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VOL. 20, NUMBER 20 OCT 19, 2012 – NOV 04, 2012

Budapest Business Journal








New players on the private banking market

Hungary’s private banking market sees new players, such as fund managers, brokerages, investment firms and even insurance companies, while clients grow more cautious in the wake of the crisis, says BloChamps CEO István Karagich.  17


Uncertainty kills business Cogeneration plants were excluded from the old feed-in tariff system and its temporary replacement cannot fulfill its objectives, while renewables are waiting for the introduction of a new regulatory system that has been delayed several times.  25


Abandoned treasures Despite Hungary’s long traditions in mining, the utilization of the country’s mineral resources has gradually retreated in the past decades. Most recently, the sector has shown some signs of life, but reestablishing itself might still prove difficult.  24

The government’s complete and sudden ban on slot machines understandably stirred up the industry. Professionals in the field are now eagerly waiting to see who will be able to harvest the fruits of the current, unwelcome situation.  10-11



Budapest Business Journal | Oct 19 – Nov 04

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Hungary should still adopt euro, central bank 04 governor says The call is out for future-proof networks



New fiscal adjustment package removes obstacles to IMF A new set of fiscal adjustment measures were announced on our deadline day. The following article was written before the announcement. For more details on the new austerity package, see page 4.

After a new fiscal adjustment package removed the main obstacles to the EU/IMF negotiations, the government launched an anti-IMF campaign in the Hungarian media. Despite the campaign and a series of anti-IMF comments by Prime Minister Viktor Orbán, the cost of insuring Hungary’s sovereign debt against default reached a new low for the year, indicating market optimism regarding agreement with the IMF/ EU. However, even after the IMF general meeting in Tokyo, chief negotiator Mihály Varga confirmed that there is still no date set for the next

round of the talks. In a HUF 200 million campaign, Hungary’s government placed full-page advertisements on the back pages of several dailies saying that it won’t give in to the IMF. Hungary expects “respect and trust”, and “we won’t give up Hungary’s independence” were among the slogans published under the heading of government information. Other messages contained rejections of measures allegedly suggested by the IMF for adoption, such as a property tax, or cuts in family benefits. Speaking at the Hungarian Permanent Conference, Or-

bán said that, like this year, Hungary would be able to ensure financing in 2013, even without an IMF agreement. A few days later he said in a radio interview that Hungary is not far from reaching a favorable agreement with the IMF. STRENGTHENING MIDDLE CLASS Orbán also confirmed that the government would announce a new action plan in 2013, targeting the lowermiddle class. He added that those with earnings between the minimum wage and HUF 220,000 (€770) a month have still not had a chance to “break free from their current predicament”. Fidesz parliamentary group leader Antal Rogán claimed that amendments to tax legislation unveiled by the economy ministry on October 12 would reduce the tax burden on the middle class by 4%. The new measures aim to improve the business environment by reducing administrative burdens and to strengthen tax morale. Eliminating the practice of

taxing the “super gross wage”, which means adding employers’ social contributions to the personal income tax base over a certain annual income, would stabilize the flat-rate personal income tax system. In addition, the new rules aim to establish a unified tax system, restructure the system of duties and encourage families through the tax system to have more children. ORTHODOX MEASURES As falling CDS spreads indicate, the assessment of the government’s new HUF 397 billion fiscal adjustment package announced on October 5 was rather positive. The measures are detailed in a report to the European Commission (EC) and the Council, presenting progress in bringing the excessive deficit situation to an end. Beside a lack of unorthodox measures, the decision that the financial transaction tax will no longer apply to the

National Bank of Hungary (MNB), which was one of the most crucial issues in the IMF/EU talks, was most appreciated by both the EC and the market. EC spokesperson Olivier Bally immediately welcomed the decision adding that the EC hopes “that it will be translated, without delay, into a proposal to change the corresponding law that will be adopted in the next days.” Furthermore, the new package has narrowed the gap between the macroeconomic projections of the two parties. According to the

The budget deficit targets for both years were raised to 2.7% of GDP from the previous 2.5% and 2.2%. According to the IMF’s World Economic Outlook published on October 9, Hungary’s economy will contract by 1% this year but grow by 0.8% next year. In the previous outlook, published in April, the IMF expected Hungary’s GDP to stagnate in 2012 and grow 1.8% in 2013. Orbán said in an interview on public radio station Kossuth that half of the HUF 400 billion fiscal improvement package would not be necessary if the European Union were not forcing it on Hungary. He claimed that the Commission did not think next year’s fiscal deficit would be under 3%, and if the government did not make changes to the budget, the EU would take away development funding to the value of several hundred billion forints. GL

ORBÁN PROMISES TO STRENGTHEN THE MIDDLE CLASS. government’s new macroeconomic prognosis, Hungary’s GDP is expected to fall by 1.2% in 2012 and grow by 1% next year, which is more realistic than the previous 0.1% and 1.6% projections.

Finding undiscovered stocks on the Budapest bourse Most investors tend to focus sentations were delivered by time in the history of such on the four or five blue chips the representatives of mort- BSE conferences, companies in the Budapest bourse, in- gage bank FHB, Egis, insurer from the CEE region includcluding oil and gas company CIG Pannónia, geothermal ing Telekom Slovenije Group MOL, OTP Bank, Magyar energy company PannErgy, and Slovenian pharmaceutiTelekom and pharcal producer KRKA maceutical producers AS INVESTORS FOCUS also participated in Richter and Egis. As the event. ON THE BLUE CHIPS OF a result, small- and Eddy D’Hertoge, mid-cap stocks with THE BSE, THEY MIGHT CEO of the Hungarsolid fundamentals ian branch of KBC and a good invest- OVERLOOK SMALL- AND Securities, pointed ment potential are MID-CAP STOCKS WITH out that small- and largely undiscovered mid-caps have always GOOD INVESTMENT by investors. In orbeen the drivers of der to get the story of entrepreneurship and POTENTIAL. these firms to a wider they form the base of audience, the Budapest Stock printing house Állami Nyo- every economy. That is the Exchange (BSE), in coop- mda, IT firm Synergon, ener- reason why supporting them eration with KBC Securities, gy supplier and trader Alteo, is so important for any govorganized a small- and mid- building materials company ernment. He added that these cap conference named Value Masterplast and investment firms are “the nursery of the Hunting on October 11. Pre- company Altera. For the first future Apples and Googles”,

both of which started as SMEs and were listed through their local exchanges. Traditionally, Hungarian SMEs are undercapitalized and have little chance to get access to capital, said D’Hertoge. As financing through the capital market would be an ideal solution, the BSE together with investment banks are eager to support them and to bring more issuers to this market. Thus, issuers will have easier access to capital and investors can invest in a wider range of companies, which will increase the liquidity and the development of the Budapest bourse. Furthermore, the BSE is an ideal place for exits from investments made by JEREMIE

funds and also for providing capital for further growth. Despite declining share prices and the difficulties of the current Hungarian macroeconomic environment, it is still possible to find attractive investment targets on the Hungarian bourse, KBC Securities equity analyst Péter Szentirmai told the conference. Among small- and mid-caps, his current favorite is Állami Nyomda due to the company’s stabile finances and strong cash-generating potential. He stressed that this is especially important in a business environment, where both capital and bank financing is practically unavailable. Furthermore, the stock provides a 3-4-per-

centage point dividend yield premium over Hungarian risk-free yields. The analysts warn that with deteriorating market sentiment, the increase in the yields on Hungarian assets could lead to a decrease in interest premium without a decrease in the stock price. Other attractive investment targets are, according to Szentirmai, Masterplast and PannErgy due to their long-term growth story. Masterplast has a relatively small exposure to the Hungarian market as domestic sales account for only onequarter of total revenues. In addition, export sales are highly diversified throughout the regio. GL

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Budapest Business Journal | Oct 19 – Nov 04



We can’t take the risk that the EU, only because of some mistaken calculations, will strip us of cohesion funds that we are entitled to. NATIONAL ECONOMY MINISTER GYÖRGY MATOLCSY WHEN ANNOUNCING THE LATEST FISCAL PACKAGE



The Hungarian government has announced additional fiscal measures to keep the budget deficit on track as the European Union has signaled that the first package, announced only 1.5 week ago, is not sufficient to fill the hole in the 2013 budget. The measures, which have a combined fiscal effect of HUF 367 billion in 2013, will ensure the general government deficit is “well under” the 3% of GDP threshold, National Economy Minister György Matolcsy said. The additional measures come on top of a combined HUF 397 billion in fiscal improvements to Hungary’s 2013 budget balance announced on October 5. Matolcsy said that the additional steps are needed because the EC assessed that these earlier announced measures would have only about two-thirds of their estimated fiscal effect and Hungary’s economy would not grow as much as the government anticipates. The EC puts Hungary’s general government deficit at 3.7-3.9% of GDP in 2013, over the government’s revised target of 2.7%, he added.

ECONOMY HUNGARY SHOULD STILL ADOPT EURO, SIMOR SAYS Though the sovereign debt crisis of the euro zone impacts countries outside the zone, such as Hungary, it does not diminish the need for adopting the single European currency, András Simor, governor of the National Bank of Hungary, said in an interview with Japan’s Kyodo News. “It is not a question of if, but of when,” Simor said. The crisis warns, however, that “we need to learn from the mistakes that other countries have made, who have joined but not that successfully,” Simor said. Replacing Hungary’s forint with the euro would means that the country will be short of a “tool for adjustment”. He added that Hungary would also need to be better prepared in areas such as the central budget and the labor market. Hungary having developed close ties with the euro area also necessitates the country’s euro integration. Simor voiced hope that the situation in the euro area

would stabilize next year, and that slow growth would positively influence Hungary’s exports.

FORMER PM: GOV’T’S ECONOMIC POLICY THREATENS LONG-TERM FAILURE Former Prime Minister Gordon Bajnai said at a economic forum that the economic policy over the past two years has produced the threat of severe long-term social and economic failure in Hungary. Bajnai said that such failure would entail enduring stagnation to production and employment in the country. The former prime minister said that, in order to improve its economic prospects, Hungary must reestablish free-market-based business confidence and the ability to attract and retain investment, reform employment through a U-turn in education, and develop the economy with the involvement of high technology and more employment for the poorly skilled. Bajnai remarked that Hungary must reach a financial-support agreement with the International Monetary Fund in order to ensure the country’s long-term ability to finance itself.

CPI ACCELERATES TO 6.6% IN SEPTEMBER Consumer prices in Hungary rose 6.6% year-onyear in September, accelerating from a 6% increase in August, the Central Statistics Office (KSH) said. Consumer prices rose 0.4% month-on-month in September after rising 0.1% in August. The estimates of emerging market analysts in London for the September year-on-year headline figure moved in a wide range between 6.1% and 6.6%. The consensus figure of Hungarian analysts polled by the daily Napi Gazdaság for September’s 12-month consumer price inf lation was 6.2%.

GOV’T TO CONTINUE PPP BUYOUTS NEXT YEAR The government will continue the review and buyout of projects financed under public private partnerships (PPP) next year, National Development Ministry state secretary for asset policy Sára Nemes Hegman told daily Magyar Nemzet. Hegman said the state would spend HUF 11.9 billion, instead of HUF 15 billion, to consolidate sports projects

Increasing the EU co-financing rate of projects Reduction of bureaucracy More efficient wage controls in the public sector Improved targeting of social benefits Elimination of the regressive rates for social security contributions Financial transaction tax a., increased payment obligation of the State Treasury, b., 0.3% financial transaction levy on cash withdrawal Whitening the economy, combating tax avoidance, substantive improvement of the efficiency of tax collection and different rules for the small business tax Bank tax remains unchanged Financial transaction tax doubled Financial transaction tax payment by State Treasury doubled Local business tax raise Public utility tax Cafetaria tax hike Stricter VAT control Source: Report on the measures taken in response to Council recommendation of March 13, 2012 under the Excessive deficit procedure.

constructed as PPP investments by local councils this year. The reduction of the allocation is among HUF 133 billion in savings in this year’s budget announced by National Economy Minister György Matolcsy. This year’s PPP consolidation will support the completion of 31 projects, including school swimming pools and gyms, undertaken by 21 project companies, Hegman told the daily.

FARM GATE PRICES JUMP 18.1% IN AUGUST Farm gate prices in Hungary climbed a sharp 18.1% in August from the same month a year earlier, the Central Statistics Office (KSH) said. The price of crops rose 22.1% during the period. The price of live animals and animal products increased 10.4%. Among crops, fresh vegetable prices jumped 21.4%, fruit prices climbed 17.5% and cereal prices rose 24.2%. Hog prices jumped 20%, live poultry prices increased 9.6% and the price of cattle for slaughter rose 7%. The price of fresh eggs jumped 34.1% but the price of milk fell 5%. Farm gate prices rose 8.1%

in January-August from the same period a year earlier. Crop prices edged up 6% and live animal and animal product prices increased 12.3%.

HUNGARY FX BOND ISSUE PLAN REVISED Hungary’s Government Debt Management Agency (ÁKK) has revised the planned issue of €4 billion in FX bonds in the 2012 issuance plan, ÁKK Deputy CEO László András Borbély said in an interview with the financial website Hungary has not tapped international markets this year, although ÁKK’s December 2011 issue plan for 2012 included gross foreign bond issues of €4 billion and €800 million long-term project financing borrowing designed to refinance €4.8 billion in expiring foreign exchange debt. Senior officials have repeatedly said the 2012 FX bond issues are still planned and can take place after the government reaches an agreement on financial assistance from the International Monetary Fund and the European Union.

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BUSINESS EC REPORT: HUNGARY’S SME ECTOR STAGNANT SINCE 2005 Hungary’s SME sector has been stagnant since at least 2005 in terms of the number of enterprises and jobs in the sector, the European Commission said in a press release. The release, Small- and Medium-Sized Enterprises in 2011: Situations per EU Member State, reported that SMEs represent 99.9% of all businesses in Hungary and account for 53.8% of economic added value and 72.7% of employment in the private non-financial sector in the country. SMEs provide more than 36% of the business economy in Hungary, the report added. The report said that Hungary is behind the European Union average in eight out of ten Small Business Act areas, though has recently improved in many of these. The Small Business Act, adopted in 2008 and revised in 2011, aims to create a level playing field for SMEs throughout the EU and improve the administrative and legal environment to

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Budapest Business Journal | Oct 19 – Nov 04

allow these enterprises to reach their full potential to create jobs and growth. Hungary’s government has remained active in SME policy, though some of its measures threaten to exercise a detrimental impact on small- and medium-sized businesses, the report noted.

SZIGET ACQUIRES MAJORITY STAKE IN MEEX Hungarian festival organizer Sziget has acquired a 51% stake in party tourism com-

build a slaughterhouse with annual capacity of 1 million animals in the area around Pécs in the near future. A decision was also taken to establish a meat processor in Szeged, he added. Csányi said that Bonfarm’s investments so far added up to about HUF 24 billion, including HUF 15 billion in the livestock segment.


long-term strategic partnership agreement with China International Telecommunication Construction Corporation (CITCC), Synergon said on the Budapest Stock Exchange website. Their first venture is participation in the tender for the construction of an electronic toll system in Hungary. CITCC is applying in the tender as general contractor jointly with Synergon subsidiary Synergon Integrator Kft and I-Cell Kft, Synergon said.

ORACLE TO SET UP DEVELOPMENT CENTER IN HUNGARY United States-based business software and hardware company Oracle is setting up a development center in Hungary and will raise headcount in the country by 10%, state secretary for foreign affairs and economy Péter Szijjártó said. Oracle’s decision confirms that Hungary is a dependable and predictable partner, and that the government’s efforts to create an investor-friendly business

Lion in February 2010 and raised its stake to 100% in the fall of that year.

NEW ORDERS MEAN FEWER LAYOFFS AT BOMBARDIER PLANT IN HUNGARY Two orders to renovate railway carriages at Canadian engineering giant Bombardier’s plant in Dunakeszi, near Budapest, mean fewer than the 1-200 planned layoffs at the base by year-end, Bombardier MÁV managing director Péter Orbán told business daily Napi Gaz-

council has authorized that up to two-thirds of the city’s bus services be taken over by contractors. The number of contracted buses in the capital is set to rise from 150 in 2013 to 450 in 2014 and to 900 by 2016.


NEW LAND LAW TO PREVENT FOREIGNERS BUYING FARM LAND, SAYS PM Foreigners will be prevented from purchasing arable land in Hungary under a new land law, Prime Minister Viktor Orbán said. The new legislation will help annul simulated contracts through which foreign nationals obtained plots earlier, will protect Hungary’s soil from speculation, and will put a limit on large estates, Orbán told a congress of the youth arm of Hungary’s MAGOSz farming federation in Cegléd. The land law will implement significant changes in Hungary’s agriculture and create a modern farming sector. It will modify the proportions of estates with the aim of strengthening middle-size holdings, Orbán said. The rural development ministry should lease even more land to farmers, he said, and noted that the government’s land lease scheme had multiplied the number of land users by 20 times in western Hungary and 45 times in the south.

pany MEEX, company officials said. The acquisition was worth “tens of millions of forints”, the officials added. MEEX managing director Tamás Baráthi said the integration of the two companies would create a portfolio of festivals spanning the full year and attracting foreign as well as Hungarian youth. Károly Gerendai of Sziget said MEEX could generate annual revenue of HUF 1 billion in addition to Sziget’s HUF 5.5 billion. MEEX organizes ski and beach trips abroad for university students. Sziget is the organizer of a number of summer music festivals in Hungary

BONAFARM PLANS HUF 50 BLN OF INVESTMENTS Hungarian agribusiness Bonafarm plans to spend about HUF 50 billion to build a new slaughterhouse and factory for its Pick unit in Szeged, owner Sándor Csányi said in business daily Napi Gazdaság. Csányi, who also heads OTP Bank, Hungary’s biggest commercial bank, said at the inauguration of a HUF 3.5 billion dairy farm on Tuesday that Bonafarm group would

Efforts will be made to preserve the operation of Gyulai Húskombinát even if the troubled meat company goes under liquidation, the Gyula local council said. A court in Gyula placed the company under receivership on October 1. However, as the company was recently declared of “exceptional strategic significance” by the government, it is subject to special liquidation procedures. The local council and the head of Gyulai Húskombinát’s workers’ union said the managing director of the state-owned asset overseer Hitelintézeti Felszámoló Nonprofit and the receiver Gyula Trenka agreed to preserve the operation of the company within narrow material confines, even in the case of a possible liquidation. Gyulai Húskombinát, one of Hungary’s best-known sausage makers, employs 420 people. The company’s owner, HAGENAGISZ, financed production at the company until September.


