FORWARD DEFENSE: HUNGARY CONSIDERS LEGISLATION TO

C O N F I D E N T I A L BUDAPEST 001580 SIPDIS SIPDIS DEPARTMENT FOR EUR DAS BRYZA AND NCE MARC NORDBERG; TREASURY FOR DAS LEE AND DAS LOWERY; PLEASE PASS TO NSC FOR ADAM STERLING E.O. 12958: DECL: 09/20/2012 TAGS: PGOV PREL ENRG HU SUBJECT: FORWARD DEFENSE: HUNGARY CONSIDERS LEGISLATION TO DEFEND STRATEGIC INDUSTRIES, REQUESTS USG ASSISANCE Classified By: P/E COUNSELOR ERIC V. GAUDIOSI: REASONS 1.4 (B) AND (D) ¶1. (U) This is an action message. Please see para 9 for action request. ¶2. (SBU) Parliament is reportedly poised to adopt legislation that will provide added protection against the foreign takeover of strategic industries. THE MOL LAW ¶3. (SBU) Sources within the government and the opposition expect action in the near term on an amendment to Hungary's existing Law on Corporations that would provide the leadership of companies in selected industries with broader powers to resist takeover bids. ¶4. (SBU) The measure, commonly called "The MOL law," has already been the subject of public discussion, with one professional association challenging its validity under EU regulations and the Budapest Stock Exchange quickly rallying to the amendment's defense. A NECESSARY BUT A TEMPORARY FIX ... ¶5. (C) The amendment follows weeks of maneuvering by players inside and outside the government, including the Prime Minister's Office, the Ministries of Finance and Justice/Law Enforcement, and Hungarian oil company (MOL). Former Foreign Minister Janos Martonyi, senior partner of the local offices of Baker McKenzie and a legal advisor to MOL, tells us that he originally prepared language to amend Hungary's Energy Law but the decision was ultimately made to focus on the Law on Corporations based on advice from the Ministry of Finance. ¶6. (C) One of the first to raise the alarm regarding OMV's attempted take-over of MOL and the broader vulnerability of Hungary's strategic industries, Martonyi accepts the necessity of protective legislation but has voiced concerns over the government's approach. He believes that the pending amendment will help defend MOL but could have unintended consequences with regard to competition and transparency. He fully expects a legal challenge to the revised law. ¶7. (C) So does MOL economist Laszlo Varro, who predicts a challenge in the European Court of Justice. Varro and others believe the amendment is a short-term fix to address an immediate vulnerability while the GoH seeks a more comprehensive legislative solution. ¶8. (C) GoH sources believe the ideal solution would be a European one, and will doubtless welcome the EU's recent steps in this regard. Ambassador Karoly Banai, the Prime Minister's Foreign and Security Policy Advisor, indicates that the GoH may have to develop stand-alone legislation to succeed the current amendment, and has repeatedly emphasized that USG advice and assistance would be welcome as Hungary continues its national efforts. AND AN OPPORTUNITY TO SHAPE THE GOH'S STRATEGY ¶9. (C) Comment and Action Request: Clearly shaken by the OMV take-over bid, the GoH is moving with unaccustomed alacrity and uncommon consensus. We want to encourage both. The pending amendment, however, is likely to be a temporary fix vulnerable to legal challenge. We believe we can add real value by offering our expertise and experience to help shape the GoH's consideration of future ) and farther-reaching ) legislation to defend their strategic industries and with them our strategic interests. Toward that end, we would warmly welcome the designation of an appropriate USG expert to consult with GoH officials. End Comment. FOLEY