Hungary energy traders say govt undermining market

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Hungary, which is to liberalise its electricity market from Jan. 1, is already tinkering with the market and preventing private energy firms from trading on the most coveted cross-border transit routes, traders said.

Hungary's grid operator Mavir this week allocated all available import capacity from Slovakia and Ukraine, the cheapest sources of imports, mostly to state-owned power wholesaler MVM. This left nothing for an auction to traders and large customers.

"This doesn't serve competition in any way, it does quite the opposite," Gabor Hornai, the chairman of MVKE, the interest group of Hungarian energy trading firms, told Reuters.

Mavir handed the capacity to MVM using a government decree that was announced on Saturday, came into effect on Sunday and expired on Monday, before market players even noticed.

The decree said capacity must be handed to firms who held long-term transit contracts in 2007 to supply the public service market.

Traders say the ruling is nonsensical as the public service market will no longer exist from next year as the market is liberalised and MVM already has all the capacity to supply households.

MINISTRY IN OPPOSITION

"This is contrary to everything we had been planning," an Economy Ministry official who asked not to be named said. "This was taken out of our hands and done behind our back."

Ministry officials declined to comment on the record.

Hungarian energy firms could compete for 225 megawatts of capacity from Slovakia and 105 MW from Ukraine in 2007, and expected these amounts to rise as the market is opened.

"Mavir had no choice but to follow the law," Zsolt Bertalan, the grid operator's director for market operations said. "Energy traders will have the opportunity to buy capacity at the Slovak grid operator's auction.

A government spokeswoman did not respond to repeated requests for comment.

But the energy trading group's Hornai said the government's move was likely to depress prices, use MVM to subsidise customers and prevent healthy competition from developing.

"Our assumption is that the government wanted to cap prices and because its long-term contracts are at depressed prices, it can use MVM to interfere in the market," said Hornai, who is also the managing director of Czech Energy firm CEZ's Hungarian trading unit.

Energy firms said this will push up prices on the liberalised market, forcing industrial players to pay more while households will be insulated.

"MVM is not behaving like a market player," Hornai said.

An MVM spokesman did not immediately respond to a Reuters request for comment.

Energy experts say MVM's behaviour also distorts the market as it already said it had the necessary power to supply all household and small consumers next year and sold off 9 terawatt hours of electricity in October to trading firms and consumers.

MVM has been at the centre of heated debate this year as the firm has long-term power purchase contracts with generators which gives it control of around 70 percent of Hungary's electricity output.

The Economy Ministry, in charge of energy issues, wanted to strip MVM of the contracts but the issue was taken away from the ministry by the Prime Minister's Office, which halted efforts to weaken MVM.

(Reporting by Balazs Koranyi)

Keywords: HUNGARY ELECTRICITY/

[BUDAPEST/Reuters/Finance.cz]