MASTERPLAST TO EXPAND ON EU MARKETS FROM 2013 Hungarian building materials company Masterplast is to carry out developments worth €1.4 million at its base in Kál because it plans to enter the markets of European Union countries with its high-quality fiberglass mesh product from the first half of 2013, the company said. The Kál plant is expected to reach full capacity by 2014 when it will be capable of manufacturing 10.4 million square meters of the product per year. Sales are expected to yield additional revenue of €1.4 million in 2013 and €2.8 million in 2014. Marketing and PR official Dézi Hornyai said the company would focus initially on the markets of Lithuania, Greece, Italy, Germany and Austria, and all EU member states in the longer-term. She added that Masterplast plans to introduce further elements of a heat insulation system as well as diffusion roofing foils later on. The company, which has subsidiaries in 13 countries, had revenue of €82.173 million in 2011.

environment have been successful, Szijjártó said. Oracle Hungary managing director Csaba Reményi said the activities of the company in Hungary would be expanded from sales to include an innovative international development function with the establishment of the Oracle Applications Lab. The lab will start activities in Budapest this year, he added.

PORTFOLION TO EXIT CRYO Venture capital fund PortfoLion, a unit of OTP Bank, is to exit biotechnology company Cryo Management Kft, for which Sweden’s VitroLife AB has made a bid. PortfoLion president and CEO Péter Oszkó said that the sales price of Cryo is around €5-9 million. VitroLife is to pay the fi xed part of €5 million this year, while the size of the remaining part will depend on development and sales results. PortfoLion invested HUF 220 million (€800,000 at rates at the time) in Cryo Management as part of a total of HUF 1.355 billion which it invested in five companies in 2010, the fund’s owner OTP Bank said earlier. OTP Bank bought 80% of Portfo-

daság. The orders come from Siemens and another from a plant that is also owned by Bombardier, Orbán said. The layoffs will mainly affect the 60 contracted laborers at the plant, he added. Bombardier MAV employs about 500 people at present. Revenue of the unit is expected to fall by HUF 1 billion this year from last year’s HUF 9 billion.

VT TRANSMAN OFFICIALLY NAMED WINNER OF BUDAPEST BUS SERVICE TENDER VT Transman has won a tender to provide the Budapest Public Transport Center (BKK) with bus services worth about HUF 10 billion a year. Color Tours and Orangeways City, in addition to VT Transman, completed pre-qualification for the tender, Econews reported earlier. BKK asked for offers to supply bus services with 75 solo and 75 reticulated vehicles with estimated annual service fees of HUF 4.4 billion and HUF 5.4 billion, respectively. The contract is for eight years with an option for a two-year extension. Hungarian-owned VT Transman will use Mercedes Citaro buses for the contract. The Budapest local

ments is suing the city of Budapest for HUF 12.5 billion because of the failure to clear up a dispute over a nearly completed recreational and commercial center in a historical warehouse district on the banks of the Danube. Porto Investments said deputy mayor Gábor Bagdy, who oversaw the project, had done nothing to resolve the matter, so it was suing for the entire amount in its contract plus interest. The city of Budapest took over the CET project, which was to be built in a public private partnership, after representatives of the local council and the project’s general contractor recorded their intent to reach an agreement on the matter in the summer of 2011. General contractor WHB allowed the capital to take over the complex, in line with a decision by the Municipal Court of Appeals. The court ruled in June that the contractor had to turn it over. CET was to have been completed in August 2010, but construction was halted last spring during the technical transfer of the complex. ■

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energy Romania to limit foreigners’ access to agricultural land Romania plans to impose strict conditions on foreigners buying agricultural land in order to protect local farmers and prevent speculation, Agriculture Minister Daniel Constantin said on October 15. The left-wing government will either cap the number of hectares that a foreigner is allowed to purchase or request that the buyer has farming experience, Constantin said. “We must take steps to protect Romanian farmers from European ones, who have more money,” the minister stressed. “But on the other hand, Romania’s agriculture needs investment so we must also create favorable conditions to attract investors,” AFP quoted Constantin as saying. Around 56% of Greek selfemployed don’t pay any tax Almost four in every seven

regional Hungary’s gov’t seeks exclusive right in security gas storage Head of the Prime Minister’s Office János Lázár submitted a modification on October 15 to the legislation on natural gas storage, stating that security gas storage facilities can only be held by the state and that the operation of such storage is to be conducted as a concession, state news agency MTI reported. If the company operating storage or its direct or indirect owner offers to sell its interest in the operating company, the state has pre-emptive purchase rights, according to the modification published on Parliament’s website. If gas storage is not built as part of a state investment, the investor is required to sell it to the state on the day on which it begins operation. The modification will come into effect after being published in the official gazette Magyar Közlöny, a day after Parliament’s approval, MTI said. Hungary’s South Stream decision expected by end of October, Gazprom says A Gazprom delegation led by Alexei Miller, the top executive at the Russian gas giant, paid a working visit to Hungary on October 10, the company said on its website. A meeting with Prime Minister Viktor Orbán formed part of the visit. Gaz-


Budapest Business Journal | Oct 19 – Nov 04


(56%) self-employed people in Greece have declared an annual income beneath the tax-free ceiling of €5,000 this year, according to official data from the Finance Ministry, Kathimerini reported on its website. Out of the 347,304 self-employed, only 2,443 declared incomes of €100,000 or over for 2011 from their freelancing activity (not including other sources of income). While salary workers and pensioners will pay a total of €8 billion into the state coffers this year, the tax all freelancers will pay is €1.2 billion only, which has led the government to change the taxation system for selfemployed. The original idea for a blanket tax of 35% has been put aside in favor of two or three brackets that will see the tax rate grow from 20% to 35%, as well as abolishing the tax-free ceiling of €5,000 per year altogether.

Tusk wins Polish confidence vote, unveils €42 bln stimulus plan Poland’s centrist Prime Minister Donald Tusk, facing down a surging political opposition, won a parliamentary vote of confidence after pledging €42 billion ($55 billion) in shortterm stimulus to spur growth in the European Union’s biggest eastern economy. Deputies in Warsaw voted 233 to 219 in the 460-seat lower house to approve the confidence motion submitted by Tusk, the first premier to serve a second term since communism ended in 1989. The win paves the way for Tusk to carry through with his vow to spark Poland’s expansion, which slowed in the second quarter to its weakest pace since 2009. Greece’s unemployment climbs in July Greece’s unemployment rate climbed to more than

a quarter of the workforce in July, extending its record high as the country’s five-year recession deepened. The jobless rate rose to 25.1% from a revised 24.8% in June, the Hellenic Statistical Authority said in a statement on October 11. That’s the highest since the agency began publishing monthly data in 2004. In July 2011, the jobless rate was 17.8%. Unemployment among youth, aged between 15 and 24, was 54.2% during the month. There were a total of around 1.26 million unemployed persons in the country in July, markedly higher than the 883,613 recorded a year earlier. Slovenia’s gov’t adopts financial services tax, extends tax on bank assets The Slovenian Cabinet on October 11 adopted an act introducing a fi nancial

services tax and legislation that extends the tax on bank assets, The Slovenian Times reported on its website. Financial services, mostly commissions, that have so far been VAT exempt, will be taxed at a 6.5% rate. According to Finance Ministry State Secretary Ales Zivkovic, the tax will be levied on commission on loans, loan brokering and management, loan guarantees, deposits, payments and other transactions, including securities trading and investment fund management. The government also amended the 2011 act that imposed a tax on bank assets which had scaled back lending to businesses; even government documents suggest that the tax has not worked so far in that lending has actually contracted, the website reported.

Czech gov’t approves financial constitution to limit debt The Czech government approved a proposal for a socalled financial constitution, which sets limits on state debt. The proposal sets long-term rules for governments to manage public debt and avoid a crisis, PM Petr Necas said at a press conference in Prague on October 10. It also sets maximum caps for government debt and spending, Necas said. The proposal would force the government of the day to win a confidence vote in Parliament if public debt exceeds 50% of GDP, Finance Minister Miroslav Kalousek said at the same briefing. The government should take preventive action if debt rises above 40% of GDP, Kalousek added. A newly established National Budget Council will oversee government financial policy as part of the proposal. ■

the agreement in the Serbian government headquarters in Belgrade. The Russian government approved the future exports of Russian gas to Serbia on condition that Serbia pays back $30 million for Russian gas supplied from November 2000 until January 2001 and about $10 million for supplies between 1995 and 2000, Russian media reported.

natural gas exploration in Block 1-22 Teres, local media reported. The territory is in Bulgaria’s economic zone in the deep waters of the Black Sea and is an area of 4,032 square kilometers, the government’s press service announced. The permit will be valid for five years. Details about the organization, deadlines, price of papers, deposits and others will be released in the State Gazette, on the website of the Ministry of Economy, Energy and Tourism and in the Official Journal of the European Union, it said. ■


prom reported that the parties discussed bilateral cooperation in the energy sector. Both sides “mentioned that the [South Stream] project was being implemented in strict compliance with the schedule and that the final investment decision on the project was to be made by the end of October 2012,” Gazprom said. South Stream is a planned natural gas pipeline meant to diversify Russian gas export options. The pipeline is designed to carry up to 63 billion cubic meters of natural gas to Europe each year. Construction could begin as early as December. Poland sticks to plan to build $15.8 bln nuclear power station Poland will pursue its plan to build the country’s first nuclear power station, a government member said on October 15, playing down suggestions from commentators that the PLN 50 billion ($15.8 billion) investment might be scrapped. The government’s plan for the power sector assumes spending around PLN 60 billion by the end of the decade on eight new power units in Turow, Opole, Pulawy, Blachownia, Stalowa Wola, Jaworzno, Kozienice and Wloclawek. “There will be an additional PLN 50 billion on the power station, but this investment decision, the choice of technology, this will come

only in 2015,” Treasury Minister Mikolaj Budzanowski told broadcaster TVP Info. Serbian NIS buys fuel storage in Bulgaria Naftna Industrija Srbije AD, the Serbian oil and gas company controlled by Gazprom Neft, has bought a fuel storage site in neighboring Bulgaria as it seeks to boost sales and capacity. The 25,500 cubic meter facility in Kostinbrod, northwest of Bulgaria’s capital Sofia, will be used for storing, blending and distributing gasoline, diesel, biodiesel, ethanol and liquefied natural gas, the Novi Sad-based refiner said on October 12. Neither the seller nor the acquisition price was disclosed. The storage will be fully operational by the end of the month, the company said. Gazprom readies for winter heating season The underground gas supply system (UGSS) in Russia is “generally ready” for the upcoming winter heating season, the Gazprom management committee has said. Thousands of pipelines were inspected or overhauled and other steps were taken to secure long-term supplies to downstream consumers, the company said. Last year’s winter was one of the coldest on record, with abnormally cold conditions reported early in

the season, which disrupted Russian gas supplies to some countries. European consumers get about 20% of their natural gas from Gazprom. Serbia, Russia ink gas supply deal Russia and Serbia have signed an agreement on the export of natural gas to the Balkan nation through 2021. Serbia will receive 5 billion cubic meters of gas until that date, Serbian radio station B92 reported on October 11. Russian Energy Minister Aleksandr Novak and his Serbian counterpart Zorana Mihajlovic signed

Bulgaria launches new Black Sea exploration tender The Bulgarian government has decided to open a tender for a permit for oil and

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Budapest Business Journal | Oct 19 – Nov 04

The call is out for future-proof networks To meet the 2020 targets set by the EU’s Digital Agenda for Europe, fixedline internet services need to be improved. Despite the general fallback in a global comparison and the ongoing debate about different technologies, Hungary does seem to have some momentum.

DIGITAL AGENDA The Digital Agenda for Europe set targets for 2020 of broadband access for all at speeds of at least 30 Mbps, with at least 50% of households subscribing to speeds above 100 Mbps. The EU set those targets in order to keep up the pace in a global competition and has set aside €9.2 billion for its Connected Europe Facility project in the 2014-2016 budget, of which €7 billion could be


spent on broadband. The

With 5.95 million users, Europe is the last but one of the continents regarding fiber-to-the home (FTTH) or fiber-to-the-building (FTTB) broadband connections. Being a very segmented market, with at least 27 different types of regulations, it is hard to move forward with fixedline developments. Fiber adoption is also slow, with not much more than 1% of homes connected to the fastest networks. On a list where Asia leads the way with 58 million users, the United States has 10.9 million, and the Middle East is already showing its potential with half a million users in a very short time, this is not really a European success story. But should it be? Fiber is currently the fastest type of access, is consistent and provides a more balanced service between uploading and downloading speeds than cable, DSL or even mobile broadband. However, despite its price coming down, fiber is still considered a risky investment. According to a study by the FTTH Council Europe, delivering fiber access to nearly all European households will cost just over €200 billion, while Germany alone has spent €80 million on telecommunications in the last 10 years. Hartwig Tauber, directorate general for the council, cites a figure from his home country: the local government of lower Austria has invested €5 million in public money to upgrade the broadband networks of municipalities. But the

CEF finance will leverage other private and public money, worth more than €50 billion, according to European Commission estimates.

technology used there allows a mere 8 Mbs downstream connection, not even supporting the lowest target for the so-called Digital Agenda.

MOMENTUM FOR HUNGARY From the special perspective of next-generation broadband adoption, Hungary is a shining star, despite all the obvious financial difficulties like cri-

sis taxes and an ever-changing business climate. Alternative players and cable companies have been pushing fiber-tothe-home hard enough to raise the country to 12th place on the list of economies where more than 1% of households are FTTH/B subscribers. According to the latest flash report from the National Media and Communications Authority (NMHH), there were 299,000 subscribers to FTTx (to the building, home or office) services at the end of August this year, out of the estimated total 2.1 million broadband subscribers in the country. Research group iDate’s figures show that Magyar Telekom has about 37,000 subscribers to FTTH/B services, while all the other players have a total of 252,700. In other FTTx architectures, combined with DSL or cable, UPC and Magyar Telekom lead the way ahead of the alternatives with a subscriber base of 198,000.

The region has made its name with the advancement of high-penetration highquality broadband implementation projects, with an average penetration of more than 40%, but developments should not stop here. It might be hard to imagine now, but the limits of the current infrastructure will be easily reached due to emerging new services and their data consumption. The growing share of e-health, teleworking and home entertainment applications consume an amount of data that will pose a new challenge to fixed-line broadband networks. According to Cisco’s Visual Networking Index, IP traffic in Central and Eastern Europe will grow five-fold by 2016 at a 37% compound annual growth rate, and businesses will also double their data traffic. So in order to keep up with consumer demand as well as global competition, this is definitely momentum to build upon. ■

2 Business



The winner takes it all Adjusting to economic reality

10-11 12


Financial services in the spotlight A recent report on financial services M&A transactions from PwC found an increase in European M&A activity during the second quarter of 2012. However, large deals in Hungary are yet to come. PwC’s latest edition of its Sharing Deal Insight showed that M&A activity increased by 31% to €12.7 billion in Q2 2012 from €9.7 billion in Q1. This represents a near doubling of the comparable figure of €6.7 billion recorded in the second quarter of 2011. The number of transactions also rose for the first time in two years and includes a number of crossborder strategic acquisitions. The total value of deals for the first half of 2012 was €22.4 billion, a 36% improvement on the equivalent figure of €16.5 billion from 2011. A recovery in banking M&A saw the overall value and volume of European financial services deals improve during the second quarter of 2012. Although one major banking rescue (a €4.5 billion transaction which saw the Spanish government acquire a 45% stake in Bankia) played a significant role, the quarter also saw some more encouraging signs of a recovery in deal activity. “The first increase in two years in the total number of deals is a more significant indicator of a recovery in financial services M&A than total deal value,” the PwC report states. “The growing stream of domestic consolidation and bolt-on deals within the mid and lower end of the banking market, which has helped to spur the increase in

volumes, looks set to continue. Further drivers for a continued pickup in activity include the gathering pressure for consolidation within many of Europe’s insurance and asset management sectors.” According to the report, Western European banks may find it increasingly difficult to identify bidders for large non-core banking disposals in Europe – as illustrated by Lloyds Banking Group’s protracted sale of 630 UK branches. Most Western European markets and segments are less attractive to buyers from outside Europe, and many domestic players lack the capital or current appetite to make major acquisitions. “Even so, small- and medium-sized domestic consolidation is likely to continue in Western Europe’s more fragmented markets, especially in Spain, Italy and Greece. Businesses coming up for sale in the better performing markets of Central & Eastern and South Eastern Europe will also continue to attract bidders from inside and outside Europe. Outside the largest deals, private equity firms will remain interested in acquiring distressed targets, businesses with low capital requirements and asset portfolios,” the PwC report says.


source: PwC analysis of mergermarket, Reuters and Dealogic data

SMALLER DEALS IN HUNGARY While Western Europe remains challenged economically, some countries in Eastern Europe are growing at a relatively strong pace. The frontrunners include Poland, which is expected to grow by 2.9% in 2012 and 3.2% in 2013. Growing domestic demand has largely offset the downturn in its export markets in Western Europe. However, the picture within this highly diverse region remains mixed. Hungary’s economy is expected to contract and growth in Czech Republic to remain flat in 2012, though GDP is set to expand once again in 2013. When it comes to Hungary, the report points out that the M&A market will see large deals only in the future, but there has been some encouraging signs. “Due to the relatively low bank penetration and – mainly long-term – growth prospects, certain countries in the region are still in the center of investors’ attention. The size of its domestic market and growing economy makes Poland a number one

target. In Hungary, significant deals are yet to come,” commented Ervin Apáthy, head of corporate finance consulting at PwC Hungary. The report recalls that Hungary was one of the first markets in the region to liberalize and open up to foreign investment and there does now appear to be a reaction against this. Large sections of the private pensions market have been nationalized. The FS sector not only has to contend with a weak economy, but is also being expected to co-finance sovereign debt. High levels of government debt have led to the introduction of tough new banking and insurance taxes since 2010. Heavy foreign denominated household debt has spurred the government to introduce a series of savings programs at the expense of lenders. Budget deficits are also putting pressure on banking sector stability and further support by parent groups may be needed. In line with some Western European banks’ efforts to sell non-core assets, further divestment is likely, open-

ing the way for newcomers. Sberbank’s deal with Volksbank included the acquisition of its Hungarian assets, for example. Established players are also looking to take advantage of upcoming opportunities. Examples include Erste Bank Hungary’s acquisition of the private banking business of BNP Paribas Hungary. The openings for private equity buyers were highlighted by Pinebridge Capital’s acquisition of MKB Romexterra, a division of the Hungarian MKB Bank, which is in turn majority owned by German bank BayernLB. The Hungarian government’s plans to take a stronger stake in the FS sector are reflected in the recent announcement of government owned MFB Hungarian Development Bank’s acquisition of a controlling interest in Takarékbank, including the 40% owned by Germany’s DZ Bank. In parallel, OTP Bank, the leading player in Hungary, continues to seek ways to expand in the region, with Romania and Serbia being in particular focus.

