Any real estate deal that has been concluded comes with a suspicion of abuse - this is the rule of thumb the socialists in power had hurried to confirm right at the change of government in 2002. It all started with the Pimf case: the Prime Minister's Office rented an office for state secretary Sándor Nagy and his staff in central Buda, after the tender, of which there was only one applicant, was "accidentally" won by the company running Hattyúház, a luxury office building in district I. Last week Heti Válasz reported the hit project of 2009: the private utilisation of public real estate assets (palaces and mansions) that does not fit into any concept but involves French investors who are preparing to draw the EU funds allocated for Hungary. In the meantime, the state TV headquarters project (outsourcing the construction of new headquarters) that has been running for several consecutive terms seems to be reaching its climax, with the state losing billions on two occasions.

Reforms collapsed

At present, one cannot go further than pronouncing ethical judgement over the latter two stories, since the criminal legacy of the current term of government does not (yet) include palaces and mansions nor a TV "palace". Still, the facts speak for themselves: in the past one and a half years, 18 major cases that involve leading state officials came under investigation or went on trial - and a considerable number of them are real estate deals worth tens or hundreds of billions (see table).

Originally, the second Gyurcsány government intended to leave behind the Government Quarter, a set of buildings designed to be erected behind Nyugati railway station, as a materialised symbol of the new "Reform Age" and a small state; instead, it came to symbolise unproductive governance in haste. According to the original schedule, ministries would have moved into their newly built homes on the "housing estate" around now, in the summer of 2009. However, it was revealed last week that the National Bureau of Investigation (NNI) has been examining payments made in relation to the failed construction project since December. The report of the National Audit Office, which serves as the foundation for police procedure, also makes it clear that the deadline for completion was fixed without a prior feasibility study, consequently, the State Asset Management Directorate later declared the documentation, bought for HUF 3 billion, to be useless.

Although the NNI is only examining parts of payments made by the project office so far, the original scandal broke out about the constant secrecy that surrounded the actions taken concerning the new "city". While the Parliament set the total expenditure of the 25-year PPP (public private partnership) project in HUF 142.5 billion, security costs would have increased it to HUF 212.5 billion. Furthermore, the proposal that estimated the cost of additional public utility developments (extensions to tramlines or the reconstruction of Podmaniczky street to be at least HUF 33 billion) was classified for ten years.

On top of all this, once the government of Ferenc Gyurcsány "did not cancel, but suspended the project" in January 2008, HUF 3.8 billion was paid to cover costs of stopping the construction and regenerating the area around Nyugati Station. Regardless of the money paid, nothing stops weeds at present from growing on the land formerly owned by MÁV (Hungarian State Railways).

Pact of Nándorfehérvár

However, the situation has not always been this hopeless: during his introductory campaign in 2007, György Szilvásy, who was responsible for preparations of the quarter, even had time to take Heti Válasz to court, even though we merely reported that business figures associated with him and Gyurcsány as businessmen appeared in every company involved in the construction of the new centre (Heti Válasz, 19 April 2007). The former minister leading the Prime Minister's Office lost the case he brought to court as plaintiff, but this does not necessarily mean an end to project K4 for him: Fidesz is demanding that the Central Investigative Prosecutor's Office (KNYF), which has already identified Szilvásy as a suspect because he made public certain telephone conversations tapped by the National Security Office in connection with UD Zrt, take over the investigation into the government quarter from NNI.

Still, it is another grandieuse real estate deal that might spell doom for the most influential figures of the Gyurcsány cabinet. Referring to government documents, Magyar Hírlap reported last week that although the plans for a casino city at Lake Velence only appeared in the press at the end of last year, the government approved the demands of American-Israeli investors of King City and adopted related legislative tasks already in May 2008. Leading state officials, who never otherwise miss an opportunity to boast about foreign direct investment coming into the country, divided the roles up in the Nándorfehérvár room (named after Nándorfehérvár - the present Belgrade -, in the famous siege of which John Hunyadi successfully defended the city from the Ottomans) of the Hungarian Parliament, practically in secret and in the presence of Ronald S. Lauder media mogul, whose brainchild the HUF 400 billion development project originally was. Gordon Bajnai, minister for the economy, became the project manager reporting directly to Ferenc Gyurcsány, János Veres, minister for finance, was chosen to be responsible for the appropriate timing of the call for applications for the Casino-building concession, and Miklós Tátrai, CEO of the National Asset Management Agency (MNV) Zrt. was to be responsible for communications with Joav Blum, the representative of the Lauder consortium. Blum had previously set up the project companies necessary for the establishment of the district - King City Ingatlan Kft and King City Management Kft, the owner of which is a company registered in Cyprus, suitable for tax optimisation.

