"When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be."
Lord Kelvin

The models of rent seeking and cronyism in the Hungarian energy market

April 27th, 2018

Istvan Janos Toth – Klara Ungar: The models of rent-seeking and cronyism in the Hungarian energy market.
The analysis of the Hungarian government – MVMP – MET case

In this paper, we analyse a regulatory decision of 2011 made by the Hungarian government as regards the Hungarian energy (gas) market and its developments. Ultimately, this regulation was clearly favourable to a private company (the MET Hungary AG and its successor the METI AG) originally owned by the Hungarian oil, gas and petrochemical group, the MOL Group that traded in the Budapest Stock Exchange. The ownership structure of the MET Hungary and its successors was changed several times from 2007 to 2016; first Russian companies owned by Russian private persons and then Hungarian private persons became the owners. Finally, the network of owner companies of MET shows a special pattern. The dominance of Cypriot offshore companies in the ownership network of the MET Holding is well-marked: the five owners owned indirectly the MET Holding in 2016 using ten other companies as intermediate owners, including five offshore companies. The regulation of the Hungarian government was criticized by the EU. In March 2015, the European Union launched infringement proceedings against Hungary for the regulation of 2011 made by the Hungarian government. As a result, the Hungarian government repealed these regulations in 2015.

We interpret this regulatory decision of the Hungarian government and its development using concepts such as government failure, rent-seeking, and cronyism.

Keywords: gas market, Hungary, government failure, rent-seeking, cronyism


Paper in Hungarian (pdf)