Hungary PM’s son-in-law left behind inexplicably overpriced lamps

Forrás: 7/24 Hírműsor

Since last year, LED lamps have been providing light for those who drive, after sunset, on the busy Árpád fejedelem Street in Budapest, between Margit Bridge and Zsigmond Square. The modern lamps cost 139 035 forint per piece (444 euro).
Lamps of the same trademark and type, and technically almost completely similar to the ones in Budapest, were installed last year in Keszthely as well, on Csapás Street, close to some local shopping malls. These lamps cost 217 805 forint each (695 euro).

There was one important difference between the projects: the supplier of the lamps. In Budapest, the lamps were bought directly from the manufacturer. In Keszthely they were delivered by Elios Innovatív Ltd., the company responsible for the modernization of the city’s public lighting system, and until recently co-owned by the Hungarian Prime Minister’s son-in-law, István Tiborcz.

This is not a unique example. By sending dozens of public information requests in the past three months, Direkt36 collected nearly one thousand documents about the LED public lighting projects won by Elios. The investigation reveals that, compared to other projects, the lamps used in Elios’s projects were outstandingly expensive.

These price differences increased the overall cost of several projects by tens of millions of forint (several thousand euro) and in at least in one town by as much as hundreds of millions of forint (hundreds of thousands of euro). This was all paid from public money, mostly coming from European Union subsidies made available to Hungary to modernize its infrastructure.

Our investigation also reveals that although theoretically Elios could not have known the content of the background materials prepared by procurement’s requestor, in at least one case their offer was identical to the material almost word by word.

Elios did not answer our questions concerning these similarities, and they gave a general answer about their pricing. “Our offers are made by professionally well-recognized colleagues, on an exclusively professional basis”, they said.

They added that the “owners of the company never had and never will have a say in the price offers that the company makes.” Until the end of April, one of the company’s owners was István Tiborcz, the husband of Prime Minister Viktor Orbán’s oldest daughter. According to Napi Gazdaság, he decided to sell his shares in the company “because of the continuous attacks targeting him and his family”.

Elios, a company that kept winning several high-value public procurements, was broadly criticised because it won the vast majority of the tenders as a sole bidder, without any competitors. In our article published in March we showed that this could happen because the majority of the public lighting procurements included specific requirements that could have only been met in the Hungarian market by Elios or – in some cases – only a very small circle of companies.

Now we tell the story of the consequences that this scheme had on the price that local governments paid for the projects, and on the profit made by Elios.

The summary of the story in 1 minute

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They found only one solution

It was only in the past 6-8 years when LED technology arrived to a level where it could not only be used in theory, but could be applied efficiently in real life, for example for the public lighting of streets.

But those who have a say in the final decision about the public lighting modernization, are generally not experts on public lighting. This was the problem that the leaders of the state of Minnesota in the United States tried to solve in the end of 2012.

By that time, LED public lighting system had become an accessible alternative technology in the United States, and there was a study published about it. The study analysed the possibilities offered by this technology, and contained a detailed guide for city leaders on how to make a decision if they plan to modernize their public lighting with LED technology. Among others, it was suggested to ask for a price offer for 500 lamps from every possible manufacturer (before beginning the project) and to test the lamps.

This distant example is mentioned here only to show how much the decision-making on LED-lighting projects differed in Hungary. We contacted each of those municipalities that awarded street lighting contracts to Elios. Of the more than a dozen towns, eight responded – Hévíz, Kalocsa, Kecskemét, Keszthely, Mezőheyes, Szolnok, Vác and Zalaegerszeg – and sent us documents.

These Hungarian municipalities also ordered preparatory studies for their street lighting projects. Unlike in the United States, however, these studies did not include competing solutions.

The studies that we could look into were very similar, both in terms of their structure and content. In addition to an inventory of the old lamps there are several pages about the standards and about the basic terms used in lighting technology. Then they list the requirements that the new lamps needed to meet. After all this, the studies, without giving any explanation, name the manufacturer and the type of lamp that will replace the old ones. Finally, they calculate the expected amount of savings in the next 15 years.

“If a non-professional looks at these studies he might think that they are professionally well-established. But based on these studies, it is not possible to make a responsible decision as they propose only one solution,” said András Arató, expert of the Lighting Society of Hungary.

