Energy Market Actors
Starting in 1991, Hungary restructured, liberalised and privatised its energy sector. Today, the country’s energy industry is mainly privately owned.
Electricity market
Structure of power sector
Transmission
MVM (Hungarian Electricity Board) the former public monopoly, preserved the ownership of the transmission network as well as the only nuclear plant in the country. MVM is responsible for the imports and exports of electricity and plays the role of single buyer in the Hungarian electricity system. MVM has been restructured in a public company with commercial activities.
The sector is composed of 15 companies of production and 6 regional companies of distribution: EDF Demasz, Elmu, Emasz and E.ON Dél-dunántúli-, Észak-dunántúli-, és Tiszántúli Áramszolgáltató Zrt. (Southern Transdanubian-, Northern Transdanubian-, and Tiszántúli Electricity Supply Company Ltd.). The majorities are held completely or partly by foreign companies.
[HEO]
Production
The production is dominated by MVM (29% of the installed capacity), followed by Electrabel (19 %), AES (14 %), RWE (10%), Atel (since 1 Feb 2010 called Alpiq) (4%), EdF (5%) and others under 5% share in the market (20%) (2007).
The American Xcel (NRG Energy group) which purchased in 2001 Csepel (390 MW gas turbine power generating station and a 116 MW thermal power station for supplying district heating to Budapest Alpiq and Metso - two thermal power plants of 390 MW and 190 MW) PowerGen; sold in September 2002 its Hungarian participations to the Swiss electrician Alpiq. AES owns the majority of the production of the Tiszai Power plant Ltd. (99.98%). Powerfin-Tractebel has 74% of the capital of Dunamenti Power plant Ltd., the largest company of production with a total capacity of more than 2220 MW. This partnership is expected to develop still further with an investment of US$ 1bn to increase is capacity by 1,200 MW.
RWE and EnBw own the power plant of Matrai with a capacity of 950 MW (it has 884 MW from lignite and 66 MW gas-fired power generation units).
In December 2001 EDF bought (95.58%), from the shares of Fortum (45.39%) and Tomen Corporation (34%), the cogeneration plant (BERt) in Budapest. BERt has a capacity of 413 MWe and 1336 MWth: it covers 60% of the heating needs of Budapest. EDF invested 30 billion HUF (123 million EUR) in the new power plant Ujpest (cogeneration – with a capacity of 110 MWe) and signed an agreement to invest 30 billion HUF (123 million EUR) in the project Kispest of BERt (cogeneration plant – with a capacity of 110 MWe).
In February 2007 Pannonpower Holding Ltd. was sold to Dalkia Energy Ltd. (99.94% ownership). Only three companies of production are still public (MVM gas turbine plantsVertesi, Bakonyi),. Their total installed capacity accounts for 750 MW. Other than these the nuclear power plant in Paks is also state owned.
[MVM, Enerdata, Mátrai Erőmű Zrt., Pannonpower Ltd.]
Distribution network companies
In Hungary, one TSO (MAVIR Zrt.) and six distribution companies (DSOs) were in operation in 2009.
Each of the six distribution companies operating in Hungary are owned by professional foreign investors. Three of them are owned by E.ON, two of them are owned by RWE-EnBW, and one of them is in the ownership of EdF. On 1 January 2009, the share of German investors in the ownership of the six distribution companies was 81.6% and that of French investors was 18.4%.
There were no significant legal changes in the responsibilities of the distribution network licensees. The only modification that took place was the completion of the enforcement decree of the Electricity Act with a new regulation on the transformation or translocation of connection devices and connection point, as well as the public network and its frame.
[HEO - Annual Report 2009]
Transmission system operator
Until 31 December 2005, MAVIR Zrt. was owned by the state, and had purely a system operation license. Following this, from 1 January 2006 until 31 December 2007, it had both a system operation and a transmission network license for being a subsidiary of the MVM Holding (as such, it was also the owner of transmission network assets). These two licenses were replaced by one single Transmission System Operation license on 1 January 2008 on the basis of the Electricity Act.
[HEO - Annual Report 2009]
Status of restructuring, privatisation and deregulation
New Electricity Act
The new Electricity Act was passed by the Parliament in 2007. Taking into account Directives 2003/54/EC and 2003/55/EC, as well as 2009/72/EC and 2009/73/EC of the European Parliament and the European Council, its tasks is opening the market in the electricity industry.
