Hungarian Businessmen Seeking Carte Blanche in Urals

09.11.2009 — Analysis

Hungarian businessmen can not be considered newcomers in the Urals, they are quite comfortable in the energy, construction, and agricultural sectors here. However, the Hungarians are often deterred by the long distance between Hungary and Russian regions. Gabor Reppa, a Consul, the diplomat responsible for foreign economic relations in the Consulate General of Hungary in Ekaterinburg, told in an interview to RusBusinessNews what is being done to overcome these fears and establish a constructive dialogue between Urals and Hungarian entrepreneurs.

- The Hungarian Trade Mission has been open in the Urals for almost 4 years now. To what extent has the establishment of such a mission stimulated the Urals-Hungary relationship?

- The Hungarian Trade Mission in the Urals will be exactly 4 years old on 15 November and in this time the trade turnover between the Republic of Hungary and the Urals regions has tripled, the Hungarian exports have also grown. The growth at the moment has been slowed down by the financial crisis, volumes of trade have dropped significantly but this is temporary.

It is difficult to follow the dynamic of the trade turnover due to the statistics system in Russia, since there is the nationwide Russian statistics, there is Russian-Hungarian statistics, there are annual results for each Urals region but it is very hard to find monthly or half yearly figures.

According to my data in January-June 2009 the trade turnover between the Urals and Hungary has dropped by 45-49% in comparison to the previous year. At the first glance this seems a rather steep fall but compared to the reduction of trade volumes between Russia and Hungary it all does not seem that bad, the Hungarian exports suffered to a lesser degree and this is good to know. It is worth pointing out that Hungarians supply technologies and specialized equipment directly to the Urals, and this is a stable market, the orders have been established for a long term period.

The Trade Mission has formerly been responsible for the establishment of cultural and academic as well as economical connections; now it is possible to develop these spheres more proactively since the Consulate General of Hungary has opened in Ekaterinburg. There are strong links established now between the Eotvos Lorand University in Budapest and the A. Gorki Urals State University. In the cultural sector there is the joint work of the Budapest Operetta Theatre and the Sverdlovsk State Academic Theatre of Musical Comedy. Thanks to issuing Hungarian visas and the establishment of Hungarian tourist companies in the Urals the relationships of tourism are developing rapidly. Of course, rather a lot of resources is spent on marketing and advertising but this is what the tourism sector demands. 

- What sectors of the Urals economy enjoy most of the attention of Hungarian investors?

- There are the two types of investment, the purely financial and business- or sector-specific. Hungarian financial investments do not show much in Russia. In particular in the situation of crisis it is virtually impossible to get loans with decent interest rates, you need to have a very serious well developed project and there are almost none that would meet these criteria. Business- or sector-specific investments are in the embryo stage now. They are most active in the construction sector. The projects currently under discussion involve e.g. the construction of office and entertainment centres. There are more serious discussions about the construction of power generation facilities and the funding for the second train of the construction of the Sverdlovsk Oblast TB centre.

I must admit that the latter two projects are rather slow on the uptake. They depend on the interests of the regional authorities and the parties have to resolve legal, economic, and budgetary issues and the issues of warranties. Nobody has gone this way before and the Hungarians have to pioneer and establish a functioning system for cooperation finding a scheme beneficial for Hungarian businessmen, the State of Hungary, and the Sverdlovsk Oblast. You can't just sign an agreement and start funding in this situation as in a year's time such system may crash.

Summarising all the above I can say that Hungarians have private projects in the Urals, as well as projects with the participation of municipal and regional funding. The former include, for instance, the construction of an office complex. According to the design of Hungary's IGN, this will be economy B and C class offices. The latter include projects in energy sector, healthcare, road building, these are projects of the strategic nature.

Relatively recently Hungarians began getting interested in the logistics sector. There are companies now wanting to enter the Urals market with their goods, for instance they want to supply parts for cars and Ikarus buses. Now we are looking for companies which would deal with the transportation and customs clearance of cargo from Hungary, some companies are already interested in this project.

There are Hungarian companies which are implementing projects in the sector of services and repair of sewerage system in the Sverdlovsk Oblast. They want to come to the Chelyabinsk Oblast offering these services.

