Hungarian government preparing further tariff cuts

By bne IntelliNews January 30, 2013

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The Hungarian government announced on January 29 that it's preparing further cuts in household utility prices following the 10% cut in gas and electricity tariffs made at the start of the year.

"At today's meeting the government has discussed the possibility of a further reduction in utility costs," it said in a statement, according to Reuters. Late last year, following a demand from Prime Minister Viktor Orban that utilities serving household customers should be "non-profit" organisations, his Fidesz administration pushed a 10% cut in domestic tariffs.

Budapest was also careful to insist that the cost of the discount must remain with the distribution utilities, which like the banks and telecommunication companies hit hard by tax increases since Fidesz came to power in 2010, are mostly foreign owned. Analysts suggest that the impact on MOL - a major supplier of gas to Hungarian utilities alongside the state-owned MVM - will be minimal.

The government statement tried to preempt any such concern in its statement. "The government will not pay attention to 'the lobby of energy providers', their profits or ultimatums, but will aim to provide affordable public services to the people, moreover, it is preparing further price reductions," it added.

Magyar Hirlap reported that Hungarian power distributors would offer to sell their networks to the state should Budapest push for further cuts, according to Dow Jones. The paper also claimed that the government has dropped plans to cut electricity prices further this year, noting that the statement did not specifically mention electricity. State secretary Janos Fonagy told newswire MTI that the development ministry is preparing new utility tariff cuts to reduce water, sewage, communal waste collection, and chimney inspection fees.

In a statement accompanying its latest interest rate cut on January 29, the Magyar Nemzeti Bank agreed that government-mandated price cuts should help with efforts to reduce inflation, which pushed on above 5% throughout 2012 despite the recession. However, Governor Andras Simor - a staunch opponent of Orban - warned that companies could still try to pass on any rises in production costs to clients.

With parliamentary elections coming up in 2014, a cut to utility prices is clearly a plus for the government. More crucially, the planned effect on inflation makes it easier to push through the ongoing easing cycle at the central bank.

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