Infrastructural developments in Szálka – investigation summary

Following up on reports, the Integrity Authority has conducted an investigation into three, EU-funded development projects that took place in the village of Szálka, Tolna county. The municipality of the village was awarded a total of HUF 316,316,560 of European Union grant for the developments. The possibility that the developments serve private interests instead of community interests arose during the investigation.

The objective of one of the projects is to effectively increase the profit of the mayor’s revenue-producing business (running a beach) realised and financed from European Union funds, while that of the other two related projects may be the preliminary instalment of public utilities adjacent to a Natura 2000 area, instead of the construction of an otherwise unjustified drain, during which the realisation of the project, i.e. the development of a dirt road with a solid concrete surface, might be a value-adding factor for nearby pieces of real estate. Therefore, as a result of the development, the owners of pieces of real estate located in proximity of the “road” might have gained or might gain financial advantages.

Water management projects

The objective of the Calls for Proposals is to develop rainwater drainage systems in built-up areas of the communities in relation to project no. TOP-2.1.3-15-TL1-2019-00057 entitled “Water management in the village of Szálka – Phase III” and project no. TOP-2.1.3-16-TL1-2021-00020 entitled “Water management in built-up areas in the village of Szálka – Phase IV” in order to prevent environmental damages and reduce risks of flood, waterlogging, and local water damages. To this end, the municipality applied for a grant for the construction of a marshy water drainage system. However, neither the force majeure documents justifying the project (only HUF 5 million was spent on remediation in 2010) nor the decision of the Technical Committee of the Central Transdanubian Regional Water Management Council support the need to realise the project.
Based on the information revealed by the Integrity Authority and knowing the content of the project, the main function and objective of constructing a marshy water drainage system do not serve defensive purposes but the development of public roads, i.e. the equipment of the dirt road with a solid concrete coating and the preliminary supply of the area with public utilities, which are not eligible costs. The suspicion may arise that the road built in Phase III and the construction of the road planned in Phase IV serve private interests instead of the community interests of the village of Szálka, since a plot restructuring procedure concerning many plots in the area was initiated, and the ownership of the plots created in the process was transferred to the Dublin-based ATVA Properties Limited in the summer of 2021. If the preliminary supply of public utilities and the concrete roads in the additional plans were to be completed according to the plans, the value of the plots and pieces of real estate in the area is expected to rise substantially as a result of the development.

Beach development

The Integrity Authority investigated the project entitled “Infrastructural development of Szálka Beach – Phase I” referred to in the report as well, the objective of which, according to the successful tender, is the technical protection of the shore of the beach. The sites of the project are the lake owned by the Municipality and the area of the beach and campsite. The owner of the latter is Szálkai Szolgáltató és Kereskedelmi Kft.
Szálkai Szolgáltató és Kereskedelmi Kft. (SZÁLKA Kft. for short, company registration number: 17 09 001949) is owned by the mayor of the village of Szálka and his family.
In 2021, the Municipality of Szálka rented the lake out to Szálka Kft. The lease contract cannot be found either in the documents submitted by the Managing Authority or on the website of the municipality or in the EUPR system. The Integrity Authority could not establish the value for money of the rental fee specified in the contract and the income derived therefrom. Based on these facts, the suspicion may arise that the real objective of the project is not the technical protection of the shore of the beach but to increase the value of the beach, being a property directly bordering a water body, and, with that, to increase the profit generated by the business owned by the mayor.
Access to the beach is subject to an entrance fee. The revenue deriving from the entrance fees, however, does not belong to the Municipality of Szálka but goes to Szálkai Szolgáltató és Kereskedelmi Kft. The prior approval of the Managing Authority required to lease the assets created by the development is not available.
For each of these projects, the design work was carried out by a company (A.G. Projekt Bt.) with a conflict of interest in relation to a member of the body of representatives.

Measures

In light of the foregoing, the Integrity Authority ordered a 50-day suspension of the public procurement procedure initiated by the Municipality of Szálka in the subject of “Water management in built-up areas in the village of Szálka – Phase IV”.
Based on the findings of the investigation launched into project no. TOP-1.2.1-15-TL1-2019-00026 entitled “Infrastructural development of Szálka Beach – Phase I”, there may be a risk that the European Union funds cannot be accounted for, which therefore raises the possibility of the offence of budget fraud in accordance with section 396 (7) of Act C of 2012 on the Criminal Code (hereinafter referred to as “Criminal Code”) and the misdemeanour of using a forged private document in accordance with Criminal Code section 345.
The Integrity Authority files a complaint against unknown person at the National Tax and Customs Administration for the offence of budget fraud and the misdemeanour of using a forged private document.
The Integrity Authority initiates legal proceedings in relation to all three projects and calls on the Managing Authority to:

• conduct an irregularity proceeding for conflict of interest in the case of all three projects

• verify, with regard to the project entitled “Infrastructural development of Szálka Beach – Phase I”, as to what extent the Beneficiary’s conduct supported the realisation of the project objectives and to what extent it promoted the interests of Szálka Kft. owned and represented by the mayor of the village of Szálka and his relative, and examine the lease contract between Szálka Kft. and the Municipality.
• investigate whether the construction project, as the subject of a public procurement procedure initiated in the context of “Water management in built-up areas in the village of Szálka – Phase IV” and suspended by the Authority, complies with the conditions of the Call for Proposals and whether the technical necessity and justification are supported.
• investigate, in light of the foregoing, the possibility of withdrawing from the Grant Agreement in relation to the projects entitled “Infrastructural development of Szálka Beach – Phase I” and “Water management in built-up areas in the village of Szálka – Phase IV”
  Furthermore, the Integrity Authority issues a number of recommendations to the Managing Authority to ensure that projects realised from European Union funds are completed in accordance with regulations.