E.ON reportedly in talks to sell Hungarian power plant to Gazprom

By bne IntelliNews March 28, 2013

bne -

Russian gas giant Gazprom has resumed talks with German utility E.ON over the potential purchase of the latter's Gonyu gas-fired power plant in Hungary, local press reports. The deal would appear to fit Budapest's strategy for the country's gas assets and its own role in the sector like a glove. Meanwhile, other foreign energy companies continue to retreat from the country.

Hungarian daily Vilaggazdasag reported on March 27 that E.ON is willing to sell Gonyu, which currently operates at around 30% capacity due to high gas prices and low electricity tariffs. While the German company is in the midst of a large-scale divestment drive in order to lower debt, it only built the 433-megawatt (MW) combined-cycle plant in 2011, at a cost of €400m. However, the newspaper reports that E.ON is already discussing a possible deal with Gazprom. The two companies were reported to have talked about the asset last year. As the dominant gas supplier in Hungary, Gazprom appears in a position to help raise the utilization at Gonyu.

Meanwhile, E.ON is also set to leave the gas storage and distribution business in Hungary, after agreeing to sell its assets to state-run MVM late last year, in a deal that the Hungarian government clearly hopes will allow it to get in on the lucrative cross-border gas trade.

Hungary gets over 80% of its 12bn cubic metres annual gas consumption through imports, mostly from Russia. Hungarian Prime Minister Viktor Orban said in February that a key plank of the transaction for the storage and distribution assets was the Gazprom contract, in which Budapest has had no say thus far. Orban said that situation is unacceptable.

"Therefore, now when we reached a deal with E.ON, then we also purchased the contract, so in the future it will be Hungary negotiating with the Russians how much gas it wants to import and at what pace and at what price," Orban told state radio on February 1.

According to the latest report from Vilaggazdasag, Gazprom has told Budapest that it would be happy to team up with MVM to operate Hungary's gas storage units, which under new legislation introduced at the start of the year must now be state controlled. The Russian giant is also apparently ready to partner with MVM on expanding or refurbishing the country's gas-fired plants.

Separately, the CEO of E.ON Hungary said in an interview with daily Magyar Nemzet on March 27 that the company is ready to sell not just the local gas business but also other assets. Although he made some effort to stress that a Hungarian exit is not on the agenda for now, Eric Depluet suggested the company is anything but impressed with current conditions in the country for energy investors.

As bne reported earlier this week, E.ON's compatriot RWE announced that it is to slash investment in Hungary by 50% in 2013 due to the government's "completely unacceptable" policy moves. Aside from the new rules regarding gas storage assets - which saw Hungarian energy giant MOL agree on March 22 to sell the state its operations - Budapest has loaded large taxes on the energy sector and slashed tariffs by 10% at the start of the year. Orban has threatened another 20% in cuts ahead of 2014 elections.

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