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Hungary Puts out Smoking Debate on Tobacco Shop Concession Source from: Portfolio online financial journal (hu) 05/02/2013  As of July 2013, only those may sell cigarettes or tobacco products in Hungary that won a concession from the state in a recent tender. The list of the winners was published last week. It showed that in hundreds of cases those granted tobacco shop concessions were applicants with family or business ties to the ruling Fidesz party's politicians and who had no prior experience in the tobacco business. According to local press reports, the decisions were made by local Fidesz politicians. Although the party rejected the accusations, these have been confirmed by at least one party member. The details of the tender, such as by whom and how the tender decisions were made, have not been not disclosed to this date. In order to remedy that situation seven organisations, including Transparency International and the Hungarian Civil Liberties Union (HCLU), submitted a request for the release of data of public interest to the National Tobacco Trade Non-profit Ltd. Concurrently, a bill was submitted to Parliament on Monday that relieves the state tobacco company from its obligation to reveal such data. Lawmakers have already passed that legislation on Tuesday. That was quick - as always. From now on "abusive" requests for the release of data of public importance may be rejected if the data manager deems that supplying these data would take too long and would thus be bothersome. Smoke is good business The tender The government decided in 2012 that the sale of tobacco products would in future be limited to just around 5,000 licensed vendors - compared to 45,000 retailers before. Legislation approved last September effectively established a state monopoly on the retail sale of tobacco products from 1 July 2013. The licenses were distributed by the cabinet through a tender procedure, with the aim to help small family businesses, single mothers and people with disabilities as well as to make such unhealthy products less readily available. A total of 3,589 applications were selected from the over 15,000 submitted and as of 1 July a total of 5,415 tobacco shops may operate in the whole country - a lot of people applied for and were granted more than one concession. The number of concessions per person was capped at five; 120 applicants were granted that "privilege"; 148 of them were given four concessions, 210 of the applicants may open three tobacco shops and 484 may have two. The concessions were granted for the next 20 years. The majority, 2,625 applicants, won one concession per person. The distribution of the future tobacco shops is extremely uneven. There will be only 1,717 settlements where tobacco products can be bought come July. This means there will be 1,417 communities with fewer than 2,000 inhabitants where no tobacco product may be legally sold at all. A new tender will be invited in these communities, said Zsolt Gyulai, head of the Tobacco Trade Ltd.
Tobacco is a good business in Hungary where 38% of the population smokes, 15% was a smoker but has already quit and only 47% never lit up in their life. Annual cigarette consumption is above the EU average both among men and women. This is a cc. HUF 400 billion market, 80% of which is paid excise tax, 5-10% is the purchase price (depending on the brand) and 10-15% is left for anything else. This HUF 40-60 bn is no clean profit, however, because the wholesalers have two other major cost items, distribution and sales, index.hu wrote today. Dear family and friends of the Fidesz party Winner concentration, political cronies According to an analysis by the Corvinus University and Enrawell, there are only 13 cities in the country where one or more individuals won five concessions. The most prominent of these are Győr, Pécs and Szombathely. In the latter town a total of 40 tobacco shops will be opened, 20 of which are concentrated in the hands of four applicants and the rest will be distributed among 13.
At the same time, the same family names occur many times, which could lead to the conclusion that in specific cities members of the same family won concessions separately. In that case the same family or business group - in many cases the winning applicant was the employee of a company, i.e. a classic straw-man - could hold 6-8 or even more concessions in a single hand, local news portal index.hu reported. The list of the winners includes nothing else but the name of the winner and the town where they won the tobacco shop concession. Index.hu also noted that CBA, the country's largest locally-owned food retailer that is seen as a key corporate ally of the Fidesz cabinet, must have submitted extremely convincing applications, because members of the company's Board of Directors or their closest relatives won concessions in several Budapest districts. It noted that unless we have an odd case of namesake on our hands - which is unlikely because of the rare family names - six of the ten CBA Board members personally won tobacco shop concessions, a total of 17 of these. Zsolt Gyelán will have two shops in the 2nd and two in the 12th district; Antal Halmschláger will have one in Kesztölc; József Krupp will run one in the 12th district and another in Érd; Árpád Viszokay two in the 3rd and one in the 7th district; György Lekeny tow in Szegeden; László Breier two in the 3rd district and three in the 12th district. Another 16 tobacco retail shops will be owned by people who are most likely close relatives of CBA BoD members, the news portal said. Fidesz rejects the charges The ruling Fidesz party rejected allegations that the decisions were made by local Fidesz politicians, saying that such hostile rumours are being spread by "the lobbyists of multinational companies, tobacco companies and alarmist left-wing parties." "Clearly, the multinational-corporation lobby, the tobacco lobby, and the constant hysteria-fomenting animus of left-wing parties are behind the affair," said Fidesz spokesman Máté Kocsis on Monday. The Socialist Party (MSZP) has turned to the chief prosecutor over the government's tobacco concession competition. The party's leader Attila Mesterházy told a press conference on Monday that he had asked the prosecutor to examine leaked information that it was Fidesz officials who had picked the winners of the national tobacco tender, which is equal to abuse of office, MTI reported. He called for the tender to be declared invalid, adding that tobacco should be sold by businesses that have always done so and not by "Fidesz's mates and relatives". "The (outcome) of the concession bids were politically influenced in order to benefit Fidesz's campaign machinery," lawmaker Gergely Karácsony said, citing online press reports.