Similarly to banking, the Hungarian insurance sector is still facing significant challenges. In the life segment, the number of unit-linked life insurance contracts dramatically decreased in 2012 because of households’ increased calls on their savings and investments. In the non-life insurance sector, the biggest battleground is motor cover, including compulsory thirdparty liability, where competition is strong and gross written premiums dropped by more than 20% last year. The biggest deal was the sale of Aviva’s Czech, Hungarian and Romanian life insurance businesses to MetLife. PwC does not expect significant transactions in the near future in this highly concentrated market. “Although there are numerous transactions in the preparing phase, so far only smaller deals have been executed,” Apáthy noted about the Hungarian market. ■ The article is based on the latest edition of PwC’s Sharing Deal Insight report.

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Budapest Business Journal | Oct 19 – Nov 04

The winner takes it all The government’s complete ban on slot machines did not, exactly, come out of the blue, but still managed to leave an entire industry speechless and crippled in a little more than a day. The decision, which is said to have resulted in the loss of some 40,000 jobs, is being questioned both in its content and in the way it was executed. Professionals in the field are now eagerly waiting to see who will be able to harvest the fruits of the current, unwelcome situation. “Two things are for sure: one is that this decision has nothing to do with the official explanation the government gave, that it intends to protect the poorest people from throwing their income into slot machines, and the second is, that the money it allegedly intends to save will never get to these people’s families,” says Tamás Váradi Szabó, the owner of a small, family-run company that, until very recently, ran gaming and gambling machines in villages around Budapest. He recalls a recent experience in a village pub, where he was out to collect a now redundant slot machine. A regular of the pub was sitting at a table, with a package of scratch cards worth HUF 40,000. Apparently, if one has to gamble, one will gamble. Following the unexpected regulatory changes earlier this month, Váradi Szabó is now one of the estimated 40,000 people who will have to look for a different job, after his company suddenly lost all its licenses to operate with effect from October 10. The time frame to prepare for the new situation was not exactly what one may call “generous”. The first announcement of a complete ban of slot machines was made after an unscheduled government session on October 1, and the legislation was green-lit by Parliament the following day. I PLAYED ALL MY CARDS Such amazing speed was both shocking and inexplicable, according to industry representatives, who found themselves busy writing petitions and forming groupings of litigants in the following days. Numerous official objections included a petition by the Hungarian Gambling Association directed towards President János Áder, another one to the Office of the Commissioner for Fun-

damental Rights, a complaint by the European Gaming and Amusement Federation (Euromat) directed to the European Committee, and others. “An industry that has been operating freely for 21 years was banned in less than a week,” says István Schreiber, president of the Hungarian Gambling Association. “We have no other choice but to close down and look into ways to recover our damages. We will seek our truth at the Constitutional Court, at the Ombudsman’s Office, in Brussels and in Strasbourg,” he adds, referring to the various complaints and lawsuits his organization has filed in recent days. The new regulation hasn’t come entirely out of the blue, but in light of what went before, a complete ban seems even more surprising. It was only a year ago that the government decided to restructure the entire industry with substantially higher tax rates than ever before. Ironically, most of the companies who are now facing bankruptcy have spent their entire savings (and more) to prepare for the new scheme, which was due to be introduced in January 2013, and which was completely cancelled by the recently passed law. THOUGH IT’S HURTING ME Váradi Szabó, for one, says, he spent his company’s entire savings, and the majority of his private savings on prefinancing the interim period between the time the previous legislation took effect, and the introduction of the new, would-be regulations, that, as it stands at the moment, will never happen. The two key points of the law passed last year were the much higher taxes (the “gambling tax” was raised from HUF 100,000 to HUF 500,000 per month per machine) and the plan that every slot machine would

have to be server-based by the beginning of 2013. “The tax raise alone reduced the number of operating machines by 80%, as most of our machines were unable to cover this increased tax burden, and the ones we kept were also massively in the red. The reason we kept them was to maintain the continuity of our licenses: according to the regulation, the moment we stop running at least one machine at a certain location, we automatically lose our license there.” It means that the company had to keep at least one machine at every location where they planned to be present in the future, even if it cost them serious money. “According to the traditional model, we opened a machine at the end of the month with the pub’s owner, paid the taxes and shared what was left. This year we opened the machines, and covered the amount to cover the tax from our own pockets. We treated it as an investment until things would go back to normal with the new, server-based system, but now we are deprived from the possibility to make this money back, ever,” he explains. Although there are no exact figures available yet, industry experts say that the embargo will mean the loss of some 40,000 jobs in the area, and while some debate this number, the volume seems more or less correct. In Hungary, there are 1,200 companies who made their money running slot machines, and who went out of business with effect from October 10. The current headcount of these companies may not add up to 40,000, but it must be remembered that over the last year the number of slot machines on the market dropped by a staggering 80%, meaning that most of the staff at these companies had already lost their jobs and were just

waiting for things to get better. “It’s easy to say that the 4,000 machines currently on the market would have never been able to maintain 10 jobs per machine, but if we consider that only a year ago this number was well over 24,000, the calculation of 40,000 jobs seems a lot more legit,” says Váradi Szabó. “And it is worth mentioning that there are another 18,000 adjoined companies, mostly pubs and restaurants, who also made a significant chunk of their profits from these machines’ revenues,” he adds. NOW IT’S HISTORY On top of the lost jobs, the ban is expected to leave a multi-billion scar on the central budget as well. Back in 2009, there were 26,292 slot machines on the Hungarian market and the monthly amount of the gambling tax was HUF 100,000 per machine; a yearly income of HUF 31.2 billion for the central budget from this tax alone. According to the Hungarian Central Statistical Office, the average income from a slot machine was HUF 332,897 at the time, meaning that when the law of a HUF 500,000 tax rate was passed last year, it was clear to everyone involved, that most of these machines would not be able to cover their expenses. While it is true there were no objections against the new rate in Parliament, it is worth noting that the original proposal was for a raise from HUF 100,000 to HUF 125,000; a modification to change this latter figure to HUF 500,000 (and HUF 700,000 in the case of “Category II” machines) was made only hours before the final vote by Fidesz’ then faction leader János Lázár. Following the five-fold tax hike, the number of machines dropped by 80%, meaning that the central budget’s income remained roughly the same. But this change came at a steep price, as thousands of jobs were lost and hundreds of companies went bankrupt in 2012. What seems even more surprising is that, after the HUF 51.6 bln revenue from gambling tax in 2011, this year’s expectations were set to HUF 78.4 bln in the



central budget. It’s not clear what those calculations were based on, but the current ban makes it clear that the government is letting go of tens of billions of direct tax revenue on top of the indirect losses. NO MORE ACES TO PLAY The other key element of last year’s now defunct legislation was that every slot machine should have become serverbased by January 2013, with an online connection to one of the few, strictly regulated

server farms, and no game logic should have been stored on the machines themselves. Apart from maintaining their current positions in spite of the serious losses, preparing for this change was the other area where most companies put all of their savings in the previous months. Preparation included transformations made to traditional machines and, in the case of a few major players, the building of the infrastructure to run these centralized server hubs.

2 Business 11



Budapest Business Journal | Oct 19 – Nov 04

“I am currently serving my notice period, as are my 15 colleagues at the company, and an other more than 100 colleagues at our parent company,” an IT director, who preferred to remain anonymous, told the Budapest Business Journal. His company, an affiliate of a Hungarian E-Casino venture, was in charge of build-

and unique, that the whole industry was excited to see whether they would work,” he explains. Now it seems that they will have to wait a little longer to find it out. On top of the infrastructural investment, these companies were to go through an audit process, which was also a source of quite a few questions.

announcement of the company becoming the exclusive auditor. And while the regulations appoint Hunguard as the only entity authorized to run these certification procedures, it does not set a limit to its fees (meaning that Hunguard is free to charge for its services whatever it wants), the time frame for

certified. When the certification was granted, the company’s CEO, József Szabó, told journalists that the review took nine months to complete, which is particularly interesting in light of the fact that both the exact requirements and Hunguard’s role in the process were published only on June 28.

closed “state security risks”, neither were accepted as legitimate concerns by the industry. “When they say that the ban is due to security risks, we are shown as mobsters, despite the fact that we were operating in the most tightly regulated and controlled industry,” Schreiber said in a statement. “The tax authority ran some 15,000 controls

rent ban took effect on October 10, the only places, where gambling remained legal are casinos, and there are only three casinos in Hungary. Two are in Budapest’s 5th district, whose mayor is Fidesz MP Antal Rogán, the author of the legislation passed last year. Film producer Andrew G. Vajna, who happens to be a government commissioner in

ing and running a server network that complies with the newly announced regulations (the exact requirements based on last year’s legislation were published in late June). “The investment our company had to make in order to meet all the requirements was in the area of multiple hundred millions,” he reveals. “The requirement of a Common Criteria certificate is virtually unheard of in the field of gambling. In fact, the Hungarian regulations were to be so strict

Firstly, the state’s gambling monopoly, Szerencsejáték Zrt was explicitly excluded both from operating as a centralized server provider, and from the auditing of the would-be providers. Secondly, the one and only company that was authorized to run these audits and grant the certifications is a privately owned company, Hunguard Kft, whose current owner, Balázs Csík acquired Hunguard between last year’s regulations taking effect and the

an audit (meaning it can last as long as Hunguard thinks is appropriate), the company would not have to officially explain its decisions, and there would be no right of appeal against a rejection. Finally, the first and only company to successfully pass the test also highlights a few contradictions. WSG Kft, which is rumored to be the interest of István Schreiber, the chairman of the Hungarian Gambling Association, paid HUF 110 million to be

“I know of six companies that aspired to become server providers, and I know for sure that at least four of these have already paid the fees for the audit process,” our IT director source reveals. It goes without saying that, along with all the other investments, these fees have also gone up in smoke. While one of the official explanations for the complete ban highlighted that poor people need to be protected from spending their incomes on gambling, and another mentioned undis-

a year on average in our sector, and found anomalies in only three thousandths of the cases,” he added rejecting all the implicit accusations. In lack of a satisfactory and professionally based explanation, guesswork and rumors were swift to fill the void in explaining the decision’s background. Various sources opine that the current proceedings are the outcome of an internal battle among government-related politicians and businessman. It is interesting that, after the cur-

the current government, owns one of the three casinos. If the internal battle theory proves right, we can all agree that the stakes are high: the control of an entire, lucrative industry. The professionals we talked to unequivocally think that the total ban will be eased in a few months, with some kind of explanation, and they are eagerly waiting to see who will be in the background of the companies that will be able to take over the market at that point. ZsB

12 2 Business BBJ


Budapest Business Journal | Oct 19 – Nov 04

Adjusting to economic reality To keep the budget within EU mandated limits, the government has introduced new austerity measures after admitting that even its pessimistic growth projections were, in fact, wildly optimistic. It is becoming apparent that, like its predecessors, Fidesz has given up any notion of implementing major reforms before its term expires in 2014. Instead, it will implement patchwork solutions to react to immediate problems, such as the movements of the deficit. Unfortunately, it also follows that tinkering with the rules of democratic elections will have a greater impact on the election outcome than economic policy. This sad insight is already reflected in the government’s priorities.

Since the economy appears unwilling to adhere to Fidesz’ economic projections, Minister of National Economy György Matolcsy has apparently decided to catch up to the realities. And those are bleak, the government finally admits. While its willingness to finally fess up to the recession is a welcome development, in terms of its predictions it is doing little else than journalism. Along with the discarded projections overtaken by reality, the government has also dropped grandiose plans to transform the Hungarian economy. If transformations do come, they will be gradual. GROWTH FAR DELAYED If the government’s plans published last year were still on track, Hungary would be well in the medium to high growth category by now. Even though the oftenmaligned European Commission came much closer to reality when it first projected 0.5% growth towards the end of last year and then –0.1 in February, the government stubbornly insisted that GDP would expand by an impressive 1% this year. The numbers finally presented in mid-October reflect the reality that anyone reading the papers had already anticipated: when all the numbers are in, Hungarians’ output will have shrunk by more than 1%. That is not only a whopping 4.5-5% lower than the government’s 2011 “dynamic growth” projection for 2012, but also 4% lower than the “conservative” estimate. Moreover, this is the first time since the 2009 brutal crisis decline of –6.5% that growth is in negative territory. Next year also promises to be less “rosy” than most recently planned: instead of 1.6%, the economy will expand by 1%, not



even fully recouping the losses of 2012 (in 2011 the hope was 4.8%). And that’s an optimistic assessment. With lower growth projections, the government realizes that it will also be a struggle to keep the deficit in line. Since the European Commission bared its fangs earlier this year showing that it was willing to turn the Hungarian case into a precedent, the government seems aware that budgetary transgressions will result in a freezing of structural funds. So while the deficit might be somewhat higher than originally planned (2.7% instead of 2.5% in 2012 and 2.2% in 2013), it will remain under 3%.

BITS AND PIECES OF AUSTERITY To this end, the exchequer plans austerity measures worth HUF 400 billion next year, in addition to sequestering HUF 133 billion of unspent ministerial funds already this year. Matolcsy says the latter won’t affect citizens since this is government money that just won’t be spent, but he neglected to mention the indirect effects of not spending government money. In any case, next year is going to see a few more of the small austerity measures Fidesz has spread out over the years. There will be a tax on ATM transactions, cash registers

will be hooked up to the revenue service – optimistically, this will be the largest factor on the revenue side of the ledger, which might unfortunately be an underestimation of shopkeepers’ ingenuity – and there will also be the usual mix of other small tax increases. There will be some savings as well: the government plans to stop replacing retiring state employees (healthcare excepted), tinker with the pension benefits of retired persons who stay in the labor market, and reduce welfare benefits and co-funding for EU-subsidies, among other things. Experts consulted by

the press mostly professed to like the measures, not so much because of what it does, but rather on account of what it does not do; i.e. it does not make things worse by burdening potential growth sectors., a leading financial media platform, argued that the package was too small, however, and would be insufficient to cover the anticipated shortfalls. That is less of a problem than might be assumed, though, since the government has been known for introducing austerity piecemeal, presenting tax hikes and expenditure cuts every few months. WANING ENTHUSIASM Fidesz’ approach towards the economy has come a long way since 2010. While many experts had grave doubts concerning the soundness of Fidesz’ plans in 2010, there were few who doubted that the incoming government would implement huge changes. Though some large things did happen – the flat tax, the nationalization of private pension funds – overall, Fidesz’ changes have disappointed many experts not only because of their substance, but also on account of their magnitude, or rather the lack thereof. Essentially, Fidesz has done what every government since 1998 has done with declining fortunes. Start with great transformational plans, implement a few flagship policies and then trudge along and hope for the business cycle to carry the government through to the next election. That worked well for Fidesz I (economically speaking), and leaving aside the ballooning deficit and the disaster it implied, it worked all right between 2002-2006, but ultimately ended in disaster in 2009. At this point, Fidesz’ economic policy is amazingly reminiscent of the MSzP’s approach: readjusting growth expectations downwards and continuously patching up the budget so that it does not overrun. To Fidesz’ credit, of course, the overrun is at a different order of magnitude than it was under the previous governments, though

this credit must be shared with a tough Commission. TWO MORE YEARS OF MUDDLING THROUGH? This is especially disappointing in light of the enormous might Fidesz arrayed to push its economic policies through, including curtailing the Constitutional Court’s power of judicial review. Business as usual hardly seems worth upsetting the constitutional order for. Moreover, now that Fidesz appears content to continue in the same vein as its predecessors, that greatly increases the importance of seeking to control the democratic process beyond the instruments ordinarily available to a governing party. Orbán knows full well that merely praying for the business cycle to kick in is far from enough. A recent survey by Tárki showed that a mere 1% of voters were satisfied with both their personal financial circumstances and the economic condition of the country overall. Beyond the Fidesz voters who constitute the 1%, Fidesz will likely have to convince at least around 30% or more. As a first step, ensuring that few of the dissatisfied 99% vote seems to be a more reliable way of influencing the outcome of the election than sound economic policies, which explains why Fidesz is devoting greater attention to the former. At this point, in terms of its economic policy Fidesz’ key interest is preventing an explosive type of situation, which is why it’s important to keep the IMF on the leash. The government does not appear to really want an agreement. It would clearly prefer to say, “I did it my way”, no matter what the cost. Still, letting the IMF go home prematurely could invite disaster if a Greek, Spanish or Portuguese default were to happen. The state of theoretical and permanent readiness to negotiate is politically preferable, and it appears that the IMF, too, favors the notion that its mere aura is enough to secure Hungary. ■ Political Research and Consultancy Institute

