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Company of Hungarian PM’s Son-in-law Keeps Winning Public Projects Without Competition. Here Is What Made That Possible

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Visitors to the website of Elios Innovatív Ltd are welcomed by a proud message, saying: “thanks to its professional achievements and the outstanding expertise”, the enterprise “has evolved into one of the most dynamically developing companies of the energy sector in Hungary”.

The company, co-owned by István Tiborcz, son-in-law of Hungarian Prime Minister Viktor Orbán, has indeed a reason to boast about. In just a couple of years it has become a company with a turnover of several million euros. Its success lies mainly in winning state contracts, most of them financed by the European Union. The company performed spectacularly well on state procurement tenders for the renovation of public street lighting.

An investigation by Direkt36, however, reveals that there was another factor – apart from the possibly “professional achievements” and “outstanding expertise” – that played a role in the success story. The majority of the public procurements included specific requirements that could have been met in the Hungarian market only by Elios Innovatív or – in some cases – just a very small circle of companies.

A police investigation is being conducted in connection with the public street lighting tenders won by Elios Innovatív, on suspicion of an “agreement restricting competition in public procurement and concession process”. The investigation (launched after LMP, a Hungarian opposition party, filed a complaint based on an article of Átlátszó) examines four public procurements.

Based on the documents analysed by Direkt36 and interviews with people familiar with the public street lighting market, there were several other public procurements where conditions turned out to be favourable for Elios Innovatív. The company won 19 public lighting projects, out of which on at least 8 occasions Elios was the sole bidder. This happened in spite of the fact that, according to interviewees familiar with the street lighting market, there are at least 10-12 experienced companies in Hungary who would be both professionally and financially capable of carrying out big public lighting projects. Roughly the same number of companies appeared in the public lighting projects in Hungary in the last couple of years.

Elios does not only stand out from this crowd because of its frequent success on public procurements. The projects they won, also had a special feature. These procurements contained much stricter requirements than other tenders for public lighting. The procurements often included high-value reference works that no other Hungary-based firms could comply with. Some elements of the reference requirements cannot be justified professionally, according to public lighting experts contacted by Direkt36.

The procurements won by Elios also included unusually detailed technical requirements. While most other street lighting procurements only stated the expected number and lightning efficiency of lamps, the tenders won by Elios had more detailed criteria. For example, the tender announcement determined the colour code of the painting used for the lamps’ surface, and that the lampshade should be curved.

“We see that such requirements are determined [at these tenders] that in crooked ways might comply with the legal framework, they might be called orderly, but they are certainly not fair”, says a former manager of a company willing to take part in a public procurement process, but after having seen the requirements, finally decided not to bid. That tender, worth several hundred million HUF (a few million euros), was won by Elios as a sole bidder. The manager of another company, which has been present on the LED lighting market for years, also complained about public procurement announcements that often detailed parameters and required reference work that could “only be fulfilled by Elios”. Both of the managers spoke on the condition of anonymity.

The public lighting projects won by Elios are all funded by the European Union. The regularity of these kinds of tenders is monitored by two organizations. On the part of the Hungarian government, this entity is the Prime Minister’s Office – that is, office of Tiborcz’s father-in-law. On the part of the European Union, the monitoring entity is the Directorate General for Audit of European Funds (DGAEF).

The DGAEF told us that they do not examine every EU-funded procurements. They only look into randomly selected projects and only after they are closed. Since the Hungarian street lighting projects have not been accounted yet with the European Commission, the DGAEF has not examined any of them. The Hungarian Prime Minister’s Office has not responded to our questions.

Elios Innovatív has not responded to our inquiries either.

Everything started in Hódmezővásárhely

The success story of Elios Innovatív in public lighting roots from a contract signed 5 years ago.

