Hungary orders export ban on fuels, curbs utility price caps

Hungarian Prime Minister Viktor Orban walks at a main meeting room ahead of European Union leaders summit in Brussels, Belgium June 23, 2022. REUTERS/Johanna Geron/Files
  • Orban's government declares state of emergency in energy
  • Hungary's gas reserves 44% full so far - foreign minister
  • Government in talks to buy additional amounts of gas - minister
  • Hungary most exposed to energy shortage in CEE - analyst

BUDAPEST, July 13 (Reuters) - Hungarian Prime Minister Viktor Orban's government has ordered an export ban on fuels like gas and scrapped a years-long cap on utility prices for higher-usage households, a senior aide said on Wednesday.

The measures, which also include a plan to boost domestic gas output to 2 billion cubic metres from 1.5 billion, will take effect from August to ensure the continued supply of energy in winter, Orban's chief of staff Gergely Gulyas said.

Gas supplies to Europe have tightened and fuel costs have soared since Russia's invasion of Ukraine in February and subsequent sanctions, leaving countries scrambling to refill storage and diversify supply channels. read more

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That has added to pressure on nationalist Orban, who is facing his toughest challenge since taking power in a 2010 landslide, with inflation at a two-decade high, the forint at record lows and European Union funds in limbo amid a dispute over democratic standards.

"The time has come for the government to declare a state of emergency in energy," Gulyas told a press briefing after a meeting of Orban's cabinet ministers to discuss energy supply problems in Europe.

Under a 15-year deal with Russian energy giant Gazprom (GAZP.MM) signed last year, Hungary receives 3.5 billion cubic metres (bcm) of gas per year via Bulgaria and Serbia, and a further 1 bcm via a pipeline from Austria.

Foreign Minister Peter Szijjarto said earlier that Budapest was in talks to buy more gas before the heating season, on top of its existing long-term contract with Russia, which supplies 85% of the country's gas needs.

Szijjarto said Hungary's storage facilities, which have capacity for 6.33 bcm of gas, were 44% full, representing about a quarter of annual consumption.

Data from Hungarian regulator MEKH however shows that the 2.74 bcm of gas stored as of mid-July was by far the lowest amount in the past four years, and well below the 4.5 bcm stored last year and 5.4 bcm a year earlier.

Gulyas said for the time being Hungary's gas supply was uninterrupted, and any future restrictions, should they be needed, would affect households as a last resort.

"Wastefulness can no longer be afforded anywhere," Gulyas said. "Every alternative should be looked at that provides incentives for the most sparing use of energy in the economy."

Orban's government has also authorised state energy group MVM and the Hungarian Hydrocarbon Stockpiling Association to buy additional gas on the market to store ahead of the heating season.

"We estimate that it is possible to buy 700 million cubic metres of gas before the start of the heating season," Szijjarto said on Wednesday, without specifying who Hungary was talking to about additional supplies.

Financial news website cited unnamed market sources as saying that Orban's government was looking at a syndicated bank loan to finance the cost of additional gas purchases, estimated at up to 1 billion euros ($1 billion).

Orban passed a decree last month empowering his government to take over supervision of vital energy firms and gas pipeline network operator FGSZ in an emergency to ensure continuous supply. read more

Economists at Wood & Company said Hungary was the most exposed central European country to a potential energy shortage, which could put additional pressure on the forint, central Europe's worst-performing currency.

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Reporting by Gergely Szakacs; Editing by Frank Jack Daniel, Tomasz Janowski and Emelia Sithole-Matarise

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