2 BusinessTrends 13



Budapest Business Journal | Oct 19 – Nov 04

Triple travel

Low efficiency

New orders up

HUF 17,000 spent on accommodation per night in the fall in Hungary

Low efficiency lowers competitiveness of Hungary’s labor market

Volume of new orders 0.5% higher in August than in 2011




Hungarians spend three times more money on accommodation in the fall than during the summer, the latest data from shows. While travelers paid an average of HUF 6,000 for a night in the summer months, this number went up to more than HUF 17,000 in the fall, the statistics reveal. But the reason for the increased spending is not necessarily a rise in hotel room prices, says. “The number of reservations for wellness facilities is usually up by 50% in the fall. As accommodation prices for such facilities are usually in the higher price category, this is one of the reasons for the increased amount,” István Rácz, marketing head of said. On the other hand, while travelers spend up to eight nights in the summer, they only go for an average 2.5-night stay in the fall, and “we tend to spend more money for a shorter period of time than for a longer stay,” Rácz added. Last year, the average length of domestic vacations was two nights. This year’s average of 2.5-night vacations can be explained by the fact that Hungarians can enjoy two extended weekends between October 1 and November 30. When it comes to average room rates, guests only have to pay HUF 470 more this year than in the same period last year, statistics show. As for the most popular destinations, Budapest – which was somewhat neglected during the summer – tops the list, followed by Eger, Sopron, Pécs, Gyula, Hajdúszoboszló, Zalakaros and Sárvár. Unlike 2011, Győr is not included in the top ten destinations this year. Hotels are the most popular accommodation types in the fall, with 44% of reservations. Pensions and apartments attracted 20% each, while some 14% made reservations in guesthouses, data concludes. PF

Top ten domestic destinations in fall 2012

Budapest Eger



When it comes to efficiency, the Hungarian labor market is lagging behind countries’ such as Greece, Spain and even Chile, experts at a current event organized by Randstad agreed. According to data from Eurostat and the International Confederation of Private Employment Agencies (CIETT), low efficiency is among the main deteriorating factors in the competitiveness of Hungary’s labor market. In the long-term, the huge gap that currently persists on the local market between employees’ education and labor market demand should first be reduced; secondly, the underdeveloped state of the system supporting job-seekers should be improved, professionals at the event said. Forecasts show that the Hungarian labor market will struggle with a shortfall of some 150,000 employees with higher education by 2020 – even if fresh graduates enter and part of the retired workforce returns to the labor market. At the same time, there will be an overload of people with mediumlevel education – figures show that Hungary will see some 500,000 job seekers with a medium education in 2020. “The problem is not only the level of education. Future employees typically receive education that differs from the type of knowledge companies require,” Sándor Baja, managing director of Randstad Hungary explained. On average, 77% of employees work in areas matching their education level in European Union countries; in Hungary, this proportion is only 71%. Based on the forecasts, further difficulties lie ahead: in the manufacturing sector an over supply of 200,000 excess workers is expected to emerge within eight years, and nearly 100,000 in trade. At the same time, the construction industry and the business services sector will lack a well-trained workforce. “One of the solutions might be educational reform, and the process of job-seeking should also be made more efficient,” Baja said. PF

Oversupply and shortage on Hungary’s labor market in 2020 (breakdown by sectors) Manufacturing




Sopron Pécs



HHungary’s construction output decreased by 5.3% in August on a yearon-year basis, according to the latest data from the Central Statistics Office (KSH). In the first eight months of the year, output was 7% lower than in the same period in 2011. The decline followed a 7.6% increase in the previous month, only the second year-on-year rise since June 2009, the figures show. The long-lasting drop in the construction of buildings continued in August (by 10.8% year-on-year), although the construction of civil engineering works rose slightly by 1% in output yearon-year due to specialized construction activities, the KSH said. In a monthly comparison, based on seasonally adjusted indices, the construction of buildings and the undertaking of civil engineering work in August decreased by 4.6% and 0.8%, respectively. In August, the volume of new orders was 0.5% higher than in August 2011. Within this, new contracts for building construction decreased by one-fifth. New orders for civil engineering works rose by 20.7% year-on-year. This increase is due to contracts signed for road construction, railway reconstruction, public utility projects and pipelines. At the end of August, the stock of orders of construction enterprises was 3.5% higher than a year ago, KSH data shows. Within this, the data of the two main groups of construction went in opposite directions; the stock of orders for buildings fell by 16.1% and that of civil engineering works went up by 14.8%. Output in the building segment was worth HUF 72.5 billion in August and civil engineering output was valued at HUF 74.5 billion. Total order stock held at the end of August totaled HUF 163.3 billion in the buildings segment and HUF 388.5 billion in civil engineering. PF

Production of construction (corresponding period of the previous year = 100)


Hajdúszoboszló Zalakaros


Business services

Sárvár Szeged



Hévíz Source:

Source: Randstad


Source: KSH

2 Business




Private banking: Safety pays otf New players emerge on Hungary’s private banking market

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Nourished by delays?


Lack of investments holds no miracles Hungary’s current economic situation and the ongoing global crisis have not left the country’s corporate banking needs untouched. How has corporate lending changed, and what new financing structures are on the rise? BBJ ÁGNES VINKOVITS

Hungary’s banking sector slipped into the red for the first time in 13 years in 2012. According to financial authority PSzÁF, the sector faced a HUF 92.6 billion loss last year. The negative results mainly originate from non-fulfilling credits, while the early repayment scheme, enabling forex debtors to repay their mortgages in full at a market discount, will only worsen the banks’ data in Q4. The country’s current economic situation and the ongoing global crisis have brought changes in the field of corporate banking as well. According to market research company GfK Hungária’s Corporate Banking Monitor, the proportion of companies planning to take up loans from financial institutions in the domestic market has dropped since the outbreak of the economic crisis and is at 49% in 2012, while it was 70% in 2008. At the same time, other types of financing (such as group member loans and raising capital) are growing. In a poll made by the Budapest Business Journal, all commercial banks reported that recently corporate clients prefer short-term loans to medium- or long-term deals. According to KDB

Bank, 15-year loans have been pushed into the background by 5-7-year loans. CIB Bank spoke of similar experiences, adding that the decreasing demand for medium- and long-term loans among SMEs (defined by CIB as companies with revenues between HUF 100 million and HUF 10 billion) and also big companies (companies with revenues of more than HUF 10 billion) probably comes from companies’ low willingness to invest, and a strengthening tendency of ‘wait and see”. “Recently, most SMEs listed purchasing machine as the reason for a loan, and that is in order to develop technologically rather than fulfilling growing costumer demand,” CIB said. Lack of investment obviously appears among companies’ lending needs, Citibank agrees, while noting that this is the first time since the beginning of 2011 that it finally sees a somewhat increased demand for investment loans. The demand for loans for financing current assets has also somewhat risen at Citibank. It was also reported by many banks that companies prefer types of financing that come with some kind of support from the state or the European Union. Loans from the Hungarian Development Bank (MFB) and the European Investment Bank (EIB), or those attached to the state-launched Széchenyi Card Program, are of increasing popularity, while project pre-financing also appears more often. At the same time, micro- and small-sized businesses are more in the need of loans that help to secure company liquidity. According to a recent survey by audit, tax and advisory company KPMG, commercial banks prefer to lend to manufacturing companies, agricultural firms and those in the food industry. The pic-

ture is not so homogeneous when it comes to public utility suppliers, as two out of three banks find them more attractive for lending than average companies, while one third says that such suppliers are average or even below that in terms of lending. The telecommunication and postal services sectors are of average attraction for banks, while the financial sector is below average. Unsurprisingly, the construction sector came last on KPMG’s lending attractiveness list. NOT ONLY DEMAND, BUT ALSO SUPPLY As the National Bank of Hungary (MNB) recently noted, the stock of lending by Hungarian banks to the corporate sector fell by some HUF 211 billion in the first half of 2012, reflecting the unfavorable macroeconomic environment. It is also noteworthy that, according to MNB’s latest lending survey, 30%

of banks have aggravated their lending conditions: not only have credit rating criteria become stricter, but lending fees have also increased and more information is required from debtors. At the same time, KPMG’s survey said that although most banks are not lacking in resources to give loans, ever more Hungarian SMEs are found not to be credit worthy anymore, and this negative trend is not expected to turn until domestic consumption begins to rise again. In order to stimulate lending to the corporate sector, from October 2, 2012 the MNB has eased the sanctions applicable in case of non-fulfillment of the terms of the two-year collateralized loan tender that it launched in March, with the aim of providing long-term funding to credit institutions without a term premium. From October, the amount of corpo-

rate refinancing loans will be taken into account, while the amount in commercial real estate loans will not be taken into consideration. The requirement on the outstanding amount of loans has also been eased. Now banks can use the facility on the condition that they undertake to maintain the amount of lending at June 30, 2012 levels, instead of end-2011 levels. NEW NEEDS The lack of investments keeping the Hungarian economy in technical recession also affect the corporate need for bank guarantees as a service, as such guarantees come to the fore in the case of fresh business opportunities such as new office rentals, new projects or new import contracts. “Due to the stagnating economy, there is hardly any change in this field, if not some dropping,” CIB Bank pointed out. Others, report-

ing a lowering demand for bank guarantees in number and volume, blame the dramatic collapse of Hungary’s construction sector, as such bank services are very much preferred in this segment, which has been declining for seven years and, according to the latest data from soothe state statistical office KSH, decreased by 5.2% in August year-on-year. Probably also as a reaction to the unpredictable times, cooperation between banks and their corporate clients is reported to be stronger. Bank services customized exactly for the needs of mid- and large-sized companies have already been a basic procedure, but more recently continuous discussion and mutual brainstorming in order to find solutions that fit the companies’ life cycle and current situation have appeared at small businesses as well. ■



Budapest Business Journal | Oct 19 – Nov 04

Quick money, slow effects The recently launched intraday credit transfer system enriches clients by billions of forints by leaving the money in their accounts to carry interest, and it is hoped it will raise the proportion of electronic transactions and thus reduce gray economy. Will the new system live up to expectations? BBJ ÁGNES VINKOVITS

An effective financial infrastructure is a must-have for any well-operating economy. To make things smoother, On July 2 Hungarian banks, following a decree from the National Bank of Hungary (MNB), launched an intraday credit transfer system, under which electronically submit-

ted domestic transfers reach their destination within a maximum of four hours. The decree requires transfer orders be filled before the initiating bank’s daily deadline, which varies between 3:30-4 PM, to be on the account of the recipient by the end of the same day. Orders submitted after the bank’s deadline will reach the beneficiary’s account by the morning of the upcoming business day. The project is said to be the most significant improvement in the domestic payment system in the past 15 years, and has several benefits for clients compared to the previous system in which the transfer time was one business day. According to MNB calculations, clients will win an annual HUF 5-6 billion on the interest, as the money can stay longer in their accounts and not have to waste time at the bank in transit. This extra interest-earning time obviously presents one of the biggest advantages of the new system from the clients’ point of view. However, as KDB Bank pointed out, the quickness of the transfer might prove a

Out of touch It might take a while for mobile payment technologies and touch-free payment solutions to become as widespread as credit cards, but after the first steps on the Hungarian market, providers see huge potential in each of these areas. BBJ ZSOLT BALLA

“It’s always the chicken and egg problem to begin with,” says László Szetnics, regional business development manager at MasterCard. “How do you convince a commercial partner to accept a card nobody is about to pay with, and how do you convince

potential cardholders if there are not enough places that accept it? From this perspective, the Hungarian market is in pretty good shape by now.” Currently seven banks offer PayPass technology and, according to industry estimates, there are roughly 500,000 PayPass-equipped payment products on the market, with the number steeply on the rise. “OTP Bank currently has 10 different products offering PayPass functionality,” says Péter Benyó, product development manager at OTP Bank. He says that, in line with the growing number of cards, it is very important to increase the number of stores that accept PayPass. Highest priority partners, not surprisingly, are big retail chains with a countrywide presence, although smaller stores have also begun to show up in the selection. As for the biggest difficulties, he notes, “Due

disadvantage if the order, for some reason, is inaccurate. Under the former system, KDB sent its daily orders only at 8 PM, and enabled clients to cancel any orders until that time through the bank’s telephone service. Since July 2, however, clients not only have less time to cancel, but will also need the beneficiary’s approval to call the money back. Another effect of the intraday transfer system, K&H pointed out, is that companies now know the amount of money arriving at their accounts only at the end of the day. As this fact affects a company’s decisions on its daily investments and liquidity, the new system requires a new type of cash management from them. At K&H, for example, cash management professionals help the clients to find effective solutions for this phenomena.

former 96 characters comment box has been extended to 140 characters and some optional boxes have also appeared, enabling the display of the name of the real payer, if it is not the same as the account owner, and the name of the real beneficiary. Ironically, some of the new functions might be a bit ahead of the current level of development of some clients’ IT infrastructure. A poll conducted by KDB Bank among its corporate clients showed that most are not yet able to receive the longer data that the new system is otherwise able to transmit.

THINGS TO SAY The new infrastructure also enables dispatchers to attach more information to their transfer. To make the accounting process easier, the

WIN SOME, LOSE SOME Although all eight banks polled by the Budapest Business Journal refused to disclose how much they had spent on the development of the intraday system, according to the estimation of Mihály Patai, the chairman of the Hungarian Banking Association, the new infrastructure required a HUF 15-20 billion total investment from the banks. But while the establishment of the system was a one-off

MORE NEW THINGS TO COME As the new payment system enables intraday transfer only for electronically submitted transfers, it is hoped it will increase the popularity of electronic money transfers over cash payments, which could do a great service against gray economy. According to the MNB, Hungary could save an annual HUF 160 billion if electronic payments were as popular here as in Northern European countries since, for example, it is not only the price of the paper that could be saved but also the employment costs of several postal officers.

However, most banks have yet to notice any significant changes in payment habits. Only K&H has reported an increase in the number of electronically submitted transfers, but it was emphasized by all the banks that the proportion of this type of transfer is already very high. However, the transaction duty that comes into effect on January 1, 2013 might change this picture. The new tax will impose a 0.1% tax on money transfers and is planned to bring HUF 239 billion for the state budget, HUF 123 billion paid by the banks. As the amount of the tax is maximized at HUF 6,000 per transfer, analysts expect that the banks will finally raise the transfer fees. One of the unfavorable results of the transaction duty, the MNB warns, might be that companies that keep huge amounts of money are likely to move some of their financial activity abroad in order to avoid higher fees. Also, the new tax will probably make cash payments more popular, which will reduce the effectiveness of cash flow and boost the gray economy. ■

to the high staff turnover, it may happen that a customer runs into a cashier who is not familiar with this technology, but OTP is making a continuous effort to help these vendors with regular education, and with campaigns that encourage the use of contactless payment.” Although it is only sometime next year that “real” mobile NFC technology is due to be launched, there are various mobile and touch-free payment technologies already available on the market. The PayPass plastic card as well as the PayPass sticker (used by many on their mobile phones to mimic an NFC-equipped smartphone) make payments quick and easy, while MasterCard Mobile is an app that makes it easy and safe to use the customer’s traditional credit card providing only a phone number and a fourdigit PIN code. “It took me a few days to properly install the application, and figure out which code goes where, but after that, payments were easy,” says Ildikó Bezselits, the author of the gastronomy blog Két Cica Konyhája, who

participated in a MasterCard experience where four bloggers undertook to rely completely on these contactless payment technologies for a week. “I also found that, if I want to be serious, I need a better phone than my current one. Apparently, its autofocus is not good enough to read QR codes. Even when it does read them, it is so slow that in most cases using cash would have been quicker,” she observed. PayPass cards and stickers proved to be easier to use, especially at “trendy” places, where customers regularly chose these payment types. “Nobody looked surprised at Starbucks,” says Bezselits, adding that there were other places where she had to give long explanations on what she intended to pay with and on how to use the terminal that was in front of the cashier. “I decided to attempt my first QR code payment to pay my T-Mobile invoice,” she recalls. “After I was unable to figure out how it worked, I went to customer service for help, but to my astonishment – and to hers – the lady at the T-Mobile store had never seen a QR code before. She did not

know what to do with it, and she didn’t even know that her company offered this payment option on its invoices.” It seems, as the blogger concludes, that customers and their payment culture are not the only bottlenecks. “In order to make NFC technology popular, we need to have a sizeable selection of NFC-capable phones, we need to have enough stores that accept this payment form, we need to have a solid IT background, and we need to have a collaborative environment where banks, mobile service providers and customer loyalty companies actively cooperate with each other,” says MasterCard’s Szetnics. While PayPass cards and stickers are substitutes to traditional POS payments, MasterCard Mobile aims to remotely connect a vendor with its customer. “One of the most important markets for this application is e-commerce, where customers are hesitant to submit their card data on a website due to security reasons,” explains Gergely Giret, team lead at FHB Bank, MasterCard’s partner in its Mas-

terCard Mobile technology. “Another huge market is the payment of invoices, where payments can be processed through a simple QR code. And the third important market we can enter is that of the prepaid balance topups. According to recent figures, some 70% of all mobile phone expenses are spent on prepaid services, but other prepaid balance areas can include festivals, taxis or various other services.” In all of the above cases, payments are easy and safe. All the customer needs to provide is his phone number, and the transaction is approved with a mobile PIN code. Messages are sent through the 3G data network so no SMS fees apply when using this payment form. Currently there are around 50 stores that accept MasterCard Mobile, and while that number may not seem too big, these stores include practically all the big players on the Hungarian e-commerce scene. The free application, which is available on four platforms (IOS, Android, Windows Mobile, SIM), has been downloaded 40,000 times to date. ■

expenditure, the new payment system reduces banks’ profits every day. The above-mentioned HUF 5-6 billion that is now an extra for the clients, comes as a loss for the banks. To somewhat balance the losses, an increase in commissions would not come as a big surprise. However, probably as a result of the strong competition among banks, the new system has not yet brought forth a price rise, at least not one alluding to the new payment system.