I must not omit mentioning the tourism sector. The representative office of 1000 Paths, a Hungarian tourist company, has already opened in Ekaterinburg. This company has been established in Hungary by Russian businessmen and is promoting tourism between Russia and the Republic of Hungary. The tour operator Robinson Tours is also specialised in the Russian market. This agency is focused on health care and children's tourism. There also many small companies which promote private and business tourism. On the whole there are 10 Urals companies accredited in the Consulate General of Hungary in Ekaterinburg.

- Mr Reppa, you have mentioned a Hungarian project in the energy sector. The agreement on the construction of a mini hydropower plant has been signed between the Ministry of Energy and Services of the Sverdlovst Oblast and IGN (Hungary) in February 2009. Has the site for the project been decided on?

- IGN still has the intention to take part in the project. The process of its implementation is rather complex: the Sverdlovsk Oblast government and the Ministry of Energy and Services of the region has offered us a list of 15 dams, we have to pick three to five, taking into account the condition of facilities, consumer market, legal issues, in particular who the proprietor is of these dams etc. We have to calculate who exactly will be buying the electricity generated by the mini hydropower plant, ensuring the guaranteed consumer market. There are big problems with non-payments for energy in Russia currently, this is why the Hungarian party has to have serious guarantees that the project would pay for itself.

All offered projects have been carefully considered but the location for the construction has not been decided yet. The most recent negotiations on the matter were held in the end of August and the next stage is planned for the middle of November. The Hungarians would like to start the construction work in the spring. If this proves impossible the construction start will have to be postponed for a year, until next spring.

- IGN has quite a broad range of interests - the construction of mini hydropower plant, office centre... Has the company made public the amount of investments it is prepared to make into these projects?

- In addition to the construction of the mini hydropower plant and office centre IGN is planning to implement the railway sleeper utilisation project and open their own company in Ekaterinburg, a stand alone legal entity; they are looking for office space for this purpose.

The company's representatives have not mentioned the amount of investment and are unlikely to make it public since they are going to use not just own money but bank loans as well. Deciding on the size of the loan the bank assesses the security of the offered project, the financial standing of the company at the moment of the project implementation etc.

- One of Hungarian companies had plans to participate in the construction of the Akademicheskiy residential area in Ekaterinburg. Are they still going to? How interesting is the Russian construction sector for Hungarians? Are there any other projects in this sphere?

- I have to point out that the participation in the Akademicheskiy project was not a plan but rather an idea around the participation of Hungarian companies in the construction of housing complexes in Ekaterinburg altogether. Here, the same as with the hydropower plant, everything depends on guarantees. Any investor wants to get a guarantee of getting the invested money back. The fact that the investor becomes owner of real estate and that the flats will be bought with the use of mortgage tools does not quite satisfy the Hungarian businessmen. For instance if they invested money and the construction was postponed they would be unable to undertake measures for the protection of their interests through being remote and not knowledgeable of the Urals market. This makes such kind of investment rather risky for Hungarians.

I can't say that Hungarian businessmen have no desire to take part in the implementation of the Akademicheskiy project. They can contribute helping the development of infrastructure, implementing energy projects etc. Assessing the current economic situation I think that Hungarians would be able to start taking part in the housing construction projects in three to five years time. According to our information there are no negotiations being held on this currently but we have to take into account that not all projects go through the Consulate General of Hungary in Ekaterinburg.

- In the beginning of 2009 Pál Jenő Fabian, the Consul General in Ekaterinburg, visited Ugra where the possibility for Hungarian investors to continue work on some suspended project was discussed. The project included the construction of the float glass plant in Nyagan and the water treatment plant in Nizhnevartovsk. Has the work began in this direction?

- The water treatment plant project in Nizhnevartovsk, same as the Hungarian participation in the Akademicheskiy neighbourhood construction is just an idea. Hungarians would take part in the project with pleasure but there are no concrete undertakings as yet.

