Monday

20th Nov 2017

Investigation

The mysterious German behind Orban's Russian deals

  • Mangold (l) in the company of PM Viktor Orban (c) and Guenther Oettinger (r) in Budapest, May 2016 (Photo: MTI)

In August 2013, Hungarian prime minister Viktor Orban welcomed Sergey Kiriyenko, head of Russia's state-run nuclear energy company Rosatom, in Budapest.

It was not their first meeting — but it was probably their most important one. According to Hungarian government sources, it was then that Orban decided to contract Rosatom to expand Hungary's Paks nuclear power plant — a choice made without a public tender.

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  • The extension of Hungary's Paks nuclear power plant was awarded to Russia without a public tender. (Photo: Akos Bodajki / Paks Nuclear Power Plant Co. Ltd.)

The Hungarian government made the decision, which will affect the country's financial and foreign policy for decades to come, in complete secrecy. It did not reveal any details about the Orban-Kiriyenko meeting in August 2013 either.

The circumstances of the meeting, uncovered here by Direkt36, provide deeper insight into Russian-Hungarian relations and the developments in the multibillion-euro Paks expansion project financed mostly through a loan from Russia.

Influential German businessman, Klaus Mangold, played a key role in facilitating this meeting, Direkt36 has learned from government sources.

Mangold, 74, has been active among Europe's business elite for decades and is known for his exceptional relations in Russia. He has personally known Russian president Vladimir Putin since the early 1990s.

Our investigation shows that Mangold, referred to as "Mr Russland" ("Mr Russia") in the German media, was involved in several aspects of the Paks deal.

Not only did he participate in the organisation of the Orban-Kiriyenko meeting but also worked to make the project palatable for EU and Western business circles. His closest contact in Hungary is minister Janos Lazar, who also played a decisive role in the Paks project and who enjoys good relations with German business circles. Lazar, who shares the hobby of hunting with Mangold, introduced him to Orban.

Mangold did not respond to inquiries by phone and by email. Hungarian government officials did not answer our questions and have so far revealed almost no details about Mangold's activities — save that he works for them as a consultant. His contracts have been classified and were not even shared with the members of the Hungarian parliament's national security committee.

'He understands the Russians'

Mangold, who was born in 1943, spent most of his career among the top management of various German corporations.

He helmed the German mail-order company Quelle in the early 1990s; then, between 1995 and 2003, he held executive-level positions in the German carmaker Daimler. Between 2000 and 2010, he was the president of the German Committee on Eastern European Economic Relations, an industry group that represents German business interests in eastern Europe and Russia.

Currently he sits on the boards of several American, Austrian, French, and German companies and works as a consultant through his two firms. According to German company records, his clients included the subsidiaries of such huge corporations as the Dutch Shell, and the Russian Gazprom.

As a consultant, Mangold has put together numerous deals between the Russian and European business and political elites.

He has reportedly facilitated the access of Russian billionaires to European investment opportunities. For instance, as German media reported, Mangold helped Russian steel tycoon Alexey Mordashov acquire shares of one of the world's biggest tourist companies, the Hannover-based TUI Group. After the appointment of Mangold as chair of the company's supervisory board, Mordashov further increased his share in the firm.

A Frankfurter Allgemeine Zeitung (FAZ) story published last year described him as a person who "understands the Russians." According to FAZ, he met Vladimir Putin in 1993 during a visit to St Petersberg as CEO of Quelle. The two have been in touch ever since.

"I have good relations with important Russian governmental institutions," Mangold told the newspaper.

According to FAZ, he also regularly invites the political and economic elite to a 700-acre property in Schwarzwald, Baden-Württemberg. He avoids publicity but is proud of his relations. As he told FAZ, "my relations are my know-how." He added, "This is the basis of my businesses."

The Hungary connection

Mangold appeared in Hungary after the fall of state socialism. The mail-order company Quelle entered the Hungarian market in 1992, and Mangold, as CEO, visited Budapest several times in 1994.

Later, as head of Daimler-Benz Interservices, he developed contacts within the first Orban government (1998-2002). Daimler's management met among others with the Hungarian defense minister, and in those meetings the Germans signaled their interest in upgrading the Hungarian military's MiG-29 fighter jets as the Russian-manufactured planes had to be made NATO-compatible.

