issues at the state and local levels of government, which
comprise an increasing share of funding for new buses and rail systems.