Rpt-Eyeing 2014 election, Hungary wants control of gas

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* Government wants influence in strategic industries

* Buying E.ON gas units would give control over imports

* Long-term gas deal with Gazprom expires in 2015

By Krisztina Than

BUDAPEST, Aug 28 (Reuters) - Hungary's plan to nationalise German utility E.ON's local units could help Prime Minister Viktor Orban win an election in 2014 by giving the government control of gas imports and long-term energy prices, analysts said.

Orban said over the weekend his right-of-centre government would "buy back E.ON from the Germans momentarily" without specifying whether he meant E.ON's gas trading and storage units or its broader business in Hungary.

His deputy, Tibor Navracsics, told TV station HirTV on Monday such a move would fit the government's plan to put utilities "on a non-profit basis".

Analysts say the government probably has its eyes on E.ON's gas wholesale or storage units, most likely both, as part of its strategy to increase the role of the state in the energy sector.

"E.ON will sell its (gas) units. It is just a matter of time," said Jozsef Miro, an analyst at Erste in Budapest.

"The government wants to have the gas business in its own hands. Once they have that, they can sit down to negotiate about cheaper gas for the new long term gas deal with the Russians from 2015 onwards, and that can win elections."

E.ON's gas wholesale unit, E.ON Foldgaz Trade Zrt, is Hungary's biggest gas trader, supplying gas distributors and, thus, the household sector in the country of 10 million.

Its storage unit, E.ON Foldgaz Storage Zrt, operates four gas storages with a total capacity of 4.2 billion cubic metres.

Hungary, whose position at the heart of central Europe gives it an important role as a gas-shipping route, gets over 80 percent of its own annual gas consumption of 11-12 billion cubic metres through imports, mostly from Russia.

The price of natural gas has always been an important political issue in Hungary which has a long-term gas deal with Russian group Gazprom expiring in 2015.

If the state bought E.ON's gas operations, the government would be in a position to negotiate a new contract. Analysts said state-held energy firm MVM was the most likely candidate to buy E.ON's units.

"It is a declared goal of the government to gain a serious position in the energy market via MVM," said Attila Vago, a senior analyst at Concorde Securities in Budapest.

"As far as the long-term gas purchase contract is concerned which expires in 2015, E.ON has serious positions in Europe and is in a good bargaining position with the Russians."

Vago said if so-called interconnectors - pipelines linking Hungary's gas network with neighbouring countries - were built as planned, that could improve the government's negotiating position if it owned E.ON's gas unit.

Electricity wholesaler MVM, which had revenues of 646 billion forints ($2.9 billion) last year and also owns Hungary's only nuclear plant, has said that, in the medium term, it wanted to enter the gas wholesale market. It is also building a gas interconnector to Slovakia, to be completed by 2014.

MVM also aspires to a greater regional role.

Hungary's gas pipeline network is owned and operated by FGSZ Zrt, a subsidiary of Hungarian oil group MOL in which the government has a 21 percent stake it acquired from Russian group Surgut.

TOUGH CONDITIONS

Buying E.ON's gas units would be a costly deal at a time when Hungary has been struggling to keep its budget deficit low and wants to secure a financing backstop from the International Monetary Fund and the European Union.

MOL sold its gas business to E.ON in 2005 in a deal then valued at up to 2.2 billion euros ($2.75 billion) including debt.

In 2010, a previous, Socialist government secured an option to buy E.ON's gas wholesale subsidiary to stop the unit falling into "unwanted" hands should it come up for sale. E.ON said at the time Hungary's pre-emption right ran until 2016.

There have been reports E.ON wanted 1.2 billion euros for its gas units and Hungary had offered less during talks which have been going on for some time.

E.ON has declined comment.

Orban's government has made conditions difficult for E.ON since 2010 when it froze gas prices for the majority of households and capped the return on capital.

According to its website, E.ON Foldgaz Trade Zrt posted an after-tax loss of 606 million forints in 2011.

"There has been a drastic measure from the regulator, plus the economic crisis has brought about a drop in consumption, while (E.ON) had to take over the gas from Gazprom based on the take-or-pay contract. Plus there were price moratoria, which all had their impact on E.ON Foldgaz Trade," Vago said.

If state-held MVM acquired the gas business, it will also have to cover losses from price caps. ($1 = 221.6 forints = 0.7990 euro) (Editing by Dan Lalor)