December in Review

Finance Minister makes call for lower rates, weaker forint

HUNGARY'S FINANCE MINISTER TIBOR DRASKOVICS REPEATED THE GOVERNMENT'S CALL FOR LOWER INTEREST RATES AND A WEAKER FORINT, THOUGH HE LEFT THE EXTENT TO WHICH RATES SHOULD DROP UP TO THE CENTRAL BANK. Draskovics said the government would like to see interest rates and the forint's exchange rate in harmony with the inflation target and the economic situation of the country. "The government does not believe that it is possible to improve long-term competitiveness through sudden, drastic measures, even exchange rate policy measures", Draskovics said at a conference organized by KPMG. He added that the government is in agreement with the view that the central bank must act with due caution because of investors' sensitivity. Draskovics said the economy must now operate with a demand-restrictive budget, high interest rates and a very strong forint, which restricts growth and puts exporters and SMEs at a real disadvantage. Draskovics said general government income centralization would decrease half a percentage point in 2005, including a HUF 100 billion fall in personal income taxes, as the result of new tax laws. The new tax laws will stimulate investments and create jobs. Draskovics said companies should take into account the lower income tax and slower inflation rate when deciding how much they will raise wages next year. Draskovics said high VAT rates, high local taxes and substantial payroll costs would be the biggest three problems in terms of taxation in 2005.

The minister said he would support setting up a committee, which included representatives of government and tax consultancy firms, to draft a schedule to optimize tax revenue by 2006. Draskovics said company tax would not be harmonized throughout the EU in the foreseeable future, in spite of a campaign by Germany and France to do so. He added that the most to be expected was a harmonization of the method of calculation for the company tax base. When asked about Hungary's simplified business tax, known by its Hungarian acronym, "EVA," Draskovics said, "EVA still has a promising future." Draskovics said EVA encouraged companies to do their best, and to pay their fair due to the central budget. The government wants more businesses to be eligible for EVA, including small businesses, which work with high operating costs.

Ecostat forecasts 3.8% GDP growth in 2005

ECONOMIC RESEARCH INSTITUTE ECOSTAT RAISED ITS FORECAST FOR GDP GROWTH IN 2004 FROM 3.9% TO 4% IN ITS LATEST FORECAST. Ecostat puts GDP growth in 2005 at 3.8%. Ecostat projects investment growth of 12.7% in 2004, compared to 11.7% in its earlier forecast. Investment growth will slow to 8% in 2005, according to Ecostat. Ecostat also raised its forecast for the 2004 increase of household consumption from 3% to 3.4%. This year's household consumption is expected to accelerate slightly to 3.5%. Ecostat expects an ESA general government deficit equivalent to 5.2% of GDP in 2004. This year Ecostat forecasts a deficit of 5% of GDP, well over the government target of 4.6% contained in the 2005 budget. However, adjusting for payments into private pension funds, Ecostat forecasted a deficit equivalent to 4.4% of GDP in 2004, under the government target of 4.5%. Ecostat put the deficit for 2005 at 4.1%, calculating again for the pension fund payments, compared to the official target of 3.8%. The central bank base rate would be 10% at the end of 2004 and 8.5% at the end of 2005, according to Ecostat.

SkyEurope closes successful year, promises expansion

SKYEUROPE, THE BRATISLAVA-BASED CARRIER THAT BILLS ITSELF CENTRAL EUROPE’S FIRST LOW-COST AIRLINE, IS TO LAUNCH FOUR OR FIVE NEW ROUTES FROM HUNGARY DURING THE PEAK TRAVEL SEASON NEXT SUMMER, while currently pursuing marketing efforts to business passengers, Christian Mandl, SkyEurope CEO told the media in Budapest. Speaking on the first anniversary of SkyEurope Hungary’s inaugural flights from Budapest to Paris and London, Mandl said the Magyar subsidiary was already making an operating profit, having exceeded the business plan by flying nearly 263,000 passengers in its first 12 months of operation against the 200,000 target.

These figures were boosted by excellent third quarter traffic, when SkyEurope Hungary carried 102,000 passengers, with the load factor, a crucial operating figure, averaging 78% over the three months, and topping 80% in August. "We are seen as the airline of Central Europe, with 35 routes to 19 destinations covering 70% of the population of the ‘New Europe’,” Mandl said.