16 2 BusinessSpecialReport//CorporateBanking BBJ


Budapest Business Journal | Oct 19 – Nov 04

Private banking: safety pays off The current crisis has set back the growth potential of the private banking market. The “wealthy” global market grew by only 1.9% last year. However, the Hungarian private banking and wealth management industry is highly optimistic and is raising the entry limits to its exclusive services.

new clients with large assets so as the result of this process the number of clients decreased significantly, while the assets under management remained stable or increased slightly,” he added. The private bank services of MKB – under a new board member responsible for the branch in Ildikó Katona – has recently raised its entry limit to HUF 100 million per family. As the asset managed per client reached HUF 140 million at MKB, the transition has taken place with no negative impacts occurred. But the decision clearly indicates that MKB wants to distin-

million clients can choose individual portfolio management services as well.

guish itself from other providers and to aim directly at the most wealthy in this country and abroad. The average wealth per capital at OTP Bank’s private banking branch is around “only” HUF 37 million, but the financial institute offers customized services for all sizes of assets. The entry limit is HUF 20 million; below this level, premium-banking services are offered to clients. Exclusive private banking services are available from HUF 70 million, but from HUF 30

“The unpredictable economic environment repels investors from the Hungarian stock exchange. Under these conditions, no illiquid market can compete with the 8-8.5% savings yields. Therefore, bank deposits are more attractive than stock investments,” said Károly Régely, CEO of Concorde Értékpapír, the biggest non-bank broker in Hungary in an interview with Privátbankár. Hungarian private banking clients historically prefer Hungarian assets. But,

NO RISKS, THANK YOU “Private banks and funds of funds have had to decide to increase or decrease risk. If they take the wrong decision, they lose money, and if they take the wrong decision twice, they lose the client,” Laurent Ramsey, group managing director at Pictet Funds said in an interview with Investment Europe. In Hungary, apparently, the clients themselves made the hard decisions by voting safe-side in larger bets then ever.

with the economic uncertainties, the proportion of equities has fallen dramatically in the portfolios. “Clients have definitely become much more risk-aware, moved to simpler products with a shorter duration on average,” said Sándor Szabó, K&H Bank’s director for private banking. At Raiffeisen, only 5% of total assets under management are in equities. Meanwhile, government bonds lure investors with attractive yields. Corporate bonds have superseded assets carrying a higher risk, like equities. Earlier this year, foreign exchange denominated

Banking division said. The willingness of clients to take risks has fallen dramatically during the crisis: by the end of 2008, in a matter of months the security/deposit ratio in the private banking portfolio had fallen to the levels of five years earlier. Due to the performance seen in the last few years, this process has begun to reverse; pre-crisis levels, however, are still far off. In addition, customer behavior and needs have changed significantly, requiring significant changes from the banks as well. Bearing this in mind and summarizing the experiences of the early period of

as well. “Risk-management and investor-protection have become more important than ever, with a definite focus on MIFID-requirements. K&H used to be one of the most severe providers in that matter, but this quite conservative approach had been strengthened further,” Szabó said.

Hungarian corporate bonds made themselves noticed with yields of 10% or higher. As these assets require a relatively high minimum investment, they mostly came into the field of view of private banking investors.

the crisis, OTP Private Banking re-aligned its strategy and carried out some fine-tuning. “Our established and followed investment strategy ensures that clients may choose only assets that they understand fully and that fit into their appropriate risk profile. To strengthen and retain client trust, we don’t use any direct revenue items in our private banking consultants’ incentive system,” the bank said. But sometimes enlightening clients is not enough, they might need protection

is to maintain the loyalty of the customers. But private banking service providers are not mournful at all. “We are quite optimistic about the future of this sector, despite the current economic problems in Hungary. Stability in the financial markets and an improving economic situation in Hungary should led to falling interests rates, which will result in more appetite for investment products and advisory services, which are the core of private banking activities,” Holics said. ■

BRIGHT FUTURE Since the start of the crisis, the private banking market has had to face a number of challenges, not only in Hungary but also across the entire CEE region and in more developed countries too. A key challenge for all


“Them that has, gets”, states the Iron Law of Distribution in Arthur Bloch’s famous book Murphy’s Law, And Other Reasons Why Things Go WRONG! And – as Murphy’s laws often are – it seems to be right, as the wealth of private banking clientele seem to grow even in a time when economic growth, money earning and job opportunities are very limited for “regular Joes”. Since the beginning of the crisis, the members of the asset management sector – with a few exceptions – were busy trying to halt the decline in revenues and profitability and restoring customer confidence. The lean years are far from over according to European and Hungarian macroeconomic indicators, but some wealth management and private banking companies have already started to build up a new clientele from the many applicants. RAISING THE LIMITS “From January 2012 we raised the account opening limit from HUF 50 million to HUF 70 million,” said Balázs Holics, deputy head at Friedrich Wilhelm Raiffeisen Private Banking. “Our aim is to provide very high-quality banking and investment services to a limited clientele. So, independently of the crisis, over the last few years we have continuously raised our entry limits and transferred those clients who cannot reach the entry limits to the retail premium-banking segment of the bank. At the same time, we also acquired

IMPORTANT LESSONS The most important lesson to learn from this crisis was that the risk-return trade-off became a much more significant factor in the minds of customers, consultants and business managers, OTP Private

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Budapest Business Journal | Oct 19 – Nov 04

New players emerge in private banking Hungary’s private banking market sees new players, such as fund managers, brokerages, investment firms and even insurance companies, while clients grow more cautious in the wake of the crisis. Wealth transfers abroad returned to their average level after peaking in early 2012.

Q: Will wealth transfer abroad ever stop in Hungary? A: Ever? Maybe... But seriously, there will always be wealth transfer, the question is to what extent and what volume. While wealth transfer reached an estimated HUF 200 billion per year during the past six to eight years, the government’s tax amnesty brought back around HUF

BACKGROUND The Hungarian private banking market, which continuously expanded up to 2010, had become saturated by 2011-12. The recent extraordinary economic developments accelerated market concentration, which is expected to continue during the next couple of years. In early 2012, the upper middle class joined the political and business elite in taking their money abroad. Now they have only a bit more than two months left to repatriate their assets from offshore accounts, as the National Economy Ministry has no plans to extend its amnesty beyond the December 31 deadline. Legislation passed in 2010 offered private individuals the option to legalize their wealth or income held abroad at a preferential 10% tax and without any possible criminal consequences.

CURRICULUM VITAE Q: What are the main developments in Hungary’s private banking sector? A: The number of private banking clients in Hungary has remained unchanged for years, at somewhat below 20,000 despite the fact that the number of such accounts exceeds 45,000. As private banking clients often have more than one account, we calculated with an average 2.2–2.3 accounts per client. The combined assets of private banking customers held by Hungarian financial institutions are estimated to reach around HUF 2,500 billion. As the private banking arms of big banks do not provide service alternatives for the customers compared to competitors, horizontal client acquisition strategies have stalled. New players emerged beside the traditional providers, such as fund managers, brokerages, investment firms and insurance companies. Although not yet seen in Hungary, in several Western European countries and elsewhere, new internet private banking service providers target customers with assets of between $100,000 and $1 million. Q: How have customers’ needs changed in the wake of the crisis? A: Customers have become more cautious, more sensible and maybe demand higher quality services. But for sure they ask a lot more questions before they agree to buy anything. I do not think that Hungarian clients would be much less sophisticated or educated than foreigners. Nevertheless, customers could easily be the winners

of the turmoil of the past few years, as private bankers were forced to rationalize their businesses and enhance the effectiveness of their operations. There is now more emphasis on the education of both private bankers, with special training, and their customers, and I am not talking about sales’ training here, which was sadly the only education line for years. Q: What kind of products are sought by Hungarian private banking customers? A: I think that the range of products available is practically unlimited. Hungarian clients have direct or online access to all the products they could possibly want in the world. There will always be new, innovative products, but the key is developing a good rapport between the client and the banker. The quality of private banking services was one of the main topics of the last Heads of Private Banking Forum organized by BloChamps in Costes restaurant where we invited ten leading Hungarian private banking managers. The aim of the meeting was to discuss the main challenges of the sector, such as new regulation, data provision, cooperation with regulators, training and education of private bankers, etc. Unlike bankers and investment service providers, unfortunately, private bankers who manage about 20-25% of private assets in Hungary have no institutionalized association. If they had one, they could have forced the government to act without so much delay, for instance, in January, when wealth transfers abroad peaked.

István Karagich started his carrier in banking as a foreign exchange dealer in K&H Bank in 1990. Between 1993 and 1996, he worked as a money market dealer in BNP-KH Dresdner Bank. Before becoming the financial director of BloChamps Capital Financial Consulting in 2001, he headed the foreign exchange desks of various leading Hungarian brokerage firms. From 2003 to 2006 he acted as the strategic director of the publisher of business daily Napi Gazdaság, as well. Karagich has been the CEO of BloChamps since June 2010. The company is the organizer of the most comprehensive forum of the domestic private banking sector, the Hungarian Private Banking Conference. Karagich has passed the stock exchange professional exams of both the Budapest Stock Exchange and the Budapest Commodity Exchange, and was a member of the Hungarian Forex Association.

26 billion in 2011 and more than HUF 50 billion this year. The National Tax and Customs Administration collected HUF 2.9 billion in the first seven months of 2012 and HUF 2.6 billion in 2011 in taxes on the repatriated assets, which are subject to a one-off 10% levy. However, extraordinary events could always boost transfers abroad. There was a minor peak after the nationalization of private pension

fund assets at the beginning of 2011, and a much bigger one at the beginning of this year when Hungary was in the epicenter of a financial storm. After adding up the estimated transfers of the biggest Hungarian companies, the grey and black economy as well as small- and mediumsize enterprises, we believe that total transfers made in the first two months of 2012 exceeded HUF 150 billion. Including SMEs in our cal-

culations for the first time indicates that the upper middle class started taking its money abroad. According to our estimates, the average amount transferred by these people is around HUF 1.5 million per year per person, compared to the average HUF 27.5 million by the elite of around 10,000 wealthy Hungarians. While the recent changes in the tax system could have theoretically strengthened the low

end of the private banking segment, experiences in how the government has handled private assets urged clients with savings of HUF 20, 50 or 100 million to open accounts in Austria, Slovakia and Slovenia. The situation is much better now than ten months ago, but it is important for both the country and the government to keep up re-established confidence to avoid what happened at the beginning of 2012. GL

18 2 BusinessSpecialReport//CorporateBanking BBJ


Budapest Business Journal | Oct 19 – Nov 04

Banking union Banking union: a single supervisory mechanism for banks in the euro area is the next item on the European Union’s crisis-solving list. BBJ ZSÓFIA VÉGH

Ireland and Nevada are, in many respects such as size or budget, similar, said Daniel Gros, director of Brussels-based think tank Central European Policy Studies (CEPS). Yet in the case of a bankruptcy, the FDA bails the banks out, not the citizens of Nevada. The above example of an integrated bank supervisory system within a federal structure is in stark contract with practice in the EU, where only monetary union exists. Yet if member states approve the roll out of a single mechanism this week, supervision will be de-nationalized. After the European Stability Mechanism (ESM) was officially launched last week at the European Council’s Ecofin and Eurogroup meeting, member states can now focus on the next item: banking union. Banking union is part of EU’s response to the eurozone crisis, a step that will help give the EU’s governing bodies more supervision over national governments’ banks. The idea of banking union originates from the eurozone’s hybrid status: a union with a common currency but separate fiscal legislation. It follows a number of measures addressing the crisis that have been taken at European and euro area level. EU commission President Jose Manuel Barroso unveiled plans this September for the Frankfurt-based European Central Bank (ECB) to perform supervision over the eurozone banking sector. The decision sparked debate whether the ECB was the right body to practice supervision as its mandate under EU treaties is to maintain price stability. The official argument in favor of granting supervision to the ECB is to do away with the country-risk premium, yet

it may also have been a condition set by the ECB to enable it to continue its liquidity-providing operations, a study by CEPS suggests. The ECB has had little insight into national banking systems so far. Member states explained away the lack of information through competitiveness issues. If approved, the ECB will be able to look into national matters more closely. It will ensure compliance with all prudential requirements laid down in EU banking rules, carry out stress tests, issue authorization, or macroprudential reasons to protect financial stability under the conditions provided by EU law, etc. The timeline is the following: the Commission is proposing to have the SSM in place by January 1, 2013. To allow for a smooth transition to the new mechanism, it also suggests a phasing-in period. As a first step, from the beginning of next year, the ECB can

have full supervisory responsibility over any credit institution, especially those that have received or requested public funding. From July 1, 2013 all banks of major systemic importance will be put under the supervision of the ECB. The phasing-in period should be completed by January 1, 2014 when the ESM will cover all (approximately 6,000) banks in the euro area. Non-eurozone countries cannot entirely join the system as the ECB has no binding powers outside the euro area. However, state authorities and the ECB can cooperate closely. The banking union follows a series of measures to deal with the euro crisis. Among these is the so-called six-pack, agreed on last year, a package of six legislative measures to strengthen economic governance. They include macroeconomic imbalance procedures and allow for the EU to detect deviations from fis-

cal prudence. Another measure to deal with the crisis is the European Semester, a yearly schedule of policy by member states that kicks off in November and contains the financial targets of the country. Governments need to submit to the European Commission, the EU’s executive arm, a stability and convergence reform program that is assessed and discussed by the council by May. In the second half of the year, they implement the recommendations. The point is to anchor expenditure over a cycle. To fend off the crisis, the European Union has set “firewalls” for many years. In the beginning, these emergency budgets were established on an ad hoc basis, but the Greek debt crisis brought the need for a permanent structure. The European Financial Stability Mechanism, an emergency funding program was launched with a budget of €60 mil-

lion. It proved to be too little as the crisis widened so last year, governments agreed on introducing a more robust tool. The European Stability Mechanism will have a budget of €700 million, enough to recapitalize Spanish banks or bail out Greece if needed. This makes the ESM the largest international financial institution in the world. Closer surveillance and control of (re)balancing steps is also part of the deal to straighten Europe’s economy. In the pipeline is a two-pack legislation aimed at changing budgetary coordination and harmonizing the timetables of national budgets. The EU is also to use a graduated sanction regime to enforce its recommendations. Around 80% of the regime has already been adopted: it is expected to come into force at the end of 2012. The system will grant more power to the Commission to penalize countries

deviating from the agreed path and will also allow the EC to take speedier action. If it finds there is a problem, it notifies the member states, which have to come up with a corrective action plan. Should a country miss out on presenting one month after the notification(s), it will be fined 0.1% of its GDP. FOR FUTURE REFERENCE The EU’s toolbox for tackling the crisis contains several more devices. Many are just ideas under discussion, but could soon turn into binding regulations. One is that the EU would enter into individual contracts with countries needing help to finance, say, social programs like unemployment. Money would come from stronger economies and would be made available to member states in need only if they agree to commit to undertake reforms – a general business practice put at European level. ■

2 BusinessPartnerWatch 19



Budapest Business Journal | Oct 19 – Nov 04

Commercial banks



Ranked by total net revenue



























Sándor Csányi

1051 Budapest, Nádor utca 16. (1) 473-5000 (1) 473-5955





Individuals and companies (28.30), Hungarian State (0.40), Own shares (1.70), Employees (1.70) Individuals and companies (62.60), Others (5.30)





– EGB Ceps Holding GmbH (100)

Jelasity Radován

1138 Budapest, Népfürdő utca 24–26. (40) 222-222 373-2499





– Bayerische Landesbank Girozentrale AG (95.23), PSK Beteiligungsverwaltung GmbH (4.61), other (0.16)

Pál Simák

1056 Budapest, Váci utca 38. (1) 327-8600 (1) 327-8700





– KBC Bank N.V (100)

Hendrik Scheerlinck

1051 Budapest, Vigadó tér 1. (1) 328-9000 (1) 328-9696





– Intesa Sanpaolo Holding International S.A. (67.70), Intesa Sanpaolo S.p.A. (32.30)

Fabrizio Centrone

1027 Budapest, Medve utca 4–14. (1) 457-6800 (1) 489-6500





– Raiffeisen-RBHU Holding GmbH (100)

Heinz Wiedner

1054 Budapest, Akadémia utca 6. (40) 484-4400 (40) 484-4444





– UniCredit Bank Austria AG (100)

