Second wave of household energy price cuts comes into force

November 2, 2013

Emasz

State-owned electricity supplier and distributor Magyar Villamos Müvek (MVM) decreased the cost of electricity sold to regional retailers for resale to households 13.9 per cent ( HUF 2.45 per kilowatt hour) on November 1st.

According to Index.hu the move is expected to cost MVM some HUF 20 billion.

Decreasing the wholesale price of household electricity 13.9 per cent helps retailers decrease retail prices an additional 11.1 per cent on November 1st as mandated by law.  (Wholesale electricity prices make up roughly half the total cost to regional suppliers of providing electricity to households).  Coming on top of a 10 per cent cut in energy prices which took effect on January 1st of 2013, the 11.1 per cent decrease brings to 20 per cent the total amount by which household electricity, gas, and district heating costs have been reduced over the past ten months.

The reduction in rates comes a week after MVM announced it was purchasing 11,700 shares in energy retailer Emasz from the local government of Ozd for HUF 8,950  per share.  The announcement fueled speculation that the government may purchase Emasz or Elmu by the end of the year.

Daily online economic newspaper Napi.hu reported on Friday that shares in Emasz increased from under HUF 10,000 to over HUF 15,800 and in Elmu from under HUF 13,000 to over HUF 17,000 over the course of last week.

Napi.hu reports that Emasz and Elmu’s registered capital is equivalent to HUF 24,640 and HUF 27,400 , respectively.  Both stocks have been under pressure since the government imposed a 20% reduction in household energy costs.

Below is what the author wrote on the subject for the Budapest Times in September of this year:

The first round of household energy price cuts took place in January pursuant to a government decree published in the Hungarian Gazette on 22 December last year ordering a 10 per cent decrease in the prices of electricity, gas and district heating supplied to households effective as of the new year.  Government spokesman Andras Giro-Szasz justified the decision on the grounds that Hungarians were paying significantly more than the European average for electricity and gas. He also claimed those companies that had acquired utility companies in 1995 had reaped excessive profits over the past 18 years at the expense of Hungarian consumers.

Government critics claimed Orban was tilting at windmills to score political points with voters. They pointed out that energy sector prices are regulated and set quarterly by an independent government agency. To the extent it had allowed household electricity, gas and district heating prices to increase 10 per cent, 23 per cent and 18 per cent respectively between 2010 and 2012, they argued, the government only had itself to blame.

Critics also pointed out that to the extent the cuts in household energy costs were to be offset by a 12 per cent increase in the price of energy supplied to small- and medium-sized companies, the “savings” would eventually be offset by higher prices for goods and services as companies passed additional energy costs onto consumers.  By the same logic losses incurred by the government, including scores of local government-owned district heating suppliers, would eventually be passed onto consumers in the form of higher taxes or larger budget deficits.

It turns out “compensation” paid to district heating providers after the first round of energy price cuts ended up costing the government HUF 52 billion.  The second round of district heating cuts is likely to cost the government another HUF 52 billion and possibly more depending on actual consumption. Industry experts pointed out that in 2012 electricity suppliers were operating on real margins of just 2.2 per cent (versus 8.7 per cent in 2010) and that if forced to operate at a loss they would be unable to conduct essential maintenance and undertake necessary capital investments at the risk of permanently degrading Hungary’s energy infrastructure.

Supporters of the government scheme argued that the costs of infrastructural improvements had been largely funded by energy consumers in the form of higher energy prices and network connection fees. Other critics even went so far as to accuse the government of deliberately threatening foreign-owned regional energy suppliers with bankruptcy in anticipation of a re-nationalization of the energy sector, arguing that if the government merely wanted to decrease the price of energy supplied to households all it needed to do was decrease the value added tax applied to such transactions.

Liberal and socialist politicians objected in particular to the fact that affluent households stood to benefit far more than poor ones, and the cuts did nothing to help the estimated 150,000 households that had had their electricity and/or gas cut off, or the 800,000 households that rely on wood- and coal-burning stoves for heating and cooking.  According to a study released by Ferenc Gyurcsany’s Democratic Coalition party (DK) in April, affluent households stood to save an average of HUF 26,000 per month whereas poor ones only stood to save an average of HUF 150 per month.