“Who would have thought that the European pioneer of outdoor lighting innovations would be a charming Hungarian town?”, asked Tungsram-Schréder lamps manufacturing company in its article written about the renovation of public lighting in Hódmezővásárhely. János Lázár, who now serves as the head of the Prime Minister’s Office, did dare to dream big. In 2009, as the town’s mayor he proposed to the General Assembly of Hódmezővásárhely that one option for the town to reduce electricity bills is using LED lamps. Back at that time, in other parts of the world, cities were only trying to experiment with LED technology lighting.

The General Assembly soon approved János Lázár’s proposal, and at the beginning of 2010 they also selected the company to implement the project. It was the legal predecessor of Elios Innovatív, named ES Holding, founded just a few months before in 2009 by István Tiborcz, who was 23 years old at the time, and his business partner, Bálint Erdei. Later Tiborcz sold his share in the firm, but held his membership in the Executive Board until January 2014. In April 2014 he became co-owner again through one of his companies. This coincided with the start of Elios’s recent successes in street lighting state tenders.

Tiborcz’s name became known nationwide in 2013, as Ráhel Orbán’s fiancé, but Viktor Orbán said in an interview that he had got to know him five years before that. So Tiborcz was already in contact with the Orbán family when his company was awarded the contract in Hódmezővásárhely. We asked János Lázár whether he knew at the time that Tiborcz was in contact with the Orbán family but he has not answered our question.

The government wanted to help

This investment was not only the test of the LED lighting system, but also provided the basis for Elios Innovatív to dominate the public lighting market, which later flourished with government support.

Around 2011-2012 LED lamp manufacturers and distributors were already busy lobbying at local municipalities in order to select their products to modernize public lighting, as shown in documents in various local authorities. These efforts were given a big push in October 2012 when Péter Szijjártó, then State Secretary of the Hungarian Prime Minister’s Office, announced in the Nagykanizsa factory of GE lamp manufacturer company, that the government decided to make HUF 5 billion (16,3 million euro) available from EU funds for municipalities in order to replace their public lighting system with energy efficient LED lamps.

So many local authorities expressed interest in the program that the government decided to raise the project budget several times, and eventually HUF 8.8 billion (28,7 million euro) was distributed among 33 local governments for the modernization of public lighting. In December 2013, these cities started to announce public procurements for choosing the companies that would implement the projects. This process has not ended in each city. According to our analysis, the public procurements already closed are worth HUF 5.7 billion (18,6 million euro), and 71% (projects worth HUF 4.1 billion or 13,4 million euro) of this goes to Elios Innovatív.

Data show that Elios was only interested in larger projects, worth more than HUF 100 million (326,6 thousand euro). The majority of these projects were awarded to Elios without facing competition, despite that, in theory, projects of higher values are specifically regulated in a way aiming to facilitate competition. According to the law, in the case of projects worth more than HUF 150 million (490 thousand euro), it is compulsory to announce open tenders, where anyone can participate. The procurer can pick the most favourable bidder from a potentially wide selection, thus reducing the possibility of corruption or misuse of public money.

In case of the public lighting projects over HUF 150 million in this new program, however, the open tenders did not produce a strong competition. A majority of them was awarded to Elios being the sole bidder, generally offering a price that was just below the cost estimation of the local government.

An in-depth analysis of the public procurement documents sheds lights on the reasons why nobody wanted to compete with Elios.

Only Elios is good enough for them

Among the beneficiaries of European funds distributed in 2013, Kecskemét was the first city to announce a public lighting tender worth more than HUF 150 million. The tender was published in December 2013. The city estimated the value of the public lighting’s modernization at HUF 704.3 million (2,3 million euro), and they adjusted the required reference work to this estimation. They specified that the successful bidder had to have carried out two public procurements in the previous two years, where public lighting was modernized with LED lamps, and the net value of the two projects had to be at least HUF 630 million in total (2,1 million euro). An additional condition set out that out of the two projects at least one had to be worth net HUF 450 million (1,5 million euro), including the installation of at least 4500 new LED lamps. There were other criteria too, but only this sole condition had already decided the outcome of the public procurement.

