Hungary stokes new energy fight with Brussels

By bne IntelliNews August 23, 2012

Tim Gosling in Prague -

Hungarian Prime Minister Viktor Orban is readying for yet another fight with Brussels, he said on August 22, this time over his government's plans to make energy distribution to residential customers a "non-profit" business. A European Commission spokesman said this is the first they've heard of it.

"There will be another big debate, namely over the transformation of services related to utilities," Orban told Hungarian diplomats in a speech, reports Reuters. "The shipment, distribution and trade of energy in the household sector can easily be a non-profit activity." The PM added that the Fidez government needs to find a solution that will not infringe the principles of the single market and the free movement of capital. However, he did not elaborate.

In the same speech, Orban also ruled out cutting pension in the coming years, saying Hungary's 3m pensioners, or nearly a third of the population, are a key demographic segment and their support for democracy is a mainstay of the country's politics, according to EurActiv. That pledge comes despite continued uncertainty over his government's fiscal consolidation plans, and in particular the revenue targets for the new telecommunications and financial transaction taxes due next year. Orban's government is also likely to bequeath future administrations a serious headache after it obliterated the second pillar of the pension system and effectively nationalized around €10bn in private pension assets in 2010. A report earlier this month said that according to official figures, the value of the seized assets has shrunk by close to 75% thanks to spending and the crisis.

The seizure of those assets sparked little resistance from Brussels, as did few of the Fidesz government's other controversial moves, until it began hammering foreign investors through windfall taxes and other measures - and in particular the large European banking groups that dominate so much of the market. Hungary's energy sector is also mostly foreign owned, with E.ON joined by compatriot RWE, and France's EDF and GDF Suez among the big market players. The companies were not immediately available for comment, Reuters reports.

Energy distribution is an area the EU strictly polices, when it suits it at least, and it is currently using its Third Energy Package to force energy giants such as Russia's Gazprom and Germany's E.ON to split up vertically integrated utility businesses. It generally also insists that all distribution grid operators are private entities, although subject to control by national regulators.

Asked whether Orban's plans contradict the EU's single market rules, European Commission spokesperson Olivier Bailly told EurActiv that at this stage the EU executive would make no comment, as these were just announcements. He added that he was not aware that the Hungarian authorities had consulted the Commission before Orban went public with the proposals. "For the time being, there is nothing we can comment on or nothing that we can legally assess," he said.

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