Tag Archives: utility decreases

A new crusade in Brussels over the price of electricity

It was evident already in 2010 that the Orbán government considers the nationalization of utility companies one of its priorities. Indeed, by now almost all such companies, including, believe it or not, those of chimney sweeps, have been nationalized.

In 2013 the government, in an effort to bolster its sagging popularity, slashed retail utility rates. With this move the government killed two birds with one stone. The much-advertised cut in utility prices made the government very popular practically overnight. It also resulted in serious losses for E.ON, a German-owned gas and electricity company, and practically forced the German owners of E.ON to bail and sell the company to the Hungarian state. As it turned out, the Hungarian government paid far too much, 260 billion forints, when the assessors claimed that E.ON was actually 600 billion forints in the hole. Obviously, price was no object. Orbán wanted utility companies to be in state hands.

Once this was done, the government set about to lower prices in three stages. Critics warned that producing gas and electricity at a loss would mean that these utilities would not be able to undertake the technical innovations necessary for improved service. Once again, however, Viktor Orbán was lucky, at least in the case of natural gas. In the last couple of years the price of gas on the free market has fallen around 40%, yet the state did not lower the price it charged consumers anywhere close to that amount. Given the state’s monopoly in the energy sector and the government-regulated price structure, the profit margin of the state utility companies must be considerable. According to some estimates, Hungarian families pay about 25% more for gas today than they would if there were no fixed prices and if true market conditions existed.

Independently from all this, the European Commission is working on a so-called “winter energy package,” which is a comprehensive plan for the creation of an “energy union.” One particular provision of this proposal caught the eye of the Hungarian government: the abolition of government-set prices for electricity retailers over a five-year period. If adopted by the European Council, the body consisting of the prime ministers of the member states, Hungary will no longer be able to keep electricity prices artificially low. Hungary has among the lowest electricity rates in the EU. In Denmark consumers pay 0.309 euros per kWh, in Germany 0.297. In Hungary the price is 0.111 euros per kWh. Only in Bulgaria is electricity less expensive than it is in Hungary. The European Council is convinced that artificially low prices discourage the conservation of energy and deter investors.

electricity

So, the Orbán government decided to launch a new “war against Brussels.” Viktor Orbán announced in his Friday morning radio interview that “the government will not allow Brussels to eliminate the government’s power to set prices.” Such a move, he emphasized, would put an end to the government’s ambitious plan to lower utility prices even further in the future. He promised to defend “utility decreases,” adding that “it will be a difficult struggle but we have a chance of success” because Hungary’s position in Brussels has been greatly strengthened. Naturally, due to his outstanding political success on the world stage.

Szilárd Németh, who was chosen to be the “utility tsar” back in 2013, was given a new mission. The result? He announced that the government had found the remedy. The government will endow the Hungarian Energy and Public Utility Regulatory Authority (MEKH) with legislative powers which, in his opinion, could derail Brussels’ intentions of abolishing fixed electricity prices.

Németh outlined the terrible state of affairs during the socialist-liberal governments (2002-2010) when electricity prices went up by 97% and the price of gas tripled while inflation was only 58%. The evil foreign owners “lugged out 1,200 billion forints of profits.” But then came the Fidesz government which froze prices in 2010, and in the next two years prices rose only very little.

This is not what the author of a very thorough article remembers about the course of natural gas pricing. According to her, in 2012 one MJ of natural gas up to 1,200 m³ use was 15% more expensive than before the Orbán government came into power. Her final estimate is that if the Orbán government hadn’t touched gas prices at all, the average consumer would pay significantly less than he does today.

In discussing the evil deeds of Brussels, Németh stressed that the European Union cannot constantly ignore Hungarian sovereignty. “Hungary didn’t join the European Union to give up everything it possesses.” The decrease in utility prices is a question of sovereignty and national security. It is up to the Hungarian government to decide how it wants to help Hungarian families. Obviously, the government doesn’t want to help only those families who need assistance. Otherwise, it could offer subsidies to people whose income is insufficient to pay the full price for utilities. No, the government wants all Hungarians to be grateful that they are getting a break on their utility bills thanks to Fidesz.

