Strategic Analysis: Russian Business Activity in Hungary (Abstract)

In 2010, Prime Minister Victor Orban came to power in Hungary in a landslide victory for his Fidesz Party that came on the back of a wave of protests against his predecessor that were prompted by a combination of economic and political factors. During his time in power, the country has flirted with a pro-Russian foreign policy that has caused controversy within the EU and that appears to be rooted in his populist political style that has involved a range of domestic promises on economic and financial issues.

PM Orban has enjoyed a supermajority in parliament for most of his tenure, permitting him to implement a wave of some 200 laws that changed the constitution, removed democratic checks and balances and loosened supervision of elections. While PM Orban surely believes what he preaches in terms of his envy of the authoritarian styles of other leaders and his desire to create an illiberal state, there appear to be strong economic and financial motivations behind his opportunistic cozying up with Russia.

The populist rhetoric that has been the basis of his political message is rooted in showing the Hungarian people a real-world impact on their bottom lines, principally through cheaper energy. Accordingly, less expensive Russian gas and affordable power generation from Russian-subsidized nuclear power plants have become important assets. Much of his maneuvering and horse-trading with President Putin appears to have revolved around these two primary issues: gas and power.

Russia is also Hungarys most significant trading partner outside the EU. Russian exports to Hungary counting for some 8.6% of the countrys total and have impressive annual growth of some 11% per year. That said, it is clear to most observers that Hungary is in far more desperate need of EU funding and trade than it can expect to attract from Russia. Germany, for example, reportedly contributes 25% of Hungarys total foreign direct investment (FDI).

Excerpted Deals and Transactions:

  • Hungary has a number of natural gas interconnectors, including existing pipelines with Austria, Romania, Croatia and Slovakia. The unusually high proportion of energy demand in the country that is met by natural gas still makes Russian supplies crucial, despite this potential for diversified supply.
  • Hungarys opposition to various EUfavored energy security proposals have been influenced directly by discussions with President Putin (including a natural gas supply agreement struck in February 2015), including PM Orbans opposition to the creation of an EU Energy Union (to improve the negotiation positions of member states) and his declaration that Hungary would no longer be supplying Ukraine with reverse flow natural gas supplies through their shared pipeline.
  • The Paks nuclear power plant contract with Rosatom stands out as a striking set of concessions to Russia agreed to by PM Orban, despite EU objection (and grudging acquiescence in recent rulings) to certain of its provisions that were clearly not reached in an open, transparent, fair bidding process. They were, in fact, declared a state secret to avoid outside scrutiny. Presently, 42% of the countrys electricity demand is met via nuclear energy.
  • MOL Group, Hungarys major oil company, nearly sold its 49% stake in Croatias leading energy company, INA, to Gazprom, which would likely have equipped Russia to take a majority stake in that company. The deal was reportedly overturned by last-minute allied intervention. MOL Group has engaged in a range of successful and unsuccessful business discussions with Gazprom over recent years.