Xpat Opinion: Hungary’s Utility Price Regulation: ‘Strong But Not Uncommon’

  • 31 Oct 2013 8:00 AM
Xpat Opinion: Hungary’s Utility Price Regulation: ‘Strong But Not Uncommon’
The government of Hungary has introduced price cuts in utility costs, and we had an interesting reaction last week from a major player in the energy market. "What you see in Hungary, the regulatory impact on the market … it is very strong but is not uncommon. Everywhere in Europe the state intervenes in tariffs, in the way a business is structured," said Willem Coppoolse, head of illiquid gas markets at GDF Suez. The firm’s largest shareholder is, of course, the French state and it has major investments in Hungary’s energy sector.

Energy policy is a tough issue all over Europe nowadays. According to José Manuel Barroso, president of the European Commision, between 2005 and 2012, gas prices for EU companies increased by 35 percent and electricity prices by 38 percent. During the same period in the US, gas prices dropped 66 percent and electricity 4 percent.

In what is an expensive European market, Hungarian households have been paying some of the highest utility costs relative to income. Reducing rates has been one of the reasons for historically low CPI data recently, and it could also improve domestic spending.

Describing the EU’s energy market problems recently, former Polish Prime Minister Jerzy Buzek said that the energy market “is neither open nor competitive, and it strongly favors the energy industry, disadvantaging consumers.” At the Visegrad Group summit in mid-October, the prime ministers struck an agreement on supporting energy diversification and experts have prepared a policy paper on the methods.

Of course, in the long run, the goal is to develop a structurally cheaper, more diverse energy system, which – in Hungary’s case – would be less reliant on imports. This is what Prime Minister Orbán emphasized last week during his visit to India and this is the reason behind Minister of Foreign Affairs Martonyi signing a nuclear agreement with South Korea earlier this week. But until the Hungarian energy market becomes more diverse and less dependent, the government will have few tools other than the “strong, but not uncommon” measures it is already using.

By Ferenc Kumin

Source: A Blog About Hungary

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