Preordained conditions

Secrecy on the part of the government could be partly explained by the fact that a natural way of development - that could also be accepted by the public - for the Sukoró stretch of shore next to the regatta course of Lake Velence Watersport School would be ecological tourism, not the ideas of a gigantomaniac King City. Now that the prosecutor's office launched investigations into the exchange of land - that makes the construction of the giant casino complex possible - on suspicion of misappropriation causing serious financial disadvantage, Bajnai's government should keep as low-key as possible: as it is known, Joav Blum transferred plots in Albertirsa and Pilis to the Hungarian state in exchange for the 70 hectares of land in Sukoró. According to information we have, the authority is investigating why MNV used such an exorbitant price - HUF 430.5 per square metre - when calculating the value of Blum's plots in Albertirsa and Pilis, if, in 2006, the legal predecessor of the same body sold similar plots in Monor that also fell in the route of the M4 motorway to be constructed, for HUF 19.82.

Apart from this obvious disproportionality between price and value, Land Registry data also show that Blum bought the plots in Pilis - which the state later accepted in the exchange - two months after (!) the "pact of Nándorfehérvár" - i. e. the central government made commitments in advance to outsource the "entrance hall" to Lake Velence to the investors without a tendering procedure. In another questionable move, the government declared King City to be a high-priority investment for the national economy this April, while at the time, the area was not even on Blum's name due to objections lodged with the prosecutor's office.

Nevertheless, arrangements made in 2006-2007 for the construction of a government quarter and the Sukoró Casino project stuck in its preparatory phase still caused much less damage than the mysterious real estate deals in Erzsébetváros (district VII) and Terézváros (district VI), which also led to investigations starting a couple of months ago. At the beginning, it seemed that the investigation concerning district VII was the more extensive (the mayor, György Hunvald is still in custody at present), but as far as we know, at the end of June, the police joined all real estate cases in district VI and is investigating them together - they explain that there were at least a dozen historical buildings in Andrássy and Bajcsy-Zsilinszky street, the sale of which involved "personal-material links".

TV headquarters: double twist

One of the most hair-raising deals is unfolding in relation to the change of headquarters of MTV (Hungarian Television). While the new production site in Óbuda (district III) will cost HUF 130 billion, the building in Szabadság square was basically transferred to a Canadian real estate developer for free.

András Zsuppán
reflektor@hetivalasz.hu

Once trustees of the opposition in MTV's Public Foundation successfully achieved making the document public, the contract between MTV and Millenniumi Média Kft (a company owned by the Wallis group) became publicly accessible at the end of June. The question arises how the state can lose out twice on one move. It turned out that the production site in Óbuda will cost HUF 130 billion, while a Canadian real estate developer managed to acquire the old site practically for free.

The MTV project for the change of headquarters was launched under the Orbán government; the decision was made to move the state television from the too old and small Tőzsdepalota (the former stock exchange) building in Szabadság square and build a new, modern site at the corner of Bojtár and Kunigunda streets, where some of the studios have been operating since the 1980's. Therefore, the state bought the old building from MTV in 1999 - the State Privatisation and Asset Management Agency (ÁPV) Rt. paid a sum of HUF 6 billion, above market price for it, obviously to help out the financially struggling television company. MTV was to rent back the property, but could not pay and accumulated HUF 1.9 billion in arrears until 2006. This debt was eventually cancelled by the legal successor of ÁPV, the National Asset Management Agency Zrt. (MNV). In 2001, ÁPV also bought the Óbuda production site from MTV for a price of HUF 4.2 billion and passed it on to Millenniumi Média (MM) Kft, a company exclusively owned by the state. The latter company was specifically set up for the construction of the new television headquarters. The designer was also selected; Finta Építész Stúdió, an architect company won the assignment.