Mihály Patai

1054 Budapest, Szabadság tér 5–6. (1) 301-1271 (1) 353-4959





– GE Capital International Financing Corp. (100)

György Zolnai

1138 Budapest, Váci út 193. (1) 450-6000 (1) 450-6001





– Citibank Holdings Ireland Ltd. (75), Citibank Overseas Investment Corporation (15), Citibank A.S. (10)

Batara Sianturi

1051 Budapest, Szabadság tér 7. (1) 374-5000 (1) 374-5100 –





– Volksbank International AG[2] (98.60), Türkiye Halk Bankasi (1.40)

Alex Hummel

1088 Budapest, Rákóczi út 7. (1) 328-6666 (1) 328-6660




FHB Jelzálogbank Nyrt (70.30) FHB subsidiaries (29.70)

László Harmati

1082 Budapest, Üllői út 48. (40) 344-344 (1) 329-0992


–0 BNP Paribas S.A (100)

Laurent Poiron

1051 Budapest, Széchenyi István tér 7–8. (1) 374-6300 (1) 269-6967

István Salgó

1068 Budapest, Dózsa György út 84/B (1) 235-8700 (1) 268-0159

Péter Csicsáky

1122 Budapest, Pethényi köz 10. (1) 202-3777 (1) 356-2649
















– ING Bank N.V. (100)




Savings cooperatives (61.54) DZ Bank AG (38.46)

20 2 BusinessPartnerWatch









Budapest Business Journal | Oct 19 – Nov 04





















– Crédit Agricole Corporate and Investment Bank SA (100)

Tamás Molontay

1051 Budapest, József nádor tér 7. (1) 327-9100 (1) 327-9150





– Korea Development Bank (100)

Kim Sung Ryong

1054 Budapest, Bajcsy-Zsilinszky út 42–46. (40) 532-532 (1) 328-5454





– Hypo-Bank Burgenland AG (100)

Andrea Maller-Weiß

9400 Sopron, Kossuth L. utca 19. (99) 513-000 (99) 513-038





– BNPP Personal Finance S.A. (100)

Emmanuel Bourg

1062 Budapest, Teréz körút 55-57. (1) 458-6081 (1) 458-6091




– Deutsche Bank AG (100)

Zoltán Kurali

1054 Budapest, Hold utca 27. (1) 301-3700 (1) 269-3239





Individuals and companies (70) Caja Navarra (30)

János Salamon

1062 Budapest, Andrássy út 62. (1) 428-8888 (1) 428-8889




– Oberbank AG (100)

Friedrich Ofenauer

1062 Budapest, Váci út 1–3. (1) 298-2900 (1) 298-2975





– Banco Popolare Societá Cooperativa (100)

Vincenzo Fasano

1088 Budapest, Rákóczi út 1–3. (40) 200-515 (1) 266-6815




Individuals (100) –

Antal lakatos

8200 Veszprém, Óváros tér 22. (88) 444-044 (88) 420-220

Zsolt Szalai

7800 Siklós, Felszabadulás útja 46-48. (72) 805-800 (72) 805-827










Individual (37.70), – (58.70) – (3.60)





Magyar Tőketársaság (91.80), EPM Kft (5.70), Individuals (2.50) –

Éva Hegedűs

1095 Budapest, Lechner Ödön fasor 8. (1) 235-5900 (1) 235-5906




– AXA Holding S.A (100)

Albert Roggemans

1138 Budapest, Váci út 135–139. (1) 465-6565 (1) 465-6599




András Kozma

1054 Budapest, Széchenyi rakpart 8. (1) 374-8100 (1) 269-4732




– Commerzbank Auslandsbanken Holding AG (100)



NOTES: (1) From the database of Hungarian Financial Supervisory Authority. (2) As of December 31, 2011. The 100% acquisition of Volksbank International AG was completed on February 15, 2012. As a result, the majority owner of the bank is Russia's Sberbank.

2 BusinessSpecialReport//Energy 21



Budapest Business Journal | Oct 19 – Nov 04

Power market: no one will take risks for free


Electricity prices have decreased significantly in the past few years on the wholesale markets of Europe, partly due to decreasing consumption, partly due to lower fuel prices. But the future is hard to foresee as the impact of sluggish European economy, growing oil prices and the closure of German nuclear plants counterbalances the cooperation of national power exchanges.

Huge progress has been made in the past few years on European level in the energy sector. Harmonised European energy regulation have provided clear benefits to customers who may today switch from one gas or electricity supplier to another. As far as market actors are concerned, market transparency has been significantly increased by codifying the unbundling regimes applicable to market players. However, there is still considerable work to be done until the next target, is a single market for energy, is achieved.


The “cost of production” for electricity is a very broad term and hard to define. The producer price of nuclear energy is relatively stable. Domestically mined lignite doesn’t have a “market price”, therefore it is stable too. In the particular case of countries importing brown and black coal, the price is less stable, although there have been no significant spikes in the price recently. On the other hand, the producer price in gas-fueled plants has increased to levels where production is no longer profitable: in other words their spark spread is negative. This is equally true of Germany as it is of Hungary. In Germany, the gas-based producers’ marginal costs are around €60 per MWh, but the market price is lower. In Hungary, that price is €72-75 for the high-efficiency plants – a level that market prices reach only occasionally, and particularly during peak periods. Prices in Hungary are higher than in Germany due to the higher import ratio of the country and the region. GERMAN NUCLEAR PLANTS: CAPACITY NOT MISSING After the incident in Fukushima, Germany formally announced plans to abandon nuclear energy. And in the interval of less than a year ,electricity generation in Germany has changed direc-

tion not just theoretically, but physically as well. But in parallel, the built-in capacities of wind- and photovoltaic generators have set new records. “Shutting down the nuclear plants in Germany will be less significant than was thought last year, immediately after the decision,” Nikoletta Egyházi, spokesperson of E.On Hungária said. Nuclear capacity has decreased from 20 to 10GW, but in the meantime, German installed renewable capacities have reached 60GW. This is a good indication that Germany is able to maintain its low prices without a higher import ratio. “However, these methods of production don’t provide a continuous supply to the grid, and therefore need to be regulated, for example with a quick-start gas-powered plant. So the growing tendency of producing electricity in cheaper coal-fueled plants is ever more perceivable,” said József Turai, CEO of EFT Magyarország Zrt. TRADERS MIGHT DISAPPEAR Due to the higher import ratio and the fact that Hungary is a transit country, domestic prices have contained a significant premium in the last 1.5-2 years compared to Czech and Slovak prices. Connecting these markets will lower the difference, although “Hungarian prices won’t fall to Czech/Slovak levels from one day to another, but rather a slow convergence is expected,” Egyházi said. However, an important caveat to this scenario is that all the domestic and neighboring import demand does not exceed the available capacities in the long-term. When demand from neighboring Balkan states appears on the Hungarian Power Exchange, the border capacities will not be able to fully meet the overall demand and prices may break away again significantly from the lower Western European range. The Hungarian HUPX power exchange is a real success story, even if the daily settlement prices have showed extreme volatility in the last one and the half years due to the fact that the market is lacking supply, because no

one sells at these price levels. But while the impact of the exchange is in the very fact that it is functioning, the cooperation of European exchanges is not unambiguously positive. “On one hand, to join a dozen European national power exchanges might be good from the point of view of prices. But on the other hand, the cooperation and association between differently priced markets will eventually lead to the harmonization of prices and that will drastically deteriorate traders’ margins,” said Turai The main actors on the exchange are the traders, who distribute risk across the market. But no one takes or distributes risks for free, and no trader would operate without profit. So in the next few years up to 50% of traders could disappear, because they will not be able to finance even the costs of trading. This phenomenon will weaken the competitive market, as there will be notably fewer actors on the supply side, Turai added. NON-PROFIT PROVIDERS? Living up to his reputation for developing “unorthodox” economic measures, Prime Minister Viktor Orbán disclosed plans in August to gradually transform the public utilities into a non-profit sector. Experts and the media almost immediately criticized the plans on the grounds that no investors would be interested in running a non-profit business, but would immediately cancel infrastructure development. The end result will be that companies will have to be taken over by the state in order to guarantee energy and water supplies. However Turai, doubts the possibility of big companies leaving the country. “The situation is very easy to understand. The three big multinationals (E.On, RWE, and EdF) will cross-finance their activities and compensate for their losses related to the regulated and “frozen” domestic markets on the competitive market. Leaving the country isn’t worth it for these multinationals, even under these harsh conditions,” Turai said. ■

Energy: A Single Market for Europe


At its meeting of February 4, 2011, the European Council concluded that the European integrated energy market should be completed by 2014 in order to allow the free flow of gas and electricity between member states. The Council emphasised that this requires, in particular, cooperation between transmission system operators and national regulators in the framework of the Agency for the Cooperation of Energy Regulators in order to establish guidelines on network codes applicable throughout the member states. The grounds of the European Council’s endeavour to create a common market for energy are clear: if realized, such a project would contribute to giving consumers and businesses even more choice, better products and services. A single energy market would be also monitored and transparent enough to ensure consumers fair, cost-reflective prices and the deterrence of abusive prices. At the same time, it would grant the free movement of energy across borders and promote the transportation of new energy sources, which would enhance security of supply. As far as Hungary is concerned, an important step towards the participation in the single energy market was made on September 11, 2012 when the Hungarian day-ahead electricity market was coupled with the same markets in Slovakia and of the Czech Republic. Besides the contribution to the European power market integration and the improvement of the security of supply, such market coupling is also expected to promote the growth of market depth and liquidity. In addition, the Czech-Slovak-Hungarian market coupling should also result in more stable power prices in the regional market as well as in narrowing price spreads between relevant markets. Hungary’s efforts may appear to be strange as imported energy from neighboring countries triggers price decreases on the Hungarian energy market. Indeed, the crisis led to a decrease of energy consumption in Western European countries. Electricity producers therefore tend to offer energy on very favorable terms, which helps them to avoid further decreasing (or even stopping) their production. However, the CZ-SK-HU market coupling is expected to equilibrate energy prices to a certain extent not only on the spot market, but also OTC prices and those applied in longterm agreements.

It is to be noted that the European Commission criticized the practice of member states to constitute capacity markets. Indeed, the Commission considers that such markets across the European Union endanger the development of the single electricity market as they may be interpreted as a “re-nationalisation” of energy-policy. For this reason, the Commission is expected to release a communication in the near future on the further steps to implement the single market for energy that (as its deadline has been put into question by chief executives of a number of energy firms) will also detail efficient measures for realizing the integrated energy market. However, such conflict between the Commission’s and the Member States’ vision on how to realize the single energy market does not hinder Hungary in taking measures in order to increase the security of its energy supply. The main project towards this is certainly the development of the existing nuclear power plant of Paks by new blocks to ensure uninterrupted production of energy. The investment is based on the estimation that in 20 years, Hungary may face an energy shortage as its too old and too polluting power plants will be forced to close. At the same time, the constantly increasing energy demand may not be satisfied exclusively on the basis of imported electricity, the availability of which is always uncertain. The project has been recently qualified as a priority investment by the Government. An analyzis is currently being prepared by the Governmental Commission for Nuclear Energy. This body must examine the major questions raised by the project (that is today seen as a one or two-block extension of 1,000-1,600 MW each), which include issues related to the financing structure of the new plant and the most suitable plant type and size from the point of view of technical and security requirements. The report should also provide the Government with information on the potential investors contributing to the project, the requirements that should be set towards them and the principles of choosing the winner. Based on the report, further details are expected to be specified by Parliament by the end of this year.


22 2 BusinessSpecialReport//Energy BBJ


Budapest Business Journal | Oct 19 – Nov 04

Nourished by delays? Hungary could suffer serious losses in green investments and competitive edge if the introduction of the renewable energy action plan (METÁR) is further delayed. BBJ ZSÓFIA VÉGH

Desires are nourished by delay. This may no longer apply to the Hungarian renewable action plan (METÁR), whose introduction has been postponed so many times that energy companies’ initial early enthusiasm is slowly turning into apathy. Many even claim they would be better off with the knowledge that METÁR will not arrive at all – at least they would then know what to plan for.

CAUTIOUS INVESTORS Uncertainty surrounding business environment is nothing new in Hungary, or Europe, today. It is not only energy market players who suffer from its consequences either. Eric Depluet, the head of power and gas company E.ON, recognized that it was challenging to do business anywhere in Europe today, yet in Hungary it is even harder. At Portfolio’s annual Green Investment Forum held in early October in Budapest, the CEO highlighted that, in only a year, 27 new regulations have been introduced. The unpredictable environment adds to the costs of investment, insists Éva Révész, department head at OTP Bank. Today 30% or more self-financing may be needed for green energy projects as opposed to 15%, the average figure before the crisis. Since Western European RES markets are becoming sat-

urated, investors are looking to Central and Southern Europe. Risk premiums are higher in the region, so the introduction of a transparent support scheme secured by proper collateral could give the country an edge, Révész noted. UNCERTAIN GOVERNMENTS Recession keeps most investors conservative, but national governments in the CEE region have also scaled back their renewable efforts. They are fine with meeting the targets set by the European Union or their national policies, but are hardly willing to move beyond. “It is very legitimate of them asking to take their special situation into consideration,” said Friedbert Pflüger, executive Director of the European Center for Energy and Resource Security at a conference by the Atlantic Council and REEK discuss-

ing the RES strategy of CEE region in Budapest. It does not help either that RES technologies are often regarded as delivering no added value to local economic development. (This is strongly contested by several renewable market players. The Hungarian branch of Spanish wind energy producer Iberdola suggests local development and job creation are a considerable advantage brought about by foreign investment.)


MORE URGENT ISSUES Aside from the general business climate, which is greatly affected by swift changes in regulations, there are other reasons that account for the METÁR delay. Renewables are also less attractive because they offer few benefits in the short-term. These projects require massive upfront capital expenditure that puts an

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2 BusinessSpecialReport//Energy 23



Budapest Business Journal | Oct 19 – Nov 04


Source: KSH

extra burden on crisis-stricken economies. Governments can be further discouraged by the (s)lower return of investment as high levels of support do not always translate into RES capacity growth. A recent study by the Energy Regulators Regional Association (ERRA) looked at the 2007-2010 period in 24 countries and found that a high nominal level of RES-E support was not a pre-condition for dynamic RES-E penetration levels. More urgent energy issues on the table, like creating an integrated gas and electricity market, may account for the postponement of METÁR too. Due to inefficient gas supply, EU citizens pay five to six times more for gas than their peers in the United States. CEE customers pay 30% over Western European exchange prices, a good reason to opt for integration, Péter Kaderják, managing director of the Regional Center of Energy Policy Research (REKK), a Budapest-based think tank, said. The cou-

DIGGING DEEPER It is not only METÁR that tries the patience of energy companies. Geothermal energy producers have also been waiting for the Hungarian government to publish concessions for closed investigated sites. It seems that they may be lucky: with a former MOL official sitting in the deputy state secretary chair, market insiders suggest that the tender may be announced by the end of 2012. One of the companies sure to present a bid is Central European Geothermal Energy (CEGE), a company jointly held by Australia’s Green Rock Energy and Hungary’s MOL. The company’s edge is in using the infrastructure and terrain knowledge of MOL, though it still needs to import expertise. Power production will not likely begin before 2014, István Pócs, managing director of CEGE calculates. The original starting date of 2012, subject to CEGE obtaining a geothermal concession, is sure to be missed. Even if the government invited the call this year, it would take five months to announce the winner. Thanks to MOL’s involvement, test drillings and the set-up of a plant would not last longer than two years, it is bureaucracy that is extending the starting date as far as 2014. The target of 57 MWh by 2020 or 2023 is manageable, Pócs believed. Development lead times, complex licensing procedures and the long life spans of the investments can have a highly negative impact on the appetite to invest. MOL has other sites to invest in (e.g. in Central Asia) and will not wait years for concession permits. Geothermal energy is expected to be a major contributor to Hungary meeting its renewable energy target by 2020, given that its wind, solar and hydro resources are limited.


source: DG Energy , European Commision

pling of the Czech, Slovakian and Hungarian electricity markets on September 11 has had immediate tangible benefits for Hungarian consumers. The shift of emphasis to gas and electricity is a clear aim of the Hungarian government. “The Hungarian-Slovakian interconnector is a first priority from a Hungarian and regional viewpoint,” state secretary for energy Pál Kovács stated in a discussion on Hungary’s energy plans. “The European Union is divided on aggressive (80-90%) decarbonizaton objectives and the related green growth vision,” said Kaderják. The demise of a clear mid- to long-term plan in the region, or implementation in Hungary’s case, results not only in investment losses or surcharges but the potential missing of the 2020 targets. Currently Hungary is on path to meet the previously set 13% RES share of total energy consumption, but it could easily lose its advantage if advances continue at their current pace. ■

24 2 BusinessSpecialReport//Energy BBJ


Budapest Business Journal | Oct 19 – Nov 04

Abandoned treasures – Hungarian mining must wake up from winter sleep Despite Hungary’s long traditions in mining, the utilization of the country’s mineral resources has gradually retreated in the past decades. Most recently, the sector has shown some activity, but establishing itself might be difficult surrounded by both angry environmentalists and unemployed people dreaming about job opportunities. BBJ ÁGNES VINKOVITS

Coal mining was once a booming industry in Hungary, ensuring the livelihood of many, mostly in underdeveloped areas. Twenty years ago, the mining industry employed 81,000 people. But after the collapse of communism and a rapid fall in energy prices, most of the quickly privatized mines closed down due to their uneconomical operations. Today, the entire sector employs no more than 22,500 people. Black coal mining

came to an end in 2000, and only Vértesi Erőmű Zrt and five small companies mine brown coal. Lignite is only exploited in two mines, both owned by Mátrai Erőmű Zrt. “It is my strong belief that a long-lasting economic boom is impossible without the revival of mining,” Dr. Ákos Zoltay, the head of the Hungarian Mining Association (MBSz) told the Budapest Business Journal. “Everything except wooden frames is somehow based on mineral resources.” Still, reserves are there awaiting exploitation. Hungarian deposits reach up to 1,915 millions of tons of black coal, 2,242 millions of tons of brown coal, 4,347 millions of tons of lignite and 27 million tons of uranium. At times of crisis and the somewhat unpredictable path of global politics, reducing Hungary’s dependence on imported energy is an oft voiced and quite understandable concern. Hungary’s energy dependence is above 62% and, according to the National Development Ministry, when it comes to natural gas, 82% of the country’s gas needs are covered from imports. But while the country’s new National Energy Strategy, passed by Parliament in October 2011 and appointing the energy path until 2030, puts emphasis on improving

energy efficiency, increasing the proportion of renewables and also of safe nuclear energy, Dr. János Horn, an oil expert, engineer, economist and professor of the Hungarian Academy of Science (MTA), rather suggests that Hungary changes its energy mix to favor coal at the expense of gas. It would not only reduce the country’s import dependence, but also could improve its trade balance and create jobs, he told the BBJ. However, given that, according to transmission system operator MAVIR, power plants running with the same efficiency in neighboring countries are able to produce electricity at a lower price (which could well be the main result of Hungary’s high level of imports), the problem might need a more complex solution. URANIUM IN THE PICTURE Mining now has to face challenges that were unknown in its glorious heyday. Environmental concerns are pushing the industry to develop and employ technologies that reduce harmful environmental impacts so that the sector can meet the European Union’s 20-20-20 goals (a 20% increase in energy efficiency, 20% reduction in CO2 emissions, and a minimum level of renewables at 20% by 2020).

