In the last two days the Hungarian media has produced an incredible number of articles dealing with HVG‘s scoop about the likely increase in utility prices forced on the government by the European Union’s “Third Energy Package.” HVG received a copy of a letter from László Trócsányi, minister of justice, to Miguel Arias Cañete, EU commissioner in charge of energy matters. The letter reveals that talks have been taking place between the Hungarian government and the European Commission regarding the government-sponsored utility rate cuts that have been in place in the last three years. The ministry admitted that there have been discussions, without saying anything about the details. The spokeswoman for Commissioner Cañete also refused to divulge anything, saying that the infringement procedure against Hungary is in progress.
Looking at some of my older posts, I suspect that Viktor Orbán knew a year ago that the way the government has been handling utility prices is illegal by EU standards. Moreover, I suspect that by May 2014 the Hungarian government had already received inquiries or perhaps even warnings concerning the matter. Otherwise, there would have been no need for Orbán to announce that he was expecting a huge fight over utility prices with Brussels, adding that he was ready for the fight in defense of utility rate cuts.
The infringement procedure was launched against Hungary in February. In March a high official from Brussels arrived in Budapest and apparently read the riot act to the Hungarians. It turned out that the European Commission was proposing a fine of €15,444 a day for not implementing one of the directives of the Third Energy Package. Another problem is that the law the Orbán government introduced to determine the price of natural gas and electricity doesn’t allow energy suppliers to calculate into the price of their products certain expenditures and taxes. Moreover, according to Brussels, although each member state can decide to give preference to certain groups of customers, the Hungarian system doesn’t differentiate between needy and better-off households. Everybody gets cheap utilities, which is illegal.
All this has been known for months. What was missing was any knowledge of the Hungarian response to the EU challenge. With the letter of Trócsányi to Cañete, it became clear that Viktor Orbán, after all, will have to cave on the issue. And this is a terrible blow to the Orbán government because the repeated cuts in utility prices were not only key to Fidesz’s winning back its lost popularity after 2012. Ultimately they were responsible for Fidesz’s victory at the national election in 2014. And now, it looks as if some of the steps the Hungarian government will have to take to satisfy the EU will result not only in an end to the rate cuts but most likely in increases in gas and electricity prices.
In addition to restoring Fidesz’s popularity and winning the election, there was another “benefit” of the measures the government introduced. All of the private gas companies serving the general public have folded since Orbán began his attack on them, forcing them to bear the expense of his gift to the voters. E.On, GDF Suez, Magyar Telekom, and yesterday Tigáz threw in the towel. No wonder. In 2012 Tigáz, Főgáz, GDF Suez, and E.On together lost 32.5 billion forints. In the following year their combined loss was 27 billion forints, while in 2014 Tigáz alone lost 13.4 billion. The customers of these private companies were taken over by Főgáz, a state company, which originally served Budapest and certain parts of Pest County. Now, it looks as if soon enough Hungary will have only one state-owned company. In fact, Népszava‘s lead article was titled “Utility socialism ahead!” I will be curious what the European Commission will think of that development, especially since the Third Energy Package places special emphasis on “ownership unbundling” and “independent system operators.”
How is the government handling the leak of Trócsányi’s letter? Not too well. Zoltán Kovács, who again seems to be the chief government spokesman, accompanied by Szilárd Németh, held a press conference. Németh, who until 2014 was not only a member of parliament but also mayor of Csepel (District XXI), was entrusted with handling the propaganda campaign for utility rate cuts. He did a splendid job, but the voters of Csepel, who knew him more intimately than non-Csepel citizens, voted him out of office nonetheless. He is an aggressive fellow who is not known for his brains.
Kovács, a very smooth operator, announced that “the information available in the media concerning utility prices is untrue.” When asked specifically whether he could give assurances that utility prices will not rise, his answer was: “I am ready to say that the Hungarian government will do its utmost to save the results of the utility price reductions.” A very cautious reply, indicating that Hungary is not in a good negotiating position.
On the other hand, Németh was much more sanguine and bellicose. According to him, Fidesz-KDNP supports further price cuts. He blamed the utility companies for putting pressure on “the bureaucracy in Brussels.” These companies are interested in a system that operates on expensive energy sources. It was Hungary that “managed to make a hole in the armor of the system.” As a result, “the price of both gas and electricity in Hungary is the second least expensive in the European Union, something the government will defend.” The two didn’t coordinate their messages.
Given the demands of the European Commission, it is unlikely that the price of gas and electricity will remain as low as the Orbán government illegally set it. Orbán might be happy that suppliers gave up their Hungarian businesses, but his joy may be short-lived. Foreign investment in Hungary is extraordinarily low. On the very same day that the article listed the foreign gas companies that had abandoned the Hungarian market, Péter Ákos Bod, a conservative economist and former chairman of the Hungarian National Bank, warned the government in the conservative Válasz that “in an uncertain business climate no foreign investment will come to Hungary.”