While declining to name the planned new destinations from Budapest, he said business customers already made up between 10-15% of passengers, and were increasingly attracted to well-serviced routes to centers such as Amsterdam, London and Milan. "From Bratislava we take all the France-bound traffic for the Peugeot car plant in Slovakia, for example. We are talking here about annual passenger numbers of five-digit figures," he said. As part of its drive to increase its share of the corporate market, the carrier has introduced a bulk ticket system, "SkyAbo," allowing clients to buy discounted ticket packets, valid for one year, for a fixed price. These deals start with a minimum carnet of 20 tickets. "This helps businesses both in terms of planning costs and in reducing the administration burden," he said. In what appeared to be a general swipe at his rivals, Alain Skowronek, SkyEurope chairman, said that while there had been an explosion of cheap airlines in the region, many of the new carriers "will not be successful, because they are under-financed." Skorownek continued with what appeared to be a direct swipe at arch-competitor WizzAir, saying SkyEurope’s service package, which includes flying to airports convenient for large cities, was proving successful. He cited his own airline’s use of Orly, 15 km from Paris, while Beauvais (WizzAir’s destination airport in France) was an inconvenient "80 km distance" from the French capital.

Kester Eddy

TNT Worldwide Express invested

HUF 120 million in IT system last year The Hungarian subsidiary of TNT, Hungary's leading provider of express delivery and logistics services, has invested HUF 470 million in its IT system over the last three years, including HUF 120 million in 2004 alone. The IT system allows TNT's clients, big and small businesses alike, to track their deliveries securely on the Internet. TNT Worldwide Express Hungary had revenue of HUF 6.92 billion in 2003, up 23.8% from 2002. The company spent a total of HUF 576 million on developments in 2004.

Hungary buys Gripen missiles from US

HUNGARY SIGNED A CONTRACT WITH THE US GOVERNMENT TO PURCHASE MISSILES FOR ITS GRIPEN FIGHTER AIRCRAFT FOR AN UNDISCLOSED AMOUNT. The purchase is part of a gross HUF 27.3 billion worth of weaponry that Hungary will buy for the aircraft, but not necessarily from the US. Chief political advisor to the Minister of Defense, Nándor Hollósi, told Econews that the contract for Advanced Medium-Range Air to Air Missiles (AMRAAM) for Hungary's 14 Gripen JAS32 fighters was signed two days after the government approved the purchase. The US government will buy the missiles from Raytheon, a big defense contractor, and resell them to Hungary. Under US laws on arms trading, only the government may sell the missiles. The US government will also guarantee the quality of the missiles. Public procurement procedures for the acquisition of other Gripen weaponry will start in January and February 2005, Hollósi said.

OTP bank chief nearly doubles personal wealth

THE CHAIRMAN AND CHIEF EXECUTIVE OF HUNGARY'S LARGEST RETAIL BANK, OTP, has increased his personal wealth from HUF 17 billion to HUF 30 billion (EUR 121 million) in one year and leapt forward four places to be Hungary's 5th richest person on publisher Ringier's 2004 Top 100 list of the wealthiest Hungarians.

When journalists who compiled the list asked the richest people to name who they perceive to be the best heeled, OTP CEO Sándor Csányi scored another victory.

Business tycoon Gábor Várszegi, owner of the retail group Fotex and many other investments, topped the list for the third time with his personal assets running at HUF 46 billion, unchanged from 2003.

Developer Sándor Demján also retained his second place with an unchanged HUF 45 billion. But industrialist Gábor Szeles moved up to third place by boosting his wealth from HUF 32 billion to HUF 45 billion, knocking down Tamás Leisztinger, the leader of the investment group Arago who increased his wealth only slightly to HUF 37.5 billion, to fourth place.

The only newcomer in the club of the 10 wealthiest Hungarians is Gábor Kovács, the chief of investment group Bankár Holding. The editors of the list, some 20 business journalists, took account of assets held by the family of the individuals and relied on information available to the public, such as company reports and company court registers.

A statement by publisher Ringier noted that there is a legal dispute between Ringier and Menedzser Magazin, which earlier published a list of the same names.

