Orbán suffers setback in price war against energy utilities

viktor_orban Hungarian flag.jpg

Energy companies in Hungary have won a court case against the government over state-imposed natural gas price cuts, Prime Minister Viktor Orbán told the European Parliament on Monday (11 March), calling it a "scandalous" legal decision.

The government imposed 10% price cuts on energy firms from January and flagged further cuts.

The cuts have alarmed power companies, who say they will have to foot the bill. However, the policy plays well with Hungarians who are struggling to pay household bills.

Orbán needs to boost his support because is seeking another term in office in an election next year.

"On behalf of the government I must say that the decision of the court is scandalous," Orbán said. He said the government would not accept the decision and would submit a new proposal to parliament for even bigger price cuts.

The prime minister said the court was expected to make a separate ruling related to electricity prices next week.

Hungary's utility sector is mostly foreign owned, with the biggest players including Germany's RWE and E.ON AG and France's GDF and EDF.

The energy price cuts were the latest in a series of unorthodox policies by the Hungarian government in the past three years that have worried investors and the International Monetary Fund.

Other steps have included Europe's biggest tax on banks and windfall taxes on energy, retail and telecommunications firms.

Faced with a mounting debt problem, the centre-right ruling party Fidesz has pledged to cut the country's budget deficit below 3% of GDP in 2011, making it appear as a top performer in the EU.

But the methods used to achieve this goal have stirred controversy inside the country and now also at European level.

To get the budget within EU limits in 2011, the government is relying on unorthodox, one-off revenues, making markets fearful the fiscal gap will bulge again after 2012 unless more durable measures are introduced.

Bank taxes, "special taxes", "temporary taxes", nationalisation of private pension funds and levies on foreign businesses are all seen with growing scepticism by both public opinion and financial markets.

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