Margin not high enough János Lázár, now state secretary in charge of the Prime Minister's Office, was the one who had submitted the tobacco shop bill as an MP. But he did not stop there. Two days after the announcement of the winners he put in an amendment proposal to Parliament that seeks to hike the profit margin of the retail sellers of tobacco under new state concessions by 250% from around 3-4% currently. He argued that an appropriate - around 10% - margin could ensure a "modest profitability" also for those tobacconists who primarily or exclusively make their living from selling tobacco. Also note that one of the key considerations in the selection procedure was the business plan the applicants submitted. It was worth a maximum of 60 points out of the 120 available. If someone assumed that the margin will be no different from the current 4% then his/her business plan was obviously less promising than the business plan of those who risked calculating with a 10% margin (to which Lázár had already hinted at in February). Lázár reminded yesterday to index.hu that he had already mentioned the need for a higher margin in an interview in February and that he wanted to wait with this proposal until the conclusion of the tender. The Prime Minster, by the way, would favour 12%, he noted, adding that the margin is 12% in Austria too and Orbán wants to adopt Austrian tobacco market regulations in full. Lázár said the retail price of cigarettes will not rise, because the margin increase will need to be covered by the producers. Is a 20-year state concession data of public interest? Nope - not anymore. But there is no way of knowing that because the tenders and the selection procedure were deemed confidential - even the losing applicants were not allowed to see why exactly they had not won. Seven organisations - Transparency International, the Hungarian Civil Liberties Union (HCLU), news portals origo.hu, index.hu, hvg.hu, investigative journalism portal atlatszo.hu and K-Monitor Watchdog Association - have requested from the National Tobacco Trade Non-profit Ltd. to disclose the following information: They claim that on the basis of prevailing laws on the freedom of information, on concessions and on national assets these data qualify as data of public interest. They also argue that under the Civil Code data related to the management, use, disposal of or engaging of the state budget or the obtaining of any right affecting such asset cannot be regarded as confidential business information. When asked why the specific aspects used for scoring the tenders are not made public, Lázár responded to index.hu on Monday that these will be divulged only after the contracts with the tobacco shop concession owners are signed. He argues that it cannot be assessed whether the tobacconists fulfil the tender conditions before they would open their shops. Hungarian lawmakers - the ruling Fidesz party has a two-thirds legislative majority - have today passed a law amendment submitted only yesterday that effectively frees data managers from their legal obligation to supply data of public interest for those who request it. The bill stipulated that the State Audit Office and the Government Control Office are assigned with the duty of overseeing bodies with a public-service mission and that the need for public information cannot result in an access to the data that is just as deep and exhaustive as the rights of the overseeing bodies. This justification also said that "abusive requests for data" that would hinder the functioning of the data manager significantly and for a long period do not have to be fulfilled. Opposition MPs said the purpose of this new legislation is to conceal information related to the tobacco shop concession tender. The MP submitting the bill, Imre Vas and Róbert Répássy, state secretary at the Justice Ministry, rejected that accusation. Former Olympic gold medallist kayaker Zsolt Gyulai, head of the National Tobacco Trade Non-profit Ltd., told local daily Népszabadság on Tuesday that 30 days after the contracts with the concession winners are signed, those interested will have access to the tender memos, but not to the specific tenders because "these do not qualified as data of public interest, but the property of the applicants", according to the Concession Act. Gyulai said there were 14 people in the selection committee of the National Development Ministry, but he said their names cannot be revealed, unless the government decides otherwise. When asked whether 14 people assessed 15,000 tenders Gyulai responded that "more [than that]. A lot of people worked [on it]." When asked what is the interest of the society in not knowing the composition of the selection committee, Gyulai responded: "This is a story that affects many people. This way they could be subject to harassment [if their names were revealed]." Index.hu reported today that Gyulai's brother-in-law (the husband of Gyulai's sister) has also won two tobacco shop concessions in the 3rd district of Budapest. Katalin Gyulai confirmed this to the portal, saying that they been in tobacco trade for 20 years now, besides running a real estate business. A Fidesz party member with a conscience Abrasive procedure Ákos Hadházy, a member of the Fidesz party employed by the municipality of Szekszárd, first wrote an anonymous letter to local weekly HVG, revealing that it was decided at a local level who should and should not win tobacco shop concessions in the tender. Then at the request of Lázár he revealed his identity and spoke with HVG in an interview published on Tuesday. Hadházy, a veterinarian by trade, said he has been a councillor since 2006 and it was this tobacco shop concession case that "broke down a barrier" in him and that is why he turned to the public. He said it was not a regular faction meeting but a "political consultation" that was to primarily deal with the signature collection [related to