(Adds minister’s remarks, background, forint reaction)
BUDAPEST, Oct 3 (Reuters) -
Hungary announced on Monday it has reached an agreement to defer payments to Russia’s Gazprom for winter gas supply, a move that could ease pressure on the country’s widening current account deficit and its forint currency.
Hungary’s trade deficit has ballooned this year due to its surging energy costs, increasing its vulnerability and weakening the forint, which plunged to a record low versus the euro on Monday. Hungary largely relies on Russian gas and oil shipments.
State-owned energy group MVM has agreed with Gazprom to defer its payments for gas purchases if prices exceed a certain threshold value, allowing MVM to pay for the gas over the coming three years if prices surge.
“We agreed on a threshold value, and the part exceeding this we don’t have to pay for now, but it goes into deferred payment,” Development Minister Marton Nagy told Reuters. He said the threshold value was below the current market price but did not specify what it was. The agreement is for six months until March.
Nagy said the deal could ease the correlation between rising gas prices and the forint, which has slid as the price surged.
Dutch gas for October, the European benchmark contract, was at around 173 euros on Monday.
In a presentation, Nagy said with the current market spot price, the deal means up to 1 billion euros worth of deferred payments. Assuming the price goes up to 300 euros/MWh, deferred payments could total 3.5 billion to 4.5 billion euros.
Also, MVM will have 30 days to buy the needed euros on the market to pay for the gas instead of the previous five days, which could ease pressure on the forint market.
The forint, which fell to record lows past 425 to the euro earlier on Monday, had jumped to 421 by 1431 GMT.
“This is positive news for the budget, it means a smaller burden on this years’ budget, and a decreased need for foreign currencies, which will make financing easier,” an FX trader in Budapest said.
“This will not patch all the holes in the budget, but it means an easing of the burden. But we still need those EU funds, the government will need to do everything to get that money,” the trader said, referring to a row between Hungary and the European Union that has hampered access to billions of euros of financing.
Under a 15-year deal signed last year, Hungary receives 3.5 billion cubic metres (bcm) of gas per year via Bulgaria and Serbia under a long-term deal with Russia and a further 1 bcm via pipeline from Austria. “To mitigate the impact of the increase in market prices, MVM Group and Gazprom have agreed to deferred payments for the forthcoming winter period,” MVM said in a statement.
MVM also said it would tap 800 million cubic metres of cushion gas held in its reserves, worth around 1.5 billion euros at market prices, to aid government efforts to keep a lid on household energy bills.
After a July request from Budapest, Gazprom started to ramp up supplies to Hungary, adding to previously agreed deliveries via the Turkstream pipeline. That alone boosted Hungary’s gas bill by 740 billion forints ($1.78 billion).
Hungary’s central bank, which raised its base rate by 125 basis points last week to 13%, has said Hungary’s current account deficit was in the “danger zone”, urging the government to stabilise finances. (Writing by Krisztina Than and Gergely Szakacs; editing by Jason Neely and Paul Simao)
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