A comparison of the two lists shows some significant discrepancies. Menedzser Magazin's list is led by Szeles and Demján, with HUF 50 billion each, while Várszegi is third with assets of "only" HUF 40 billion.

Economics Minister on gas price increases

JÁNOS KÓKA, THE NEWLY APPOINTED MINISTER OF ECONOMICS AND TRANSPORT ADMITS HE IS "LEARNING FAST" ON THE SUBJECT OF ENERGY. He has to. With the price of gas fast following oil to record highs on world markets, Hungary, heavily dependent on imported gas, is facing a massive energy bill. Press reports have put the potential hike as high as 20%. Meanwhile, the gas price regulation thrashed out by the previous government of Péter Medgyessy denies the government any possibility of saving on gas prices by squeezing MOL, which imports the gas - the method used in 2001 by the Orbán regime. "It is obvious that we cannot make the whole society suffer from such a huge leap in gas prices. The task is to see how we can mitigate the burden on the population," he says.

To do this, authorities are working to calculate what new gas prices should be, and then examine "what budget and other instruments" are available to ease gas hikes - in other words, some kind of subsidy. Kóka is aware, however, of the dangers of artificially depressing prices and creating differences between households and businesses. "If we do not take the interests of the economic players, small and medium enterprises, into account, we create tension within the economy. We do not want this," he says. Such distortion is not only economically damaging if it becomes permanent, it is also legally questionable under EU law. Whatever the outcome, Kóka pledges the solution will be "very transparent. I want my colleagues to do this as quickly as possible for the benefit of the public," he says.

Kester Eddy

Pick fined HUF 30 million for misleading consumers

The Competition Office (GVH) fined salami maker Pick Szeged HUF 30 million for misleading consumers by printing "No.1" on 16 of its products without supplying evidence to back up the claim of superiority compared to its rivals' products, GVH announced. GVH noted that Pick had already been fined HUF 1 million in June last year for the same misconduct. Claiming as fact something that is not proven by hard evidence is a breach of the law, the GVH statement said.

Hungarian banks half as efficient, twice as profitable as other EU banks

HUNGARIAN BANKS CHARGE RETAIL CLIENTS MORE FOR MONEY AND HAVE A WIDER INTEREST MARGIN THAN THEIR COUNTERPARTS IN OTHER EU COUNTRIES. They also make about twice as much on their equity as do other banks in the EU, a trend that cannot continue, according to the head of Volksbank's Hungarian subsidiary. Magyarországi Volksbank Chairman/CEO László Balázs outlined the situation facing Hungary's banking sector at a conference organized by the Central European Business Center in Budapest. Hungarian banks' return on equity (ROE) - currently 25-26% on average, compared to the EU average of 10-15% - is set to drop in a few years, Balázs said.

The net interest revenue of Hungarian banks accounts for 3.8% of total assets, as against 1.51% in the EU. Hungarian banks' revenue from fees and commissions accounts for 1.21% of total assets, as against .7% in the EU.

Retail loans are the motor behind Hungarian banks' profitability. The margin on corporate loans is less than the EU average as fierce competition on the market for corporate loans has made credit for businesses cheaper. In fact, many Hungarian subsidiaries of foreign companies find it less expensive to take out a loan from a Hungarian bank than to take out a loan from their parent company. Corporate loans will get even cheaper when Hungary adopts the euro, cutting sharply into revenue from currency conversion. Banks are, instead, capitalizing on the strong demand for retail loans, as consumers finally make purchases they may have put off for years.

Even as Hungarian banks are doubly profitable, they are half as efficient. Operating costs account for 3.47% of Hungarian banks' total assets, as against 1.71% in the EU.

Hungarian banks' period of profitability has served the sector's expansion well. Contrasting earlier predictions, banks continue to open branches and the country should catch up with the EU average by 2007. There are 12 universal banks on the market, including big banks such as OTP, K&H, CIB, Erste Bank, HVB Bank, Magyar Külkereskedelmi Bank and Raiffeisen Bank with nationwide branch networks, while medium-sized banks such as Budapest Bank, Citibank, Magyarországi Volksbank carve out niche markets. Smaller banks, especially those that operate just one branch, are likely to end up as the branch of their foreign parent bank or being sold and absorbed into bigger chains.

