The minister in charge of the Prime Minister's Office announced this week that the government will maintain its policy of keeping utility prices subsidized at least until the end of December. At the same time, analyst warn that the subsidy system is putting a heavy strain on public finances.
Gergely Gulyás, the minister in charge of the Prime Minister's Office, stressed at a regular press conference this week that the government has all the resources it needs to keep the household utility subsidy system in place this year. "Everyone can count on the fact that there will be no change for household with an average consumption," he noted, adding that the price household with an above-average consumption are paying will also remain unchanged.
Utility costs are a top consideration for voters and the government seems adamant to protect the existing subsidies at all costs. Nevertheless, from an economic perspective, it is a terrible decision as it costs the central budget dearly. Now, that international energy prices have declined, the system has become somewhat easier to maintain but it is clearly a political decision on the part of the government to keep it in place, Tamás Pletser, Erste Bank's oil and gas market analyst told online news portal Index. According to Pletser, the retail price derived from market prices is still higher than the reduced price for households with an average consumption. AT the same time, the residential market price is higher than the retail price derived from world market prices. The analyst noted that in the current subsidy system, the government has little to no room to further reduce household energy prices. Especially considering that the state is currently selling natural gas that it previously acquired at a record price.
Reduced prices cost a lot
Minister Gulyás also announced that the government intends to help small and medium-sized enterprises (SMEs), the cost of which is also borne by the state-owned energy giant MVM. This alone means a loss of HUF 19-20 billion for the company. They help more than ten thousand companies, municipalities and foundations by selling them gas for less than HUF 10 per megajoule and electricity for less than HUF 80 per kilowatt hour.
The situation is made more dramatic by the fact that Hungary has made virtually no progress in making tiself independent from Russian gas. "We slept through the past decades, now we need huge capital to change the situation, and someone needs to finance this. It is obvious that we cannot integrate enough renewable energy sources into the system. On the other hand, Russian gas is very risky both politically and economically, and this risk is only increasing," Pletser said.
Meanwhile, world energy prices have declined steeply in recent weeks. Currently, the price of natural gas per megawatt hour on the Dutch gas exchange hovers around EUR 44, roughly HUF 16,500. This corresponds to 94.87 cubic meters, so the market price of one cubic meter of natural gas is HUF 174. In comparison, a cubic meter of gas cost HUF 854 in Spetember when the forint was also significantly weaker. The world market price has fallen to a fifth, driven largely by an unusually mild winter and successful European Union efforts to get rid of Russian energy sources as quickly as possible.
Hungary’s utility subsidy system caused a staggering deficit of HUF 450 billion to the central budget, based on the data from February. It is important to note that at that time Hungary received natural gas from Russia at a price of EUR 120-150 per cubic meter, as the supply contract stipulates that prices follow international market prices with a delay. Based on the consumption data of previous years, in the period from May to September, the population consumes a quarter of the consumption of a winter month in one month, so in this period the resulting deficit can be estimated at HUF 20-50 billion forints per month.


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