“When calculating the expected saving there are lots of unpredictable factors, the data are uncontrollably uncertain, and there are no alternatives detailing the results of any other possible solutions. It seems as if it had already been told what the study finally had to conclude”, said Arató.

An assembled team

After the technical plans, other preliminary studies were made for the projects. In order to receive European Union funds for the projects, local governments had to prepare an energy study as well, containing detailed energy and financial plans of the project. The aim of these studies would have been that municipalities – not being experts in lighting technology – could receive professional help for the preparation of the projects and applying for EU funds. This help was supposed to come from independent experts, not connected to manufacturers and contractors.

In the case of most projects subsequently won by Elios, these studies were prepared by two companies: Sistrade Ltd. and Tender-Network Ltd. In most cases, the technical preparatory study was written by Sistrade and the energy study by Tender-Network.

Sistrade Ltd., based in a Southern-Hungarian city, Pécs, was founded at the end of 2010, two years after the launch of Elios. Since October 2011, it has been owned by Endre Hamar who was a co-owner of another company until 2013 with István Tiborcz, one of the founders of Elios. Hamar was also a co-owner of Elios between January and August 2013, then between November 2013 and April 2014. The majority of the studies for the tenders were made in 2013.

Tender-Network Ltd. writes tender applications and gives advices for local governments and state-owned companies. Its revenue has increased tenfold since 2010, and it made a big profit for its owner and CEO.

We asked both Sistrade and Tender-Network if they had any business connections, of whether their CEOs or owners had personal connections, but they did not answer our questions. Elios said that they had no business connections neither with Sistrade or Tender-Network. They did not answer our questions concerning personal connections.

In March, newsportal Index wrote that the police had launched investigations in connection with four public tenders subsequently won by Elios. The investigation started after András Schiffer, co-president of LMP, a Hungarian opposition party, had filed a complaint because of the alleged concentration of ownership at Sistrade and Elios, based on an article of Átlátszó. The police did not provide any new details to a recent enquiry by Direkt36. They only said that the investigation is targeting unknown suspects, on suspicion of an “agreement restricting competition in public procurement and concession process”.

Accepted without further examination

The energy studies written for the European Union tender applications are of key importance, as they set every detail of the project. The studies determine how many lamps have to be changed, the amount of EU funds that the local governments will apply for, how much the estimated price of the project will be, and how much money will be allocated for the different parts of the projects.

In all the cases that we looked into, the technical expert, either working for Sistrade or Tender-Network, was the same person: András Imrovicz. He had to officially declare that he is not biased towards either manufacturer, and that he had presented various alternatives for the local governments.

Imrovicz claims that he offered alternative solutions to the municipalities but the documents do not include meaningful options. Although there were three projects where alternative solutions were included, both of them cost exactly the same, promising the same amount of savings. Another solution proposed non-LED lamps – meaning that the local governments would not have had the chance to apply for EU funds.

We asked several municipalities if they indeed had any alternatives to choose from. We received answers from two municipalities. In Kalocsa, they could not find any alternative in the study, while in Mezőhegyes the technical contact person answered that the “the local government accepted without further examination those technical solutions that were offered by the company that wrote the energy studies.”

The expensive lights of Szolnok

In the energy studies the different types of lamps are indicated with the corresponding prices. When we compared them, it turned out that – although all of the energy studies were written by the same people at the same time, at the beginning of 2013 – the exact same types of lamps were registered at very different costs.

For example, the studies include a park lamp with 5 different prices in different budgets. The lowest price was gross 166 000 forints (531 euros) in Kalocsa, while in Szolnok the same lamps were priced at 239 000 forints (763 euros). The biggest price difference was found with a lamp that was planned for installation in Hévíz and Vác: in Hévíz it costs 244 385 forints (780 euros), while in Vác it was 157 632 (503 euros) forints.

The following infographics shows the price range of each lamp in different cities:

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We found these big price differences not only between different types of lamps, but also between cities. For example, in Szolnok every lamp costs more than in Vác. If the lamps planned in the centre of Szolnok had cost the same as in Vác, the project could have cost more than 100 million forints (322 thousand euros) less.

