After the turn of the millennium, the countries of Central and Eastern Europe (CEE) formed an emerging market of such promise that all international firms wanted an office in the region. If not an office of their own then at least relationships with established firms based in the various countries.
In Hungary, the recession has changed everything, with magic circle firms pulling out over the past three years and regional or national firms filling the gaps left behind.
First it was Freshfields Bruckhaus Deringer in 2007 (leaving Oppenheim behind), then Linklaters in 2008 (replaced by its CEE spinoff Kinstellar) and Clifford Chance in June this year (bought out by new local firm Lakatos Köves and Partners) - all were waved off by rival firms based in Budapest as they tackled restructuring back at their UK bases. The departures can be linked to a depressed Hungarian economy, which, despite an International Monetary Fund bailout in October 2008, is still struggling to cope under the weight of bad debt and a lack of liquidity.
That said, law firms by the banks of the Danube have gained new neighbours too, with Wolf Theiss opening in 2007, CEE-rival Schoenherr launching in 2008 and Bird & Bird opening an operation later that same year.
As we discover here, Hungary’s lawyers paint a picture of a very competitive market. However, there are plenty of furrowed brows over the lack of work in the pipeline in one of Europe’s clear recession casualties.The departures can be linked to a depressed Hungarian economy, which, despite an International Monetary Fund bailout in October 2008, is still struggling to cope under the weight of bad debt and a lack of liquidity.
As part of the response to the global economic crisis, the Hungarian government introduced an initiative dedicated to the launch of major projects that are funded primarily from state resources and partly with EU funds. But getting these projects off the ground has been a slow process, presumably due to bureaucratic burdens and conflicts of interests among the various players.
The major projects that have gotten off the ground - such as the construction of a new metro line in Budapest and other infrastructure and telecoms projects - are generating ancillary projects that, although smaller, are still considerable projects in their own right, such as the procurement of metro cars for the new metro line.
However, the public procurement of the new phase of the M3 motorway has been cancelled. The state decided to cancel this procurement just a few days before the submission of the last and final offers; the reason was to win more EU funds for this phase.
Significant steps have been made in the energy sector. Major energy companies such as E.ON and GDF SUEZ have initiated the construction of new power plants, which mainly utilise gas turbines. The most significant projects include the expansion of the Paks Nuclear Power Plant and the development of a lignite-fired power plant in Visonta, both of which are in the planning phase. The Hungarian Energy Office has recently published a tender for the construction of new wind turbine facility that has the potential to double the built-in wind capacity in Hungary. A strategic gas storage facility in Algy has recently commenced operations and smaller projects for the construction of commercial gas storage facilities are continuing.
In the near future, project finance lawyers will have to deal with unfavorable changes to the law. From 2010, off-budget treatment will no longer be available to PPP projects, due to a recent amendment of Act XXXVIII of 1992 on Public Finances. This change will inevitably have a critical effect on the Hungarian PPP market. Act CXXIX of 2003 on Public Procurements was also amended as of the end of 2008. Some of these amendments affect the status of the project companies that will be established to effect the public procurement contracts and may give project finance lawyers headaches.
These changes seem to contradict the limited or non-recourse nature of PPP projects, and other changes to the law may make certain corporate actions more difficult in respect to project companies, such as the transformation of special purchase vehicles.
A slightly different version of this article appeared in the September 21, 2009 issue of The Lawyer.