Hungary minister talks energy issues, Vodafone takeover, EU funds

Vodafone takeover

Pro-government 4iG announced on Monday that together with the Hungarian state (via Corvinus Zrt.) it is buying 100% of Vodafone's local operation for HUF 715 billion. The company will have a 51% stake and the state will hold 49% of the company, paying HUF 350 billion for the package.

Gulyás said the following about the mammoth deal:

When asked if the state will finance the acquisition from credit, the PM's chief of staff replied: "Your assumption is not far from the truth."

This issue will matter when the transaction is closed, as the price will need to be paid then, he added.

The state's intention to buy Vodafone dates back to 2010, Gulyás replied to a question.

Buying a telecom company makes a profit, said Gulyás. When asked whether in the current environment it was justified for the state to spend HUF 350 billion to buy a 49% stake in Vodafone, he said a lot of the revenues of this company can be used to pay teachers' salaries, adding that he did not want to qualify what appeared to be a populist question.

They will be able to determine after how many years the transaction will pay for itself after the audit,

he added.

Hungary is currently holding back a raise of teachers' salaries as it is waiting for the European Commission to unblock EU funds that have not been transferred over rule of law issues. The acquisition of Vodafone and the teachers' pay rise are two separate issues. One is an investment that brings money, the other is a cost, Gulyás said, distinguishing between the two.

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Large internationally recognised companies will approve the purchase price once the company has been subjected to due diligence, the minister said in response to a question on the Vodafone deal.

In the fourth area, the telecommunications sector, we have taken an important step towards strong national ownership, said Gulyás. It is a strategic objective to have majority national ownership. This is also important in the long term. Financing must be created until the transaction is completed, he added.

Buying Budapest airport would require several times more, he said, when asked why the government had delayed the state purchase of the airport at the time and why this Vodafone deal was the right fit.

There was an intention to sell at the end, but it was so late that we could not reach an agreement, said Gulyás when asked what the government's intention was for Budapest airport.

The intention to buy is still there,

he said.

Prime Minister Viktor Orbán, who has been in power since 2010, has expanded his nationalist government's influence in areas such as energy, banking and the media, which it considers strategic, and long harboured plans to tighten its grip over the telecoms sector, Reuters reported on Monday in relation to the acquisition of Vodafone.

The deal — which does not include Vodafone's shared services business VOIS — is expected to create Hungary's second largest telecoms operator.

4iG has grown exponentially in recent years, becoming the dominant ICT group in Hungary through acquisitions, lucrative state contracts and growing its existing operations.

CEO and largest shareholder Gellért Jászai told Reuters in 2019 that 4iG planned to grow through debt-fuelled acquisitions in Central Europe.

Businessmen close to Hungary's ruling Fidesz party have come to dominate several industries as the government, which was re-elected for a fourth consecutive term in April, expands its direct involvement in a number of key sectors.

Economic Development Minister in Moscow

Márton Nagy has flown to Moscow the other day to discuss energy issues, but he has not informed the government about the outcome of his talks, other than they were successful, said Gulyás.

On Sunday afternoon, a HUAF 653 Dassault Falcon 7X passenger aircraft belonging to the Hungarian Defence Forces (owned by Iran) caused a major stir when it flew unannounced from Budapest to Moscow.

Talks with the EU: no specific results yet

Asked what concrete steps the government has pledged the EU to take [to dispel rule of law concerns], Gulyás gave a evasive answer, without mentioning specifics.

There is no tightening [from the EU's part] that would be painful for us, because we have nothing to hide from the EU. We are also willing to give institutional guarantees to the Commission that is uncharacteristic of other countries, he said.

As the letter is addressed to the European Commission, I cannot discuss the details of its content, he said.

The question of Hungary's willingness to join the European Public Prosecutor's Office has never arisen, the minister replied.

It also emerged that the Commission has one month to reply to the Hungarian letter.

We have reached a common position on all contentious issues with the EU. We are putting in place a more rigorous system than ever before for the use and control of [EU] funds, said Gulyás.

Negotiations at technical level are ongoing. Once these are over, the recovery fund and the agreement on the 7-year budget can be signed, he said. The European Commission is being constructive, he said.

Coronavirus pandemic

On the basis of current data, no tightening is expected and we consider the weekly information to be sufficient for the time being, said Gulyás.

The course of this virus is incomparable to what we experienced in 2020 and 2021, he said.

Gas storage levels

There are 3.8 billion cubic metres of natural gas in Hungarian gas storage, Gergely Gulyás said, adding that this amount is sufficient for 76 winter days of consumption, if residential and industrial consumption is taken into account.

If we look only at residential consumption, it is enough for half a year, he added. The storage facilities are filled to 60.6% of their capacity.

New loan programme in the making?

We are working on specific loan programmes, the details of which will be announced by the government in two weeks, said Gulyás, when asked how the government will support the construction of low-energy properties and the renovation of old ones.

Heating by split air conditioning is cheaper and more efficient than gas heating. The government will help with concrete proposals to reduce the consumption of a given household to below the average, so that its overheads do not rise he added. This was one concrete example that could be included in the package that the government will present in two weeks' time.

Utility bills reduction, calorific value

The government has already set the average consumption rate for both electricity and natural gas, Gergely Gulyás reminded. In the case of electricity, there is no question that the government had to answer, but in the case of natural gas there is, because the calorific value is not the same, the quality of natural gas is different.

In terms of quality, the best is Russian, followed by Hungarian, and then imported from the West, the minister explained.

The government will under all circumstances maintain its commitment that even in the worst case scenario, everyone should get the 1,729 cubic metres at the reduced price.

For this reason, the calorific value was set at 63,645 MJ. Previously, the regulation had stated 59,132 MJ, which was the average calorific value. However, the new regulation now includes the number next to the lowest calorific value, so that everyone, even consumers with the lowest calorific value, can use the 1,729 cubic metres of gas at reduced prices, he explained.

The volume sold at a reduced price may exceed 1,729 cubic metres, where the heating value is good,

said Gulyás. This decree has been approved by the government and is expected to be issued today, he added.

While the government had previously indicated that only a quarter of electricity and gas consumers would be affected by partial abandonment of utility bill reduction rules as of 1 August, a representative national survey has now revealed that two-thirds of households fear an actual increase in the burden. (Click on the link below for more!)

Winter heating in schools

Hospitals, social institutions and schools must be kept open in all circumstances, said Gulyás in response to another question. No decision has yet been taken on this issue, he said.

We do not see any reason that would jeopardise the continuity of education, he said.

No decision has been made to keep school temperatures below 20 degrees Celsius, he replied to a question.

Gas costs will rise from HUF 1.5 billion last year to HUF 23 billion next year, the minister said, referring to the increase in the cost of running government agencies ("kormányablak" or "government window"). We need to examine whether we should close these units, for example, he said.

We need to examine which institutions should be closed and what can be maintained during the winter heating season, he added.

Price freezes remain in place

The price freeze measures will be maintained until the deadline set, Gergely Gulyás said in response to another question.