Page 10 - EurOil Week 29 2022

EurOil POLICY EurOil

Viktor Orban’s energy price cap policy

falls victim to fiscal consolidation

HUNGARY HUNDREDS of thousands of Hungarian house-
holds will see their utility bills rise from next
The government month after the government scrapped a dec-
declared an energy ade-long cap on gas and electricity prices.
state of emergency last Fidesz officials announced details of the
week.. utility price hike at the Baile Tusnad Summer
University, the annual political and cultural
get-together in central Romania, a week after the
measure was announced.
The government declared an energy state of
emergency last week, which included boosting
gas and lignite production and securing further
energy supplies, but also a possible ban on the
export of energy. The seventh point included the
revision of the price cap on utility prices, which
mattered the most for retail users.
The blanket cap on household electricity and analysts noted.
gas prices is “simply unaffordable” in the current The energy price cap for district heating will
wartime energy crisis, Gergely Gulyas, the head remain in force.
of the Prime Minister’s Office, said at the weekly Analysts question the government’s data that
presser on July 12. only a fourth of households will see their bills rise
The announcement came as a shock for many from August 1. The reality is that around half of
households, and hotlines of the state energy households, or 1.5mn will be impacted.
company MVM were overwhelmed by calls and Users flooded social media with their own
its website froze. For a decade, Hungarians were stories and complained that the threshold levels
accustomed to cheap energy prices. were set artificially low.
The energy price caps introduced before the Viktor Orban’s government was forced to
2014 elections have been a cornerstone of Viktor make fiscal readjustments after massive pre-elec-
Orban’s policy and helped him secure a fourth tion handouts and transfers that left a huge gap
supermajority win in April. Rising energy prices in the budget. This was compounded by runaway
and the weak forint made the scheme unten- energy prices and the sliding currency.
able for the budget, which incurred a loss of At the end of May, the government slapped
HUF100bn in the form of subsidies. windfall taxes on banks and energy companies
In the future, the regulated utilities price amongst others to meet the 4.9% deficit target
scheme for households will apply only to elec- and froze ministry spending and postponed state
tricity and gas consumption up to the national investments.
average, while market prices will apply to con- Facing the fallout from a revision of the coun-
sumption over that. try’s debt rating by rating agencies, the govern-
Under the decree issued on Thursday, house- ment had to act quickly, analysts said. Fitch is
holds will be eligible for regulated electricity scheduled to release its rating review on July 22.
prices at HUF36 per KWh (€0.09) up to 2,523 The overhaul of the generous subsidy scheme
KWh per year. Above that limit, the price will did what the central bank’s aggressive tightening
be HUF70, which is four times lower than the cycle could not achieve for weeks, that is to stop
market price, according to government commis- the slide of the forint. The markets welcomed
sioner Szilard Nemeth. the decisive fiscal correction, which triggered a
A week ago, the government indicated that rally in the Hungarian currency. The EUR/HUF
prices could rise to 270 per KWh, but analysts strengthened from 416 to below 400.
noted that this was an exaggerated price estimate. The fiscal adjustment came at the last minute,
As for gas, the HUF102 (€0.25) price cap will economists said. Lifting price caps will relieve the
remain in place for consumption below 144cm budget of HUF500bn expenditures this year and
per month or 729cm per year. In excess of that, HUF1 trillion in 2023.
market prices will apply, which are seven times The unwinding of fixed energy prices will be
higher around HUF747. The drastic gap between the first real test for the ruling party politically,
regulated and market prices could help Hun- which still enjoys a rather high approval rating,
gary meet the EU’s gas reduction target of 15%, around 55-60%. ™

P10 www. NEWSBASE .com Week 29 25•July•2022