Narrative
Hell Energy Hungary Ltd. is a privately owned producer of energy drinks that, according to its website, is “one of the fastest growing FMCG (fast-moving consumer goods) brands in the world, as proven by its explosive export expansion and growing global popularity, with an export market of more than 50 countries”. Between 2008 and 2016, the company received more than EUR 30 million in EU funds to undertake various growth-related operations, such as: constructing a new factory building, constructing an industrial park on a 50-hectare greenfield site, purchasing new machinery and technological improvement to increase production capacity, and developing a hotel/tourism complex.
Generous public funding (from the Hungarian national budget, in addition to EU funding) has been provided to this private business despite the fact that several of its activities may be deemed harmful to the climate and environment (impacts of land use, energy use, water, packaging, transport, etc.), and also to public health (consumption of caffeine, sugar, and artificial additives). While Hell Energy was receiving EU funding, some of its projects even gained a “priority investment” status, meaning that both public participation and the control by independent authorities (e.g. environmental authorities) are rendered lagely ineffective. In addition, generous public funds resulted in the company gaining a huge, artificial competitive advantage, which can trigger harmful long-term impacts on the economy (e.g. market distortion, rent seeking, increased risk of corruption).
In general, the public funding of private businesses has proven to be an extremely inefficient use of public funds. According to studies, Hungarian businesses received twice as much EU funding as they paid in corporate tax during the same period, and EU funding has resulted in slower growth for Hungarian beneficiaries than for their non-funded peers. In the case of Hell Energy, EU taxpayers were financing an already lucrative business: in 2009, at the time of receiving huge public (including EU) funds, the company sponsored the AT&T Williams Formula 1 team. One of the government’s main arguments has been that Hell Energy creates jobs in Hungary. However, job creation at Hell Energy has proved extremely expensive for the taxpayer. In 2010, the company received nearly EUR 4 million and created 15 new jobs (i.e. EUR 270,000 for each new job). At the same time, the average amount of state support to cdreaate create a job at a Hungarian SME is about EUR 1,000, in which case, the allocation of EUR 4 million should result in creating roughly 4,000 new jobs.
Financial data
EU Contribution: EUR 30 mln (HUF 10 bln)
Share of EU funding: various
Recommendations
No discretionary public funding (including from the EU) should be provided to private businesses (with the exception of non-profit companies that deliver benefits for environment/health/education, and with the aim of social entrepreneurship and under very strict conditions). Private businesses should seek only private financing.
No public funding should be provided for environmentally harmful activities (e.g. construction on greenfield sites, the production of non-necessary food and beverage items). Large developments should be realised on brownfield sites only, and built-in areas should be minimised.
Hungary should abolish the Law on Priority Investments and any related government decrees. In the meantime, no EU funding should be provided for 'priority investments'.
Restore the status and capacity of environmental authorities. Environmental authorities have been continuallly weakened over the past 20 years, and substantive work has now become almost impossible due to their lack of expertise and resources, as well as their lack of professional independence. The European Commission should start an infringement procedure against Hungary because of the substantial weakening of the country's environmental authorities.
