Nothing fell into our lap

2015. 01. 29.

Interview with Benjamin Lakatos, MET Group CEO – Figyelő business weekly, 29 January 2015

Translation of the original Hungarian article

The CEO of the Switzerland-based energy trading company MET Holding AG is also the group’s largest private owner. Last year the company came into the focus of politics and the media primarily due to the deals it struck with Hungarian Electricity Ltd. (Magyar Villamos Művek, MVM). In his exclusive interview with Figyelő, Benjamin Lakatos talked about this, and also revealed never before heard details about the past and the future of the company.

The Hungarian media has been regularly reporting about MET Group for almost a year now. You as the company’s number one manager have not given any interviews yet. However, now you gave in, and you are going to reveal more about the group and the ultimate owners, as well. What has changed?

The witch hunt and the demonization of our company reached a peak, so it’s high time to get some things straight.

Why did you not make any comments on the leaked information earlier?

We were not ready, we were busy with business. We made a conscious decision not to make any statements during the elections in April. We are a professional company and we keep our distance from politics. It is not the contracts with MVM that are interesting anyway, but our real story. I only wanted to reveal that in a few years, when we are already considered as a significant energy trading company in Europe. However, life moved this forward.

You are the largest owner as a private individual in the company with 24.6%. How did you manage to achieve this?

Originally I was not an owner, but in 2012 I bought 10% each from MOL (which owned 50%) and from a company called RP Explorer Fund. In 2013 I purchased a further 4.6%.

This does not sound like a huge secret. Why were we not allowed to see this clearly?

Absolutely, this was not a huge secret, since hundreds of our partners were aware of this. But it benefitted us greatly in the past seven years that we could work without receiving much publicity. Once, I was in London when someone from the energy sector told me that we must be doing something very well if we are such a big company and he has never heard about us before.

Yes. But meanwhile Hungarian politics started a fight against those non-transparent companies taking part in public procurement who signed a contract with the state. In this context the demand of the citizens to know the ultimate owners of the companies who sign a contract with the state is justified.

I refuse the claim that MET is not transparent. Our operations are transparent and in line with the strictest standards. Everyone needs to understand that there are business secrets in a competitive world. We will not reveal more than we are obliged to by the law. We will not reveal more than our competitors reveal about their operations and contracts either. Otherwise we would be in a competitive disadvantage.

Coming back to you, we were not aware earlier of Benjamin Lakatos being the largest owner with around 25%. What is your role?

I always say that I have two and a half children. Two at home, and MET is the half. Lately this half child has been more problematic that the two at home. I was the one who came up with the business model and the concept of the company, I “cooked up” MET. I was in the right place at the right time, and I was lucky.

When did this happen?

In around 2005–2006 trading and owning physical assets was not separated yet on the European gas market. Generally, each country had a huge gas company which owned the storage facilities, the pipes and the trade. I was employed by MOL, and I was involved in the sale of the gas business to E.ON. But actually I was not involved with gas trading, I had a financial background. My thoughts were not revolving around gas supply, but around options, prices and exchange rates.

Then EU rules were changed. What did this mean?

Suddenly the entry limit in gas trading was decreased from 1 billion to 1 EUR. In the rules traders were separated from the owners of huge infrastructures. Only around a hundred top managers on the gas market understood what was going on. I was one of the youngest among those. There are four factors in gas trading: physical/trading positions, brilliant people, financing and IT systems. People are the most important. I am very proud of the MET team: it is made up of extremely talented, motivated youngsters, who are willing to work day and night for the company and for their personal success.

How did you get this team?

We assembled it step by step, and we participated in numerous trainings. We paid bonuses based on performance to our employees. High bonuses, compared to others. This was not possible at large energy companies. At this time the owner of our company was MOL, and it didn’t feel particularly safe, because we were making decisions about huge sums of money in the matter of seconds. MOL supported us when even though in the beginning our contribution to the group’s performance could only be measured in per mille, we caused much more headaches to the management. After a year of preparation we separated from MOL in terms of daily operation, but fortunately we remained under the ownership of the company, which meant a huge advantage, particularly in the beginning.

