Kremlin pulls economic strings to influence Viktor Orbán’s regime in Hungary

Hungary and its Prime Minister Viktor Orbán are the biggest lobbyists of Russian interests in the EU, constantly blocking European initiatives to support Ukraine and periodically making statements in favor of Russian dictator Vladimir Putin. Most likely, the imperial and Nazi past of Hungary itself play some role in this rhetoric. But it could also be the influence of big Russian money.

NV Business found out some of the ways Putin’s Russia affects the economy of Hungary.

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Billionaires from the north, and friends from Germany

At the state level, there are three key areas of cooperation between these two countries:

•         expansion of the Paks nuclear power plant;

•         supply of hydrocarbons;

•         the banking sector.

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The first reactor of the Hungarian Paks NPP was commissioned in 1983. Today, there are four units built using Soviet technology. “However, it will soon be time to decommission them, which is why the Hungarian government has invited Rosatom (Russian State Nuclear Energy Corporation) to build Paks II,” Barnabas Mester, partner of the Millennium Emerging Europe investment company, told NV Business.

In 2014, a contract was signed for the construction of two rectors, at a total cost of almost EUR 12.5 billion ($13.2 billion), most of which is to be covered by a state Russian loan of EUR 10 billion ($10.5 billion).

German businessman Klaus Mangold, who was dubbed “Mr. Russia” in the media, was a powerful lobbyist for this project. There are even photos of him with Vladimir Putin online. The Hungarian government hired the German to solve the problem with the help of his friend, Günther Oettinger. He then held the position of European Commissioner for Energy and eventually gave his consent to the expansion of the plant.

The second major area of cooperation between Russia and Hungary is the gas and oil trade. Today, gas comes through the Turkish Stream pipeline, but Hungary refused to transit through Ukraine in the fall of 2021.

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Hungary signed a new 15-year contract with Russia’s Gazprom in September 2021, just a few months before the war.

“The details of the contract are classified and a state secret, so we don’t know the price formula and so on,” says Mester. “But Hungarians pay much more for gas than consumers in other countries.”

Also, the Hungarians, together with the Slovaks, achieved exemptions from European sanctions against Russian oil. Until 2011, the Russian Surgutnaftogaz owned 21.2% of the Hungarian MOL oil company. This share was later bought by Hungary. At that time, the deal was valued at approximately $2.6 billion, which was financed by the IMF.

As of today, Hungarian state structures are no longer among MOL’s major shareholders. But the company depends on crude oil from Russia, which is supplied via the Druzhba pipeline. However, in February 2023, at its Slovakian plant, MOL tested the processing of Arab Light oil, which in future could replace Russian crude.

The third direction of influence is quite unexpected. In 2019, the headquarters of the International Investment Bank (IIB) was moved from Moscow to Budapest. This institution was created in 1970 by the Warsaw Bloc countries to support the economies of the participating countries. Something like the EBRD, but in the communist bloc countries. But it is not just a financial institution.

“The bank, as an international organization, is not subject to national banking and other regulations,” says its website. Hungary granted all bank employees diplomatic status and many other privileges, which caused a scandal in the European Union. Its leader, Nikolay Kosov, is said to be the son of a former KGB agent in Budapest. And because of the number of benefits and privileges granted by the state, in 2019 the member of the Hungarian Parliament, Zita Gurmai, called the IIB ‘Putin’s Trojan horse.’”

Today, Russia, Hungary, Cuba, Vietnam, Mongolia, Romania and Bulgaria remain members of the bank. The size of the authorized capital is EUR 2 billion ($2.1 billion). There are no international sanctions against the bank, because the Russian share as of Jan. 1, 2023 was 45.44%. However, this year Romania and Bulgaria are to leave the founding members of the financial institution.

Perhaps that is why Russia voluntarily decided to reduce its share in the paid-up capital of the IIB.

Read also: Hungary’s Orban pushes for US-Russia talks on Ukraine, praises Merkel

Private investments

Among private Russian investors in Hungary, it is worth noting Megdet Rahimkulov (net worth in 2023 – about $1.1 billion) and his two sons, who are Hungarian citizens. They own significant stakes in OTP Bank and MOL. They invest in Hungarian real estate. Rahimkulov is called the richest man in Hungary.

Back in the 1970s, he started working at the Hungarian branch of Gazprom. He was in charge of the program which exchanged gas for Ikarus buses and Videoton computers. In the 1990s, he became close to the former head of Gazprom, Rem Vyakhirev.

According to Millennium Emerging Europe, the elder Rahimkulov still remains an important figure in relations between Hungary and Russia in the energy and banking spheres.

It is also worth noting the privatization of the Dunakeszi wagon-building plant. At that time, it was owned by Christoph Salai-Bobrovnytskyi, who later became Hungary’s Defense Minister. In June 2022, the only major owner of the enterprise became the Hungarian direct investment fund, which in accordance with the law does not disclose investors.