The most interesting twist in Németh’s story came at the end of his press conference. He admitted that in 2013 the Hungarian parliament had extended the right of legislative powers to MEKH but that the European Union considered the decision illegal and subsequently the Hungarian government had to annul the law. So, I don’t know why the Orbán government thinks that this time around they will be more successful than they were three years ago.

All the talk about fighting Brussels on electricity prices is most likely just a political ploy. The Commission’s recommendations are just that, recommendations. The final nod comes from the European Council where Hungary is represented by Prime Minister Viktor Orbán. He can vote against the proposal.

My guess is that now that the migrant issue has lost its appeal, the government has decided to turn its attention to utility decreases which were so successful in gaining voter support before the last election. Fighting Brussels over a pocketbook issue can most likely be dragged out until 2018.

December 3, 2016

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.”

The Orbán government is at a loss: Which way to turn?

Today even Válasz had to admit that the Hungarian government’s PR stunt that followed the less than successful Merkel-Orbán meeting was a mistake. Referring to the false news about mega-investment,” Valóság, after an earlier glowing report, had to retreat and acknowledge that “there is no BMW, there is no new Mercedes factory and Fidesz doesn’t seem to be successful in the RTL Klub affair either. This wouldn’t be drama if the government had the guts to deny Vs.hu‘s news. But now we do have a small drama.”

I don’t know whether we can call it a drama, but that the Hungarian government’s already tarnished reputation now has an ugly rusty spot as well, that’s for sure. AFP picked up the news about the gigantic German investments that were agreed on during the meeting between the German chancellor and the Hungarian prime minister, but unlike András Kósa, the author of the Vs.hu article, AFP, before publishing the article, did go to the “spokesman for the Hungarian government [who] declined to comment.” Not did the spokesman not deny the story, as Válasz would have suggested, but he purposely spread the disinformation. That leaves me to believe that this PR stunt was concocted by the large communication team around the prime minister’s office.

What can one say about a government that engages in such cheap tricks? Keep in mind that the team around Viktor Orbán was handpicked by the prime minister himself. The members of this team are the ones who manage “communication,” which seems to be the most important aspect of politics for Viktor Orbán. He is like a salesman who has only one goal: to sell his wares regardless of their value or even utility.

What were these communication wizards thinking? Surely they had to realize that sooner or later reporters will ask these companies about their alleged plans and the truth will be revealed. Indeed, Mercedes and BMW have already denied the leaked information about their plans to build factories in Hungary, and this morning we learned from the Siemens spokesman that Siemens is no longer active in industries connected to nuclear energy and therefore the news about their involvement with the Paks Nuclear Power Plant is untrue. As far as the helicopters are concerned, apparently no decision has been made. It is possible that after the meeting Airbus, the French-German company reported to have won the contract, might not be the favorite.

I can only hope that the story of this ruse will reach Angela Merkel’s office, not that I have any doubt about her assessment of the Hungarian prime minister’s character. In any case, the Orbán government’s courting of Germany as a counterbalance to the United States did not work out to Orbán’s satisfaction. Of course, he himself is partly to blame for the fiasco with his public defense of “illiberal democracy.” Even Gábor G. Fodor, a right-wing “strategic director” of Századvég, a Fidesz think tank, said that Viktor Orbán made a mistake when he openly defended his vision of “illiberal democracy.” In fact, he went so far as to say that “this debate cannot be won,” especially not before a western audience. If this absolutely devoted Orbán fan considers the prime minister’s defense of his ideology to have been a mistake, then, believe me, the mistake was a big one.