The new regulation simplifies the licensing activity and makes it possible to implement power plant projects on market base. An important change was that the new Act partly eliminated the regulated price of electricity sold between producers and traders, between traders and eligible consumers.
The electricity market was characterized by a dual model until the end of 2007. This means that a public utility and a free market segment were working parallel. Since 2008, the dual model has ceased to exist and a competitive market model has taken its place. In the latter model, the competition can be restricted only in the interest of the protection of vulnerable consumers, or with a view to prevent the abuse of market power. Customers and traders can purchase, and producers can sell electricity under free market conditions, except for the co-generated electricity and the electricity generated from renewable energy sources. This electricity is not for free market sales but to be compulsorily bought by the transmission system operator at a supported price as specified in the Electricity Act (KÁT balance circle), then allocated among electricity traders supplying end users in the proportion of the electricity quantities they sell to end users. The feed-in obligation scheme is regulated by the Government Decree 389/2007 (23.12) on Feed-in Obligation and Price of the Electricity Generated from Renewable Sources or Waste, or Cogenerated Electricity enforcing the provisions of the Electricity Act.
In 2008, a new era started in the price regulation of electricity supply with the ceasing of public utility supply and the introduction of universal service. For customers not entitled for universal service (large, non-residential customers) can buy electricity only from competitive market traders at a price evolved on the base of demand and supply of the market. (In 2009, there were 4 large and approximately 20 small electricity trading licensees.) Small customers – unless they entered free market – could continue buying electricity in the framework of universal service i.e. at a price monitored by authority even in 2009.
[HEO - Annual Report 2009]
Status of deregulation
The energy market was a regulated market from 1994 until the end of 2002. After that it had gradually started opening up. From 1 January 2003 the liberalization of the electricity market, then from 1 January 2004 the liberalization of the natural gas market started. At the beginning only the large industrial customers, and from 1 July 2004 all non-residential customers could enter the competitive market.
In 2008, the operation of the domestic electricity market was very different from what was usual in the previous years. The legal changes of 2007 pertaining to the electricity market, which switched the former public utility system to the scheme of universal service with a more moderate authority control, and a narrower circle of affected customers, came into force in 2008. The narrowing of the circle of customers entitled for universal service relative to the circle of customers entitled for public utility supply resulted in the fact that several medium and small customers were obliged to enter the free market in 2008. Therefore the share of the consumers circle falling under the authority of the administrative pricing (before 2008 those entitled for public utility supply, since 2008 those entitled for universal service) decreased from 80% to 36% of the total consumption. The above detailed changes in the retail market had only a moderate influence on the operation of the wholesale market. Due to the stiffness of the contractual relationships, including the intactness of the long term power purchase agreements (PPAs) of MVM concluded with the domestic power plants and its import contracts in particular, the dominance of MVM on the wholesale market has not changed. The majority (approximately 70%) of the electricity required to satisfy the domestic demand reached the suppliers and the traders supplying the customers through the MVM group. In 2009, the operation of the Hungarian electricity market was determined by the demand decreasing effect of the crisis and the transformation at the end of 2008.
The key responsibilities of HEO have been since its foundation licensing and surveillance of regulation of the activities of network energy companies, consumer protection and the preparation of administrative prices of electricity and natural gas as well as approval of price applications.
[HEO - Annual Report 2009]
Oil and gas market
Oil
The Hungarian Oil Company (MOL) is the national oil company whose activities go from exploration-production to refining and distribution. It results from the regrouping of the oil activities of the national former oil and gas company, OKGT (Orszages Koolaj es Gazipari Troszt). The capital of MOL is currently distributed between international institutional investors (79%), national institutional investors (21%).
[MOL]
Through acquisition of 25% plus one share, MOL has become INA’s strategic partner and INA has become part of an integrated regional partnership in the oil and gas industry consisting of MOL, INA, Slovnaft and TVK.
MOL gained management control and commenced the full consolidation of INA in mid-2009. INA and MOL are jointly evaluating the international upstream business opportunities for possible future cooperation on international projects. By diversifying risk and combining the financial and human resources, both companies will improve operations and efficiency.
In 2006, MOL acquired 98.4% of Slovnaft, the refining company of Slovakia.
