Hungary prepares "non-profit" state utility for February launch

By bne IntelliNews January 23, 2015

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Hungary's government plans to have a "non-profit" state utility set up by the end of February, local media reported on January 23, citing a government decree.

The First National Utility Company (ENKSZ) - to be owned by state development bank MFB - will provide electricity, gas and district heating services. The company will offer the services under market conditions, but aims to make its operations non-profit, Portfolio.hu the government decree as saying.

The government expects the state-owned utility to beat current market players on both price and service, said Janos Lazar, the powerful head of the prime minister's office, in September. ENKSZ will compete with the local units of GDF Suez and E.ON.

The plan to establish a new state utility company was launched late last year. The government says it wants to boost competition in the sector and further lower energy prices for companies. ENKSZ will be established with share capital of HUF1bn (€3.2mn) and capital reserves of HUF14bn, the resolution, published in the Official Hungarian Gazette, says.

Officials from the development ministry and prime minister's office will have until the middle of the year to have gas distributor Fogaz roll out nationwide services. The pair are also charged with investigating ways and means for the state to enter the power market as a universal service provider.

Prime Minister Viktor Orban has spent the past few years pledging to cut energy prices in a bid to make the economy more competitive. In two rounds of cuts in 2013, the government reduced regulated prices by a combined 20%. Gas prices have since dropped a further 6.5%, power prices by 5.7% and district heating prices by 3.3%.

A bonus from those energy price cuts was that they slashed inflation, thereby opening the way for interest rate cuts from the central bank ahead of the general election in April. Utilities were even obligated to note on bills how much customers were saving. However, Budapest is now awaiting the end of the effects as it battles deflation.

Orban’s ruling Fidesz party has long sought to make the utility sector “non-profit” and the government has said it intends to regulate prices to capture all income, leaving aside routine funds for re-investment. In February 2014, the government said 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. 

National champion

Meanwhile, the government has been busy buying up a host of energy infrastructure assets as it pushes international companies out of the gas business, including the main importer from Russia, which it bought from E.ON in late 2013. Those assets have been fed into state-owned MVM to build up a Hungarian "national champion". Fogaz joined the roster in October. 

While the government maintains that the purchases are part of a drive to reduce Hungary's dependence on Russian energy, some suggest it is rather that it wants to put itself in the middle of the lucrative trade. Reports now claim Budapest is ready to discuss selling some of the gas assets it has bought to Gazprom. However, the government has flatly denied that ahead of a controversial visit by President Valdimir Putin to Budapest in February.

MVM now says it's aiming to expand its portfolio in the Central and Eastern European region. The first step in that is a joint bid with Hungarian oil and gas group MOL for Slovakia's dominant power producer Slovanske Elektrarne.

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