In 2021, Salai-Bobrovnytskyi managed to buy the Aero Vodochody factory in the Czech Republic, which produces military and training jet aircraft, with the money of the state Eximbank of Hungary.

“It is interesting that the person who owned the company together with (Russia’s) Transmasholding also owned a factory that produces military aircraft with NATO technology. And then this person becomes the Minister of Defense of Hungary,” said Mester.

Ukrainian economic issue

According to the State Statistics Service of Ukraine, at the end of 2021, the total volume of trade in goods and services between Ukraine and Hungary increased by 16.3% year-on-year and amounted to $3.5 billion. This is comparable to the volume of trade between Hungary and Russia.

However, Ukrainian business has almost no significant successful examples of cooperation with Hungarian partners. Perhaps the only exception is the privatization of the Dunaferr metallurgical plant in 2004. Then it was bought by the Donetsk corporation ISD. But due to financial difficulties, the Ukrainian owner first attracted Russian investors, and then started the bankruptcy procedure of ISD. At the end of last year, the liquidation procedure began at Dunaferr, and the property of the steel mill went to the state.

Hungary is looking for a new investor, among the applicants is the Ukrainian Metinvest Group. But two NV Business sources familiar with the negotiations said on condition of anonymity that the Hungarian government is gravitating towards cooperation with Indian businessman Sanjiv Gupta’s Liberty Steel. And this is despite his financial difficulties in Europe and allegations of fraud in the UK.

One of NV Business’ interlocutors reminds that Gupta has been living in the UAE for several years, which has also become a haven for Russian capital. “Of course, this is a huge speculation. But it can be assumed that the Russians could have offered Gupta to solve his financial problems in Europe in exchange for him becoming the formal owner of Dunaferr and supporting the government of Hungary,” said a source of NV Business in the metallurgical sector on condition of anonymity.

Mester, however, said the probability of such a scenario remains unlikely. “Russia does not need to finance this agreement. The Russians could create a new company in a neutral country, which would then apply to buy the Dunaferr plant. Direct ownership would give them much more leverage,” says the investment banker.

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In his opinion, Liberty Steel’s cooperation with the Russians, on the contrary, could increase the risks for this company’s work in other regions of the world.

Another NV Business’ source, who is familiar with the progress of the negotiations, sees in this the influence of not economic, but political processes. “Dunaferr and Metinvest will work both ways — both as support for the asset itself and as support for Ukrainian industry,” he said on condition of anonymity. And such a scenario may not be to the liking of the Russians.

It is Liberty Steel that supplies the raw materials and offers the metallurgical products of the Hungarian plant to the market. And the salaries of metallurgists will be paid for the next six months at the expense of the Hungarian budget. Orbán has allocated $45 million for this.

Political support

Hungarian politicians provide a great deal of support to Russia, mostly in political negotiations at the EU level, and there are good reasons to believe that they get something in return, but no one has been able to prove it so far.

“I have no strong evidence of direct Russian funding of non-governmental organizations or individual politicians,” said Mester.

Our Hungarian interlocutor calls the reasons for Orbán’s inclination towards the Russian Federation a “million-dollar question”. Because no one knows why the prime minister of Hungary in 2009-2010 abandoned his strict anti-Russian and pro-European policy.

There is evidence that this change took place during his trip to Moscow. Then Putin and Orbán had a long talk, and many believe that it was then that they have reached a mutual understanding about the formation of a political alliance.

In 2017, the Russian edition of the Insider, citing the German businessman Dietmar Clodo, reported that the Russians may have a classified video on Orbán. Apparently, back in the 90s, he received cash from the Russian criminal authority Semyon Mogilevich, who lived in Budapest for a long time. And this very fact can influence the Hungarian leader.

There is no other evidence for this, but the fact is that Hungary has assumed the role of Russia’s “Trojan horse” in NATO and the EU. In December 2021, the Minister of Foreign Affairs of Hungary, Péter Szijjártó, even received the Order of Friendship from his Russian counterpart, Sergey Lavrov. And in 2022, after the Russian invasion of Ukraine, refused to give it back.

Although even the Hungarians themselves do not really understand what exactly their country receives for promoting Russian interests. Because gas in Hungary is more expensive than in the neighboring countries of Eastern and Central Europe. Russia does not supply other critical goods.

However, this may be a covert support for the Fidesz party led by Orbán. For example, in 2017 Lajos Simicska, a former financier and “oligarch of Fidesz”, stated that in 2014 Orbán wanted to buy one of the most popular TV channels in Hungary, RTL Klub, which is owned by a German media company. Despite the fact that the media asset was valued at EUR 300 million, the Hungarian prime minister seemed to say: “No problem, Rosatom will buy it for me.”

This did not happen, but according to an analytical note on Russian influence in Hungary, which was published on the website of the European Parliament last October, about 80% of the Hungarian media today is controlled by Orbán and his party. There is no answer to how it happened either. But it allows the preferences of Hungarians to be influenced.

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Read the original article on The New Voice of Ukraine