Lajos Srágli
American Capital
and the Hungarian Oil Industry
[...]
Managed by the Treasury
Although oil production in Hungary was not significant on the world market, it became strategically important during the Second World War. Production expanded rapidly and new fields were opened. After the beginning of the war, however, managing became more and more difficult.
On 13 December 1941, Hungary declared war on the United States. From that date on MAORT, as an American company, was operating on enemy territory. Consequently, on 20 December 1941 the Minister for Industry ordered the Treasury to take over the management of the Company, while leaving the owner's rights untouched. MAORT's activity was suspended and a brand new company was established to run the company's plants. This new company was registered under the name of "MAORT Plants Managed by the Hungarian Royal Treasury" ("Maort Üzemek a M. Kir. Kincstár Használatában"). As a result, two separate companies existed side by side and the legal situation became hopelessly entangled.
Hungary's declaration of war on the United States made it impossible for MAORT to be managed by American citizens. As soon as the 12th of December, the Minister for Industry, at the request of the Prime Minister, appointed Simon Papp as General Manager of "MAORT Plants Managed by the Hungarian Royal Treasury", and ordered Paul Ruedemann and the other Americans to leave Hungary. Standard Oil Co. also decided that Simon Papp was to be requested to look after American interests and to manage MAORT. Ruedemann and George Bannantine left the country on 16 January 1942.
Under wartime conditions, executives were anxious to preserve the company for times after the war and to save oil fields from destruction. Since MAORT was able to satisfy the country's oil requirements in 1942 and the Company fulfilled all its obligations laid down in the Agreement and the Contract, they frequently wished to rationalize production, against the wish of the Ministry for Industry, which was demanding more and more exploitation. From the outset, the Company's experts tried to find the most economical way to extract oil from available deposits. They wanted to introduce scientifically supported production methods, similar to those used in the United States. They were against accelerated extraction, which did not pay heed to the laws of nature. But German and Hungarian government officials were keen to serve German interests and boost production as early as the middle of 1940. From this time on they kept on trying to force a rapid increase in oil production.
Production peaked in 1943 (837,710 tons). This record was primarily attained by finding and exploiting new oil fields and expanding existing fields, not by ruthless extraction. In 1944 production started to decline, caused by the natural run-down of the available oil, by accelerated wear and tear on machinery, by a decline in productivity and later, by Allied bombing.
Directors of war production, especially the Germans, did not believe that decline in production was caused by natural depletion and other unavoidable conditions. Both Hungarian and German Nazis accused MAORT of sabotage. The Germans attempted to take over the oil fields: in June 1941 IG Farben, the main fuel supplier to the Wehrmacht, initiated negotiations with Standard Oil Co. of New Jersey for a transfer of MAORT shares. These negotiations failed. Following this, the Germans tried to convince the Hungarian Government to put pressure on MAORT to provide more fuel for the war. The directors of MAORT resisted all outside influence exerted on the company's affairs, but they agreed to sell products to Germany, led purely by business considerations.
Under the terms of management issued by the Treasury and due to the war, profits could not be repatriated. The Company raised its share capital and became heavily involved in social services. They built a workers' hostel, established a cultural centre and provided housing estates for employees. Modern housing estates in the American style were constructed at Bázakerettye, Lovászi and Nagykanizsa before the end of the war. Most of these buildings still exist and are of architectural value. The Company always paid wages well above the Hungarian average and provided a high level of social services for its employees, even during the war.
[...]
The trial
The charge was a mosaic of supposed allegations presented as facts, fabricated details of reports submitted by state inspectors, "confessions" of witnesses, reports written by appointed "consultants" and of uncertain statements. A significant portion of the arguments consisted of political accusations. The organizers of the trial had to provide "convincing" political reasons, along with technical arguments, which did not persuade those familiar with oil extraction. According to the charge, the accused sabotaged their work in order to overthrow the Hungarian People's Republic. This document was drafted by Dr György Váradi, an ÁVH captain, who was assisted by Dr Márton Bodonyi, the prosecutor. Most of the facts were supplied by Dr Pál Székely.