Why did this benefit MOL?

Because it had our risk outside the scope of consolidation. If we failed, MOL would not have to pay anything, since it held only 50% of the shares and it did not have any control over us. We made it clear to everybody that MOL will not take responsibility for us. We needed another liquid owner who would provide financing, though. In the end we received 15 million EUR from the two owners.

Was the other owner Normeston, a company with Russian background?

Yes, this company was suggested by MOL. We, I mean the management wanted to receive some shares; we fought for this for 1-2 years. Then Normeston (contrary to its earlier promises) could not provide a Russian gas source, so it sold its shares to RP Explorer Fund. Our concept was successful, though, so I was able to convince both groups of owners to provide me with 10% each.

As a gift?

No, obviously. We enhanced the company, and we did this on market price.

How did you have so much money?

I didn’t. I bought the shares with deferred payment later from the dividends I received.

How about the payment of the purchase price? Are you still paying the instalments?

No, I am done with that.

How much is MET Group worth, what do you think? Just to see where you would stand on the list of the wealthiest people.

I’m not in the vanguard. Although the revenues are high, profit margins are low. We are like a bank that changes currency. If in a year we gain the net 1% of the turnover, we are already were happy. In the seven years since our company was formed we made a profit of approximately 400 million EUR, the half of which is still in the company. Naturally, in terms of the company’s value future profitability is the most important factor.

Are you the only owner in the management? Why did the others not buy any shares?

I am not the sole owner. The name of one of my companies, MET ManCo AG, is a reference to the others. I am looking forward to let those fellow managers become owners, who generate such added value that they practically force me to make them owners. The name of my other company is Deneb Algedi. It was named after a star.

A star? Were you referring to yourself with this humble choice?

It’s only a smaller star. (laughing) This is a personal story. I greatly admired my grandfather, who was an engineer and an astrologer. He often held classes in his flat. He told me about this star. Deneb Algedi is the Arabic name of the last star of the Capricornus constellation, the Latin name of which is probably more well-known.

You are by far the largest of the owners. Did you play such an important role at the company?

The idea was mine, and I was the one who fought the first battles, but the rest was teamwork. We worked hundred hours each week. Previously, I only saw such a corporate culture at the Paks nuclear plant, where the families were talking about the company even at dinner. In the first five years the company would have collapsed without me, but now we are at a point that in half a year they will be able to replace me. Today we are a major company, our financing is on a par with the countries of the region, our risk management is outstanding, and we have operating trading floors in Switzerland and in London. Our biggest competitive advantage is that we have well-integrated, almost real-time systems. If a salesmen signs a deal with a large consumer, the colleagues responsible for logistics, storage, trading and currency trading also receive this information. Signing a gas contract has several other consequences, as well.

Let’s discuss the owners with Russian backgrounds. The company we mentioned earlier, Normeston, quit, but if I am well-informed, it still owns the headquarters on Benczúr Street, where you work.

We have maintained the great relationship. Normeston is a major company; I hope that we will have the opportunity to do business with them again, for example in the London oil trading.

Oil? If I understand correctly, Normeston is linked to a Russian oil company, which could have had a gas source, but in the end it didn’t?

Exactly.

Is this company linked to Lukoil? Since the local Lukoil has an office in the headquarters on Benczúr street, as well, and the company which bought the petrol stations of Lukoil is also remarkably similar to Normeston. It’s called Norm Benzinkút.

We have nothing to do with that.

You are revealing more details about the owners of Normeston, but it is known that currently one of the ultimate owners of MET is a Russian private individual, Ilya Trubnikov. That name does not sound familiar to me. Who is he?

He is a 57-year-old Russian-Canadian citizen, who is well-known in the sector, and whose story is similar to ours. He built a gas and oil technology company called NGKS, which did business all over the world (including Norway, Oman, Mexico and Pakistan). Before the crisis, in 2007, he sold the company to one of the largest gas pipeline technology companies, the Texas-based Weatherford. He made a nice sum of money on this, I guess. Since then he has been dealing with real estate and stock exchange investments.

How did you find him, who called him?