[MOL, INA]
Gas
In accordance with the new 2009/73/EC Directive of European Parliament and Council concerning common rules for the internal market in natural gas and the new 2009/715/EC Gas Regulation concerning the conditions for access to gas transmission networks were published on 13 July 2009. The provisions of the Regulation came into force on 3 September 2009, while the provisions of the Directive have to be implemented from 3 March 2011.
The Gas Act came fully into force on 1 July 2009. The new act ceased the dual model and public utility supply by this date. The public utility segment has been replaced – similarly to the electricity sector – by universal service to supply small customers in the form of a new licensee.
2009 saw a significant increase in the number of customers entering free market, although the definition also changed on 1 July. The number of users leaving universal service grew to 137 532 (including 2 527 non-household and 135 005 household customers – 786 in 2008) by the end of the year. The number of licensed free market traders was 31 at the end of 2009. The share of competitive market in the annual total natural gas consumption amounted to 48.2% (29.8% was in 2008).
Public utility will fully cease by 30 June 2011. The obligation of the non-household customers’ entering free market is gradually enforced during the one-year transitory period. In the transitory period, the following users are also entitled for universal service:
- users with capacity exceeding 20 m3/hour but below 100 m3/hour, until 30 June 2010 and
- users having district heat production specified in a separate act, until 30 June 2011.
[HEO]
MOL is again an active participant in the gas storage business via MMBF Ltd., generating stable, euro denominated cash-flow on long term and strengthening the security of supply in Hungary.
With the primer goal to ensure the security of gas supply, MMBF Gas Storage Ltd. – 72.5% subsidiary of MOL – developed the underground gas storage facility with strategic mobile capacity of 1.2 bcm and commercial mobile capacity of 0.7 bcm. The strategic storage facility, in line with legal provisions, has a daily withdrawal peak capacity of 20 mcm over a period of 45 days and an additional 5 mcm/day peak for the commercial part. The gas storage facility functions through the active reservoir of Szoreg-1.
The turn-key contractor and operator of the development was MOL. The development has been accomplished according to schedule: the construction of the strategic capacities has been finalized and the 1.2 bcm strategic mobile gas stock has been injected by the end of 2009, according to Act XXVI/ 2006 on strategic stockpiling of natural gas. Consequently the 30-year contract for strategic gas storage came into effect. Commercial capacities have also been fully booked for 10 years starting from 1 April 2010. Both activities provide stable, euro denominated return for MOL Group.
MOL signed an 8-year, EUR 200 million loan agreement with EBRD (European Bank for Reconstruction and Development) in June 2009 to finance the completion of the strategic and commercial gas storage facility.
MOL is taking part in the Nabucco project as 16.66% owner, in cooperation with Botas, Bulgarian Energy Holding, OMV, RWE and Transgaz. The aim of the project is to eventually transport 31 bcm natural gas per annum from the Caspian and Middle-Eastern region to Europe on a 3.300 km long pipeline.
The project gained a considerable new momentum when on 13 July the Intergovernmental Agreement (IGA) was signed by the governments of the Nabucco transit countries of Austria, Hungary, Romania, Bulgaria and Turkey. Hungary started the ratification process of the agreement in October
2009, which was eventually completed by Turkey in March 2010. Application for EUR 200 million funding dedicated for Nabucco International from the European Economic Recovery Plan was filed and was awarded in March 2010 by the Comission. In 2009 the local engineering companies started the front end engineering design work in all countries.
The commencement of pipeline operations is expected to be 2014. Nabucco will lead to more efficient and secure regional gas market and additional value generation for MOL Group taking into consideration the Pearl project in Iraq as a potential upstream source.
MOL and Gazprom Export have jointly elaborated a project structure to establish an underground gas storage facility in Hungary, via a 50-50% joint venture. The parties have established Pusztafoldvar Gas Storage Ltd. in December 2009.
Coal and lignit market
The reform of the coal sector remains very dependent on that of electricity, since most of the coal is used in the production of electricity. The government decided to privatise the most profitable mines (80% of the mines) by selling them with the electricity power stations which they supplied. The least profitable mines were transferred to three regional public companies (Coal Reserve Utilisation Companies), the purpose of which is to organise their progressive closure The foreign trade is with the hands of Lignimpex, public company whose monopoly was abolished.
[Enerdata]