So, here we are. After all the effort the government put into good relations with Germany, it looks as if Angela Merkel was not convinced. So, where to go from here? There seems to be a serious attempt at improving U.S.-Hungarian relations. This effort was prompted by the long-awaited arrival of the new U.S. ambassador, Colleen Bell, who shortly after her arrival began a round of visits and attended to a number of official duties. Her first trip was to Csaba Hende, minister of defense, which was reported by Hungary Today, a  newly launched, thinly disguised government propaganda internet site. The news of her visit was coupled with the announcement of Hungary’s plans to purchase a new helicopter fleet. The fleet will consist of 30 helicopters that will cost 551 million euros. Discussing the helicopters and Colleen Bell’s visit in the same article was no coincidence. Most likely, the Hungarian government wants to give the impression that there is a possibility that the helicopters will be purchased from the United States.

Even more telling is the paean on the Hungarian government’s website to “successful Hungarian-U.S. economic cooperation.” The occasion was the opening of Alcoa’s “expanded wheels manufacturing plant in Hungary.” It is, if I understand it correctly, an expansion of facilities that have been in place ever since 1996. The construction cost $13 million, and it will create 35 new permanent jobs. The facility was officially opened by Colleen Bell and Péter Szijjártó. Szijjártó was effusive: “with Alcoa’s new investment, a new chapter has opened in the success story of Hungarian-U.S. economic cooperation.” We also learned that the Hungarian government “granted one billon forints for the project.”

Photo by Márton Kovács

Photo by Márton Kovács

Bell, for her part, appealed to Hungarian pride by reminding her hosts that, although Alcoa has existed for 125 years, “this is not very long in terms of Hungary’s 1000-year-old history, but for the United States, a 125-year period covers half of its existence.” Music to Hungarian ears. Of course, she also promised that in the future she will work hard to create new opportunities for both U.S. and Hungarian businesses and to further improve their cooperation. The mayor of Székesfehérvár, the city where the Alcoa factory is located, announced that the wheels of buses in the city will gradually be replaced with Alcoa products.

I somehow doubt that courting the United States in this manner will make Washington forget about the anti-American rhetoric of  pro-government papers or the incredible performance of the Orbán government in connection with the U.S. banning of Hungarian nationals because of corruption charges. Somehow I have the feeling that courting the United States without changing government policies will be just as unsuccessful as Orbán’s earlier efforts in Germany.

And one final note. Today Orbán announced that the fate of cheaper utility costs depends on his successful negotiation with Vladimir Putin on the price of gas and oil to Hungary. If he is unsuccessful, the current low utility rates cannot be maintained. The message? The Hungarian people should support his Russia policy. If not, their utility bills will rise again. Let me add that the team that came up with the idea of reducing utility prices hit a gold mine. The Orbán government’s popularity in 2012 was even lower than it is now. Yet a year and a half later the popularity of the party and the government soared. For Orbán utility rates are terribly important, and therefore I suspect that he will do everything in his power to strike a deal with Putin. The question is at what price.

Is Viktor Orbán a coward?

As I was writing yesterday’s post on Viktor Orbán’s March 15th speech and came to the part where he talked about bravery as an essential ingredient of a nation’s success, my mind wandered to one manifestation of his own lack of bravery (admittedly, most likely wise risk management on his part). It was in 2006 that he made the mistake of agreeing to have a television debate with Prime Minister Ferenc Gyurcsány, who headed the MSZP ticket. Score (being charitable): Gyurcsány 1, Orbán 0. Since then he has systematically avoided head-to-head encounters with his opponents.

Prior to 2006 Orbán had two public debates, one in 1998 with Gyula Horn and another with Péter Medgyessy in 2002. The first debate was a clear win for Orbán, who at that point, following U.S. practice, thought pre-election debates were a capital idea. Gyula Horn, who had had a long political and diplomatic career in the Kádár regime, was no match for the young and more dynamic Viktor Orbán. Although Horn is considered by many the best prime minister of Hungary since 1990, on that occasion he looked unprepared and tired. In a major miscalculation, I don’t think he took the debate seriously.