In this first phase, therefore, the state simply moved the funds allocated for MTV headquarters, more than HUF 10 billion at current prices, from one pocket to another. Instead of covering the construction costs, however, the television simply used the money up or spent it on debt repayments, meaning that the MTV headquarters project turned into a headquarters case first, and then a headquarters scandal. In 2004, the decision was made to keep the Óbuda location, but to change the funding and, instead of exclusive state financing, use a PPP scheme with the involvement of private investors. MM Kft (and with it the plot in Óbuda) was privatised in 2006 - Wallis paid a price of HUF 7.4 billion and then became the party dictating terms and conditions. Since government decrees stipulated that the new headquarters shall be erected in Bojtár street, an unadvertised public procurement procedure with a single applicant was held in 2007 and the investment proposal submitted by the project company of Wallis was approved. The rental agreement based on a PPP-scheme was signed by Zoltán Rudi, MTV president of the time; however, László Czeglédi, socialist president of the Board of Trustees of MTV's Public Foundation and János Veres former finance minister are also among those responsible.

As of 2009, MTV has been paying a monthly rent of EUR 993 thousand to MM Kft. for the use of the production site (the size of which is 55 thousand square metres net), out of which operation costs amount to EUR 183 thousand, without public utilities (these are paid by MTV), EUR 53 thousand are to be paid into the renovation fund and the remaining EUR 757 thousand is the actual rental fee. The contract was concluded for a period of 40 years and cannot be terminated earlier, although nobody has any idea about what the role of public television services will be in the middle of the 21^st century, if they shall exist at all in their present form. Taxpayers and their grandchildren will pay the price of the headquarters in Óbuda: a sum of HUF 120-150 billion, equal to five times the cost of the overpriced renovation of Margaret bridge.

"Only" this much of course, provided that no greater fluctuations occur in the exchange rate, since MTV pays the fee established in EUR in Hungarian Forints. Should MTV be a bad tenant and not pay, Wallis is well prepared: the agreement was amended by a contract of assignment, according to which, in case MTV falls behind with payments, it shall use its total revenues - primarily state funding - to first pay the rent owed. The assignment contract stipulates that in such a case the treasury and other partners directly transfer the funds to MM Kft. This procedure is very strange - two years ago, a company suitable for tax optimisation purposes, related to the Wallis group, bought a share in MM.

László Balogh, (member of KDNP, the Christian Democratic People's Party) deputy president of the Board of Trustees of MTV's Public Foundation, says MTV could have taken out a market-priced bank loan with the same or even better conditions to construct its new headquarters. The television would also have been better off if it had advertised an open tender procedure following the sale of the plot in Óbuda or had chosen a leasing scheme. In the latter case, it would have eventually become the owner of the building at the end of the lease term, while under the present conditions, it will have to purchase it again at a market price in 2047.

In recent months, MTV has been paying rent twice: it pays for the site in Óbuda to MM and also for the use of the building in Szabadság square to Tőzsdepalota Kft - formerly Palace 17 Kft - owned by the Canadian Michael Tippin. Had they waited until construction of the new site is completed, no problems would have emerged, but the sale and rent back scheme chosen instead meant that for more than two years, Tőzsdepalota had to be rented back at a market price. The contract expires as of July 31st and financial information is not public, but according to Index, a news portal, Tippin asked for an annual rent of HUF 2 billion. The total has probably reached the original sales price, or exceeded it - in a question to finance minister János Veres, András Cser-Palkovics, member of Parliament (Fidesz) mentioned a sum of HUF 6 billion. It seems, therefore, that the Szabadság square building was practically handed over to Tippin for free as a charitable donation.

In the meantime, the construction of the Óbuda headquarters has been completed, the move will also be finished before the end of this year. MM has not made the total costs of construction public, but earlier estimated the same costs for a similar building to be HUF 20 billion - meaning that the investment made by Wallis will be returned in a period of about seven years, which will then be followed by another thirty years yielding pure profits, all paid for by the state budget.