Hungary sets emissions quota at 93.7 million tons for 2005-2007

HUNGARY'S GOVERNMENT HAS SET THE QUOTA FOR GREENHOUSE GAS EMISSIONS AT 93.7 MILLION TONS FOR THE PERIOD 2005-2007. The figure is contained in Hungary's National Allocation Plan, which outlines for the EU how Hungary will distribute the quota among businesses.

The government will distribute the so-called carbon credits to businesses free of charge in February 2005, with the exception of 2.5% of the credits, which the state will auction off. The sale of these credits should generate HUF 1.7 -3.4 billion. Half the revenue from the sale will go toward the Ministry of Economics and Transport to be spent on renewable energy projects, and the rest will be spent on environmental projects under the auspice of the Ministry of the Environment. The state will distribute the carbon credits to 170 companies under guidelines established in the Kyoto Protocol. Under the protocol Hungary aims to cut its emissions of greenhouse gases in 2008-2012 by 6% from their levels in 1985-1987. Hungary's emissions were already 30% under the 1985-1987 average, according to figures from the Ministry of the Environment, but the ministry expects emissions to increase by 2010 to a level just 6.92% less than the level in 1985-1987. Some market observers dispute this figure and say Hungary will have surplus carbon credits equivalent to a 15-20% reduction in emissions by the end of the decade. Energy companies will get the most of the carbon credits. Steel makers, cement factories, refineries and ceramics makers will also get credits. Companies that do not use up all of their credits may sell them to other companies, although they must apply for a license before doing so. The credits are trading for about EUR 5 per unit on the global market.

Risk management in the new century

DUNN & BRADSTREET (D&B) HUNGÁRIA KFT., THE HUNGARIAN SUBSIDIARY OF THE LEADING PROVIDER OF BUSINESS-TO-BUSINESS CREDIT, marketing, purchasing, receivables management and decision-support services worldwide, organized a seminar focusing on business information and modern risk management in Budapest. Speakers included Gábor Molnár, Managing Director at (D&B) Hungária, Alíz Rekecki, BW specialist at SAP Hungary, Gábor Freidler, head of the Hungarian Parliamentary Data Protection office, Judit Török, judge at Hungary’s High Court of Justice and Iván Vadász, tax specialist and vice president of the National Association of Hungarian Tax Advisors. Molnár introduced (D&B) Hungária and the services the company offers, including risk management and sales and marketing services. The speaker also discussed the difference in information demand depending on company size as well as the latest market trends regarding business information services. Rekecki touched upon the role of SAP Business Intelligence in corporate networks. SAP Business Intelligence provides all the capabilities businesses need to identify, integrate, and analyze disparate business data from heterogeneous sources, according to the speaker. Freidler’s discussed the right to personal data protection, its legal background and the possible consequences of illegal data management. He also highlighted some of the issues regarding data forwarding within a company or abroad. Judge Török spoke about the legal amendments concerning corporate insolvency, introduced as a result of Hungary’s EU accession. Taxation issues were the topic of the last presentation and the speaker, Iván Vadász, discussed the taxation and accountings aspects of liabilities.

Finance Minister names state-owned companies up for sale in 2005

THE STATE WILL SELL ITS SHARES IN OIL AND GAS COMPANY MOL, as well as its stakes in terrestrial broadcaster Antenna Hungária, Ferihegy airport operator Budapest Airport and Land Credit and Mortgage Bank (FHB), Finance Minister Tibor Draskovics said at a conference held by the Finance Ministry in Budapest. Draskovics declined to comment on the planned dates of the transactions. Draskovics said, "As previously, we intend to avoid MOL becoming the target for a buyout." Draskovics did not answer whether the state's remaining stake in MOL would be sold at once or in parts. The state holds 11.82% of MOL stakes and 12.43% of voting rights. Draskovics said the privatization of FHB must be conducted in such a way that mortgage-backed bonds issued by the bank do not lose their value. 53% of FHB is stateowned. There are no plans to sell state-run lottery Szerencsejáték Rt. Draskovics said the company "need not be sold, but (selling it) would be useful, allowing the state to collect future revenue from dividends revenue in one go."