This upgrade was subject of an agreement signed in Stuttgart between Mangold and Hungarian economy minister Attila Chikan in April 1999. However, the Hungarian government in the end decided to purchase Swedish Gripen planes, dashing Daimler's hopes of winning the contract. Still, the mere spectre of such a contract caused a political scandal in Hungary.

After a long pause, Mangold renewed his relationship with the Hungarian government once Orban swept back into power in 2010.

In December 2012, by now in the consultancy business, Mangold met with Orban to review, as an official press statement put it, "Hungarian-German and Hungarian-Russian economic relations, in particular energy and financing issues."

Following the meeting with Orban, Mangold started to work for the Hungarian government as a consultant. At the same time, the Hungarian government began to deepen its relations with Russia. That year, Orban gave his backing to the Russia-sponsored South Stream gas pipeline instead of its EU-supported rival, Nabucco.

At the beginning of 2013, Orban announced that the Hungarian government purchased German energy company E.ON's Hungarian gas branch, including the subsidiary holding the gas treaty between Hungary and Russia. This made it possible for the Hungarian government to negotiate directly with Russia about the price of its gas.

With this move, the Hungarian government entered a geopolitical arena in which it had to pay special attention to the positions of big powers — in particular, Germany.

However, Western sanctions imposed on Russia after Putin's 2014 annexation of Crimea have complicated the situation for Orban's government. The Russians invaded Crimea just one and a half months after Rosatom's contract for Paks expansion project was inked.

In this fraught geopolitical climate, Mangold promised to be particularly useful to the Hungarian government. The prime minister's office has kept Mangold's contracts between 2013 and 2015 under wraps.

What's known is that the government issued certificates of Mangold's performance 75 times between July 2013 and December 2016. (Invoices can be paid based on these certificates.) In early October 2017, the prime minister's office disclosed that Mangold has remained on the government's payroll.

According to public data, Mangold's consultancy was paid €125,000 for providing energy policy advice through April 2018. Another of Mangold's companies, Mangold Dienstleistungs GmbH, has been awarded a contract for the preparation of Hungary's e-mobility strategy worth €126,000 that also expires in April 2018.

The government did not share details about these contracts but a government source said that Mangold's knowledge is used when various Russian-Hungarian meetings are prepared. Mangold also advises the government in concrete cases, including the Paks expansion project. He does not appear at official meetings, though. "He is active from the background, an eminence grise," the source said.

Enters Paks

The Paks expansion project is a key element of Russian-Hungarian relations.

According to a former government official, Orban's government conducted exploratory talks with American, French, and South Korean nuclear power companies. However, from the very beginning, the source added, Rosatom remained the leading candidate for the Paks expansion project. The current plant at Paks was built using Russian technology, the source explained, and awarding the expansion contract to Rosatom improved Hungary's negotiating position with Russia on other pending issues.

The fate of the expansion was then decided at the August 2013 Orban-Kiriyenko meeting in Budapest. "Up to that point, it was open who would build Paks, but there we gave [the project] to the Russians," said another former government official, who was told in August 2013 to stop negotiations with potential Western contractors.

According to a source with knowledge about the August 2013 meeting, Mangold played a key role in its preparation.

Lobbying in Brussels

Mangold and his connections have also appeared in other phases of the Paks project. For example, the German businessman has had close ties to the Rothschild Investment Bank, which helped the government during the negotiations about the Paks expansion deal.

The Rothschild bank later came to play a more visible role in the Paks project. In the fall of 2015, the European Commission, suspecting illegal state aid greased the Russian-Hungarian deal, launched an in-depth investigation into the Paks project. According to the Hungarian government, Paks' expansion would be profitable if energy prices increase in the future.

Several studies questioned the calculations of the Hungarian government, arguing that the new Paks plant will be profitable only with state aid. The Rothschild Group's study, which the bank provided to the Hungarian government, concluded however that the investment would be profitable even under market conditions.

The government and the bank did not respond to questions about who commissioned and paid for the study. Rothschild declined to answer questions about whether Mangold played any role in the preparation of the report.

The European Commission also objected that the Hungarian government selected Rosatom for the construction of the new reactors without a public tender. Therefore, it launched an infringement procedure against the Hungarian government in November 2015.

The Hungarian government went to great lengths to get European Commission approval for the Paks expansion project. According to a governmental official, Mangold also played a role in this process.

"In case of Paks, it wasn't the typical lobbying," Benedek Javor, a Hungarian MEP and a staunch critic of the Paks expansion told Direkt36.