There had been only one investment carried out in Hungary, whose scale had been similar to the one required by the public procurement in Kecskemét: the one in Hódmezővásárhely. Thus, the condition could only be met by Elios (which by that time had already carried out the public lighting modernization in the towns of Siófok and Paks as well).

Apart from Elios, only those could have had a chance who had already implemented such projects outside Hungary. No such companies appeared in the procurement process. Elios won the tender as a sole bidder, with an offer which was HUF 200 thousand (650 euro) below the estimated value of the investment.

At the end of December 2013, towns of Tapolca and Balatonfüred also announced their public procurements for public lighting. Since these projects were smaller, the reference requirements were smaller too. Both towns expected the successful bidders to have a work reference worth at least net HUF 200 million (653 thousand euro) of a public procurement for LED projects. This lower threshold could have been passed by two other companies as well, but again, Elios turned out to be the the sole bidder. We asked the two other companies what had been the reason for not participating in the public procurements for public lighting modernization. The manager of one company wrote that he did not want to answer our question, the other company’s manager did not reply.

Similar scenarios repeated in the cases of the public procurements announced in 2014, only the minimum value of the required reference works varied. In Keszthely, bidders had to verify their experience in a public lighting LED modernization project worth HUF 270 million (882 thousand) euro). In Vác it was HUF 350 million (1,1 million euro), in Szekszárd HUF 390 million (1,3 million euro), in Zalaegerszeg HUF 500 million (1,6 million euro).

Pécs did not receive European Union funds for this purpose, still they decided that it was worth installing LED lamps even from loans. They requested a reference of a public lighting LED modernization project worth HUF 500 million (1,6 million euro). Only Elios could verify this kind of experience, having completed the project in Hódmezővásárhely, and after the summer of 2014, in Kecskemét and Szekszárd. In Pécs, another company participated in the public procurement as well, however it was excluded for not having verified the required work reference. In the other towns mentioned above, Elios won the tender as a sole bidder.

In Kalocsa, a work reference of HUF 330 million (1,1 million euro) from at least two LED lighting project was required. It was only Elios who had this reference from Hungarian projects. The contract was awarded to the company again, as the sole bidder.

In many of these cities the public procurement documentation was bought by other firms as well, showing that they also had an interest in the projects, which were eventually awarded to Elios. After seeing the documentation, however, these other firms were discouraged from bidding.

The manager of one these companies, a lighting business, said that they would like to participate in public procurements, but they did not have the required work reference of LED lamps. They bought the public procurement announcement because they hoped that they would be able to gather somehow the required references until the deadline. “We did everything, we even tried to connect with international firms and form a partnership, but we could not find anyone with the work reference of the required scale”, he explains. He adds that they are still keeping an eye on the opportunities, but if they see that a high-scale work reference is required, they do not even buy the documentation of the public procurement, as they know that it does not make sense for them to bid.

It is not only the total value of the required references that is favourable for Elios, but also that the required experience is specified to LED lighting systems. This requirement appears in public procurement announcements, even though their use is not necessarily justifiable from a professional point of view. “Installing LED lamps does not require any kind of special expertise that could only be acquired through experience”, says András Arató, expert of Lighting Society of Hungary. He thinks that when it comes to public lighting it is important to have lamps that are easily repairable (preferably without using any tools), without needing special expertise for this. “LED lamps only differ in its manufacturing and structure from the traditional sodium lamps, but their installation is the same”, he explains.

It depends on the preparation

The public procurements awarded to Elios are not only similar because they all call for bidders with a high-value work reference. The announcements are repeated almost word by word in the case of each town, and they only differ when it comes to the number of lamps, the special local conditions and scale of the required work reference.