After the first debate, I’m sure Viktor Orbán was looking forward to taking on Péter Medgyessy in 2002. Medgyessy was not known for his eloquence; in fact, people made jokes about his difficulty with long Hungarian tongue twisters. Orbán was dynamic, Medgyessy very low-key. Moreover, according to all the polls, it looked like easy sailing for Fidesz at the election. Orbán had nothing to lose. But in the debate Orbán looked and sounded like a bully while Medgyessy came across as a modest everyman with whom people could sympathize. As it was, the Hungarian electorate had had enough of the incessant government attacks on everyone who didn’t support them. Orbán lost the election, a result he never quite accepted.

Then came the debate of 2006 with Ferenc Gurcsány. It is something Orbán will never forget or forgive. I’m convinced that his hatred of Gyurcsány dates from that day. I watched the debate and immediately proclaimed it a rout. (The debate is available on YouTube.) Orbán was demolished. Interestingly enough, some people in our group who were exchanging e-mails during the debate were not as sure as I was. Later polls confirmed my first impression. Even Fidesz supporters had to admit that Orbán had lost the debate. Since then Orbán has been trying to pay Gyurcsány back for his humiliation. If it depended on him, he would send Gyurcsány to jail for life. Orbán may be on top of the world right now, but he still considers Ferenc Gyurcsány a threat. Moreover, it seems that after 2006 he got permanently cold feet when it comes to public debates.

He refused to debate Attila Mesterházy in 2010 and it looks as if he has no intention of debating this year either. There are different excuses each time. Four years ago he claimed that there were too many candidates. This year he listed several reasons for refusing to debate. First was that “to this day we don’t know who the real leader of the opposition is: Ferenc Gyurcsány, Attila Mesterházy, or Gordon Bajnai.” Well, this sounds like a lame excuse to me. After all, the united opposition’s candidate for premiership is Attila Mesterházy. Mesterházy called on Orbán to debate several times; in his blog he even dubbed Orbán a coward for refusing to measure the Fidesz program against the opposition’s. Of course, the fact is that Fidesz has no party program unless one considers the decrease in utility prices a program. That is why the following “manifesto” that appeared on the Internet is so apt. In 1848 Sándor Petőfi and his young friends had a list of twelve demands, including freedom of the press, an annual national assembly in Pest, national army, civil and religious equality before the law, equal distribution of tax burdens, and abolition of socage. Viktor Orbán had the gall to compare his lowering of utility prices to the abolition of socage and serjeanty, feudal dues. As you can see, Orbán’s 12 points in this “Orbán” version of the twelve demands are all the same: “utility decreases, utility decreases” twelve times over. Thus it would be rather difficult to have a debate on party programs.

rezsicsokkentes

A take-off on the Hungarian nation’s demands in 1848

It would be uncomfortable to answer questions about the Putin-Orbán agreement on Paks or the incredible corruption. If Mesterházy were well prepared, he could demolish Orbán’s economic figures. And what about the ever larger national debt? All in all, Orbán will not debate because it is not to his advantage. Moreover, his admirers don’t even demand any program. They seem to be perfectly happy with the government’s performance in the last four years and look forward to four or even eight more years of the same.

Another reason that Orbán gave for his refusal to debate is that in his opinion there is no political formation today outside of Fidesz-KDNP that is fit to govern (kormányzóképes). Such labeling in a democracy is unacceptable. It just shows what kind of democracy we are talking about in Hungary.

András Schiffer of LMP would like to have a debate with Orbán, Mesterházy, and Vona (Jobbik). As you know, Schiffer is not one of my favorites, but he is a good debater and could score extra points if given the opportunity. I’m sure that Orbán will not be game, and I understand that Mesterházy will agree only if Orbán also participates. So, we can be pretty sure that there will be no debate in 2014. The opposition will remain invisible.