the reduction of retail energy tariffs]. At the end of the meeting attended also by the mayor of Szekszárd the attendees were asked to take a look at the list of the applicants [for the concessions] and "say who we know and who could be right for the job. I myself was surprised by this. It was obvious that there was lobbying but to see it done so openly I was taken aback." Hadházy said they had to see who knows who on the list and offer their opinion about the applicants, adding that he has no knowledge of what happened to this list later on. After he learned about the process and the winners from media reports, however, he noted that "this was not the right procedure." It is in the party's interest Asked why he had decided to turn to the press with this information Hadházy responded he had been giving some serious thoughts to going public with this, knowing that many [within the Fidesz party] will think "traitor", but eventually he came to the conclusion that revealing what had really happened "serves the long-term interest" of the party. "In the short term it will certainly be unpleasant; [our] popularity may decline a few percent but I believe that in the long run this is what could help the party." Hadházy noted that the two-thirds legislative majority of the Fidesz party means not only opportunities but could also make just as much damage. "I am convinced that a well-functioning opposition is a basic necessity or would be a basic necessity for any government. Without opposition we will sooner or later be unable to control our own decisions, because there will be no feedback if what we do is bad. [...] Lacking any external opposition we now take decisions that are not right, and unfortunately this [situation] could result in decisions that serve individual interests." Should switch to "democratic governing mode" He also noted that "there is no internal opposition" within the Fidesz party. He explained the lack of intra-party criticism by saying the number of MPs will be reduced and "those who want to obtain a decision making position must accept every decision. We cannot expect them to formulate a real negative opinion. This may also lead government decisions that are not good." Hadházy cited the example of late Polish President Lech Kaczynski who "sat on an airplane and felt he could do anything. This plane crashed because landing was impossible amidst those weather conditions, yet he still ordered the pilots to do it." "If you have no debates within a party - and within this party there are not any, at least on our level - then it could mean two things. We either do something very well, or something is really not right. I believe debates are indispensible for good decisions. And often we see in the party that decisions are made on a 98% or 100% support. That is somehow not right." "We have taken a lot of decisions - at least locally - that I do not think were given enough thought and in many cases [...] these served individual rather than public interests. One of these was the tobacco shop case." Hadházy said there was a time when this conduct, the lack of debate, was the right path to go down but not anymore. "In those eight years when we had to defeat the left-wing government which was in a tragic state this discipline was legitimate. This "paramilitary governance" was acceptable then. But when we took power - even at a local level - we could have had and still could have these debates and switch to a "democratic governing mode". Unfortunately, this switch was not always flicked over. It may be the speed, since it is a country that needs to be reformed, but often the debates are not conducted due to personal interests." He also said that not opening towards the intelligentsia is "suicide in the long run" for Fidesz, because although this is only a smaller part of the society, its power to wield the public opinion could be decisive. Hadházy said that if his opinion yielded political vendetta then he would not mind ending his career in the party but at the same time he would be sorry because he could do "a few nice things for the city". If no political retaliation awaited him it would prove underpin that "Fidesz is full of democrats even if it is not always evident from the current decision making mechanisms." Mayor: What is he talking about? István Horváth, the mayor of Szekszárd (of the ruling Fidesz party), said there was no caucus meeting or political consultation in his city about the list of applications in the state's tobacco shop tender. He said he had seen no list whatsoever and that it would have impossible given that the National Tobacco Trading Non-profit Ltd. was conducting the tender. He also said it was "incomprehensible" why Hadházy would make such statements. Asked by HVG if he thinks Hadházy is a liar and what his intentions could be, Horváth responded that he could not interpret what Hadházy said in the interview and that he does not understand his intentions either. Sources speaking to news portal origo.hu said Fidesz parliamentary group head Antal Rogán and state secretary Lázár were also providing aspects by which the winners were to be selected. Among other things, origo.hu said, they asked not to give any concession either to those close to the far-right Jobbik party or the Socialists and that if possible those should be favoured who have ties with the Fidesz party. Tobacco is a good business in Hungary where 38% of the population smokes, 15% was a smoker but has already quit and only 47% never lit up in their life. Annual cigarette consumption is above the EU average both among men and women. This is a cc. HUF 400 billion market, 80% of which is paid excise tax, 5-10% is the purchase price (depending on the brand) and 10-15% is left for anything else. This HUF 40-60 bn is no clean profit, however, because the wholesalers have two other major cost items, distribution and sales, index.hu wrote today. Enditem Related Updates |