Implementing such technologies in most cases means higher expenditure, but even starting mining activity is difficult due to environmental requirements. NATURA 2000, a Europe-wide network of EU-backed conservation areas put in place to protect the most threatened habitats and species, covers 21% of Hungary, and mining is forbidden in these areas. When it comes to the environmental concerns about mining, the Hungarian press is rich in reports about the actions of civil organizations. The latest initiative from the recent past, and one quickly taken up by the green-liberal LMP parliamentary party, aims to put a halt to nascent uranium mining in the Transdanubian Mecsek region. Australian company WildHorse Energy holds the licenses and wants to start exploiting uranium there in the next three to five years. The company, a joint venture with the stateowned Mecsek-Öko, Mecsekérc, the Hungarian Electricity Works (MVM) and the Paks Nuclear Power Plant, said in a July statement that it would use only soda-based technology and would avoid sulfuric acid to aid extraction at the planned uranium mine.

“The leaders of the company themselves said that uranium exploitation is not possible without acid there,” LMP leader Benedek Jávor told the BBJ, adding that the area had still not fully recovered from the negative environmental impact of the previous mining activity in Mecsek, running between 1950 and 1997. The state budget has already spent HUF 20 billion on recultivation in the area and plans to spend an additional HUF 150 billion. Several studies also show that lung cancer occurred in a much higher proportion of the population in the area of the uranium mine than anywhere else in the country. Still, in spite of the strong environmental doubts and the obvious health concerns, WildHorse promises to create 500 new jobs in a few years’ time, and most locals would welcome the restart of the mining. LAW TO COME Even if uranium exploitation does finally restart in Mecsek, it would still be far from a full revival of Hungarian mining. “Supporting the discovery of deposits would be most important,” Zoltay said. The most valuable fields can only be searched under a state

concession. It is expected that the next tender will be launched at the end of this year. “Either tendering has to be speeded up or the whole process should be abolished,” Zoltay said, pointing out that while the concessions might earn money for the state budget in the short-term, it delays the start of the actual exploitation, which would mean the big money, in the long-term. “Of course, it is a fact that mining is not a business that returns investments in two days,” he admits. A more predictable regulatory environment could also do a lot for the sector. “Abolishing the long-term power purchasing contracts in 2008 created huge problems in the mining sector,” Horn told the BBJ, explaining that if a plant cannot be sure to find a buyer for its power, miners also cannot be sure that they can sell their coal. Even more frequent change in the mining regulatory environment is imposed by the mining law itself, which, since it was launched in 1993, has been modified at least once every year. Although most of these modifications were for the better as the original law, according to Zoltay, “was just a chaos made by the politicians with the total negligence of the professionals’ advice”, such frequent changes do not obviously favor investments. And it seems that 2012, too, will not pass without a little face-lift to the mining law. As the modification, planned to come into effect at the end of this year, is still the subject of public negotiations at the moment, none of our sources wished to comment on the upcoming plans. However, from the previous speeches of National Development Minister Lászlóné Németh, it comes through quite clear that the government plans to allow exportion of the hydrocarbon fields, which ought to be welcomed by sector professionals. However, even if hydrocarbon treasures are discovered, the question still remains: who will be able to get it out of the ground, and at what cost? ■

2 BusinessSpecialReport//Energy 25



Budapest Business Journal | Oct 19 – Nov 04

Uncertainty kills businesses Cogeneration and renewable energy suppliers are living through tough times. The former were excluded from the old feed-in tariff system and its temporary replacement cannot fulfill its objectives. The latter are waiting for the introduction of a new regulatory system that has been delayed several times. But industry players believe that fairly prudent new policies would end the difficulties. BBJ KRISZTIÁN KUMMER

The introduction of the compulsory feed-in system for heat and electricity produced from renewable and alternative energy sources (METÁR) is ever further behind schedule, given the initial promise of a January 1, 2012 launch. Unfortunately, the delay is fundamentally hampering the initiation of green energy projects and commitments to European Union and national objectives for 2020. “From this point of view, we are in the 24th hour,” said Attila Chikán Jr, CEO of energy provider Alteo Energiaszolgáltató Nyrt. “If the new system is not going to be introduced until July 2013 that means new investments won’t be commencing in masses until 2015,” he added. THE NEW SYSTEM IS LONG-AWAITED Although the basic principles of METÁR are very similar to those of its predecessor KÁT, the new system will provide novelties in many aspects for industry players. One of these is that the scheme will be based on three pillars: electricity, heat and the so-called other bonus prices, complemented with a “brown tariff” in the case of biomass. According to the professional concept presented to industry members, the support will act consistently for 15 years, reduced by the time span of any investment funds proportionately. The base feed-in tariffs are

differentiated by technology and size categories, and bonuses could be added on for socially useful additional costs – in recognition of the additional benefits of each technology. Based on the plans, the government intends to introduce a fairly prudent although ambitious system that would really be able to achieve long-term predictability in an industry aiming for the exploitation of renewable energy sources. While Chikán talks about being in the last hour, though, other market players are not so convinced about the advantages of a hasty introduction. “I am not convinced that it would be wise to hurry and implement the new subsidy system in this harsh economic environment, when it is questionable whether the state can cover the expenses of a new subsidy scheme,” said Gerard Bourland, CEO of Dalkia Energia Zrt. “We might end up in a situation where METÁR might not be financially sustainable for the state or attractive enough for the companies to invest in green energies either. In either case, the original goal of reaching the 2020 target of a 14.65% share of renewables in the energy generation mix could easily be jeopardized.” Bourland continued: “As I can see, waiting another one

to one-and-a-half years does not matter while, during this period, other more pressing issues might be settled successfully, such as cogeneration, which is still hanging in the air, leaving already implemented projects stranded and expensive facilities not being used for the sake of the country.” INVEST TO IMPROVE The two main characteristics of the cogen (combined heat and power) plants are briefly as follows: they provide significant advantages and profits for the country in the fields of primary energy savings, CO2 emission savings and reduction in gas imports. On the other hand to implement and operate cogen facilities is more expensive than is the case for conventional plants. In order to realize and increase these benefits, the technology is supported around the EU in many ways. “What the industry needs is a fully functioning regulatory system, but the palette of possibilities is wide. I think, to fulfill this demand there are three fundamental criteria to meet,” said Viktor Rudolf, president of the Hungarian cogen society Magyar Kapcsolt Energia Társaság. “First, the supporting system should provide real support to the survival of cogen plants and to reserve the progress made so far. Second,

it should encourage industry players to invest. And third, it should leave room for the government for management and necessary interventions.” COGEN PLANTS: LEFT BEHIND? The policy changes (i.e. the exclusion of all cogen energy suppliers from the KÁT system by June 30, 2011) severely affected the whole industry. The biggest issue for the cogen plants is that the new district heating supporting scheme doesn’t provide real support. The official producer prices are too low, so that many producers find even reasonable costs are not covered, and it doesn’t ensure the minimum profit described by the regulation itself. In addition, there is uncertainty about the regulatory system, as it was originally introduced temporarily, although preliminary work on the new system hasn’t even started yet. “Our proposals to improve the district heating supporting scheme weren’t even listened to,” Rudolf pointed out. “In this actual scheme, the producers can only operate uneconomically and investors have not the slightest inclination to make improvements either. Personally, I think that this system is unsustainable in the longer-term.” Currently, the cogen energy plants are often forced to sell electricity

below cost price, while the official producer price of district heating barely covers the production costs in many cases. That is why in the summer – and where possible even in winter – heat is produced in boilers and gas engines are shut down instead. “As long as prices do not cover expenses, we can ensure smooth district heating services – where we have obligations – by running inefficient but cheaper boiler systems that cannot offer the advantages of cogeneration and produce electricity from the same source,” Bourland added. TRICKS TO SURVIVE All market participants agree that it is very hard to make the sustainable businesses without fair heating tariffs. However, until a favorable new scheme appears, each sector player is looking for innovative solutions for the current situation. “It should be recognized that the improvement in the situation of enterprises can be achieved through efficiencyincreasing investments and more efficient operation,” said Chikán. “While these measures cannot be interpreted into any profits, the costs of operation, maintenance and financing the investment loans could be covered in fortunate cases. This is how Alteo managed

to avert risks at its power stations in Győr and Sopron,” he added. Another possible solution comes from the fact that Dalkia operates 44 gas engines in Hungary and they are merged into one virtual power plant. But this is still very far from an optimal running of this technology that could be better exploited in the interests of the country. Beyond favorable changes in the policy, an improvement in the price ratio between natural gas as a fuel and electricity as a final product would be the most helpful, meaning that cheaper gas or more expensive power is needed to establish a stable environment. Only a clear vision of the future based on a really efficient regulation would ensure that the cogen industry will survive. “We hope that the legislators will recognize the additional benefits of cogeneration and acknowledge the additional advantages it offers,” said Bourland. “The Energy Efficiency Directive implemented by Brussels is clearly stating that efficient cogen shall be supported in all possible ways. The European Union already does so. If it happens in Hungary, it will be easier to achieve fair and sustainable prices in the future, which can enable long-term planning and safe running in this sector.” ■

26 2 BusinessPartnerWatch BBJ


Budapest Business Journal | Oct 19 – Nov 04

Wind power plants RANK

In alphabetical order












Individuals, EIH Kft

9023 Győr, Körkemence utca 8. (96) 618-633 –




Raiffeisen Energiaszolgáltató Kft (100)

1139 Budapest, Váci út 81–85. (1) 477-8701 –




Individuals (100)

1026 Budapest, Lepke utca 9. (1) 878-0848 –




Iberdrola Renovables Magyarország Kft (100)

1062 Teréz, Teréz körút 55–57. (1) 815-6340 –




Iberdrola Renovables Magyarország Kft (100)

1062 Budapest, Teréz körút 55–57. (1) 815-6340 –




Individuals, Austrian Windpower Gmbh

1025 Budapest, Áfonya utca 2/B (1) 345-0025 –




Iberdrola Renovables Magyarország Kft (100)

1062 Budapest, Teréz körút 55–57. (1) 815-6340 –




Iberdrola Renovables Magyarország Kft (100)

1062 Budapest, Teréz körút 55–57. (1) 815-6340 –




Iberdrola Renovables Magyarország Kft (100)

1062 Budapest, Teréz körút 55–57. (1) 815-6340 –




Individuals, Wien Energie Gmbh

1062 Budapest, Aradi utca 16.2 (1) 345-0092 –




Greenergy Hungary Holding Szolgáltató Kft (100)

1138 Budapest, Váci út 141. (20) 244-2703 –




Individuals (100)

9200 Mosonmagyaróvár, Gabonapark 6. (96) 578-602 –




Individuals (100)

2000 Szentendre, Tegez utca 45. (1) 465-9080 –




Individuals (100)

2011 Budakalász, Mátyás király utca 12. (20) 934-6643 –




Individuals (100)

9200 Mosonmagyaróvár, külter. Hrsz 0519/123. (96) 216-610 –




Individuals (100)

9200 Mosonmagyaróvár, Magyar utca 13. (20) 471-2432 –




Individuals (100)

9200 Mosonmagyaróvár, Rózsa utca 11. (96) 579-250 –




Individuals, Energy Corp Hungary Kft

9023 Győr, Körkemence utca 8. (96) 618-633 –




Iberdrola Renovables Magyarország Kft

1062 Budapest, Teréz körút 55–57. (1) 815-6340 –




ALTEO Energiaszolgáltató Nyrt (100)

1055 Budapest, Honvéd utca 20/A (1) 474-9790 –




MVM Zrt (100)

1031 Budapest, Szentendrei út 207–209. (1) 304-2395 –









































»= would not disclose, NR = not ranked, NA = not applicable

This list was compiled from responses to questionnaires received by Oct. 17, 2012 and publicly available data. To the best of the Budapest Business Journal’s knowledge, the information is accurate as of press time. While every effort is made to ensure accuracy and thoroughness, omissions and typographical errors may occur. Additions or corrections to the list should be sent on letterhead to the research department, Budapest Business Journal, 1075 Budapest, Madách Imre út 13–14., or faxed to (1) 398-0345. The research department can be contacted at

3 Socialite


Go West – Exploring the U.S. West Coast Book review: Dark Pools by Scott Patterson

28-29 31

It’s a kind of magic In Hungary, Western pop culture was frowned upon in the socialist era, so it is perhaps no surprise that the computer games industry is still struggling in the country. A few years ago it was a promising business, yet game development has declined considerably in the past few years, and distribution faces difficulties too. Is there still hope? Are the problems related solely to the economic crisis, or are things more complex? The Budapest Business Journal talked to Tamás Daubner, a former journalist who later became a game designer and now works for game distributing firm CNG Hungary. Q: There are a few creative industries in Hungary, including computer games. How well has the country developed this kind of industry compared to others like the movies, theater, dance, etc? A: I have been part of the videogame industry as a professional for the last 13 years and it is very rare that our country has offered subventions to creative and talented Hungarian studios. I find it very strange that this industry is very rarely mentioned, if at all, as a segment that shows the potential and creativity of the young Hungarian workforce. There are a couple of

studios well known in Western Europe and elsewhere that the average Hungarian citizen has no knowledge of at all. I have to tell you that this is a huge disappointment for everyone dedicating his or her life to work in this industry. Q: There were quite a number of computer game companies in Hungary, but most have disappeared. What are the main reasons for their economic failures? A: The “rules of engagement”, if I may say so, have changed. In the ’90s, a couple of talented people were enough to found a studio and then sign a contract with a small publisher who financed the game up to its release. All these games were produced for the PC; there were only a few other projects here. These small publishers went out of business in the mid 2000s, as huge budget games took the attention of gamers, who also moved from PCs to current generation gaming consoles (the Xbox 360 and PlayStation 3 mainly). Small publishers were not able to compete in this race for budgetary reasons, while Hungarian development teams had no experience of developing for these consoles, as they were almost entirely focused on developing PC computer games. These two facts lead to the closure of many previously wellknown Hungarian development teams; only a handful were able to make the “jump” from PC to consoles, and from small publishers to financially stable ones. Q: Do you think that Hungarian game production can shine again? A: There are already great signs of it, namely the fantastic success of the Zen Studios produced pinball games. They have been around for ages and made an excellent business decision in producing pinball games, a niche game

CURRICULUM VITAE Tamás Daubner has been in the Hungarian gaming industry for more than 13 years, and has seen every aspect of it. He was a journalist for PC Guru, a computer games magazine; he worked for Hungarian game producing companies Digital Reality and 3D Labs. After the collapse of the latter, he moved into gaming distribution, and was PR manager at Entek before joining CNG Hungary.

