Hungary defies EU over energy distribution rules

Hungary expects “a big debate” with the European Union over its plans to transform energy distribution in the household sector into a "non-profit activity", the country’s Prime Minister Viktor Orbán said today (22 August). In Brussels, the European Commission declined to comment, saying it learnt of the plans from the press.

"There will be another big debate [with Brussels], namely over the transformation of services related to utilities," Orbán told an annual meeting of Hungarian diplomats.

"The shipment, distribution and trade of energy in the household sector can easily be a non-profit activity," he said, quoted by Reuters news agency.

Orbán said the government needed to find a solution that did not infringe the principles of the single market and the free movement of capital. He did not give any more details.

Orbán's conservative government has often been at odds with Brussels over controversial policies such as Europe's highest bank levy or hefty windfall taxes on selected business sectors.

These new taxes have helped stabilise the budget but have contributed to an erosion of investor confidence in the government's unconventional policies.

Hungary is in talks with the European Union and International Monetary Fund about a financing backstop which the country needs to cut high borrowing costs.

Limiting utility price increases was one of the key pledges of Orbán's Fidesz party ahead of 2010 elections, which Fidesz swept with a two-thirds parliamentary majority (see background).

Hungary's energy sector is mostly foreign-owned, with Germany's E.ON and RWE, and France's EDF and GDF Suez among the big players. The companies were not immediately available for comment, Reuters reported.

No pension cuts

In his speech, Orbán also ruled out any cuts in pensions, saying Hungary's 3 million pensioners, or nearly a third of the population, were a key demographic segment and their support for democracy was a mainstay of Hungarian politics.

Since Orbán took office, Hungary has flamed controversy with some of its economic policies. As an example, the government nationalised €10 billion in private pension funds, without meeting any kind of major resistance from the Commission.

Orbán’s actions and statements may appear unusual for a politician member of the European People’s Party, which is seen as largely pro-business. But on many occasions he has appeared to be guided more by pragmatic and nationalistic motivation, rather than by the platform of his political group.

The energy distribution to households, be it electricity, gas or district heating, is basically an area in which the EU makes sure free market rules apply. All operators are private entities, subject of control primarily by national regulators. Any plans to make these activities “non-profit” may at least raise eyebrows in business circles.

Asked whether Orbán’s plans contradict the EU’s single market rules, Commission spokesperson Olivier Bailly said that at this stage the EU executive would make no comment, as these were just announcements. He added that he was not aware that Hungarian authorities had consulted the Commission before Orbán went public with the proposals.

Baily said that the normal procedure is that the EU would state its position when the Hungarian government consults on its draft legislation.

“For the time being, there is nothing we can comment on or nothing that we can legally assess,” he said.