Goulash State Corporatism – Hungary’s MOL in Checkmate?

One of the more memorable Russia energy quotes I heard over the past year comes from the leader of Hungary’s opposition party, Viktor Orbán, who on the party’s 19th anniversary declared that “Those young people following us should not allow Hungary to become Gazprom’s most cheerful barracks after we freed ourselves from the fate of being the Soviet system’s most cheerful barracks.”

Viktor Orbán claims that he wouldn’t get too close to Gazprom, but reality would likely prove otherwise

With no shortage of drama, political grandstanding, and perhaps hyperbole, Mr. Orbán sought to attack his incumbent opponent Prime Minister Ferenc Gyurcsány where he felt he had the most leverage – the government’s decision to back the pipeline to bring Russian gas under the Black Sea through to Turkey (the Blue Stream extension) – a move which dealt a lethal blow to the rival Nabucco project which would ease energy dependence on Russia. For countries that have only recently escaped the clutches of Soviet rule (the last Russian soldiers left Hungary in 1991), their hard-earned sovereignty is highly treasured, and for this reason Mr. Orban’s exaggerated characterization of Gyurcsány’s energy policy decisions as a renewed surrender to communism gained so much traction. But did Gyurcsány’s strategy to earn favor with the Kremlin get Hungary any relief? Or is the country headed toward a new version of Goulash State Corporatism no matter what? Indications point to the latter, as the latest protectionist move by the Hungarian government to allow its largest energy firm, MOL, to block unwelcome foreign bids via “Lex MOL” legislation is raising some eyebrows – illustrating at once a failed energy strategy and Gazprom’s tactics of disaggregation. There are many opponents to the Lex MOL law, and it is uncertain whether or not the state can hold out on this tenuous legislation. Protectionism like this makes Brussels uncomfortable, and Andris Piebalgs has already said that the EC will be able to rule very quickly and possibly overturn the law, hoping to stop a domino effect of similar M&A barriers across Europe. Lajos Bokros, a former finance minister and now deputy chief of Budapest’s Central European University, told the FT that he didn’t think Lex MOL is about protecting against a Gazprom takeover, but rather the protection of certain oligarchs: “It is a brutal attempt by the state to protect private interests. It is not about the public interest.” The leading suitor for MOL is Austria’s OMV – a company that the Hungarians fear is acting as a Trojan horse for Russia’s Gazprom, which raises significant geopolitical concerns. Gazprom has spent years cultivating close relations with both OMV and the Austria. During Putin’s visit to Vienna last spring, he declared Austria to be “a model partner” and later Gazprom purchased a stake the Central European Gas Hub and talked up plans to build additional storage facilities. Piebalgs himself likely feels as conflicted as anyone in this matter, as he is aware that a green light for OMV to buy MOL may bury the EU’s favorite energy project. Dieter Helm of Oxford University characterized Gazprom’s relations with OMV as follows: “It’s part and parcel of a very clear strategy that Gazprom is pursuing, which is to strike bilateral deals with individual member countries and to avoid having to discuss, negotiate gas contracts and gas security with the European Union Commission as a whole. … Gazprom has been remarkably successful in each and every component of the strategy it has been pursuing.” On his behalf, Prime Minister Gyurcsány had clear objectives in his decision to make friends with the Kremlin and side with Gazprom over those who favor the Nabucco project – despite the reputation damage he may suffer in domestic politics from the likes Mr. Orbán. The Russian government’s politically activist management of Gazprom poses an incredibly difficult reality for Eastern European sovereign states – it is impossible not to be in some type of partnership with the region’s largest energy supplier, however the terms of that relationship are being negotiated in radically different ways. The Hungarian government and MOL are desperately competing with OMV to become Gazprom’s partner, not property, and that is an extremely difficult line to walk, as Paul Betts comments in today’s FT:

The problem for Hungary is that it must continue to balance the risks of openly provoking Russia, which supplies about 80 per cent of its natural gas needs, with the desire of many Hungarians to stay independent of Russian influence. They have so far managed to keep Mol out of Gazprom’s clutches. But the Russians are consummate chess players and their recent moves in Austria show they have not given up on the game.

So perhaps Goulash State Corporatism has not quite yet arrived to Hungary, but the clock is ticking. Back in May, Time coined a memorable phrase in their profile article of Alexander Medvedev: “Gazprom always wins.” So long as the Russian energy strategy is successful playing companies like OMV and MOL off against each other, and able to maintain its track record in bilateral energy negotiations, this will continue to be the case.