The glass plant has been a Hungarian project from the start. In early November 2009 the Hungarian investor abandoned it due to the crisis and now the project is under discussion again. The glass project does not have to implemented in Nyagan, it can be in some other part of the Urals, in the Sverdlovsk Oblast, for instance. So far Hungarians are looking for a reliable Russian partner. In the middle of November the presentation of the project will be held in Ekaterinburg for potential investors.

Other Hungarian projects in the Khanty-Mansiysk Autonomous Okrug may include plans for making construction grade bitumen. This is a purely Ugra project, it has not been discussed in any other region. Moreover, Hungarians have indirectly been participating in the construction of the new Ice Sports Palace in Khanty-Mansiysk. The construction itself been done with the use of Swedish technology, Swedish Lindab modules have been used. The plant making these modules is in Hungary, and this was the plant that supplied the construction with the modules.

- Urals regions, the Tyumen Oblast in particular, are actively purchasing dairy cattle in Hungary. Is this kind of cooperation interesting for other Urals regions? How successful is the Urals-Hungarian cooperation in the agricultural sector?

- The interest to Hungarian cattle has been expressed not only in the Tyumen Oblast, but in the Chelyabinsk Oblast too. The issue itself is quite interesting - the Holstein-Friesian breed is rather specific. If it is transported to Russia then the majority of the animals may die due to differences in climate and rearing technologies.

Hungarian specialists are offering new technologies in this sphere envisaging implanting Holstein-Friesian embryos into local cattle breeds. This approach would enable obtaining calves already acclimatised. There is an idea of the establishment of the Urals centre for rearing cattle according to this technology. The serious talks were held until mid-October 2008, Hungarian businessmen visited the Kurgan and Sverdlovsk Oblasts but everything has been suspended due to the crisis.

The construction of the rabbit breeding farm Rabbit Ltd. in the Sverdlovsk Oblast may be listed among the completed projects in the agricultural sector. This is still, so far, the first automated complex of this kind in Russia. The technologies have been provided by Hungarian businessmen. There is a working project in the Chesmenskiy district of the Chelyabinsk Oblast. A dairy and meat producing joint venture was established on the basis of the former collective farm Novaya Zarya (New Dawn), the size of the Hungarian share is 49%. Along with this project, an agreement was signed on the science, economic, and cultural cooperation between the Chelyabinsk Oblast and the Szabolcs-Szatmar-Bereg region of Hungary.

- Mr Reppa, in the beginning of 2009 within the framework of the days of Hungary in Ekaterinburg you talked about the plans of Hungarian companies to supply food stuffs to the Urals, in particular vegetable preserves, sausages and pre-packed meats were going to come to Urals shop shelves to join Hungarian wines. What has been done in this sphere?

- The issue of supplying foods from Hungary, as well as drugs, is very complicated. The majority of consumer goods come from the Republic to the Urals via Moscow or Saint Petersburg, the direct shipping is more difficult. The volumes of shipments are impossible to monitor but if we have a look in Ekaterinburg shops we notice the growing choice of Hungarian foods, there are frozen ducks, geese, rabbits, and preserves. In one small shop I saw even our famous Winter Salami.

Only wine shipments to the Urals are organized. I would like to point out that winemaking in Hungary has its own traditions. There are 22 wine making regions in the Republic each one grows 3-6 types of grape of which wine is made. There are many small wine making basements in Hungary, as well as large producers. This is why, if a Ekaterinburg trading company representatives come to Hungary, they have to conduct negotiations with a multitude of producers in order to purchase a broad range of wines and this is virtually impossible.

Difficulties in the establishment of wine shipments are exacerbated by the Hungarian law that prohibits exports of high quality wines in barrels. It has to be bottled where it is produced. The wine trade is further encumbered by Russia's complicated customs and excise system.

A Hungarian businessman established the company Hungarian Wine Ltd. in Moscow. He clears the goods through customs, sorts out the excise duties and then sells the wines here for roubles. Of course, the products are sold mainly in the Russian capital; it gets to Ekaterinburg due to the presence of the Consulate General here and a Hungarian restaurant. In the beginning of this year within the framework of the Days of Hungary in the Urals there was a presentation of Hungarian wines and now Metro offers 4-5 wines - from economy class to more prestigious sorts.

The interview has been prepared by Valentina Mazharova