EU threatens to suspend more funds for Hungary, government takes several steps
Since March this year, the European Commission and the Hungarian government have been in dispute over the law on public construction projects that was adopted in November 2023. According to Brussels, the law could violate EU basic requirements for transparent and competitive public procurement on several points.
As reported by Portfolio, one of the biggest problems is the provisions of the law that allow certain public investments to be exempted from public procurement procedures by government decision.
According to Brussels, these exemptions are not sufficiently justified and lead to a lack of transparency, while they may also violate the rules that ensure the efficient use of EU funds.
Before the European Commission's March letter, the Hungarian government had been reportedly already warned on several occasions that the current form of the text could have serious consequences,
including the partial or total freezing of payments for certain operational programmes, which would mean a loss of billions of euros in funds for the Hungarian budget.
The Commission also criticised in the spring that the law also affects property ownership by requiring that property needed for certain investments must be handed over to the ministry responsible for the project, in many cases free of charge.
This mechanism of transfer of ownership, in particular because of the transfer obligations of local authorities, may violate EU rules on transparency in the implementation of projects.
Ongoing negotiations with Brussels
As Portfolio has now learned from the European Commission, on 24 April the Hungarian government's Ministry of Construction and Transport responded to the concerns of the EU executive.
The ministry also confirmed that they had responded to the Commission's letter by the deadline.
The Ministry of Construction and Transport sent detailed replies to the comments within the deadline set by the Commission, confirming that the upgrading of the regulation of investments to the level of a law provides a new and coherent regulatory framework,
the ministry said, indicating that the measures will strengthen the legal guarantee for all actors involved in the investment, contributing to the rule of law. They argue that "the foundations have therefore been laid for an investment process reinforced by legal guarantees." They hope that these will provide Brussels with acceptable answers to the questions raised.
However, the European Commission has told Portfolio that
its investigation is not yet complete, as all the implementing regulations relating to the law were only amended and published at the beginning of August, and further amendments are expected during the application of the law.
They said that the Commission is in further discussions with the Hungarian authorities and that their final assessment can only be made after that. The cabinet made a number tweaks to the legislation in June, July and August, so there is more for the EU body to assess.
The future of EU funding available to Hungary is therefore still uncertain, with the worst-case scenario being that billions of euros of infrastructure investment could be affected by the withdrawal of funds, with serious consequences for the country's economy.
Sources told us in April that up to €2-6.5 billion of public infrastructure investment through the relevant operational programmes could be affected by the dispute.
Now, several eu officials have said that it is unlikely that the whole framework will be suspended because the government is cooperating.
Negotiations between the EU and the Hungarian side are expected to continue in this area, which is almost an exception in the disputes between the government and Brussels. As we wrote a few weeks ago, the negotiations on the implementation of the super-milestones blocking €10.4 billion of the RRF funding and the conditionality procedure blocking the remaining €6.35 billion of cohesion funds have not moved forwarded a single inch for months, which threatens to result in a permanent loss of EU funds unless a deal is reached by the end of the year, as Gergely Gulyás admitted at Wednesday's press briefing.
However, in the debate with the Ministry of Construction and Transport, as noted by the Commission, several amendments were made to decrees and regulations, which demonstrates a constructive dialogue. Both EU and government sources have said that the debate could be concluded by the end of the year, although there are still points of conflict where the EU wants changes, but these have not been specified.
Cover photo: EU