I barely know anything about this, Normeston negotiated with him.

In what degree is Mr. Ilya Trubnikov linked to the Russian state or one of the large Russian oil or gas companies?

As far as I know he is not linked to any of those.

Does he not help with gaining new sources? How can he support the company?

It is very important that our owners do not participate in the operations of the company. György Nagy is the only one who is a member of the Board of Directors. We do not have any actual connections with Mr. Trubnikov and the other owners. At least for the time being. If they did not pay any dividends, I guess we would hear from them.

We already knew about the two other owners, István Garancsi and György Nagy. What is their role in the story of MET?

They did not contribute to the rise of MET, that is our success, but their trust was very helpful for us, since their money was essential. They did not contribute to the professional aspect of the company, they only provided financial support.

My question did not concern the degree they are familiar with the gas industry. Did the fact help that István Garancsi is friends with Viktor Orbán and Zsolt Herendi and that György Nagy is in a close business relationship with Sándor Csányi? They are politicians and leaders at MOL. – This must have been helpful.

The answer is simple: we did not get any help like this from the owners. No one should try to take away our success. However, this question gives me an opportunity to tell you something about the MVM story. We have been accused of gaining disproportionate advantages from buying the capacity of HAG (the Austrian-Hungarian gas pipe). Do you know what actually happened? I almost had a heart attack when that particular regulation was published in the Hungarian Official Gazette. We were participating in a team-building training when my colleagues showed me the publication. If the rules are changed suddenly, a trader needs some time to process it. The reason the HAG regulation of 2011 affected us badly was that in the previous years we were one of the largest users of that capacity, and we expected to gain some again with the next tender. We were one of the biggest losers of the change in regulations.

Didn’t it give you an advantage? How much gas did you import in the previous gas years?

In the previous gas year the Hungarian gas volume of MET was more than 2 billion cubic meters. Since the HAG tender our turnover did not increase, it actually decreased.

But you did not have to pay for the pipeline anymore...

That is not true. We paid much more than we did in the year prior. Unfortunately the majority does not understand this deal. The profit came from somewhere else. We had a big advantage: we always got buyers first, and afterwards we adapted the gas sources to them. The others had already signed, mostly long-term source contracts. E.ON had the largest portfolio at that time. In the beginning MVM only negotiated with them about the HAG capacity.

About who is allowed to import “cheap” gas?

Cheap gas is an urban legend; it has nothing to do with reality. With the capacity MVM received an obligation to pay for the gas pipe usage, and it did not have a portfolio or any Western connections. They were in a losing position. Of course we were chasing the deal, since we knew that HAG is worth more to us, but in the beginning no one negotiated with us. The reason we were contacted for negotiations was that E.ON refused to pay the costs of MVM. At that time we thought that this transportation opportunity is not worth for us, but on 21st July we signed a contract. We paid several billion HUF to form a strategic cooperation with MVM.

In hindsight it was worth it, wasn’t it?

It was a conscious decision on our part, at that time we saved MVM from its loss. In the first year MVM sold 100% of the capacity it gained, later only 75% of it, and we always undertook to take over the amount it could not use. It received a sale option from us which meant that it could pass on the excess capacity to us for a significant premium. We never received such options from anyone, even though we would pay a lot for them.

So is it not true that in the last years you regularly received the complete HAG capacity?

Of course not. We purchased 30% of the gas pipe capacity each year, and due to the option we had to undertake another 3–7% each year. In addition we paid significantly more for these capacities than most capacity users. It is a different question that we were often able to use it very well. In the first two years we generated a loss on this deal, but the single largest loss of MET Group is linked to this, too: in the last closed gas year, in 2013–2014, we suffered a huge loss.

In the good years, for example in 2012, your most successful year, how much profit did the MVM deal generate? Why did not MVM gain that profit? This question is often discussed.

