Exclusive: Worried by 'systemic' fraud, EU ties recovery funds to Hungary procurement reform

[February 08, 2021]  By Gabriela Baczynska

BRUSSELS (Reuters) - The European Union's executive has told Hungary to reform its public procurement laws to curb systemic fraud before billions of euros from the EU pandemic recovery fund are made available, according to an internal document seen by Reuters.

European Council President Charles Michel and other EU leaders attend a virtual conference talking about EU government's measures against the coronavirus disease (COVID19) crisis, in Brussels, Belgium, October 29, 2020. Olivier Hoslet/Pool via REUTERS/File Photo

The European Commission is mandated with managing the 750-billion-euro scheme and has already told several EU states their proposals for spending their part of the funds must be improved.

The bloc wants outright changes to Hungary's public procurement laws, according to the Jan. 26 Commission document laying out specific legal changes required of Prime Minister Viktor Orban's government.

"Competition in public procurement is insufficient in practice," said the document, adding that that was linked to "systemic irregularities" that "led to the highest financial correction in the history of (EU) structural funds in 2019".

There was no immediate response from the Hungarian government to an emailed request for comment on the document.

Budapest, which has had a series of battles with EU authorities over rule of law issues, is due to get nearly 6.3 billion euros in free grants from the recovery scheme if its spending plan is proposed by an end-of-April deadline, and then accepted by Brussels and other EU countries.

The EU document called specifically for improved data transparency and accessibility, arguing that that would lead to a fairer and more open procurement process.

Hungary had irregularities in nearly 4% of its spending of EU funds in 2015-2019, according to a report last year by the bloc's anti-fraud body OLAF, compared to the EU average of 0.36% and much worse than the second-poorest score of 0.53% for Slovakia.

HUNGARY'S RECORD

In an interview with Reuters in September, Orban disputed findings by the EU's anti-fraud office that Hungary had by far the most financial irregularities in spending EU aid, saying: "I don't accept the point that Hungary is more corrupt than Austria or Germany or Denmark."

The Commission document listed legal changes needed to introduce more transparency, real competition between bidders and accountability in Hungarian public procurement to avoid fraud and the need to recuperate misspent aid.

It said Hungary had one of the highest single-bidding rates in the EU, leading to systemic overpricing, adding that Hungarian laws on conflict of interest were marred by loopholes.

"The Commission has been pushing for a better analysis and control of public procurement risks for many years," the document read. "But there seems to be political opposition at the highest level. These measures are simple to implement from a technical perspective and fit into the digitalisation objectives."

(Reporting by Gabriela Baczynska; editing by Mark John and Jon Boyle)

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