PC MMOs (Massively Multiplayer Online games) for which the female gamer base is especially high, in some extreme cases exceeding the number of male players.

that is ever popular, even on current generation consoles and handheld devices. Small budgeted, small team game development for PC, handheld devices or mobile phones has also found a new way of being profitable again via “crowd sourcing”. It means that sites like KickStarter are bringing these projects to people who can finance the development team directly by contributing to them – there are no publishers or retailers involved. Gamers and developers are in a direct relationship, which is even better than the so-called “golden age” of game development. Q: How well is the distribution industry doing? Is the game market rising or falling in Hungary? Could you give us some numbers? A: Every country around the

globe is affected by the global crisis; our segment is especially touched, as videogames are luxury items in Hungary compared to the average net salary of a Hungarian citizen. There is a significant decrease in the number of units sold in Hungary each year. I cannot give you exact numbers as there is no way of obtaining these for our market; this is very peculiar and strange, believe me. Q: How does the main buyer base differ from the international one? Are the players more hardcore fanatics, or are they more mainstream? A: It is difficult to quantify these groups but impulse buyers, hit-buyers and casual gamers representing a big part with family brands, mainstream brands and brands

that have peripherals like Microsoft Kinect or PlayStation Move. The base of hardcore gamers is very important, as they buy many more games than the other groups mentioned. Q: Could you give some statistics regarding the age and gender mix of Hungarian game buyers? A: 16+ males form the majority of gamers who regularly play (on a near daily basis, and at least 12-15 hours/ week) and own a console or a PC at home. These adolescents mostly play action games, alone in their room on online with their friends. The age of the younger audience is now as low as five or six years, as many parents buy consoles to play with their children at home. There are some titles, especially

Q: Do you think video games will become as much part of the mainstream in Hungary as watching a movie on the TV, or PC, or going to the cinema? Or will it stay a “niche” entertainment? A: The interest of the young audience towards videogames is particularly high as this is a fast-developing sector and most of the games are especially aimed at younger, 16 or 18+ audiences. The age factor is crucial here, as 40+ people are mostly ignorant of our industry, although it has been around for 30 years now. Many people still consider it as some kind of “evil that needs to be purged”; this is totally due to the lack of information they have and the fact that they only hear the opinion of others and accept that as their own – but this is so true of many things in Hungary! Gergely Herpai (BadSector)

28 3 Socailite BBJ


Budapest Business Journal | Oct 19 – Nov 04


Business class with full-flat beds: Experience the Legend! Lufthansa‘s 747-8 is equipped with 362 seats in a three-class configuration (8 First Class, 92 Business Class and 262 Economy Class). The new Business Class offers a unique seating arrangement in the form of a “V”. At the push of a button, the new seats can be adjusted in different positions, and along with an adjustable headrest they allow a relaxed sleep in a stretched-out position. Reading lamp, cocktail table, storage compartments and the multimedia system assure a very pleasant longhaul flight.

Go West - Exploring the U.S. West Coast LOS ANGELES

busters: creatures from Jurassic Park and Jaws may surprise you along the way. The amusement only starts here: you can also catch roller coaster rides, get thrilled by 4-D movie projections and visit the House of Horror! A tour at the Warner Bros. Studios offers a peek into the production of TV shows and films, with the prospect of bumping into stars on the set! Comprehensive Hollywood tours with knowledgeable guides pay-off if you want a big dose of celebrities and

the Hollywood lifestyle. Most tours include the Madame Tussauds celebrity waxworks, the Walk of Fame (a mile-long promenade with the famous bronze stars), the Hollywood sign, Rodeo Drive and Sunset Strip (a vibrant district for shopping and nightlife), the Kodak Theater (home to the Academy Awards ceremonies), and Grauman’s Chinese Theater. If you want a stateof-the-art movie experience, ArcLight cinema on Sunset Boulevard is the place to go. Note that LA is not only about Hollywood. Starting in downtown, sample the Grande Avenue, the Museum of Contemporary Art and the super modern Walt Disney Concert Hall. Near Union Station, explore Olvera Street, the oldest part of LA with Spanish colonial architecture and Mexican food. For shopping, hit Melrose Ave., Robertson Blvd. in West Hollywood or the opulent Rodeo Drive. We also love LA for its skyline and its beaches. For yet another treat, hike to Griffith Park on the hill – visit the planetarium and enjoy breathtaking scenery. A Malibu beach tour takes a day: drive down on the Pacific Highway and enjoy stunning ocean views, heading to Surfriser Beach and Lagoon State Beach. If you do not have time

LUFTHANSA HIGHLIGHT: FLY TO LOS ANGELES WITH LUFTHANSA FROM: LOS ANGELES – A GOOD SHOW Melrose, Rodeo Drive, Beverly Hills, and Venice Beach have all become keywords of popular culture. Many visitors book a flight to LA for a

backstage experience. If you are one of them, start at Universal Studios; take a tour on their famous tram rattling along the sets and the monsters of the studio’s block-

Frankfurt International Airport (with Boeing 747-400 and with the new Boeing 747-800 from early 2013) - daily Munich International Airport (with Airbus A340) – 5 times a week For more Lufthansa tips on LA visit





Budapest Business Journal | Oct 19 – Nov 04

(a single-track urban shuttle built for the 1962 world fair) to Seattle Center where you can rise to the top of the Space Needle. The Needle’s ‘O Deck’ offers a 360-degree view of the city, the bay and the mountains. Do not miss the EMP Museum, a sanctuary dedicated to pop icons and science fiction visionaries (they currently run Jimi Hendrix and Rolling Stones exhibitions, and some artifacts from sci-fi literature and films). You will have plenty of reasons to linger in Seattle Center, home to the Seattle Opera, the Children’s Museum, the Pacific Science Center, and many other cultural venues. To catch up

Gold miners, teenagers, mavericks, daydreamers – the West Coast has always tempted those who craved freedom. No wonder: built amid breathtaking landscapes, West Coast metropolises still exude a passion for entertainment and limitless exploration.

for such an escape, visit the beaches in Venice or Santa Monica. Apart from the hallmark buzz (street vendors, famous restaurants, skaters) experience Venice Canals, a scenic residential area with its own internal waterways. SEATTLE – ALL AT BAY Seattle residents know three things very well: rain, clean air and something they call the best foodstuff in America. To taste the latter, go to Pike Place Market and taste fresh seafood at local vendors and restaurants. A few blocks away at Westlake Center, take the Monorail

with the history of the city, it is worth visiting Pioneer Square, the historical district of Seattle. Though the district’s main sight is the Smith Tower, it also has many galleries, great restaurants and boutiques that deserve attention (check out for detailed tours). Back at Elliott Bay, take a free tour around the Olympic Sculpture Park, an achievement of modern architecture. At Pier 59 on Alaskan Way, you will find the Seattle Aquarium, which will enthrall your children (the stars of the show are the otters). At Pier 55 and 56

LUFTHANSA HIGHLIGHT: FLY TO SEATTLE WITH LUFTHANSA FROM: Frankfurt International Airport (Airbus A330) – daily For Airport information on Seattle Airport visit



tourists embark on vessels to set out for waterborne sightseeing. Tillicum Village takes you to nearby Blake Island where you can explore the lifestyle of Native American tribes. Ferry trips are a must in Seattle. The main ferry terminal is called Coleman Dock. Set out to Bainbridge Island (about 40 min.), to Bremerton Island (sample the Island’s galleries and its nice port), or catch a ferry to any of the San Juan islands (Orcaz, San Juan, Shaw or Lopez). These islands are famous for scenic sea views, whale watch cruises, sea kayaking and other outdoor activities – not to mention the excellent seafood on offer. SAN FRANCISCO – HISTORIC AND HIP A remarkably liberal place with a slightly European touch to it, ’Frisco’ offers a lot of wonders. Start your tour downtown, close to the docks. Taste fresh produce at the Ferry Building’s market and the local restaurants. Try also their “shop with the chef” programs! Head uphill on one of the famous cable cars to Chinatown. This is a different universe: Pagodalike roofs and dragonshaped lamp posts line

New first class: the Big 8 The new first class offers a new kind of pleasure as it weds old-style craftsmanship in quality and a modern approach in design and technology. Automatic humidifi ers assure optimal climate for relaxed traveling, and the seats can be personally adjusted. Sleep, work or lounge as you never dreamed aboard an aircraft! First class has two huge bathrooms with elegant, clever design. The multimedia set teems with films, games and music, and displays live-images of the camera mounted on the rear of the plane.

the streets among two and three story blocks teeming with grocery stores, shops and exotic restaurants. Eat and dare to bargain. Then, you can either make a jaunt toward Union Square with its catwalk brands, or proceed to Russian Hill and Nob Hill. These upscale residential areas offer steepstreet cable car rides and feature vantage points with fantastic bay views. A hidden treasure you should not miss is Macondray Lane’s urban gardens. From Russian Hill you can descend to the tourist-packed Fishermen’s Wharf. Crammed with souvenir shops and restaurants, the Wharf is a favorite place for children with to its shops, the Musee Mecanique’s vintage arcade machines, historic vessels at Hyde Street Pier, and the sea lions at Pier 39. From the Wharf, you can catch a ferry to Alcatraz, where a guided audio-tour will evoke the ghosts of infamous inmates like Al Capone. Back in town, head to the Mission district: Dolores Str., Mission Str. and Valencia Str. Still a bit hippy, this neighborhood is full of bookstores, galleries, bars and

LUFTHANSA HIGHLIGHT:FLY TO SAN FRANCISCO WITH LUFTHANSA FROM: Frankfurt International Airport (with the new Airbus A380) – daily Munich International Airport (with Airbus A340) – daily For more Lufthansa tips on San Francisco visit Lufthansa-Highlights-SanFrancisco

restaurants! Visit also Mission Dolores, the oldest standing building in town, and Dolores Park, a popular meeting pot for locals and tourists. Of course, walking over the Golden Gate Bridge is a must. Spanning 1,970 meters across Golden Gate Bay and the ocean, this magnificent feat of engineering attracts millions of tourists every year. Another wonder of the city is Golden Gate Park. In this urban oasis nestle a botanic garden, a Japanese Tea Garden, and a Victorian Conservatory of Flowers. Venture into the greenery and find the ocean at its West end! ■

30 3 Socalite BBJ


Budapest Business Journal | Oct 19 – Nov 04


Do you know someone on the move? Send information to

The new managing director of Kraft Foods Hungária and Győri Keksz has arrived at her new post from a regional position within Kraft Foods. She was managing director of Kraft Food Polska, which position was taken over by Zoltán Novák in July, 2012. Shandarivska joined Kraft Foods in Ukraine in 2005.

Hungarian oil and gas company MOL recently established the position of chief operating officer (COO) in its management structure, effective October 1. Vice President of exploration and production Sándor Fasimon, who has also overseen the operations in Russia and its energy trading activities, will take over the position of COO. Until his replacement as head of exploration and production is found, group CEO József Molnár will take on the role.

Name Iryna Shandarivska Current company/position Kraft Foods Hungária Kft, Győri Keksz Kft/managing director

OCT 25 Business Lunch with Árpád Kovács, President of the Hungarian Budgetary Committee LOCATION Kempinski Hotel Corvinus Budapest, 1051 Budapest, Erzsébet tér 7-8. TIME 12:30-2 PM ORGANIZER British Chamber of Commerce in Hungary FEE BCCH members: HUF 14,000 + VAT; HABA members: HUF 16,000 + VAT; non-members: HUF 18,000 + VAT CONTACT

Name Sándor Fasimon Current company/position MOL/chief operating officer

Uzel succeeds Pierre at insurance company Groupama. Lefevre leaves the company after ten years and will continue his career elsewhere. Uzel will also represent Groupama Group in the supervisory board of OTP Bank. Name Dominique Uzel Current company/position Groupama/head of international operations

OCT 26

OCT 29

Friends of Canada Halloween costume party

Business Breakfast with György Matolcsy, Minister for National Economy TIME 9-10:30 AM. LOCATION Budapest Marriott Hotel, 1052 Budapest, Apáczai Csere János u. 4. ORGANIZER American Chamber of Commerce in Hungary FEE AmCham members in good standing: HUF 10,000/person; non-members: HUF 27,000/person CONTACT

LOCATION Café Jubilee, 1055 Budapest,

Szent István krt. 13 Time 6 PM ORGANIZER Canadian Chamber of Commerce in Hungary CONTACT

NOV 6 How to engage people to your employer brand – conference LOCATION Novotel Budapest Danube,

1027 Budapest, Bem rakpart 33-34 TIME 3:30-5 PM ORGANIZER British Chamber of Commerce in Hungary, Netherlands-Hungarian Chamber of Commerce, French-Hungarian Chamber of Commerce and Industry, Italian Chamber of Commerce in Hungary

3 Socialite 31



Budapest Business Journal | Oct 19 – Nov 04

Dark Pools Fast-paced, fascinating and revealing, Dark Pools takes the lid off the new-look financial markets and comes to some chilling conclusions. BBJ

On May 6 2010, the Dow Jones Industrial Average plunged by 600 points over two minutes, and then everything returned to normal. It was the Flash Crash. The market regained almost all of its losses, but until journalists pieced together the story some time later, no one could explain what had happened. The Flash Crash was the first major symptom of a problem that had been spreading across Wall Street for years. Computerized

high-frequency traders, or ‘bots’, had taken over the stock market. In Dark Pools, Scott Patterson, a Wall Street Journal reporter, tells the story of the group of whiz kids who applied their computer programming genius to the invention of computerized trading hubs. They had good intentions; they wanted to take some control away from the big exchanges that gave institutions a huge advantage over smaller players. Over time, their invention morphed into a global electronic stock market. But the market soon adapted and formed ‘dark pools’ – secretive, lightly regulated exchanges where trading was hidden from public view. These idealistic programmers had created a radically new system in which machines traded anonymously with other machines, making and losing fortunes in the blink of

by Scott Patterson

an eye. This technology transformed the financial markets, but it also raised disturbing questions. If computers are trading with each other, does that mean that people have lost control? How can this system be monitored, let alone regulated? And if it all comes crashing down, whose fault will it be? Dark Pools is an entertaining and accessible book about the new world of stock trading. Patterson explores its inner workings through a colorful cast of characters, from programming geniuses to aggressive ‘algo-warriors’, and explains how global markets have been hijacked by bots that are so self-directed, humans can’t predict what they’ll do next. Dark Pools by Scott Patterson Random House Business Books ISBN 9781847940971 Available to order through


Guaranteed Implants The voluptuous breasts of a woman – the age-old symbol of feminine beauty. We are no less concerned with shapely boobs than our forebears, so much so that breast augmentation is often a graduation present in the United States. The scandal of faulty and potentially hazardous PIP implants last year called attention to the risk involved in the otherwise routine operation of breast corrections. Quality control and CE qualification are one thing, however: patients should always make sure that the manufacturer of the implant gives a lifetime warranty for their product. “All the implants sold and used in Hungary comply with current quality requirements,” says Dr. János Gacs, plastic surgeon at Dr. Rose Private Hospital. “Having said that, only three implant producers are approved by the American Food and Drug Administration, allegedly the most stringent health authority in the world: U.S. companies Mentor Corporation and Allergan, and Silimed from Brazil. A prominent producer for more than 20 years, Mentor is now owned by Johnson & Johnson. Apart from traditional saline solution implants, Mentor also offers silicon gel variants. The main advantage of cohesive silicon gel is that the filling does not spill out even when the plastic shell breaks and the implant starts leaking. Also on the plus side, the gel retains its original shape under pressure. Women are often in two minds about exactly what shape or size they would rather prefer for their breasts. “The main advantage of saline implants is that the filling can be adjusted and finetuned during the operation, eliminating possible asymmetries,” explains Dr. Gacs.

The latest generation of polyurethane implants keep their shape extremely well, and are offered with a lifetime warranty. They do not shrink, and live tissues basically merge into the polyurethane foam. “This type of implant is the lightest of all,” says the plastic surgeon, “ making it all the more useful in case of sizeable breast augmentations.” Aesthetic surgical interventions Nowadays men are interested in aesthetic surgical interventions more and more. The interest was 1-2% and it is increasing, maybe at 10-15% now. Their interest is focused on minimal invasive procedures or interventions because they can not bear the pain well. That is why they are mostly interested in wrinkle filling, botox treatment or own fat cell transfer. These treatments are attractive because no rest scar will be seen. The treatment is quick and can be done in a lunch time. Of course the classic aesthetic surgeries like tummy

tuck surgery, gynecomastia, big weight loss correction, face lift, blepharoplasty are in the focus of the patients,” says Dr. Gacs. Uplifting Beauty The safest way to look younger Jennifer Aniston, Madonna, Sandra Bullock and Heather Locklear – we have seen them in not too flattering paparazzi shots, and then being reborn again with stunning looks. Compare their recent pictures with how they looked ten years ago, and one thing is apparent: there are no wrinkles but their faces somehow look different. More than likely, they have resorted to the hottest and supposedly most effective trend in facelift: filling the unwanted crinkles and furrows with own fat. “There are countless ways to make the skin more supple and face muscles more elastic, but nothing can really really beat the passing of time – tissues keep waning, and the more you are watching your weight, the more evident it is,” says Dr. Gacs. “You’d get that haggard look, the face loses its sharp contours. A potent antidote to the problem is somehow filling the sagging spots. The safest method for that is gathering the patient’s own fat, then after a special treatment, injecting it back, smoothing out those wrinkles. No need to worry about an allergic reaction, even when a relatively large area is treated. This is a fully natural material, the patient’s own, and restores natural looks, when applied professionally.”

GOOD TO KNOW Ever wanted to know why and how the human race is blessed with such curvaceous and fulsome breasts compared to primates? Scientists assume that more prominent breasts developed due to an evolutionary change, parallel with our ever protruding nose, so that babies could breathe more more easily when breastfeeding. It does matter, however, where we obtain the fat tissues. Those on your tummy, over the hips and buttocks are quite resistant to weight loss, they are the hardest to shred in a diet. Bad news if you are overweight, but good news if you want a gentle facelift. Some of the injected fatty tissue dissolves in a few weeks, but most of it gets imbedded nice and firm. “We gather fat tissue from the appropriate part of the body, then it is left to settle and get filtered,” explains the process Dr. Gacs. “The sterilized fat is then injected under the skin with local anesthetics. At first sight it might appear that we overdo it, because 20-40% of the tissue is likely to dissolve over time. The freshly injected patient looks as if he or she had put on weight. Nothing to worry about, though, it takes a few weeks and the face looks younger, the wrinkles subtly ironed out. The procedure can be repeated in six months if need be.”

GOOD TO KNOW Fuller lips can be achieved with the same method, but injecting own fat is the most effective in getting rid of those stubborn “angry muscles” between the eyebrows, and smoothing out labial wrinkles at the base of the nose. Cheeks can be made more padded, at the same time beneficially lifting the skin around them. Acne spots and small scars can also be made less prominent with own fat injection.

For an appointment, call (+36)1-377-67-37 or go online at

Budapest Business Journal 20/20  

Budapest Business Journal 20/20