Hungary May Buy Stakes in Units of Foreign Energy Companies

Hungary may buy stakes in two local units of foreign energy companies that are seeking an exit after tariff cuts, Development Minister Laszlone Nemeth said.

Hungary, which imposed a 10 percent reduction in household gas and electricity prices at the start of the year, has started negotiations with companies that don’t want to suffer further rate cuts, Nemeth said, without identifying them.

“Two companies have indicated so far that they want to talk,” Nemeth said today in Budapest. “One of them said it is willing to make alternative investments in Hungary if we buy them out of the area in which they are unprofitable.”

Hungary agreed in March to buy German utility EON SE’s domestic natural-gas business for about 870 million euros ($1.1 billion). The deal, which Nemeth said the government is seeking to close by the autumn, is part of Prime Minister Viktor Orban’s efforts to strengthen the state’s hold on strategic assets and extend utility price reductions before elections next year.

RWE AG (RWE), Germany’s second-largest utility, plans to cut spending in Hungary as it considers business in the country a “disaster”, RWE East Chief Executive Officer Martin Herrmann said in an interview in April. French utilities Electricite de France SA and GDF Suez SA (GSZ) also have subsidiaries in Hungary.

The government plans to finance any purchases through a possible sale of bonds by state asset manager MNV Zrt. and by selling bonds exchangeable for MNV’s stakes in companies, Sara Nemes Hegmanne, state secretary in charge of state assets, told reporters today. The deals would be similar to a $1.2 billion transaction in 2009 with the shares of Gedeon Richter Nyrt., Hungary’s biggest drugmaker, Hegmanne said.

Further Round

The ruling Fidesz party has kept its lead in opinion polls by imposing the 10 percent cut in utility prices from January and pledging further reductions in household expenses. Hungary is considering a further round of cuts in gas and electricity prices in September or October, Orban said in an Inforadio interview last week.

Investment in Hungary plunged 8.7 percent in the first quarter from the same period last year, the biggest drop since the fourth quarter of 2009, the statistics office said on May 31. That included a 31 percent drop in energy industry investment, the data showed.

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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