Economy
Brussels imposes yet another large penalty on Hungary
The press department of the European Commission representation in Budapest and the Development Policy Information Department of the Prime Minister’s Office have practically confirmed the suspension of payments at the three Operational Programmes, but neither of them gave further information about the reasons or specifics about the dispute, saying these were still in progress.
This is the situation in the ‘asphalt case’
Bruxinfo.hu reported on Monday that the EU executive has recently suspended the payment of funds to Hungary in connection with road tenders and opened a procedure for a financial correction, as well.
The so-called ‘asphalt case’ has been examined by the EC for almost two years now. The EU executive found fault with the practice Hungary has been applying in road construction tenders since 2007. The Commission launched a probe into those contracts because only those construction companies were allowed to run in tenders for road construction projects co-funded by the EU that had asphalt mixing plants within a 50-kilometre radius of the given road stretch or in the county where the road was to be built. Barring other potential bidders from the tenders this way constitutes an infringement of EU competition regulations.The government argues the measure concerned quality control.
The Prime Minister’s Office told Portfolio that in the ‘asphalt case’ “merely a technical development" occurred, i.e. the Commission has only sent Hungarian authorities its written assessment on the correction it proposes. “This is merely a procedural step" and Hungary can make its observations to the EC and present counter arguments before a final decision is made by the EU executive.
“The correction procedure has not been launched yet, as there is no final decision on that by the Commission," the PM’s Office emphasised. “Hungary is convinced of its truth and finds it unfair and legally questionable that the Commission disputes in the last years of the implementation of a cycle a rule which has been in effect since 2007 and was part of several projects that were subject to Commission audits, but Brussels has never objected to it so far. Not to mention that this rule also served compliance with a Commission regulation (temperature of the asphalt to be used)," the PM’s Office argued.
Nándor Csepreghy, deputy state secretary in charge of development policy, said that although the government does not believe the penalty is fair, it has made some concessions to resolve the dispute by modifying ongoing public procurement tenders. However, it cannot accept the scale of correction proposed by the commission, he added.
The government has 60 days to respond.
In July Csepreghy said Hungary faced a fine of 70-90 billion forints (EUR 229-500m).
Csephreghy voiced confidence that the EU could be persuaded not to impose the fine, in which case the money freed could be used elsewhere before the budgetary period ends.
He also noted that such disputes are common in Brussels and this kind of settlement is also rather frequent.
The Commission was to withhold some 25% of the cc. HUF 600 billion of funding for road investments. The probe done in co-operation by Hungary and the Commission had HUF 240 of the above project package "settled". A 25% correction of the remaining HFU 360 bn would mean that Brussels withholds HUF 90 bn worth of funding, quite a blow. Portfolio believes, however, that Hungary underestimates the size of the possible penalty, which could in fact be up to HUF 150 bn in a worst-case scenario, according to our source.
Brussls may say the final word on the matter in the spring or the summer of 2015. In practice, the correction would mean that the EU withdraws its funding from the affected projects and so the Hungarian state budget would need to cover those expenses. The EU funds freed this way could be used for other projects had there been time fro that.
Payments stopped at three other Operational Programmes too
Portfolio learned that the payment of invoices have been suspended not only on seven road priorities but also at certain development areas (priorities) of three Operational Programmes due to disputes. The source said there is a risk of additional serious financial corrections in these cases too.
Overpricing costs Hungary HUF 20 bn
Our source said the EC found major overpricing at EDOP and EEOP and uncovered several projects that it found unfit to receive EU funding. During an audit at ROP the EU executive found that (in scope of an ex-post quality insurance) the result of certain accommodation development tenders was significantly manipulated so that certain companies would benefit. The source said this manipulation affected so many tenders that Hungary had no choice but to accept a 25% flat correction, which amounts to nearly HUF 20 bn.
Bruxinfo.hu reported on Monday that the EU executive has recently suspended the payment of funds to Hungary in connection with road tenders and opened a procedure for a financial correction, as well.
The so-called ‘asphalt case’ has been examined by the EC for almost two years now. The EU executive found fault with the practice Hungary has been applying in road construction tenders since 2007. The Commission launched a probe into those contracts because only those construction companies were allowed to run in tenders for road construction projects co-funded by the EU that had asphalt mixing plants within a 50-kilometre radius of the given road stretch or in the county where the road was to be built. Barring other potential bidders from the tenders this way constitutes an infringement of EU competition regulations.The government argues the measure concerned quality control.
The Prime Minister’s Office told Portfolio that in the ‘asphalt case’ “merely a technical development" occurred, i.e. the Commission has only sent Hungarian authorities its written assessment on the correction it proposes. “This is merely a procedural step" and Hungary can make its observations to the EC and present counter arguments before a final decision is made by the EU executive.
“The correction procedure has not been launched yet, as there is no final decision on that by the Commission," the PM’s Office emphasised. “Hungary is convinced of its truth and finds it unfair and legally questionable that the Commission disputes in the last years of the implementation of a cycle a rule which has been in effect since 2007 and was part of several projects that were subject to Commission audits, but Brussels has never objected to it so far. Not to mention that this rule also served compliance with a Commission regulation (temperature of the asphalt to be used)," the PM’s Office argued.
Nándor Csepreghy, deputy state secretary in charge of development policy, said that although the government does not believe the penalty is fair, it has made some concessions to resolve the dispute by modifying ongoing public procurement tenders. However, it cannot accept the scale of correction proposed by the commission, he added.
The government has 60 days to respond.
In July Csepreghy said Hungary faced a fine of 70-90 billion forints (EUR 229-500m).
Csephreghy voiced confidence that the EU could be persuaded not to impose the fine, in which case the money freed could be used elsewhere before the budgetary period ends.
He also noted that such disputes are common in Brussels and this kind of settlement is also rather frequent.
The Commission was to withhold some 25% of the cc. HUF 600 billion of funding for road investments. The probe done in co-operation by Hungary and the Commission had HUF 240 of the above project package "settled". A 25% correction of the remaining HFU 360 bn would mean that Brussels withholds HUF 90 bn worth of funding, quite a blow. Portfolio believes, however, that Hungary underestimates the size of the possible penalty, which could in fact be up to HUF 150 bn in a worst-case scenario, according to our source.
Brussls may say the final word on the matter in the spring or the summer of 2015. In practice, the correction would mean that the EU withdraws its funding from the affected projects and so the Hungarian state budget would need to cover those expenses. The EU funds freed this way could be used for other projects had there been time fro that.
Payments stopped at three other Operational Programmes too
Portfolio learned that the payment of invoices have been suspended not only on seven road priorities but also at certain development areas (priorities) of three Operational Programmes due to disputes. The source said there is a risk of additional serious financial corrections in these cases too.
- EDOP (Economic Development Operational Programme) Priorities 1, 2 and 3 (1.: R&D and innovation for competitiveness, 2.: Complex development of businesses (especially SMEs), 3.: Strengthening of the modern business environment)
- EEOP (Environment and Energy Operational Programme) Priority 4 (Increased use of renewable energy)
- All ROP 2 (Regional Operational Programme) priorities (Tourism developments)
Overpricing costs Hungary HUF 20 bn
Our source said the EC found major overpricing at EDOP and EEOP and uncovered several projects that it found unfit to receive EU funding. During an audit at ROP the EU executive found that (in scope of an ex-post quality insurance) the result of certain accommodation development tenders was significantly manipulated so that certain companies would benefit. The source said this manipulation affected so many tenders that Hungary had no choice but to accept a 25% flat correction, which amounts to nearly HUF 20 bn.
