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Hungary still a rough ride for some(Comtex Business Via Thomson Dialog NewsEdge) Apr 12, 2006 (New World Publishing via COMTEX) --Many foreigners have keenly invested in Hungary's economy, though some have gotten much less in return than they bargained for. While Hungary has attracted between $3 billion and $4 billion per year in foreign investment since 1990, and has generally been a welcome environment for foreign capital, not every investment has brought expected returns. What follow are three examples of foreign investment in Hungarian ventures turned sour. Yes you can, no you can't Frustrated at his inability to move forward in Ireland's alternative energy sector, Jim Galvin decided to explore the markets of new EU member states toward the end of 2003. After making the rounds of Poland, Romania and Slovakia, Galvin settled on Hungary as the country he believed to have "the best outlook toward Europe and the best prospects for alternative energy development." Working on behalf of his employer, Augustine Construction, and its partner, SWS, an Irish energy investor, Galvin investigated several sites in Hungary for the construction of wind farms, and identified one in particular as meeting the specifications he was after. Mindful to keep local and national authorities abreast of his activities, Galvin applied for and received what he understood to be permission from the National Energy Office to build a wind power facility capable of generating 108 megawatts of electricity, as well as a contract with government-owned national electricity wholesaler MVM Zrt to connect his supply to the national grid, thereby making his project the one of its kind to possess such a contract. But just as the project appeared to be rolling toward implementation, Galvin received a shock from the Energy Office two and a half months after submitting his application. "I was called in to a meeting with the president of the Energy Office, and he explained that new wind projects were to be limited to a combined total of 330 megawatts," Galvin said. "The upshot of this was that granted requests would be cut by half, but because ours was the only request for permission involving capacity above 50 megawatts, it was explained to me that it would be treated nonetheless as a 50-megawatt application, and would be halved accordingly. As a result, instead of receiving the expected permission to build a 108-megawatt facility, we were cut to 25 megawatts." Galvin explained that such a meager amount of megawatts rendered his project unviable. Moreover, he said that other firms avoided his difficulties by submitting several applications for smaller amounts. "This is what we get for playing by the rules," Galvin complained. The Irish national explained that the Energy Office remains intransigent, despite attempts at intervention on his behalf by Enterprise Ireland, a government-affiliated business advocacy organization, and the Irish Prime Minister's Office. But Galvin has not given up. His plan now is to buy other licenses to bring his project up to at least 60 MW, which he believes to be the viability threshold. But his experience has left him questioning if the Hungarian government is making a genuine effort to develop indigenous, independent sources of energy - this in a country that is dependent on Russia for 80% of its natural gas and a large percentage of its oil, and in which electricity consumption has risen by 1 million megawatts in each of the last ten years. Galvin described how Spain, with its 2,500 MW capacity, has taken the European lead in wind energy - thanks in part to proactive measures from the Spanish government. "I'm not saying that wind power is the answer to all power needs," said Galvin. "The energy needs of the 21st century will no doubt require a mix of solutions, but so much more could be done in this country if the government took a long-term view. As things stand, the Energy Office is caught between the often conflicting interests of a host of different ministries, and this makes a coherent policy impossible." Galvin added that Mavir Zrt, Hungary's national grid operator, has even claimed that an additional 330 MW would be too much for the national grid to handle. Meanwhile, inferior national grids have added as much as 2,000 MW, Galvin argued. Parting shots German investor Peter Klenner first became involved with Thomas Antallfy in late 1999. At the time Antallfy was searching for investors to invest in Amtel Telecommunications Kft. Klenner described the company, at the point of his becoming involved, as a struggling VoIP (voice over internet protocol) service provider that needed capital to expand its services. After further talks, Klenner injected $500,000 in capital and provided a loan of $150,000 to Amtel in the first quarter of 2001, which secured Klenner a 40% stake in the company. "It addition to the capital, I provided corporate restructuring advice at no charge," he said. In the last half of 2002, Klenner revealed that Antallfy expressed an interest in pursuing a tender to provide website-based services for Amway, a multilevel marketing firm with pan-European subsidiaries. Klenner said that he agreed to shift a portion of his invested capital away from Amtel VoIP in order to found and nurture a new entity called Web Services Holdings Limited. Web Services was thus registered in Malta in February 2003 as the 100% owner of Web Services Hungary Kft. According to Klenner, the share structure of Web Services Malta Ltd. was: Klenner 40%, Thomas Antallfy 30% and Jen? Tor?csik 30%. "Web Services secured a multi-million dollar contract with Amway that same year, which is ongoing. In addition, Web Services Hungary serviced a variety