Magyar Posta, Hungary's postal service, will not be privatized in the medium-term, because it is not yet ready for sale. The Volán long-distance bus companies cannot be privatized in their current state because of regulations and the financing system. The sale of Hungarian Electricity Works (MVM) is not being considered because the structure of the company and regulations do not allow it. Although Hungarian railways MÁV is held by the State Privatization and Holding Company (APV), it will not be sold in the foreseeable future, Draskovics said.

The minister announced that institutional privatization would come to an end in 2005. He noted that a bill on the management of general government, the budget and state assets was being drafted. Draskovics said that according to plans the bill would be completed by the end of 2005. He added that the new act or acts would stipulate tighter supervision of the budget and would improve the efficiency of the use of funds. The Treasury Asset Management (KVI) and APV will probably be merged.

APV chairman Tamás Mészáros confirmed that new bids will be invited for state-owned airline Malév in the near future. APV will be more flexible when evaluating undertakings to settle Malév's debts and will not insist on the winning bidder maintaining Malév's role as a national airline. Interest in Malév remains keen, with new potential investors coming forward. Meszáros did not divulge names.

Building industry outlook for 2005 bleak

HUNGARY'S CONSTRUCTION COMPANIES HAVE A PESSIMISTIC OUTLOOK FOR GROWTH IN 2005, ACCORDING TO TIBOR TOLNAY, WHO HEADS THE BUILDING ASSOCIATION EVOSZ. Building construction is seen growing little this year, analysts said. The industry is also suffering a severe shortage of trained workers. The construction industry was expected to grow by 6.5% in 2004, up from 2% in 2003, but experts expect a slowdown as investments are projected to increase just 8% this year, compared to 12.7% in 2004. The industry accounts for about 7.4% of Hungary's GDP. In the early 1990s, Hungary's construction industry was able to hire from a pool of 200,000 trained workers. The number halved in a decade and is on a decreasing trend. If Hungary is to make use of EU infrastructure money, the country could need as many as 100,000 qualified construction workers by 2007, Tolnay said, citing the need for training reforms. Tolnay named several other steps that could be taken to improve the industry's as well as the country's situation. The government should make subsidies available to SMEs in the construction industry to allow them to purchase equipment, he said. Hungary's building code should be completed by 2005, and EU building standards should be translated into Hungarian. Minister without portfolio in charge of regional development István Kolber has a more positive outlook for the industry's future. He said the industry would grow 8% in 2005, mainly because of HUF 276 billion in subsidies for home construction, and HUF 101 billion for regional development programs.

T-Mobile, Pannon get 15-year 3G license for combined HUF 36 billion

MOBILE SERVICE PROVIDER T-MOBILE WILL PAY A NET HUF 17 BILLION FOR A 15-YEAR LICENSE TO USE A FREQUENCY BAND SUITABLE FOR PROVIDING THIRD-GENERATION (3G) SERVICES, AND PEER PANNON GSM WILL PAY HUF 19 BILLION FOR ANOTHER BAND LIKE IT, THE NATIONAL TELECOMMUNICATIONS AUTHORITY (NHH) ANNOUNCED. The two companies will launch 3G services Jan. 1, 2006, most likely starting in Budapest. Both companies, which are already established in Hungary, bid in a tender for four 3G-frequency bands Nov. 2, 2004. Negotiations on a third band with Hungary's third GSM company, Vodafone, were under way. The tender for the fourth band, reserved for a newcomer, was declared unsuccessful. Bids were disqualified because the bidders failed to provide satisfactory bank guarantees, National Telecommunications Authority (NHH) chairman Dániel Pataki said. Bidders for this band were TDC A/S of Denmark and Tele2 of Sweden. T-Mobile is 100% owned by Matáv, majority owned by Deutsche Telecom. Pannon GSM is the subsidiary of Telenor of Norway and Vodafone is owned by UK's Vodafone. T-Mobile and Pannon GSM each paid HUF 5.5 billion to the state last year and will pay the remainder of the purchase in three installments over the next three years. Pannon GSM deputy-CEO Gyôzô Drozdy said the company won the band that suited it most. Pannon GSM also acquired an additional 1,800MHz frequency band. IT and Telecommunications Minister Kálmán Kovács said the agreements were good and the government's expectations were met. Kovács added that the gross HUF 45 billion offered for the two bands showed that the government was right when setting the date for the 3G tender. Kovács said the price was high, but acceptable, and added that the success of the bidding showed that the government did well when defining the tasks and responsibilities of the NHH. When asked about the "D" band, Kovács said no new bids would be invited for the band for the time being. The minister said the experiences of the launch of 3G services would be analyzed before new bids are invited.

