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As officials had threatened earlier in the week, Hungarian utilities - and Germany's RWE in particular - suffered a rough day on February 26. The government moved to block what it calls "fund diversion" by companies rushing to take what profit they can ahead of the next likely policy action after elections in April.

The Fidesz government said on February 26 that it would seek to impose a limit on the dividend payouts by power companies Elmu and Emasz, majority-owned units of German utility RWE, reported the Wall Street Journal, and launch an investigation into RWE's finances. Meanwhile, MVM - the state champion being built by Budapest to house its growing collection of energy assets - is moving in on the country's largest coal-fired power plant, which is also held by the German firm.

"The most important thing is that no dividend payment would be possible from funds earmarked for network maintenance and development," government spokesman Andras Giro-Szasz said at a press conference following a cabinet meeting. The same official complained in mid-February that plans by the two companies to bring forward their AGMs are an attempt to divert funds. The government is determined to ensure that "these attempts to divert funds should not be able to prevent or hinder the government's utility fee cut scheme in any way," he said.

Other members of the government were more forthright. "Siphoning dividends out of the companies may put supply safety at threat," said Szilard Nemeth, head of the government's utility price-cut task committee. The cabinet has ordered the energy authority to investigate the finances of RWE's Hungarian units, he added.

Non-profit sector

Prime Minister Viktor Orban has pledged to make the utilities sector "non-profit," and the government has said it intends to regulate prices to capture all income, leaving aside routine funds for re-investment. The campaign has stepped up as elections approach in April. Thus far, Budapest has overseen 20% of cuts in regulated prices for gas and electricity, with another reduction in gas prices due just ahead of the vote and further cuts in power and heating prices to follow.

The drive offers several advantages, outside the direct effect on household bills. It has also suppressed inflation, which has allowed the central bank to continue its 19-month easing cycle. At the same time, the pressure is also an apparent bid to drop valuations in the sector in order to allow state purchases. The government has already taken over the country's main gas importer from E.ON, as well as major gas storage assets from Hungary's MOL.

Janos Lazar, Orban's chief of staff, warned over the weekend that Hungarian utilities would face a rough day on February 26, with the government set to discuss the next step in enforcing the non-profit scheme. Parliament bills on the plan remain obscure and the utilities are still trying to deceive and manipulate consumers, Lazar told a public forum in southern Hungary on February 23, according to Portfolio.hu. "Electricity and gas service providers will have a difficult day on Wednesday ... It seems we cannot lower utility tariffs enough so that energy companies would not be profitable," Lazar said.

With Fidesz set to win another term in April, the worry for the companies is that the pressure will accelerate afterwards, and they appear to be rushing to repatriate what profit they can. Elmu and Emasz have announced they now plan to hold their annual shareholders meetings on March 21, two weeks ahead of the regular date in past years. "We have brought the date forward since it's a significant public-relations event and this way it will receive sufficient attention," Elmu spokesman Norbert Boross claimed. "We don't know if there will be a dividend payment, that's up to the shareholders."

RWE holds a 55.3% stake in Elmu and has a 54.3% stake in Emasz. Fellow German power company EnBW owns a 27.3% stake in Elmu and a 26.8% share of Emasz. The Hungarian state's power wholesaler and distributor MVM Zrt. holds a 15.6% stake in Elmu and a 11.7% stake in Emasz. The government has regulatory means with the energy authority to limit the dividend payments, one analyst told the Wall Street Journal.

Meanwhile, Development Minister Zsuzsa Nemeth said on February 25 that the state-owned MVM would like to increase its stake in Matrai Eromu - Hungary's largest coal-fired power plant - to play a more active role. MVM has a 26% stake in Matrai Eromu, RWE has 51% and EnBW 22%. EnBW has been wanting to sell its stake for some time, but RWE is not keen, according to daily Nepszabadsag.