of other clients," said Klenner. He claimed that it was understood and agreed upon that all shareholders would receive dividends in direct proportion to their holdings, and that the dividends were to be distributed each and every month. "The distribution of dividends was maintained as agreed upon, until it suddenly stopped early this year," said Klenner, who was then informed in writing that some of the management of Web Services Hungary wanted to receive a share position in the company, as well as a transfer of silent partner Tor?csik's shares to their own names. Klenner was willing to agree to the share transfer under certain conditions, but was later informed that there was a hostile management buyout in the works at Web Services Hungary - as a consequence of which all share holdings would be diluted. Klenner claims that he then found out that the company's regional director, Richard Peth?, and Antallfy's wife, Anita Dengel, were the parties carrying out the hostile management buyout. Klenner and his investment team then asked their lawyer to investigate the company's filings at the Company Court. "We were informed by our lawyer that Antallfy had taken it upon himself without my knowledge to transfer a 91% controlling position in Web Services Hungary to his wife, as well as some other shares to Peth?. According to our lawyer, this was illegal," said Klenner. After hearing of Antallfy's alleged illegal transaction, some members of the board of directors of Web Services Malta's auditing firm, BDO Malta, including managing director Lino Buttigieg, resigned immediately, Klenner added. For his part, Antallfy said that Klenner's version of events contains a number of factual errors, adding that the two have parted ways. He mentioned that he knows more than one person who, like himself, is "disappointed" by Klenner's business conduct. He also remarked that a newspaper is not an appropriate vehicle through which to settle such a dispute. Klenner plans to take the case to court. Late justice is no justice David Copp, an English businessman seeking new advertising opportunities in Hungary, has been fighting for 10 years to claim $300,000 that he maintains was snatched from him by a crooked business partner. Having continually spent his own money on the case, Copp is now representing himself in court. The legal action is for a breach of contract in 1992. Notice of legal action was given in 1993, and DCSM (David Copp Sports Management) vs. Vasut Media KV, (which was formerly MAV/Huszar Media KV, or MHM) went to trial in 1995. The latter company was in the midst of liquidation. After years of absence from proceedings, Gabriel M. Zalka, the former managing director of MHM whom Copp accuses of taking his money, appeared in court on Oct. 3, 2006. In March 1992, MHM entered into an agreement to sell DCSM the rights to lease 500 poster sites on MAV Zrt (Hungarian Railways) territory for 21 years. DCSM paid the agreed $300,000 for these rights, which included erecting 282 hoardings in specific locations, said Copp. "MHM acknowledged receipt of the money for the said rights and hardware, but did not perform as per the contract," he said. Zalka denied entering into any agreement with DCSM, while his legal representative denied that his client bore any responsibility. The plaintiff presented documentary evidence that Zalka had requested payment of a deposit, which was received: Zalka, on behalf of MHM, addressed a letter to Copp, then the managing director of DCSM, confirming that the former had sold billboard advertising sites to either DCSM or OAEE - whichever Copp determined. Three weeks later, after Zalka had received the whole amount of the agreed payment, he again confirmed to DCSM that the transaction had been completed. Zalka argued that the plaintiff's claim that Huszar International Partners (HIP), a Delaware-based registered company, had been struck off the register for non-payment of taxes was untrue. DCSM submitted a document bearing the signature of the Delaware state secretary saying that the company had been struck off on Dec. 31, 2005. Zalka, however, presented another document stating that HIP had been registered as a dormant company. HIP was MAV's original joint venture partner in MAV/Huszar Media. MAV, however, reduced its share in the venture to 1% after Zalka failed to meet financial obligations, and after DCSM brought MHM to court for breach of contract. MAV and DCSM spent nearly three years trying to settle out of court, according to Copp, but MAV then entered into a new agreement with Zalka and advised DCSM that its only resort was to take legal action. DCSM briefed its legal advisors, and the case went to court in 1996. The Budapest Court ruled against DCSM in April 1997, but Hungary's Supreme Court of Appeals overruled the verdict in 1998 and remanded the case to the Budapest Court, where it remains undecided. The next hearing is set for Jan. 9, 2007. With the help of the British Embassy in Budapest, DCSM has submitted a formal complaint to the European Court of Justice regarding how long it has taken to resolve the case. DCSM has also expressed concern that the defendant submitted to the court documentary evidence that has since been proven to be false. The court accepted the evidence, however, and denied DCSM a right of reply, even though its managing director was present at the time. In its complaint, DCSM argued that the defendants have set out to confuse the court by making false and misleading statements, including one that pertains to HIP's actual status as a company. Budapest Business Journal Copyright Reproduction or use without permission of editorial or graphic content in any manner is prohibited. (C)2006 New World Publishing Kft. with all rights reserved. |