Public procurements are made by the settlements themselves, mayors are responsible for them, explains Alíz Szloboda, the expert on public procurement at Transparency International Hungary, an anticorruption organization. Bigger cities have an expert on public procurements, who knows the processes of tenders and their legal conditions well. However, they are not experts on defining the technical details, which is why they tend to delegate this task to a specialist. If the local authority does not have any employee who is expert of the given field, an external specialist or company can be employed to define the technical requirements. Municipalities have the possibility to ask an external company to carry out the entire process of public procurement. According to Szloboda, if several towns have very similar public procurement announcements, it suggests that they were very likely to originate from the same place.

Átlátszó, a journalism organization, has written several articles about Elios’s tenders for public lighting. They were the first to point out that the public procurement announcements in four towns awarded to Elios (Szekszárd, Kalocsa, Mezőhegyes and Héviz) were prepared by the same company, Sistrade Ltd. The company was founded in 2010, its owner is Endre Hamar. Hamar was a business partner of Tiborcz between 2011 and 2013 in Hamar&Tiborcz Consulting Ltd, and until 2014 he was the co-owner of Elios. This means that Hamar was still a co-owner of Elios when his other company, Sistrade Ltd., prepared the announcements for public procurement that were later awarded to Elios.

The act on public procurement prohibits anyone to participate in the preparation of a public procurement, who might have any kind of interest in the tender itself. Based on the article of Átlátszó, András Schiffer, co-president of opposition party LMP, filed a complaint with the police, which launched an investigation into the case of four towns. Comments by the police suggest that they look into the relationship between Elios and Sistrade.

Forrás: Közbeszerzési Értesítő
Comparing the procurement documents of two street lighting projects, one in Keszthely and the other in Tapolca. The difference is shown in blue. Both procurement was prepared by Sistrade. You can view it in larger size by clicking on the image – Source: Közbeszerzési Értesítő, Text Compare

We contacted every municipalities where Elios won the public procurement for public lighting modernization, and asked them who prepared the tender. In Pécs, the local government defined the content of the public procurement. In Bácsalmás, it was done by Sistrade. Other local governments have not answered our questions yet. Municipal records show, however, that there are at least six more towns – Tapolca, Zalaegerszeg, Keszthely, Hatvan, Gyál and Mórahalom – where Sistrade took part in the preparation of the procurement details.

We contacted Sistrade but they did not answer our questions. We also contacted the local governments concerned, and asked them how much say they had in the procurement announcements, and if they were aware of the fact that the requirements published could probably be fulfilled only by one bidder. We received answers from three towns.

The local government of Hévíz replied, with an apparent reference to the police investigation, that due to the ongoing procedure they are not able to provide any further information.

According to Gabriella Angeli, chairwoman of the public procurement committee in Kalocsa, the plans of public lighting modernization for the EU-funded projects were prepared by Sistrade and one other company. In questions regarding technical specificities, the town’s interests were represented by its energy expert, but no other employees of the local government participated in the preparation of the public procurement “due to lack of expertise”. The company responsible for carrying out the tender announced the public procurement based on the preliminary plans after having consulted with Sistrade.

The chairwoman of the public procurement committee emphasized that the tender was open, so anyone could have applied for it, and the published tender announcement was not criticized by anybody, “that is, no potential bidder thought that the public procurement announcement would restrict free competition”. She admitted, however, that “our local government did not have any information regarding the ability of potential bidders to provide work reference of a certain scale. To begin with, we did not even know who the potential bidders were.”

The chairwoman’s answer also reveals that the announcement and documentation of their public procurement was verified before publishing by the Ministry of National Development (which is responsible for the European Union’s program containing public lighting projects) and by the Public Procurement Authority of the Prime Minister’s Office. According to the chairwoman, both entities concluded that the tenders “were adequate both professionally and legally”.

The deputy mayor of Pécs, János Girán wrote that they thought it was “not excessive, but reasonable” to ask for a HUF 500 million (1,6 million euro) reference for a public procurement worth HUF 900 million (2,9 million euro). This “provides the procurer with sufficient professional guaranties that only serious bidders would participate, which is also important”.

