Hungary goes on a xmas shopping spree

By bne IntelliNews December 18, 2013

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MVM - earmarked as a state-owned energy champion by the Hungarian government - continued its collection of assets on December 17, agreeing to buy a Budapest gas supplier, as well as a gas importer. It is also bidding for a telecommunications frequency previously set to be allocated to a state-owned mobile provider.

MVM said that it will pay Germany's RWE HUF41bn (€137m) for its 49.8% stake in Fogaz, which supplies gas to over 800,000 customers in the capital. The Budapest municipality will continue to hold 50% in the company. MVM will finance the purchase from funds it will receive through the national asset management company MNV, reports the Wall Street Journal.

MVM also said it will acquire a 50% stake in Panrusgaz, which is responsible for gas imports from Russia, from another German utility E.ON for HUF940m. That will make the state company a partner with Russian pipeline gas export monopolist Gazprom and a Vienna-based firm called Centrex Europe Energy & Gas.

The Fogaz deal is no surprise. Prime Minister Viktor Orban named the company as a target for the state in September. Earlier this month, Fogaz CEO Laszlo Koncz said the deal could still happen in 2013.

The purchase is part of a government drive to raise its role in utilities, and particularly energy. With the backing of its huge majority in parliament, the ruling Fidesz party has imposed huge taxes on the mostly foreign-owned companies operating in the energy and telecoms sectors, as well as the banks, in a bid to balance the government's books.

With elections looming in the spring, and little cash about to loosen purse strings to help lift support, the government has once more put the utilities in harness, implementing 20% of cuts in gas and electricity prices through the regulator. A senior official said on December 13 that a further 10% cut is in the offing ahead of April.

The price cuts offer manifold benefits. Aside from the election angle - Hungarian utilities are now legally obliged to feature a prominent box on energy bills explaining just how much Orban has saved the household - inflation has been pushed down, which has helped free the central bank to maintain a 17-month easing cycle. On December 17 it cut another 20 basis points to leave the benchmark interest rate at 3%.

On top of that, the high taxes and price cuts have hurt company profits, which is making investors more open to selling up and forces valuations lower. Orban said in September that the government was in talks with six or seven utilities over potential acquisitions. He has regularly accused utilities of abusing their monopoly positions to dictate prices, and promised that his government will continue to seek to create a state-owned utility sector in the coming years.

Analysts have often noted that the importance for Budapest of gaining control of gas imports in particular, which is a hugely profitable, but opaque, business. MVM has already bought the Hungarian gas business of German energy giant E.On, as well as the gas storage facilities of local oil and gas firm MOL. The government also bought France's GDF Suez out of a municipal water utility.

However, Fidesz is not only interested in utilities. It has been looking to expand the state's role in several sectors which it sees as strategic since coming to power in 2010, including banking, retail and auto parts.

Last year, a consortium of state companies bought a block of bandwidth at an auction by telecom regulator NMHH. However, on appeal from the three foreign-owned incumbent mobile operators, the sale was annulled by a Hungarian court. Earlier this year, the government closed the company it had built as part of its long-held plan to create a fourth mobile provider.

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