Paks Nuclear Power Plant signs contract with Skoda JS on supply of driving systems

THE PAKS NUCLEAR POWER PLANT HAS SIGNED A CONTRACT WITH SKODA JS, A UNIT OF RUSSIA'S UNITED HEAVY MACHINERY (OMZ), TO SUPPLY OPERATING AND SECURITY SYSTEMS WORTH ABOUT EUR 20 MILLION. Paks refused to disclose the price. The systems need to be replaced between 2005 and 2007, as their 25-year lifespan was up. Skoda was the original supplier of the systems and has been partly responsible for their upkeep. Although OMZ said in its statement that the sale was intended to extend the life of Paks, this is only indirectly true. Each of Paks's four blocks will reach the end of its lifespan between 2012 and 2017, but the process of getting the permission to extend the plant's life is a long and ongoing process. Paks must get permission from Hungary's own atomic energy agency by the end of 2007, five years before the first of Paks's blocks reaches the end of its lifespan. To extend the life of operation will also require permission from parliament. Parliament's energy committee voiced its support for a HUF 17.9 billion project Nov. 10 to extend the life span of the plant by 20 years. The plant is Hungary's only source of nuclear power and generates about 40% of the country's electricity. If the plant were to be replaced with power plants that burn carbon-based fuel, Hungary's carbon dioxide emissions would rise by 30%. There are no security, technical or economic reasons not to go ahead with the project. The West European Nuclear Regulators' Association (WENRA) gave the plant the same rating as it had to nuclear power plants around the same age in other developed industrial countries. Paks would finance the project with its cash flow, and the owner would see the return on the invested capital of HUF 554.5 billion over the 20 years. This year, Paks has a contract with MVM to sell it 10,584GWh of electricity, with an option for a further 1,825GWh. Paks had already sold 5,108GWh to MVM by June 30, 2004. Paks sells its electricity for HUF 8.30/kWh, the lowest price in Hungary. Even the second-lowest price is almost HUF 2 more. The highest price for electricity in Hungary is HUF 17.65 per kWh. Paks has four blocks, each with a 470MW capacity. Paks aims to expand each of the block's capacities to between 500MW and 510MW by 2006.

Cigarette price wars could mean HUF 3.1 billion less budget revenue

HUNGARY'S LARGEST CIGARETTE MAKERS STARTED A PRICE WAR EACH CUTTING THE PRICE OF THEIR BIGGEST BRANDS BY 12%. The price reduction in itself could mean HUF 3.1 billion less annual VAT and excise duty revenue for the central budget, but it could also boost cigarette sales, if smokers who buy smuggled cigarettes turn back to the domestic brands which could compensate the loss.

British American Tobacco Magyarország (BAT), Hungary's leading cigarette maker, lowered the price of its Pall Mall brand from HUF 500 (EUR 2) to HUF 440 in late November. Hungary's second-biggest cigarette maker, Philip Morris, responded by trimming HUF 60 off the price of its Multifilter brand, which also sold for HUF 500. The two brands have moved from the mid-priced category of cigarettes to the lowpriced category.

The HUF 60 price reductions mean HUF 25.8 less excise duty and VAT per pack, Zsolt Jamniczky, director of Philip Morris told journalists. The excise duty on cigarettes in Hungary is a flat HUF 6,450 per 1,000 cigarettes, or HUF 129 per pack, plus 23% of the retail sales price. Additionally, a 25% VAT rate is included in the price. The reduction translates into HUF 3.1 billion less in budget revenues a year, considering the two companies sell a combined 120 million packs of the brands annually. Multifilter sales account for around 11% of total cigarettes sales in Hungary each year and Pall Mall sales make up 5%. If smaller producers slash their prices, the impact could be even larger. Jamnitzky said Philip Morris does not plan to cut the price of other brands but will closely watch peers' moves. There are four companies on the Hungarian cigarette market: BAT, with a 46% market share, Philip Morris with 33%, Imperial Tobacco with 15% and Continental with 6%. The market has been stagnating or shrinking for the past several years. Legal sales fell 7% to 18.6 billion cigarettes in 2003 and are expected to drop to 15 billion cigarettes, due to fewer smokers and more smuggled cigarettes. Cigarettes brought into the country illegally account for between 20% and 35% of total sales, according to industry insiders, who added it was not so surprising considering excise taxes more than doubled in the two years before EU accession. The price cuts are likely to result in a "whitening" of the economy, namely a rise in legal sales which generates additional tax revenue, Finance Ministry spokesman Ferenc Pichler said. He added that the ministry is studying whether this additional revenue could offset the revenue lost because of the lower prices.