The law indeed provide the procurer with the possibility to request previous work reference from the bidders. However, this is only a possibility, not a compulsory rule, and it is not regulated either that only exactly that kind of projects would be accepted that were detailed in the public procurement announcement. Elios itself provides an example for this. When in 2010 it won the Hódmezővásárhely tender worth HUF 700 million (2,3 million euro), while being a freshly founded company, without having any previous work reference in the field.

They did not succeed in everything

Among all the EU-funded projects of the modernization of public lighting, there were three projects where Elios participated in the public procurement, but did not win the tender.

In two places, in Gyula and Tata, the announcement of the public procurement was very similar to those that Elios won in other towns and the procurements were prepared by Sistrade. In Tata there were three bidders. Gyula requested lower reference work than most other cities, which made it possible to run on the tender for other companies too.

The third failure of Elios happened in Szentes. Their public procurement announcement is not even slightly similar to those which were awarded to Elios in other towns. The technical requirements were not as detailed as in other projects won by the company. On the other hand, although Szentes also required a work reference of public lighting worth at least HUF 200 million (0,7 million euro), they did not specify that they would only accept experience with LED lamps. “It was not professionally justifiable”, said Imre Szibrik, the socialist mayor of Szentes. The announcement of the public procurement was made by public procurement specialists of the municipality in cooperation with local, external experts.

The EU-funds distributed in 2013 for public lighting modernization have not all been used in every city. Salgótarján, Dunaújváros and Cegléd are still looking for the companies that will carry out the work.

In Dunaújváros, the plan is to replace public lighting system not with LED lamps, but with lamps relying on the principles of electromagnetic induction. They are looking for contractors who had already installed at least 1000 public lamps of this kind.

In Salgótarján, a town led by socialists, the announcement of the public procurement of a project worth HUF 262.5 million (860 thousand euro) was totally different than in those towns where Elios was successful. In Salgótarján the number, the efficiency or the colour of the lamps was not specified. The city just described its current public lighting system, and stated how much money they want to save. So bidders have to plan how to reach the target, how many LED lamps they would need. Work reference is also required: bidders have to verify that in the past three years they have had revenues of at least HUF 250 million (817 thousand euro), from which HUF 150 million (490 thousand euro) has to come from public lighting modernization projects. However, the requirements do not state that they would only accept experience connected to LED lighting systems, so it is expected that other bidders too will have the possibility to win.

In Szolnok, the public procurement worth almost HUF 1 billion (3,3 million euro) was already announced last autumn. (Update: On Wednesday the result of this tender has been published and the winner is Elios.) Cegléd is still looking for contractors. In both towns the public procurement announcement is very similar to the ones where Elios had won before. In Szolnok they expected a work reference worth HUF 400 million (1,3 million euro), in Cegléd HUF 370 million (1,2 million euro).. Due to the fact that Elios has been winning on all major public procurements, and since their success in Hódmezővásárhely other companies have not even had the possibility to gain work reference of this scale, Elios remains the only one in Hungary who is able to fulfil the tender’s requirements.

The next 10 billion

The market of street lighting keeps growing. At the end of last September, the government announced that it invited new applications specifically for the modernization of public lighting, in the framework of the Széchenyi 2020 Program. Although originally only a total allocation of HUF 2 billion (6,5 million euro) was promised in the announcement, eventually more than HUF 10 billion (32,6 million euro) was allocated for 73 projects. The projects receive 100% subsidies, meaning that the local governments do not have to provide own funds for the modernization, it can be completely financed by European Union sources.

In Bácsalmás and in Hatvan they did not even wait for the results of the European Union’s tender. They had already announced a public procurement before the decision. In both towns Sistrade prepared the tender, and Elios won. In Gyál and Mórahalom, there was no open tender but the procedure was prepared by Sistrade. The municipalities just recently selected the company to carry out the project. Both chose Elios Innovatív.

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

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