Direkt36 exposed an opposition politician’s businesses with government-linked figures. Now the EU is investigating the projects

Last August, a consortium including a company of Gergo Czegledy, a local leader of the Hungarian Socialist Party won a 111 thousand euros tender for the PR activities related to the renovation of the sewerage pipeline system in North-East Hungary. The project, funded by the European Union, involves the promotion of this investment with the distribution of leaflets and organization of citizen fora.

This is one of the more than 20 tenders investigated now by OLAF, the EU’s anti-fraud agency. OLAF revealed its investigation in a February letter sent to independent MP Akos Hadhazy.

The letter does not list precisely which tenders of the pipeline system treatment program co-financed by the EU are under OLAF’s investigation. However, it refers to Hadhazy’s webpage called Corruption Info, which questioned the legality of the communications tenders. Hadhazy confirmed to Direkt36 that he had filed a report on the tenders to OLAF. The politician has shared OLAF’s February letter with Direkt36 recently.

The majority of these tenders were won by companies of Tamas Varnai, a businessman who has been part of the Fidesz-close business circles for long. He was the managing director of a company called Ezusthajo which won several lucrative state contracts during the first Orban-government (1998-2002), and was also the member of the board of directors of TV2, a channel close to the government, until last December. One of his acquaintances previously described him as someone with contacts to key people from government-close business circles, including Arpad Habony, PM Orban’s chief advisor and Lorinc Meszaros, the PM’s childhood friend.

Another beneficiary of these tenders has been Gergo Czegledy from the Socialist Party, either as Varnai’s consortium partner or as a subcontractor of other companies. According to Hadhazy, the tenders have been overpriced. He also highlighted the fact that the majority of them had only one bidder.

Last summer, even before Hadhazy came forward with his claims, Direkt36 reported on the controversial businesses of Czegledy, an influential figure in the Budapest branch of the Socialist Party, one of the major opposition parties.

His business group won lucrative public tenders from state and local municipality companies mainly as a member of various business consortia. One of his business partners is Varnai, as well as Attila Boros, one of the main beneficiaries of Hungary’s controversial golden visa program. In addition, Czegledy’s company also cooperated in a public investment project with the firm of Lorinc Meszaros, who, thanks to state contracts, has become one of Hungary’s richest people.

OLAF confirmed to Direkt36 that it has indeed launched an investigation but refused to provide any further details. It only added that an investigation does not necessarily mean the involved organizations committed irregularities.

Czegledy told Direkt36 that he was unaware of the OLAF investigation, but said that he had already sued Hadhazy for libel because of his earlier claims.

“Hadhazy is clearly helping [governing party] Fidesz with this,” he said, arguing that any conflict among the opposition forces is helpful for Fidesz in the upcoming municipal elections.

Czegledy also said that his company will earn only 33.8 thousand euros from the two tenders that his companies won as part of consortia. He added that they will be paid after three years of work. He said that a significant part of this amount will be spent on material and labor costs. Regarding his companies’ role as subcontractors in other projects, he said those were partial works that could make up only 10 percent of the value of the individual tenders.

Varnai’s companies said they would answer our questions but this has not happened yet.

Sweeping success of Varnai and Czegledy

At a press conference last November Hadhazy stated that he believed there were problems with the marketing of the sewerage pipeline system projects. These tenders are being implemented by the National Development Programs Office jointly with local municipalities in the areas of the investments. The state-owned office has been dealing with sewerage and waste management investments in the framework of EU programs.

Hadhazy looked into 17 tenders from various areas in the country. He estimated that they could be five- or even tenfold overpriced. On his webpage Corruption Info he described through one concrete case that the winning company submitted a price offer about communications activities well above the market price. For example, the company would deliver an information board for 1 700 euros, while he thinks that this could be purchased from the market for as much as 107 euros.

We found seven other similar tenders implemented in the months following Hadhazy’s press conference. Their values were between 60 000 – 150 000 euros and the total amount of the 24 tenders equaled to 2 million euros.

The majority of the tenders (19 out of 24) have been won by companies co-owned by businessman Tamas Varnai. Gergo Czegledy’s company called Perfektum PR was also involved in several tenders – in two cases it won jointly with Varnai’s company, and in five other cases as subcontractors of other companies.

The public tenders were implemented in a special procedure. Only those could participate who received an invitation from the state company announcing the tenders. According to the rules, at least three companies must be invited, as well as all those who show interest in the tender. However, out of 24 tenders in 17 cases there was only one bidder. The National Development Programs Office has not responded to our questions.

At the top of the state tenders

We covered the relations between the Socialist politician and the government-close businessman in an article published July last year.

This showed that Czegledy’s business group has produced spectacular growth in the past years. The business group won public tenders in individual bids in the amount of 2.8 million euros. In addition, the companies of Czegledy applied for state and municipal projects also in cooperation with other firms, and these business consortia won tenders in the amount of 12 million euros.

Out of hundred successful tenders, Czegledy’s business group cooperated in 21 cases with companies of Varnai. They provided communications services for environmental development projects and organized events for state agencies.

Even though Gergo Czegledy (not related to Csaba Czegledy, another Socialist politician from Szombathely now charged with fraud) does not have a high profile nationally, he has a relatively long past in politics. He was the chief of staff of Miklos Hagyo, the former Socialist deputy mayor of Budapest, whose downfall about a decade ago was prompted by various corruption scandals. According to sources with knowledge about the internal issues of the Socialist Party, Czegledy has also been in close contact with Zsolt Molnar, currently one of the most influential party members. Molnar has often been criticized by other opposition politicians for having close relations with members of the governing Fidesz party.

When approached for a previous story, Czegledy denied that he would be a beneficiary of Prime Minister Viktor Orban’s regime. He said that he had known Varnai for a long time, but, according to him, Varnai does not belong to the Fidesz business circles. Czegledy also claimed that he worked hard to win these public tenders, and, in many cases, his offers were rejected, and he had to legally challenge the tender decisions in order to secure his wins. He believes that his party affiliation causes disadvantages for him, even though politics is just a hobby for him.

For the Hungarian company data we used the services of Opten.

  • András Szabó

    András worked eight years as a journalist at Origo, a then prestigious online news site, but also spent several years at Index and vs.hu news outlets. At Direkt36 he covers Russian-Hungarian relations, activities of business circles close to Fidesz, and political decision making processes of the Orbán government. In 2011 he received the Gőbölyös Soma Award dedicated to investigative journalism in Hungary, and in 2010 he won the Quality Journalism Award, both for a series of articles that focused on a corruption case connected to the former Socialist-led government.