October 9, 2013 / 9:32 AM / in 4 years

Hungary drafting ban on dividend payments from utilities -minister

* Legislation being prepared by Development Ministry

* Part of government drive to reduce household energy bills

* Government plans new round of energy price cuts next month

* Ruling party gears up for an election in April or May 2014

By Gergely Szakacs and Krisztina Than

BUDAPEST, Oct 9 (Reuters) - Hungary is drafting legislation to ban dividend payments from utilities, Development Ministry State Secretary Janos Fonagy said on Wednesday, as the ruling Fidesz party tries to boost state influence in the energy sector before a 2014 election.

Prime Minister Viktor Orban’s government, which says Hungarians pay too much for energy bills relative to what they earn, has already flagged legislation to transform utilities into non-profit organisations.

Germany’s E.ON and RWE, France’s EDF and GDF Suez and Italy’s Eni all own substantial stakes in Hungarian utilities. The companies either declined or were not immediately available to comment.

Fonagy said on state television that services forming a “natural monopoly”, such as gas, electricity, water and others “serving important public interest” should come mostly under central or local government ownership on a non-profit basis.

“The profit generated as a result of decent corporate activity could not be extracted as dividend, but rather, it should be reinvested into the operation, maintenance and, very importantly, improvement of the service,” he said.

The European Commission has declined comment on recent changes in the utilities sector in Hungary but said it was monitoring developments in all affected EU member states.

“The Commission will continue to insist on phase-out timetables for regulated prices being part of Member States’ structural reforms,” the Commission’s office in Budapest said.

“Furthermore the Commission will continue to promote market-based price formation in retail markets, including through infringement cases against those Member States maintaining price regulation that is not meeting the conditions laid down by EU law,” it said in an emailed response to Reuters.

Orban, whose government has already imposed a 10-percent cut in household power bills from January and plans new reductions next month, has said his administration was in talks to buy out 6 or 7 major utilities.

Orban, who says he has saved Hungary from financial collapse, is still battling to lift it out of a protracted period of economic weakness, and his interventionist policies have often scared investors.

Eric Depluet, the head of E.ON’s Hungarian unit, has rejected the government’s rhetoric against banks and utilities.

“We have come here not to colonise, but because we had been invited, and we took on business risk and made serious investments,” he said last week.

The Hungarian state has already bought E.ON’s natural gas trade and storage units via state-owned MVM as well as a 51-percent stake in gas storage company MMBF from MOL.

MVM has said the transaction would give Hungary a greater say in energy prices. MVM also said it would seek to renegotiate a long-term gas import contract with Russia’s Gazprom, which supplies most of import-reliant Hungary’s gas needs.

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