The EU says ‘no’ to Orbán’s utility rate cuts

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.”

Source: Népszava

Szilárd Németh, the utility tsar /Source: Népszava

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.”

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petofi
Guest

Orban’s program of tricking the Hungaricoes to back his ‘exit-EU’ strategy is progressing anon…

The mentally-challenged citizenry will be waddling to the Fidesz enclosure as Orban huffs and puffs about the indignity of the EU to force the poor Hungarians to pay more for ‘costs’ when the heroic Hungarian government stands ready to alleviate their plight.
“Sovereignty! Free us, Victor!!!” will be shouted from every rooftop.

(And all the while, they’ll be rolling from laughter in the basement isles of KGB headquarters–)

Paul
Guest

As a socialist who believes in the state control of essential utilities, I’m not exactly looking forward to having to explain to my Fidesz supporting wife why Orbán is wrong and the EU is right on this…

As far as I can see this is no problem at all for Orbán, in fact it’s win-win for him. Either he manages to keep the prices down and defeat the evil EU, or he has to put them up, and it will all be the fault of the EU – with Orbán as the brave defender of Hungary.

LwiiH
Guest
What makes you think that a small group of elected people can be smarter than the market? I don’t think anyone needs to be reminded of the big centralized planning experiment failure of the last century clearly suggest that they don’t. That failure was completely predictable to anyone with even the most fundamental grounding in economics. In fact price setting is so looked down upon that it is illegal for any group other than a government set a price in a market or otherwise causes a distortion in the market. Again I ask, what makes a politician smarter than business operators that they get to collude where business operators get sent to jail. Truth be known, if you look at business failure rates, neither group is very good at this. That said, governments may decide to meddle in the markets to achieve some desired outcome to satisfy some form of public policy. Supporting greener energy sources for example. However, setting prices is an awfully blunt and very crude tool. Using it often invokes the law of unintended consequences. Even subsidies, which are less crude, still cause unintended consequences. Only using these tools will distort markets and quite often the only… Read more »
exTor
Guest
I’m with Paul on the state control of essentials. Anybody who believes that capitalism automatically knows better is a fool. My entire life (until now) was spent in Ontario, where hydro is provincially owned [Ontario Hydro], as is the distribution of alcohol [Liquor Control Board of Ontario]. Every now and then there is talk of privatizing the LCBO and OH, however the LCBO makes a tonne of money for the province. The sale of beer and other alcohols is restricted in Ontario. Cant just go into a Tesco and grab some wine or whiskey, you have to go to an alcohol outlet. Most people seem okay with it. I was never bothered. The jobs there are unionized, which means that the workers aren’t earning mcwages. Privatized utilities put surplus capital into private pockets. Public utilities put the extra coin into public pockets or else keep the rates down. I dont genuflect at the altar of the dollar. I know better. Plenty of capitalist enterprises screw up, then run to Mama [read: the federal government] for a bailout. Witness General Motors not that long ago. The United States, that bastion of freedom and all things right, cant even get a decent… Read more »
exTor
Guest

Well Éva, re Ontario, you’re an outsider with an outsider’s perspective re alcohol availability. Were I in your shoes, I’d want it the same way, however not being a big drinker, the occasional inconvenience was never a biggie.

As for “nonsense”, any Ontario politico (aside from a Conservative) who would seriously propose dumping a big moneymaker like the LCBO, might be taken to a shrink for some counseling.

There is no groundswell of opposition to the LCBO, just some rumblings, which are being tamped with the introduction of limited alcohol sales in big grocery stores like Loblaw.

MAGYARKOZÓ

exTor
Guest

My apology, Éva. I thought that you, as a now American living (I believe) in Connecticut, had only lived in the United States.

Are you only a dual citizen, or do you also have Hungarian citizenship?

MAGYARKOZÓ

Istvan
Guest

exTor you are correct that my county is having great difficulty developing a national health care system. The problem here is of course the national system commonly called Obama care had to be built so there were market mechanisms. This is because ideologically my country is overwhelming opposed to anything that is tainted with the brush of “socialism.”

I also look forward to Eva’s discussion of the United States Army’s plan to store enough equipment for a company or possibly a battalion, or about 750 US soldiers in Hungary. This is called in the military “predisposition” and Hungary has this week repeatedly been mentioned in the US and Russian media as one of the critical locations for this equipment storage. I have to assume the Army Logistics Corps, which has as its motto “Sustinendum Victoriam”— “Sustaining Victory,” has developed such plans if it has reached the media. But no discussion by Eva, I am curious?

exTor
Guest

No need to explain, Istvan. I’m probably older than you and, having lived all my life just this side of that line, I knew almost as much about the States as many Americans, for (when it comes to US news) there’s no border.