As it was possible to apply for 500 million forints (1.6 million euros) of EU funds, bigger cities – for example Szolnok, Kecskemét, Zalaegerszeg and Szekszárd – submitted two applications. The prices of lamps varied even in the case of the tenders issued by the same city, records show.

We wanted to know the reason for these price differences, but we did not receive any answer neither from Sistrade, nor from Tender-Network. András Imrovicz, the auditor of the plans told us that he can only give an “approximate answer”, as his task was to set the amount of planned savings, and this duty did not cover the examination of price offers.

An analysis of the tenders and energy studies suggest, however, that lamps with higher price made it possible for the local governments to maximize the receipt of EU funds. Szolnok, for example, received only 3-4 million forints (9.6- 12.8 thousand euros) less than the maximum 500 million forints (1.6 million euros). We calculated that if the lamps had had the same price as the similar lamps in Vác, Szolnok would have received 91 million forint (293 thousand euro) less.

They received what they had asked for

The decisions on all EU fund applications that we looked into were made on the same day, 15th October, 2013. The state agencies responsible for making decisions on EU-funded projects ask for a detailed budget plan so that they can check whether the prices included in the plans are reasonable. These applications for EU-funded public lighting tenders, however, were approved in spite of the fact that the plans included totally different prices for the same kind of lamps. As a result, all the cities received exactly the same amount of money they had asked for.

The state agency responsible for making these decisions has been abolished since then, and its task was given to the Ministry of National Development. We asked the ministry whether the proposed budgets were examined, whether the big price differences were noticed, and what the reason could have been for such a big difference in the case of the same types of lamps. The ministry wrote that the applications for the EU funds were evaluated by independent experts, and the projects were not compared with one another – they only made sure that the projects complied with the cost-efficiency targets.

Intuitive budget planning

In the case of state projects the final costs can be a lot lower compared to the planned cost, as the competition among the bidders for a public procurement might reduce the actual price. However, this was not the case with public lighting projects.

The difference between the planned costs and the price offer made by Elios was very small. In Szolnok the project’s cost was originally estimated at 558.7 million forints (1.783 million euro) and Elios won with a 557.3 million forint bid (1.779 million euro). This means a 500 forint (1.6 euro) price difference per lamps. And this was the city where the price given by Elios was the lowest compared to the estimated cost.

In Vác, Elios won the project with a bid that was only 67 thousand forint (214 euro) lower than the originally estimated price of the project (535 million forint, 1.71 million euro). This means only a 18 forint (0.05 euro) price difference per lamp.

The bidders of the public procurement could have applied with any other types of lamps provided that they can meet the requirements and the planned savings can be achieved with them. The energy studies and the types of lamps and prices were theoretically unknown for all the bidders.

Elios told us that they did not know the preparatory materials either. They set their offer after having assessed the lamps to be replaced in every city, and after having planned what type of lamps to be installed in place of the old ones. Their principle was to comply with the expected savings and lighting power, they wrote.

Still, at least in one case Elios’s offer is almost identical to the background material. Although most municipalities declined to share with us Elios’s offer on the basis of business confidentiality, Keszthely sent us Elios’ budget with their detailed pricing. It reveals that Elios offered the very same types of lamps and schemes that had been included in the energy study as well.

They could guess very well the planned prices as well. For example, the 24-LED, 58-W lamp type whose price was set at 132 749.75 forint (423.86 euro) in the energy study of Keszthely was subsequently delivered by Elios for 132 800 forint (424.02 euro). Similarly, the prices of all the other lamps differ from the prices calculated by the energy studies with only a rounding to hundreds, at the most. With a bit off rounding off, the dismantling of the old lamps and planning cost the same as it was preliminary estimated by the energy studies.

We asked Elios how it was possible to offer the same type of lamps at almost the exact same price as it was proposed in the energy study without knowing the content of the study, but they did not answer this question.

High risk

There is not much information available on the market price of the LED lamps used in these projects. Several contractors that work on public lighting projects told that they cannot even estimate the price of Tungsram-Schréder lamps – that are most frequently used by Elios – as the producer has not given them price offers for years.

