Hungarian SMEs need support in energy crisis - Development Minister

It is becoming increasingly important not only to maintain reduced utility bills for households but also to support vulnerable small and medium-sized enterprises in energy-intensive industries,

writes Márton Nagy. He added that many companies are unable to compensate for mounting energy costs by raising prices for consumers. On the one hand, they can no longer implement such a price hike on the market and, on the other hand, they have to reckon with a diminishing demand. The numbers don't add up.

Portfolio has also put the spotlight on the issue earlier and came to the following conclusion:

• as long as energy costs rise by 10-20%, businesses will swallow the profit loss,
• when they goes up by 50-100%, some companies pass the cost of higher energy bills on to consumers by raising prices,
• if energy costs surge by 300-500%, then there's no reason why everyone shouldn't keep pushing the cost shock onto whoever they can,
• if there's a tenfold or twentyfold price increase, then more and more companies will become insolvent, they will not be able to make money, because they would have to offer their products and services at a price at which there would be no demand for them.

The autumn brings a new, more difficult situation for companies in two respects. Firstly, energy consumption is uneven over the course of a year, and from autumn onwards, the surge in consumption can put hotels, spas, offices and manufacturing plants out of business. This is already happening.

The other is that in the gas and electricity market, besides those who buy at the current price, there are plenty of customers on one- and two-year fixed-price contracts, which makes adaptation bumpy and the moment of truth comes when the contract expires. The gas year starts in October and the electricity year in January, so many companies will now be faced with the reality of how much energy prices have risen.

In his article, Márton Nagy also points out that European energy exchanges are not functioning well. Prices are rising with extreme volatility, exacerbated by the fact that the world's speculators are happy to get in on the chaos. They are helped by the fact that, with such high prices, liquidity has dried up and can now be influenced by buying or selling even small quantities. It would therefore be worth enhancing the supervision of energy exchanges to prevent excessive speculation. Monetary policy could also intervene, opening up new areas of intervention.

The European Central Bank could then enter the energy market to improve liquidity and intervene. Intervention in the energy market could also be carried out at European level by a financial fund financed by the central banks.

In an interview with InfoRadio on Wednesday, Nagy said that economic growth in Hungary will slow significantly, but there will be no recession. Maintaining the price caps is becoming increasingly expensive, so they will have to be phased out sooner or later, in his view. The EU should abandon its sanctions policy against Russia because it is causing energy prices to soar, he added. Nagy estimates that inflation will peak at 15-16% in November. He also said the government has not given up on buying more companies after buying Vodafone Hungary.

Highlights of the interview:

• The price freezes are good instruments if the price shocks are temporary, but not when they are permanent, said Nagy. The price caps are becoming more expensive to maintain, so the situation is becoming increasingly difficult. You have to approach the move from the point of view of inflation and sustainability - these are the criteria for deciding whether to phase out, he added.
• Sooner or later the price caps will have to be phased out because it is an anti-market move, the question is how quickly they can be abolished.
• In 2021, Hungary's net energy imports amounted to 4% of GDP, in 2022 it could be 8-10%. We are talking billions of euros. But the fall in consumption could reduce this share.
• The sanctions policy should be abandoned, because it is causing energy prices to skyrocket. The sanctions policy is flawed because Russia is earning extra revenue from high prices. These were ill-considered steps. In the case of oil, the sanctions are only now beginning to have an impact, and could also affect prices from the beginning of December.

Russia will stop supplying oil and petroleum products to the countries that support price caps on energy supplies from Russia, Deputy Prime Minister Alexander Novak warned on Thursday.