Yah, ObamaCare’s getting a rough ride. Dont know the nittygritty of it, but what I know about it sucks. A person has to buy into it in some way. If you’re real poor then you probably wont have coverage.

There is something really disgusting about the Free World’s majordomo —the United States— not doing right by its own people. What they’re getting is second-rate.

MAGYARKOZÓ

Guest

Many of us are getting care, care that should be universal in the US–Medicare.

Paul
Guest

“Ultimately they were responsible for Fidesz’s victory at the national election in 2014.”

They might have contributed to the scale of his win, but they weren’t actually “responsible for Fidesz’s victory”. Orbán was going to win in 2014 with or without utility cuts.

exTor
Guest

I’m with Éva on this one, Paul.

It would be difficult to underestimate the power of the pocket in Hungary. Probably more than any other consideration, money matters matter the most. It’s that simple. How many times have I heard a brief news item on Kossuth Rádió, which (I have come to learn) is soft on Orbán, talking about ‘rezsicsökkentés’ [‘cost decreases/abatements’], which is good news in a country where there is much unemployment and where wages are too low, some foodstuffs too expensive.

Viktor Orbán knows how to play the public.

MAGYARKOZÓ

dd56
Guest

What are the Fidesz wives not understanding?

That FIDESZ is ruining the country?

That FIDESZ neglects its duty to the nation?

That FIDESZ is interested only in enriching the loyal Orbanists?

That the income of ordinary citizen is crumbling?

petofi
Guest

What care Fidesz wives for citizens & country as long as there is a spanking new Merc in the driveway, plenty of euros in their pockets, and a daily appointment for their nails?

Trouble there would be if the husbands didn’t brink home every available euro no matter what the manner, or the legality, of their collection…

Let’s be plain about this: there are two primary lessons that come as if from mother’s milk–screw thy neighbour; and f*ck the jews.

qaz
Guest

Could you picture it if thy neighbor is a jew 🙂
(sorry, could not resist that one)

Tyrker
Guest
exTor
Guest
Great post, Éva. I smiled all the way through it. Nothing untrue there, but it’s so last millennium. You sound about a half century out of date. About the only thing that’s still true is the fact the beer is sold separately from other alcohols. The speed of purchase is quick. The thing that would disconcert out-of-provincers is the mere fact that one can not buy spirits at the corner store, as one can in most places. As one can here in Hungary, for example. Ontario’s alcohol laws are a relic of primarily the Scots, who populated the province. The restrictive religious morality was transfered to alcohol. The US was founded by Anglos, who were less uptight about alcohol. That said, Canada never had to deal with Prohibiton. One of the few times I was carded was when I tried to buy beer at La Place Pigalle, just north of Toronto’s newly happening hippie area: Yorkville. I was 16 at the time and one had to be 21 then to drink in Ontario. I was able to get served after I showed my student ID to the doubting waiter. Ontario is not likely to change its basic alcohol-procurement regimen anytime… Read more »
Guest

Since we’re OT with alcohol in Ontario anyway:

I don’t remember any restrictions in the bars when we visited Niagara Falls and Niagara on the Lake – a very nice town btw, though a bit expensive …

exTor
Guest

https://en.wikipedia.org/wiki/Niagara-on-the-Lake

https://www.google.hu/maps/place/Fort+Mississauga,+223+Queen+St,+Niagara-on-the-Lake,+ON+L0S+1J0/@43.261642,-79.077039,15z/data=!3m1!1e3!4m2!3m1!1s0x89d35f64c6d053c5:0x2b2204d965e286e

Niagara-on-the-Lake is what I would describe as quaint, which is why it’s so touristy, which is why it’s rather pricy. The wineries in the area are well-known.

Further offtopic, my goal is to one day be able to sit at the corner of the town [second link] where the Niagara River meets Lake Ontario [Fort Mississauga] and greet a cloudless summer sunrise over the water ascending from below the lake.

MAGYARKOZÓ

Guest

And even more OT:
We visited one of those wineries in the hinterland of Niagara Falls – founded by a Schwab family more than a hundred years ago. The wine was nice at also a bit expensive – we brought one home for the friend who had driven us to the airport and told him it was Niagara water …

exTor
Guest

Nice wolfi. How did your friend like the Niagara ‘water’?

MAGYARKOZÓ

Guest

Of course he liked the wine – like most Schwabs, though it was a real surprise for him (like for us) that Canada produces wine.
Btw in this region there are also many “barack fa” – they don’t mind the cold winter as long as the summers are hot and sunny enough!

PS:
My wife also liked Canada and the USA – she told me that while spending more than 40 years behind the Iron Curtain she could only dream of getting there without real hope …
And now crazy Fidesz wants to build another Iron Curtain – will people never learn?

She never was a Fidesz fan but now she uses swear words for them that might make a sailor blush …

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