Landline penetration falls to 35.3% by the end of Q3

THE NUMBER OF LANDLINES PER 100 HUNGARIANS DROPPED TO 35.3 BY THE END OF Q3, THE CENTRAL STATISTICS OFFICE (KSH) ANNOUNCED. ISDN LINES CONTINUED TO ACCOUNT FOR 17% OF ALL LANDLINES. Mobile phone penetration was 82.7% at the end of Q3 last year, up from 81.1pc in the previous quarter, and up 8.1% from Q3 2003. The number of calls initiated from landlines, including Internet dial-up calls, was 783 million, a drop of 8.8% from 2003. The overall duration of calls made with landlines was 2.4 billion minutes in Q3 2004, down 10% from a year before. The number of Internet dial-up calls dropped 16.1%, and their duration fell 11.2%. Dial-up Internet calls dropped steadily throughout the year, which signals a decline in dial-up connections and increased use of broadband Internet. In the mobile phone segment, the number of calls initiated rose by 40 million, and the overall duration of calls rose 99 million minutes. The average duration of each landline call fell to 3 minutes, and that of mobile calls rose to 90 seconds in Q3. Excluding dial-up Internet calls of an average duration of 14.8 minutes, landline calls lasted an average 138 seconds. Calls launched from mobile phones lasted an average 6 seconds more than in the previous quarter, and an average 12 seconds more than in the same quarter last year. The average monthly duration of calls was 235 minutes, up 7 minutes from the peak measured in Q2 2004. At the end of Q3 2004 there were 675,000 Internet users in Hungary: 44% of all users had dial-up connections, 5% of all users had ISDN connections, 27% of users had xDSL connections, 17% had cable TV connections and 5% of all users had wireless internet connections. Net sales from provision of Internet services totaled nearly HUF 11 billion, down 0.3% from Q2, but up 37% from Q3 2003. Net sales dropped as the number of users rose, a result of special offers attached to xDSL and cable TV subscriptions. In Q3 the 331,000 dial-up users connected to the Internet 46 million times, down 12% from Q2, and spent an overall 580 million minutes on the Internet, down 18%. A dial-up user connected an average 1.5 times daily to the Internet and spent an average 20 minutes browsing in Q3 2004.

Concorde launches film trust to support film industry

CONCORDE ÉRTÉKPAPÍR, THE LEADING BROKERAGE FIRM IN THE DOMESTIC MARKET, HAS COME UP WITH A NOVELTY: A FILM TRUST. The trust is attractive to investors not because of the tax writeoff it offers. Under the Act on Motion Pictures, which came into force in April 2004, businesses that support film production with cash subsidies - basically donations - may deduct 100% of this subsidy from their tax base as well as from their payable taxes. The tax break has some conditions: investors may write off no more than 70% of their payable taxes and they may not deduct any more than 20% of the total production costs of any one film, but the write-off is still extraordinary, providing investors with a return - in the form of a deduction - of HUF 116 on every HUF 100. Concorde set up a trust, which will invest in film productions in order to take advantage of these write-offs. The "Concorde Film Trust," currently has HUF 500 million in assets and expects to increase the figure to over HUF 2 billion in 2005, Concorde Client Director Mihály Boris said. The money, which has come from dozens of businesses and banks, is already being used to finance 20% of the production costs of 16 films, including Hungarian films and films co-produced with other countries. (The tax write-offs apply to subsidies for foreign as well as Hungarian films, as long as production takes place in Hungary.) Most of the films sponsored so far were in the post-production stage.