The debate over the future of Mol, the dominant oil and gas group which is facing a hostile approach from Austria’s OMV, has highlighted the importance of energy in Hungary’s political and economic life.
The ruling Socialists and opposition Fidesz parties set aside their differences earlier this month to vote 337-4 for legislation that will increase boardroom powers to resist unwanted bids. While Mol is not named, the law is known as Lex Mol in Hungary and widely seen as designed to assist Mol in fending off OMV.
Hungarians are nervous about their energy markets because world prices are high, supplies are short, and their country is more dependent on a single fuel – gas – than any other European Union state except the Netherlands.
And every Hungarian knows that the major supplier of that gas is Russia.
As Karoly Banai, a foreign affairs adviser to the prime minister, points out, 80 per cent of Hungary’s energy is imported, 80 per cent of that is gas and 80 per cent of the gas comes from Russia.
“So, you see, we are 47 per cent dependent on Russian gas.”
Government ministers are careful to maintain good relations with Moscow, while keeping a close eye on the activities of Russian companies in Hungary.
At the same time, they are trying to stick to EU policies on liberalising markets and on maintaining a common front in dealings with Russia. These two approaches are sometimes in conflict.
Ministers are cautious as they pick their way through these priorities. Lex Mol says nothing about Russian or other foreign companies.
But it is clear that the government is particulary concerned about state-owned companies that might be subject to untransparent political influence.
Ferenc Gyurcsany, the prime minister, argues that Hungary did not privatise Mol for it to be nationalised by somebody else – a reference to the fact that OMV’s biggest shareholder is the Austrian state.
Janos Koka, economy minister, says foreign companies, including Russian groups, are free to invest in the Hungarian energy sector, as long as they are transparent and “they keep to the rules and keep to the procedures”.
But the government reserves the right to control the ownership of strategic assets, headed by Mol’s gas pipeline network and the state-owned national electricity grid.
Hungary is protecting itself against unexpected supply breaks of the kind that occurred when Russia briefly cut supplies to Ukraine in a contract dispute in late 2005. Budapest is expanding local storage, with a target of 60 days’ supply. It also has a small pipeline connection to the Austrian terminal at Baumgarten, a hub for Russian gas coming to central Europe.
But Hungarian officials say that, in the long run, the country needs to diversify away from the single pipeline route bringing Russian gas via Ukraine and, if possible, away from Russia.
Mr Gyurcsany is anxious to dispel any doubts among his EU partners that Hungary is less than fully committed to the EU-sponsored Nabucco project to bring Caspian gas to central Europe via Turkey, avoiding Russian territory.
This year, Mr Gyurcsany made remarks that were widely viewed as expressing support for a rival scheme by Russia’s Gazprom to build a spur to Hungary from its Bluestream pipeline, which passes under the Black Sea to Turkey.
To counter this impression, Mr Gyurcsany backed a Nabucco conference in Budapest last month at which he expressed support for Nabucco. He says he had simply wanted to raise concerns about “the disappointingly slow progress of Nabucco”. He admits this “caused some misunderstanding, beyond question.”
The prime minister now says that Hungary needs to diversify, but can only back Nabucco if it is realistic – a reference to doubts about gas supplies and financing for the project.
Mr Gyurcsany adds that the Bluestream spur project has itself been transformed into Southstream – a planned pipeline to take gas from the Black Sea across the Balkans to Italy, which may have a spur to central Europe, including Hungary.
As he points out, this project is less controversial because it is supported by Italy and by the EU.
In the meantime, industrial energy consumers are complaining of a squeeze, especially in electricity, where prices are rising rapidly because of growing demand, compounded by cross-subsidies for households.
Borsodchem, a big chemical company, and several other users facing price increases of up to 50 per cent for 2008 have complained to the government, seeking a review of the half-liberalised electricity market.
Borsodchem argues that incomplete reforms have left too much power in the hands of three suppliers – MVM, the state generation and grid company, and two German utilities – RWE and Eon.
But the suppliers say the price increases are a reflection of supply and demand – and will be eased only if there is more investment in the sector in Hungary and neighbouring countries, including in cross-border connections.
Russian and Ukrainian investors are planning to build a big power station in Ukraine, close to the Hungarian border, and supply Hungary and other central European states. But the project is some time from completion – and it would do little to ease the country’s energy dependence on its eastern neighbours.
