Hungary’s new government is reviewing state contracts worth thousands of billions of forints involving companies owned through private equity funds, potentially putting some of the biggest business deals of the previous era under scrutiny.
The Tisza government has begun examining contracts signed under the previous government with companies whose ownership is linked to private equity funds, according to a report by 24.hu. The review follows new transparency rules that have made it much harder for the real beneficiaries behind Hungary’s private equity funds to remain hidden from the public.
Since 5 August, the owners and beneficiaries behind private equity funds can no longer remain anonymous in major state-related transactions. Those who fail to make the required disclosures can be barred from applying for new public funding and from signing new contracts with the state.
The changes are already having tangible consequences for several companies linked to Hungary’s previous political establishment.
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Mészáros-linked companies already hit by funding losses
One of the most prominent names affected is billionaire businessman Lőrinc Mészáros, whose business empire expanded dramatically during the previous government’s years in power. According to 24.hu, several major financial opportunities connected to Mészáros-linked companies have already fallen through. Among them:
- Opus Titász Zrt. lost out on around HUF 60 billion in EU funding in connection with a major electricity network development programme.
- Gallicoop Zrt., a turkey-processing company, had HUF 33 billion in support withdrawn after authorities determined that the ownership structure did not meet the relevant requirements.
- A company linked to one of the private equity funds also had to repay more than HUF 2 billion to the state after profits had allegedly been extracted before the state took over the road toll system.
The Gallicoop case is particularly revealing. The Agriculture Ministry reportedly argued that the funding had been improperly awarded because the company was owned by private equity funds, making it impossible to establish the identity of the ultimate beneficial owner. But these cases may prove to be only the beginning.
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The HUF 24,000 billion motorway deal is next
The biggest question concerns Hungary’s 35-year motorway concession, estimated to be worth around HUF 24,000 billion (EUR 66 billion).
The concession has already attracted scrutiny in Brussels, where an infringement procedure is under way. Meanwhile, Transport and Investment Minister Dávid Vitézy has repeatedly indicated that the Hungarian government intends to examine the agreement in detail.
Prime Minister Péter Magyar has also singled out the motorway concession as a prime example of what he calls “public money devouring”. That could put the concessionaire, MKIF Zrt., under scrutiny.
The company has an unusual ownership structure: seven private equity funds appear among its owners. These funds have been associated with the business interests of Mészáros and his long-standing business partner László Szíjj, although the private equity fund structure has historically made it difficult for the public to identify the ultimate beneficiaries. The new transparency rules could change that.
State has already paid HUF 1,024 billion
Another controversial aspect of the motorway concession is the amount of money already paid by the state. According to figures cited by Vitézy, the Hungarian state has paid HUF 1,024 billion (EUR 2.83 billion) to MKIF so far, which is more than the value of the work completed by the concession company.
Critics argue that instead of reducing the burden on the state budget, the arrangement effectively allows the state to pre-finance the private operator while shielding it from significant risks. That is likely to make the concession one of the most politically sensitive elements of the government’s wider review.
4iG and the waste concession also examined
The investigation is not limited to the motorway business. A number of companies within the 4iG Group also have private equity funds among their owners, and the new government is examining the relationship between the state and 4iG as well.
The waste management concession is also undergoing a comprehensive review. In this case, however, the concession is operated by the MOL Group, rather than through the same type of private-equity-fund ownership structure. The government’s approach suggests that contracts and concessions established during the previous era could face significantly greater scrutiny than before.
Private equity funds face a choice
The new rules could force the beneficiaries behind Hungary’s private equity funds into an uncomfortable position. They can either reveal who ultimately benefits from their lucrative state-linked businesses, or risk losing access to future public contracts and funding.
The scale of the contracts involved is enormous, with the motorway concession alone estimated at HUF 24,000 billion.