A special council of the Budapest People's Court heard the case, with Vilmos Olti presiding. The trial was public, some of it broadcast live on radio. The accused were heard in the first four days, followed by arguments by the prosecution and by the defence. Despite previous threats, the accused pleaded guilty to only some of the charges. Simon Papp offered the least resistance. Experts for the prosecution (Géza Szurovy and László Forgács) alleged that the reduction in oil production was an active act of sabotage. Witnesses for the prosecution also talked about sabotage. Those who choreographed the trial allowed only the presentation of evidence by the prosecution. Witnesses for the defence were not heard, unfavourable expert opinions were dismissed.
Pursuant to Act VII/1946 and Act XXXIV/1947 on the protection of democracy and the republic, the sentences on 9 December 1948 were very severe, Simon Papp was sentenced to death, Bódog Ábel to 15 and Béla Binder to 4 years in prison. Kálmán Barnabás was acquitted. The lawyers appealed against the sentences. The appeal was heard by the National Council of the People's Court. The highly politicized charges were repeated, but a few mitigating circumstances were added. There was a reduction in the sentences: Simon Papp was given life, Bogod Ábel's sentence was reduced to 10 years in prison, and in the case of Béla Binder the forfeit of property and deprivation of civil rights was cancelled.
The entire proceeding clearly indicated that the trial was aimed not at punishing the accused, who were innocent, but to justify the takeover of MAORT's property to the outside world. The trial was also intended to demonstrate that Hungary, due to sabotage, was unable to fulfill its reparations obligations and international economic agreements.
The arrests, the trial and the sentences were not the end of the MAORT case. In September 1948 a series of fundamental changes were imposed on the Hungarian crude oil industry and on the Company. On 24 September, referring to sabotage, MAORT and MAORT Gas Marketing Co. were placed under state management.
On 30 November 1948 the US Legation in Budapest handed over a memorandum to the Hungarian Ministry of Foreign Affairs, in which the US Department of State protested against the arbitrary taking over of MAORT, stating that they rejected those lies and malicious accusations which were aimed to attribute sabotage to the owners and employees of MAORT. The memorandum emphasized that the American Government regarded the behaviour of the Hungarian Government in this matter as a serious infringement of American interests and rights. However, a series of American memoranda did not change the outcome of the trial and the fact of the Company's seizure. In legal terms, state management did not mean nationalization, since the Company's ownership remained unchanged, but there was little difference in effect.
The MAORT trial had a significant impact on the fate of the defendents. Only a few well-informed officials knew in advance that the death sentence of Dr Simon Papp was never intended to be carried out because they knew that there was no-one else of his qualifications and experience in Hungary. During his seven years in jail he was incarcerated in every penal institution of the country. But he never rested, he was engaged in scientific problems of oil, mineral ore and hydrogeology, he evaluated survey data and prepared expert opinions. He learned about his wife's death only when pardoned in 1955. He was seventy when he had to get a job in order to qualify for a pension. He held the position of geologist at the National Crude Oil and Natural Gas Trust (Országos Kőolaj- és Gázipari Tröszt) until 1962. He died in 1970. Those in the profession never doubted his innocence, but he could be remembered only quietly for a long time. His true life and work was revealed to the world only on the 100th anniversary of his birth. In 1986 the University at Miskolc and the Museum of the Hungarian Oil Industry organized an exhibition in his memory. His bust in the same museum was unveiled only in 1987, on the 50th anniversary of the inception of industrial oil exploitation in Hungary. In 1989 the Hungarian Academy of Sciences reinstated his membership (he had been expelled in 1948). In 1990 he was granted a posthumous Széchenyi Prize for his life achievements. Béla Bódog was already ill during by the time of the trial and died in jail in 1953. Béla Binder was released in 1951 and returned to the oil industry.
[...]
Lajos Srágli
an economic historian, is Deputy Director of the Museum of the Hungarian Oil Industry.
He was consultant to the documentary on MAORT, Olaj!Olaj! Olaj! (Oil! Oil! Oil, 2000).