We asked both companies that work on Elios’ projects as suppliers. Tungsram-Schréder first answered that the list price of their lamps oscillates between net 210 and 1100 euros (65 700 and 344 300 forints), the exact price depending on the specific type of the lamp. We asked the company about the price of those types of lamps that were used in the projects, but they answered that the company’s “pricing structure and trade policy, in relation to discounts and price differences, are essential factors of the company’s competitiveness in certain projects”, thus “providing more detailed information would be such a generous present for competitors that the company could not allow itself, as it would mean a high risk for its own activities”.

GE, the other supplier of Elios refused to answer our questions referring to the same reason: “GE, being a member of a competitive market, cannot provide information about the prices used at specific projects, as pricing influences our competitiveness.”

Installation was expensive

Looking into the public lighting projects of the past years, we found only one where Tungsram-Schréder won a public procurement as an independent bidder. Last year they delivered 101 LED-lamps for BDK Budapest Flood and Public Lighting Ltd. The lamps were installed in the Vérmező Park and on Árpád Fejedelem Street. The contracts are available on the internet and show the types and the price of the lamps.

Among the lamps delivered to Budapest we found two constructions that differed by only one parameter from two types of lamps that were installed in Keszthely by Elios. Their type, LED-number, their consumption and lighting efficiency are the same. The two lamps only differ from each other in their light distribution optics. One of them distributes light for a wider road; the other was set for lighting a narrower road. We asked Tungsram-Schréder whether this difference influences the price of the lamps, but they did not answer our question. However, the data we collected and experts we contacted suggest that the price of LED-lamps increases proportionally with their performance and their LED-number – the difference between light distribution might influence the price, but not significantly.

Tungsram-Schréder delivered the smaller, 16-LED and 27-W lamp for 88 449 forints (282 euros) in Budapest. Keszthely received the same lamp from Elios for 144 145 (460 euros). The bigger, 48-LED and 113-W lamp cost 139 085 forints (444 euros) in Budapest, while 217 805 forints (695 euros) in Keszthely.

We asked Elios what the reason was for the big price differences. They said that “Tungsram-Schréder only produces and delivers lamps, but does not do complete implementation. Their price is a suppliers’ price that only covers the price of the lamps. On the other hand, Elios implements entire projects: “our prices are contractors’ price, which also cover the following activities: complete lighting plan, lighting measurements, official authorizations, installation, implementation and, if necessary, changing the lamp arms and wires.”

It the Keszthely project, Elios’ budget showed planning and replacement of the old lamps as separate budget lines, so these were not included in the prices of the new lamps. According to sources from other lighting companies, the installation costs 10 000 forints (32 euros) per lamps. They estimated that the cost of lighting measurement is a few thousand forints per lamps. Many of them suggested that, all in all, one could count with a contractors’ cost of 20 thousand forints (64 euros) per lamps.

Even if taking all this into consideration, lamps were considerably cheaper in Budapest. If Keszthely had been able to buy each lamp only for 30 thousand forints (96 euros) less, the city could have saved 79 million forints (252 180 euros) on the project.

We could not find any comparable data for the lamps of GE used by Elios in Zalaegerszeg. However, Elios did not only use these products in EU-funded projects, but also delivered GE’s lamps to the blocks of flats on Pók Street, Budapest. The contracts available on the internet show that in Budapest the lamps differed from the ones in Zalaegerszerg, but had similar performance. However, the lamps in Budapest were a lot cheaper.

The lamps of lower performance in Zalaegerszeg cost three times as much as in Budapest, while the ones of higher performance were of a double price. “Our project in Pók Street was considered a pilot project, the planning and the installation were done by BDK Ltd. This is why we could provide the lamps for a cheaper price”, explained Elios.

The pricing of Elios also runs counter to the general industrial trends. While in 2011 Elios replaced 6793 old lamps with new Tungsram-Schréder LED-lamps for 749.5 million forints (2.39 million euros), now in Szolnok 5356 new, Tungsram-Schréder lamps will cost 1.2 billion forints (3.83 million euros), partly paid by the habitants of Szolnok, but mostly by the European Union.

This happens in spite of the fact that, according to experts, LED lamps – as every rapidly evolving, new technology – cost less and less, and their price kept reducing since 2011. We asked Elios about this general trend but they avoided to give a straight answer. “The LED lighting technology is one of the world’s most rapidly developing industries”, they wrote but did not say anything about the prices.

Source of the cover photo: 7/24 Hírműsor

For information on companies, we used the databases of Ceginfo and Opten.