* Gas, electricity, heating prices to fall by 10 pct from
* Mostly foreign utilities to pay costs of measure
* Price cuts could hit investment in sector, distort
* Energy prices politically hot issue ahead of 2014
By Krisztina Than
BUDAPEST, Dec 12 Hungary's government approved a
10 percent cut in household energy prices from January and said
the country's mostly foreign-owned utility companies would have
to pay the cost.
"The government discussed and approved today a 10 percent
reduction in household gas, electricity, and district heating
prices, which ... will take a very significant burden off
Hungarian families," government spokesman Andras Giro-Szasz told
a news conference on Wednesday.
"Service providers have to bear the burden (of the
measure)," he added.
The price cuts are the latest in a series of interventionist
measures and unorthodox policies by the Hungarian government in
the past three years, including Europe's biggest tax on banks
and windfall taxes on energy, retail and telecommunications
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.
"A further burden on the already loss-making segment could
make its operation practically untenable," the communications
chief of GDF Suez's Hungarian unit, Andrea Panczel said in an
emailed reply to Reuters questions last week.
Earlier this year, Prime Minister Viktor Orban, whose public
support has suffered from domestic austerity and high
unemployment, said he wanted to transform household energy
distribution into a "non-profit activity".
Orban faces elections in 2014, and gas and electricity
prices are a politically sensitive issue.
Giro-Szasz said the price cut would affect close to 4
million households in the central European country of 10 million
He also said the foreign companies that bought Hungary's
energy sector from the government in 1995 have made 350 percent
profit on their investments since then, generating annual
average profits of 20 percent over the past 17 years.
"Those making profits in the utility sector will have to
make do with lower profits," the prime minister said last month.
His government, which is struggling to keep the budget
deficit low while the economy is in recession, has already
raised the tax on power companies' profits to 50 percent
effective next year, though allowing companies to reduce that
rate by making investments.
DISTORTING THE MARKET
Analysts said the energy price cuts would curb inflation
next year but could hit investments in the energy sector.
Attila Vago, an analyst at Concorde Securities said the
price cuts would affect about one-third of the total market and
the question was whether utilities could offset the cuts in the
rest of the market.
"They won't be able to, which means their losses will rise,
their capital will decrease and they will not invest in this
kind of regulatory environment, which could lead to supply
security problems in the longer term," Vago said.
"By intervening, the state distorts the market, seriously
distorts the allocation of resources, and these kinds of games
do not end well."
As part of the government's attempts to take control over
energy prices, Hungary agreed at the end of last month to buy
the local gas storage and trading units of E.ON AG.
(editing by Jane Baird)