It did not have the necessary end-consumer portfolio. The management of MVM made the best decision it could, since building one takes several years. Turning back to our profit in 2012, that year was the best year in gas trading in Europe. Oil prices were going up and down, and that was the time when the European gas market transformed into a trading market much like the oil sector. That is what we were waiting for. We gained much more due to these opportunities than thanks to the MVM deal. Half of the profits we generated so far is still in the company. When in 2012 the Hungarian company paid us a large dividend (the result of the years prior), we put that in the Swiss firm, and we used it the set up the operations there.

The Hungarian-Russian long-term gas contract will be signed soon. In what degree does this force your company out?

The long-term gas contract itself does not affect us directly, but it does indirectly, since we will have to compete with the price it specifies. However, we are never only talking about Hungary. I visit Hungary less and less, since in gas trading you have to at least think in regions, or rather in terms of Europe.

You can buy anywhere, sell anywhere?

All our connecting infrastructures have already been set up. 75% of our business is gas, which means that we can move gas in the whole of continental Europe. This is why I am baffled when people consider us a small Hungarian company making secret deals with the state and getting rich due to this. On the region’s largest gas exchange, the Austrian VTP, we are in the top 3 in terms of turnover, and on continental Europe’s largest stock exchange, the Dutch TTF, we are in the top 15.

You are aggrieved at the manner people are talking about you. I think you are not at peace with fact that earlier some of your contracts were posted online, are you? Was the problem that these became public or do you claim that those were fake data?

We had a hard time due to that exposure, it was completely unheard of. If our competitors can see our current contracts, they can use this knowledge to gain advantage over us. Furthermore the accompanying text, the way it was presented was a complete lie. For a while The Da Vinci Code was my favourite book, too, it is very entertaining, it is filled with stories which seem real, but this does not mean that it actually is.

Some political forces and parliamentary parties also had questions, made reports and speeches. How did you react?

We contacted them to tell them the real story of MET. We have a revenue of 4 billion EUR, and if we want to be significant players in a continental sense, we need to double it. This growth will not originate from Hungary. We do not want to badmouth anyone, and people do not have to necessarily like us, but it is outrageous to see what kind of unprofessional opinions are formed about us by people who are representing party interests.

According to an article published in Switzerland the reason that Prime Minister Viktor Orbán is travelling more and more often to Switzerland is to meet you...

That is silly. I was not even in Switzerland at that time. I met the prime minister three times in public events, but I think he does not even know who I am.

444.hu also published a detailed article about MET, and it outlined a model according to which Russian potents are building structures supporting Hungarian oligarchs and politicians by using discounted gas, much like in the case of RosUkrEnergo and EMFESZ. Now that you have revealed the company’s owners, we can see that Russians are certainly involved.

This is another urban legend; it has nothing to do with reality. We did not get any gifts from MVM, and we did not receive any discounted gas from our Russian partners either.

You bought some on the Hungarian market last year, too. Recently Figyelő published an interview with Gergely Szabó, the CEO of your Hungarian company. I did not ask him about this, but since that interview I have heard that you are also in contact with Magyar Telekom about a joint venture.

I can only talk about closed transactions. We bought Dunamenti Power Plant (DERT) and the electricity portfolio of GDF. The former was more important. We are looking for assets that are directly linked to our portfolio. We are still negotiating about some smaller transactions in Hungary, but the next significant asset purchase of MET Group will not be linked to Hungary. DERT is a real option for us; its value is that we can always sell it a large amount of gas.

You are based in Switzerland. How did the CHF crisis of 15 January affect you?

Our costs of operation in Switzerland were always high, but now they only increased further. Although we were aware of the situation of the CHF, we suffered some losses. Still, our risk management did a great job, so our loss is tolerable. Our position in Switzerland changed a lot. Recently we managed to hire a trading team from a global energy company, who were also being chased by a large bank. A bit later the global commodity manager of that financial institution flew to Switzerland to visit us and see why that team chose us instead. That felt nice.

(Gergely Brückner)

Benjamin Lakatos

38 years old, father of two

Graduated from Temesvári Pelbárt Franciscan High School in Esztergom and the Budapest University of Economic Sciences. Received an MBA scholarship at the State University of New York. Held several positions in MOL Group, and leading MET since it was formed. His hobbies include his two and a “half” children and reading books about physics.

Source: Figyelő