In spite of unseasonably cold weather (or perhaps because of it), the first round of energy price cuts proved to be popular with middle and lower-middle class voters as well as those living on fixed incomes.  So popular, in fact, that Fidesz announced after the party caucus of 7 February that a second round of price cuts was in the works.

In February alone Fidesz’s popularity among registered voters increased from 18 per cent to 24 per cent.  Voters responded less enthusiastically to opposition proposals to invest HUF 300 billion improving home energy efficiency with a view to decreasing household energy consumption 30 per cent.

Having gained 500,000 supporters in under two months, on 20 March Fidesz vice-chairman Lajos Kosa announced his party was launching the “Hungary won’t give in!” campaign to collect signatures in “defence” of the energy price cuts in the face of a legal challenge brought by Budapest electricity supplier ELMŰ.  In comments given the following day to reporters Fidesz parliamentary faction leader Antal Roga claimed the government was under “continuous domestic and international pressure with regard to the decrease in utility fees”, and that “it should be obvious to everyone that this was not a Fidesz or cabinet matter but a Hungarian family matter”. The political opposition immediately cried foul, claiming that the campaign was a pretext to obtain the names and addresses of potential voters who cared about this particular issue.  Fidesz activists managed to collect a million signatures in a month and went on to collect an additional 1.2 million signatures, according to Fidesz communication director Mate Kocsis.

The success of the “Hungary won’t give in!” campaign triggered a kind of political feeding frenzy bordering on hysteria, with government and even opposition falling over one another to propose ways to save consumers money.  One Fidesz politician even called for chimney cleaning fees to be cut 20 per cent “or eliminated altogether”. Fortunately for Hungarian chimney sweeps (and those who depend on them for good luck) the proposal was dropped. In April in response to an alleged attack by an unidentified assailant on two Fidesz female activists collecting signatures in an outlying part of Budapest, Fidesz spokesman Gabriella Selmeczi accused Together 2014 co-chairman Gordon Bajnai of deliberately inciting his supporters to violence.  Needless to say, Bajnai categorically denied having anything to do with it.

Renamed the fight to lower household utility costs, in June the Fidesz-controlled Parliament passed legislation mandating a 10 per cent decrease in fees charged by water, sewer and garbage removal companies effective on 1 July.  That month Fidesz’s popularity increased another percentage point despite an unexpected round of new austerity measures and a growing scandal over allegations that the government had deprived some 40,000 small, Hungarian-owned businesses of the right to sell tobacco products, only to award 20-year National Tobacco Shop franchises to some 5,300 Fidesz supporters and their relatives and business associates. In response to the adoption on 2 July by the European Parliament of the Tavares report (detailing purported abuses by Hungary of numerous EU conventions and proposing a mechanism whereby the EU would monitor compliance), Orban accused the European Parliament of exerting political pressure on his government for cutting utility prices for households and for imposing special taxes on multinational firms in the banking, energy, telecommunications and retail sectors.

On 5 July to the astonishment and bewilderment of Orban critics at home and abroad, Parliament formally adopted a resolution stating: “Hungary is reducing the price of household energy consumed by Hungarian families. This may infringe the interests of several large European corporations which, by exploiting their monopolistic situation, have generated excessive profits in Hungary for many years. It is unacceptable that the European Parliament should attempt to exert pressure on our country in the interest of large private businesses.”

Whatever the merits of mandating additional cuts in the prices of household utilities, it is clear that Fidesz intends to milk it politically for all it is worth in the lead-up to next year’s parliamentary elections, especially as the political opposition is incapable of coming up with a viable alternative that appeals to voters’ wallets as well as their sense of justice. In August Fidesz announced it was organizing a series of town meetings to discuss household utility costs.

Opposition leaders protested that this represents an abuse of the personal information collected within the framework of the “Hungary won’t give in!” campaign in that Fidesz intends to use the town meetings to stage political rallies. Sunday’s declaration of war came in the wake of reports state-owned electricity supplier and distributor MVM Zrt. was to acquire German energy giant E.ON’s Hungarian gas retailing and distribution business units for EUR 870 million.  The economics of the deal have been questioned by industry experts who believe the government is vastly overpaying for the companies in question.

Referenced in this article:

Kitört az őrület a kormány terve miatt, napi.hu, 30 October 2013

Hungary declares war, Budapest Times, 20 September 2013

20 milliárdot áldoz az MVM a rezsicsökkentésre, Index.hu, 2 November 2013

 

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