Hungary terminates power purchase agreements with private generators

Global Insight October 10, 2008
Hungarian Parliament Considers Bill to End Long-Term Power Contracts; Trading in MOL Shares Suspended

The Hungarian Parliament is reviewing a bill to end long-term power purchase agreements (PPAs) between Hungarian state-owned electricity group MVM and sizeable generators. The bill also seeks to recover illegal state aid given to the generators in income following Hungary's accession to the European Union (EU) in May 2004. The legislation was submitted to parliament on 3 October 2008 and gained fast-track approval a few days later. Separately, shares in Hungarian oil and gas group MOL have been suspended on the Budapest Stock Exchange, the bourse has reported, without justification. MOL shares were trading down 12% before the move. Austrian oil and gas company OMV recently sold just under half of its 20.2% stake in MOL in a so-called sale and repurchase arrangement. Ten million MOL shares were sold to the German division of Italy's UniCredit, Bayerische Hypo und Vereinsbank, but will be repurchased within a year.

Significance:The bill has been submitted in response to a European Commission (EC) order last June that Hungary scrap all PPAs and recover illegal state aid within six months. The draft legislation relates to PPAs and capacity agreements between MVM and seven generators: Budapest (owned by EDF), Dunamenti (Electrabel-Suez), Matra (RWE), Tisza (AES), Csepel (Atel), Pecs (Dalkia), and the Paks nuclear plant (MVM). If approved, it could see all PPAs cancelled from 31 December 2008. The EC is forcing the phasing out of long-term gas and power contracts in order to boost new entrant activity in the region's energy markets. Similar moves in Germany were long resisted by utilities E.ON and others but were ultimately forced through by the regulator on appeal.