Hungary set for cut price deal on E.ON's gas assets, claim sources

By bne IntelliNews November 30, 2012

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Hungary could finalize a cut price deal to take over the gas distribution and storage assets of German giant E.ON before the end of the year, unnamed sources were reported as claiming on November 29.

"There are intensive talks under way," a source close to the deal told Reuters, adding there "might be some kind of an agreement signed before the holiday season." MVM and E.ON declined to comment. The Hungarian government was not immediately available for comment.

Meanwhile, the daily Vilaggazdasag claimed that state-owned energy firm MVM - which Prime Minister Viktor Orban's government has been busy building up into a major energy player - is likely to pay closer to €800m than the €1.2bn that the German company was reported to be seeking for the assets. However, the newspaper did not cite its source for the information.

Orban announced in late August that Budapest would "buy back E.ON from the Germans momentarily", but there have been no further announcements on a deal since. Shortly after however, the Fidez administration used its large parliamentary majority to push through legislation requiring all gas storage and distribution assets be state owned. That presumably offers the state significant leverage in discussion with the Germans.

Using language reminiscent of his attacks on the country's foreign owned banks, Orban has damned utilities for making money out of the population and demanded that energy distribution to domestic retail customers should be a non-profit business.

At the same time, nationalising the country's gas distribution business gives the government control of gas imports and long-term energy prices, analysts point out. That, in turn, will offer Budapest greater influence on Hungary's role in gas transit across Europe, as well potentially allowing it the chance to negotiate with major supplier Gazprom on a new contract, with the current one set to end in 2015.

Hungary's largest energy company, MOL, recently pulled out of the EU-backed Nabucco pipeline project, which - now in a shorter version - is designed to help offer alternatives to Russian gas exports to Europe. Earlier this month, Hungary finally sealed its role in Gazprom's South Stream - Moscow's planned pipeline to increase exports to the EU.

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