Usually, he said, officially-registered lobbyists in Brussels contact MEPs and other decision-makers — but not in this case. EU databases show that Mangold has not been a registered lobbyist, and, according to Javor, the businessman instead leveraged his personal connections to European economic and political elites.

Enter Oettinger

Mangold has good relations with Guenther Oettinger, the German member of the European Commission, who is currently in charge of budget and human resources. Mangold serves as Russia's honorary consul in Stuttgart, the capital of Baden-Württemberg, where earlier Oettinger was the province's Prime Minister.

A governmental source called him "the strongest German politician in Brussels." Mangold's close relationship with Oettinger came to light when Hungarian online news portal 444.hu reported that the commissioner travelled to Budapest last May by Mangold's private plane to participate at a conference opened by Orban. It was also reported on Euobserver the same day.

The trip sparked a scandal in Brussels. Oettinger said that the travel costs were covered by the Hungarian government, an assertion later confirmed by Hungarian officials. In doing so, the Hungarian government finally admitted the fact that it retains Mangold as a consultant.

However, this explanation did not allay all concerns about the commissioner's activities. Oettinger was responsible for energy issues in the European Commission when the Hungarian government first announced its deal with Rosatom.

The European Commission only launched its investigation after Oettinger left the energy portfolio. Therefore, Oettinger likely possessed insider information that could have been valuable to the Hungarian government — though the commissioner denies he talked about Paks with Orban during his May 2016 trip to Budapest.

Euractiv reported in January that a European Commission director-general who previously worked under Oettinger may have advised the Hungarian government on how to argue in the infringement procedure.

Ultimately, the European Commission closed both investigations, and gave its green light to the construction of Paks.

Meat and flies

It was clear to the Orban government from the beginning that involving Western companies in the Paks project would increase its acceptance internationally. Following the launch of the infringement procedure by the European Commission, Lazar even stated in November 2015 that the EU was investigating Paks because Western companies wanted a share in the project. "Where there is meat, there are also flies," Orban said the next day.

Then, last January, Orban held discussions with John G. Rice, the vice-president of US-based General Electric (GE) about Paks expansion. The GE vice-president signalled shortly before the meeting that his company would be happy to construct turbines for the new power plant. Rosatom issued a call for bids for the turbines in June, and two applicants showed interest: a Russian company and the Hungarian subsidiary of GE, GE Hungary Kft., which submitted its bid in consortium with Alstom Power Systems.

Mangold had contacts to GE as well. Before 2015, he served on the board Grid Solutions, then a joint company of GE and Alstom. GE Hungary did not answer questions on whether they have been in contact with Mangold regarding the nuclear project. They said, however, that they expect a decision in the turbine tender by the end of the year.

Constructions of the Paks expansion project have yet to start, and no subcontractors have been selected. The involvement of US and Western European companies as subcontractors would evidently mean less work for the Russians.

"A solution satisfying Russian, German, French, EU and Hungarian interests must have been found," Javor said. He added that Mangold was an "ideal actor" for this task.

As usual, Mangold tried to stay out of the limelight throughout the whole process — but he did not succeed completely. His role in the Paks project drew the attention of opposition politicians, and, on the initiative of LMP parliamentary leader Bernadett Szel, the Hungarian parliaments national security committee discussed his activities at its March 1, 2017 session.

The session was closed. Szel told Direkt36 that the Fidesz-controlled committee did not agree to disclose Mangold's governmental contracts to the members of the committee. Szel requested the contracts from the Prime Minister's office but has not received any documents yet.

Another participant of the meeting said that Hungarian secret services, including those falling under the supervision of Lazar, gave briefings on Mangold's activities. The presentation apparently did not contain many new details, as it mostly described Mangold's network of connections.

Based on the information provided at the briefing, the source concluded that Mangold is a "lobbyist… who pacified Paks." By this, the source meant that Mangold's role was to ensure that "the project is not considered as solely a Russian investment" by the Western circles.

The long version of the storyfirst appeared in Direkt36, the website of an independent investigative journalism centre in Hungary established in 2015. Andras Petho contributed to the report. Noah Buyon contributed edits to the original article.

Investigation

Commission still silent on Hungarian nuclear contract

The EU executive has still not explained why it accepted that a contract with Russia to extend the Paks plant could be awarded without a public tender, and why commissioner Oettinger travelled with a lobbyist working for the Hungarian government.

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