Oil Report

Hungary trims gas price hike head of tough vote

BUDAPEST, Feb 28 (Reuters) - Hungary’s government has halved a proposed gas price increase in April ahead of a tough referendum on unpopular medical and tuition fees that the ruling coalition is widely expected to lose.

Domestic gas prices will increase by 5.8 percent from April while non-household gas will go up by 5.2 percent, the national news agency MTI quoted the Economy Ministry as saying.

The Hungarian Energy Office last week proposed a gas price hike of 13 percent, but the Economy Ministry said the proposal foundered during talks within the state administration.

Hungary’s Socialist-led government support has sunk to 15-20 percent due to large tax and price rises designed to cut the budget deficit.

It faces an opposition-backed referendum on March 9 to reverse some of its most unpopular measures and political observers say it will most likely lose the vote.

Thursday’s announcement is not the first time the government has moderated gas price increases because of political considerations. Last year household gas bills went up to compensate for price rises postponed before elections in 2006.

The daily Nepszabadsag quoted unnamed sources as saying the lower-than-proposed rise in gas prices unveiled on Thursday would only mean further increases later in the year.

The government had decided on going ahead with a partial rise, rather than postponing a decision, because parliament was likely to delay full liberalization of the domestic gas market by six months to January 2009.

That would give the government an extra six months in which to raise gas prices and compensate gas wholesaler E.ON Foldgaz EONG.DE for gas prices having been kept low in recent years.

Reporting by Gergely Szakacs; Editing by Jon Boyle