Closing of investigation No. III_86_2023 – cattle farm modernisation

The Integrity Authority has launched an ex-officio investigation into the EU-funded project for the renovation of a cattle farm in Tófalu, owned by Biogas Productor Kft. (call for proposals No. VP2-4.1.1.3.-16 “Modernisation of cattle farms”). The investment received a grant of HUF 468,205,586 which, bar HUF 2 million, was called by the beneficiary.

The beneficiary, Biogas Productor Kft., received this grant of nearly half a billion HUF for the agricultural project worth a total of HUF 968 million despite having carried out no actual agricultural activity in the years prior to this project or up until now, while also having had and still having no revenue from such activities. Employees of the Integrity Authority found neither cattle nor evidence of agricultural activity on the cattle farm. Biogas Productor Kft. has registered no revenue since the 2018 financial year.

The Authority found suspicion of irregularity in all phases – application for funds, selection of the contractor, and implementation of the project – of the subsidised investment and filed a complaint against unknown person at the National Taxation and Customs Administration for the offense of budget fraud and the misdemeanour of using forged private documents. Furthermore, it called upon the managing authority to open an irregularity proceeding.

The Authority initiated a remedy proceeding of the Public Procurement Arbitration Board (KDB) for the illegalities found in the public procurement aspects of the case. In this proceeding, the KDB imposed a fine totaling HUF 35 million on the beneficiary and its contractor. After the KDB did not accept the Authority’s initiative according to which Biogas Productor Kft. had conducted its public procurement procedure for the overground building works in violation of the principles of the Public Procurement Act, the Authority initiated an administrative court action to determine whether certain conditions of the procedure could have violated the principle of responsible financial management.

Key findings of the investigation:

  • The call published in 2017 required that at least half of the revenue of farmers applying for the funds must come from agricultural activities. Biogas Productor Kft. confirmed this with a single invoice of gross HUF 50,000 for 2015, the invoice pad of which was purchased much later, one year after the date indicated on the invoice. Other sources also suggest that the company has not performed any agricultural activities on its site or elsewhere in previous years. So, the managing authority considered the investment of almost HUF 1 billion secured and granted HUF 468 million in funds, even though the company applying for the funds managed to present an agricultural activity of only HUF 50,000 with an allegedly false invoice.
  • The beneficiary should have selected the contractor for the civil engineering works of the project through a public procurement procedure. Instead, it directly contracted with Dunareklám Reklámszervező és Szolgáltató Kft. for the civil engineering works. Dunareklám Kft. had added construction activity to its list of activities only one month before the contract, while having no meaningful experience in the field. The director of the company is the spouse of the technical designer and project manager of the cattle farm. Furthermore, the beneficiary and the contractor were found to have the same accountant, who was also involved in the evaluation of the tenders received within the public procurement procedure. The Integrity Authority found that the beneficiary had submitted an untruthful document to the managing authority concerning the conduct of the procurement procedure. The managing authority did not control this document on the basis of the available information.
  • While the contractor for the overground building works was selected through a public procurement procedure, Dunareklám Kft. won this procedure as well. There is a suspicion that Biogas Productor Kft. conducted the preparation of the public procurement procedure and the evaluation of the tenders received in a manner that violated and manipulated fair competition, equal opportunities and the principle of equal treatment by creating conditions favourable to Dunareklám Kft. Considering the preparation of the procedure and the personal links between the successful tenderer and the contracting authority, the objectivity and lawfulness of the procedure is questionable. By fixing the tender price, the beneficiary excluded price competition and based its evaluation on criteria that lacked objectivity.
  • As of today, the 2-year deadline to conclude the project has been exceeded by the beneficiary by 1 year and 7 months. The site did not have a valid final certificate until the conclusion of the investigation of the Integrity Authority (February 2024).

“The Authority expects the managing authority, after assessing the apparent facts, to reclaim the paid funds from the beneficiary and to ensure timely repayment,” added Ferenc Biró, president of the Integrity Authority, on the outcome of the investigation.