There are days when I question how far I push my ideas in my blog. How close to reality am I really? Using my wild imagination it turns out I actually predicted two key developments in the Hungarian energy sector – back in 2010 and 2011. These have now come true.
The first relates to what Prime Minister Viktor Orban stated today. He said what is unfolding today in Hungary was what he stated would happen in 2010 (i.e. mass nationalization of everything, either directly or indirectly). This includes lower the fixed costs for households, which also includes the price of energy. The path is to continue lowering energy prices in Hungary and forcing the private energy companies to swallow the price reduction. To match Orban’s words and his intent, shoving householders’ energy bills down the throats of the energy companies.
In his regular biweekly interview with public radio MR1 Kossuth, Orbán said “we have come to this at last”, adding that he already had a plan how to go forward step by step when his party came into power in 2010.
“I’ve never made it a secret, only no one remembers it now…” (Portfolio.hu).
But back in 2010 I already said this would happen. I was drawing from the collapse of the gas distributor Emfesz, but the intent is there and has morphed into something else. Rather than security of supply being used as the reason, it is the protection of the Hungarian household and the country’s economic health that will be used to drive the energy companies to scream, ‘uncle’.
“The government will spin the bankruptcy of Emfesz as an indication that private investors threaten the countries security of supply, and if they are not being paid high profits for their services then they are not interested. When the current private energy companies try to leave Hungary citing ill financial health, the government will engineer their exit on favorable terms for the state (there are some international treaties that protect private investment and these have to be softly walked over).
With some (not all will be able to leave) significant government ownership, the Orban government will realize its objective of imposing state ownership over the countries energy assets – and somehow keep prices low. (I actually feel crazy writing this as a government objective – but it is logically based on actions and statements of this government). As owners, the government can figure out how to pay for gas at higher market rates and the lower rates that homeowners and (SME) businesses pay. But by then, the pension money will be spent and Hungary’s credit rating will be in the garbage.”
The sadly funny part about the above quote from 2010, is when I wrote it I felt crazy, I have no such feelings now. But I’m not sure the intent is to buy back the companies. I think the intent now is just have the foreign owners loose a ton of money. Orban doesn’t care about the ownership or whether the whole energy system collapses or not. Since there is no investment into the energy sector the whole system will begin to fail in a few short years, and then who will pay for the repairs and more importantly who will be to blame for the failing system? Why the privately owned energy companies. The recent snow storm this past week only heaped more shit on the energy companies for not keeping their network in order, who will be to blame when the lights go off on a normal summer day? The government doesn’t want to be blamed for this. But once the network is run down and the companies don’t want to inject the money to modernize it then the Orban government (yes, even 5- 10 years from now) will be ready to buy the worthless assets.
The second area that I was right on was the parallel that I drew between Turkmenistan and Hungary. This was written at the time that Hungary was buying back the MOL shares of Russian owned Surgutneftegaz. Below is what I wrote in January 2011.
“Tajikistan is seeking to complete its unfinished 3,600-megawatt Vakhsh River Rogun hydroelectric dam, begun in 1976. In December  the Tajik government issued Rogun stock and made it compulsory for citizens to purchase nearly $700 worth of shares, a sum exceeding most Tajiks’ annual income, in order to collect $600 million for construction to continue. After IMF Tajikistan mission head Axel Schimmelpfennig stated that the mandatory forced donations would destabilize the Tajik economy and that returns would be “negligible,” Tajik President Emomali Rakhmon suspended the campaign on 12 April as his administration negotiated with the IMF” (Central Asia-Caucasus Institute)
Now it remains to be seen where Hungary could get the money to buy out the MOL shares from Surgutneftegaz. Particularly since funding is becoming more expensive for Hungary – with the constant downgrading and negative outlooks by ratings agencies a further indication of funding access in the future. Therefore, how best to finance a purchase of MOL shares valued at more than EUR 1.4 billion (the price paid by Surgut to OMV)? And since it has been stated by Hungary’s leadership that ownership in MOL (and other energy companies) is connected to national security than what better way of financing the purchase then to force Hungarians to pay for it themselves?!
Not only has Hungary bought back the MOL shares, but its spending spree on energy – and specifically gas assets has not stopped there!
Hungary’s Prime Minister Viktor Orbán and Johannes Teyssen, Chairman-CEO of E.ON signed a Letter of Intent on 30 November 2012, under which state-owned energy firm MVM will buy the German utility’s local gas wholesale unit, E.ON Föoldgáz Trade Zrt. and storage unit E.ON Földgáz Storage Zrt.
With no official price revealed speculation ensued in the press as to how much the state could pay for the assets. The estimates ranged from EUR 600 m to over EUR 1 bn. According to press reports, the Hungarian Electricity Works (MVM) was authorized to pay up to EUR 875 m. PM Orbánconfirmed the acquisition on 1 February but said the contract was yet to be signed. (Portfolio.hu)
And how is Hungary paying for these purchases of energy assets? Why a financial transaction tax done through all banks, this includes the savings and purchases of Hungarians and anyone else in Hungary that buys anything or transfers money to someone or withdraws money from an ATM. And how much is this tax bringing in? Now according to my conversion (I usually don’t convert billons) the expected revenue from the transaction tax is 301.1 billion HUF. This (according to today’s exchange rate) comes out to be 981,382,727.883 EUR, or just 981 million Euros. Which means then the government may have some spare change left over after buying EON’s gas unit. So what to do with the spare money? Why buy MOL’s gas storage unit!! Which the Hungarian Development Ministry just announced they are going to do!
|301,100,000,000.00 HUF||=||981,382,727.883 EUR|
State to take over MOL gas storage
The government has authorised Development Minister Zsuzsa Németh in a decree to start negotiations with MOL on purchasing a 51% stake in the energy company’s gas storage subsidiary MMBF Földgáztároló.(Hungary Around the Clock, March 22, 2012
So my prediction that Hungary would turn into Tajikistan is true. Not only on the financial and energy side, but also on the political side. Hungary now has all the official characteristics of a Central Asian authoritarian state. There is one difference, Orban was successful in taking the money from Hungarian savings accounts. Welcome to Orbanistan! Let’s change the name of the country again!