Hungary to revamp regulation to curb energy monopoly

BUDAPEST, March 11 (Reuters) - Hungary's government will sack the management of state-owned power wholesaler MVM and amend regulations to curb the firm's quasi monopoly ahead of its planned privatisation, government spokesman David Daroczi said.

"The steps are intended to eliminate within a reasonable time the factors leading to (MVM's) monopolistic nature," Daroczi told a news conference on Tuesday.

"There's only one thing worse than an unjustified state-owned monopoly, a privately held one," Daroczi added.

The moves are intended to curb the recent sharp increase in electricity prices, which pushed energy producer prices up by 12.7 percent on the month in January.

Daroczi said the government's move comes on the heels of sharply critical studies by the competition authority, the energy regulator and even the central bank.

MVM owns two of the top three Hungarian power generators, the entire grid, controls 75 to 80 percent of the wholesale market through long-term contracts, controls cross-border capacity and recently purchased a 10 percent stake in electricity retailer Elmu ELMU.BU.

Daroczi could not say what actions the government would take and the government asked the finance minister to draw up an action plan.

In separate studies made public on Tuesday, the energy regulator said MVM's monopoly and ability to abuse its market position could push prices still higher while the competition authority said privatisation in the current structure carried overwhelming risks to both investors and the economy.

"Under current circumstances, floating MVM would make market liberalisation difficult, conserve energy users' competitive disadvantage of unpredictable proportions and limit the government's ability ... to tackle the issue," the competition authority said in a study.

Hungary passed a new electricity market bill last year which aimed at liberalising the market but failed to tackle MVM's powers and instead, gave it further authority to enter the retail and wholesale markets.

Energy sector players had voiced harsh criticism for the new law last year but the government dismissed those claims, saying that only a strong MVM with its long term power purchase agreements could insulate Hungary from higher prices and protect safety of supply.

As Hungary's generating capacity is outdated, Hungary is one of the biggest net importers of electricity as a percentage of total usage. (Reporting by Balazs Koranyi; editing by James Jukwey)