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Government declares state of energy emergency

Hungary's government has declared a state of energy emergency and has approved seven measures that will include limiting the price caps on gas and electricity to average consumption levels from August 1, the prime minister's chief of staff said on Wednesday.

The protracted war in Ukraine and the sanctions imposed on Russia by the European Union have led to a dramatic increase in energy prices across Europe, causing an energy crisis in a large part of the continent, Gergely Gulyas told a regular press briefing.

It has also become clear in the recent months that as things stand, Europe will most likely not have enough gas for the autumn and winter heating season, he said.

Therefore, in the interest of protecting Hungarian families and the economy’s energy supply, the government has followed the example of several other European countries and has declared a state of energy emergency, Gulyas said. It has also approved a plan of seven measures that will enter into effect in August, he added.

Gulyas said the measures would ensure that the country has enough energy in the winter and that the scheme to cap utility bills can remain in place.

Detailing the government’s seven-point plan, he said domestic gas production will be increased from an annual 1.5 billion to 2 billion cubic metres. Citing a ministry report, he said the extraction of gas fields could be increased further. Gas prices are high enough that it is even worth using more expensive technologies in gas extraction, he added.

The government has also mandated the minister of foreign affairs and trade to procure more gas, Gulyas said. Hungary’s natural gas storage facilities are currently 44 percent full, which is enough for three months, he said, adding that the aim was to have as much gas available as possible.

As part of the measures, the government is also introducing an export ban for energy, including firewood, Gulyas said.

Also, lignite extraction will be stepped up and the blocks at the coal-fired Matra power plant will be restarted, he said. The government will also initiate extending the lifespan of the Paks nuclear power plant, he added.

Meanwhile, he said a blanket cap on electricity and gas prices was “simply unaffordable in the current wartime energy crisis”. The utility price cap scheme will therefore be limited to average consumption levels from August 1. Those who consume more energy than the average will have to pay the market price, he explained.

Average monthly electricity consumption in Hungary is 210 kWh, while an average household consumes 144 cubic meters of gas a month, Gulyas said. Three quarters of households will not be affected by the change because their consumption is below the average level, he said, adding that market prices will only apply to consumption over the average for the remaining one quarter of households as well.

Szilard Nemeth, the government commissioner in charge of the utility price cap scheme, said large families will continue pay the reduced gas prices, but a consumption limit for the caps will remain in place. Going forward the consumption threshold for the reduced gas price for a family with three children will rise to 2,329 cubic metres a year from 1,729 cubic metres, he said. The threshold increases by 300 cubic metres for every additional child, he added.

The government’s new measure and the utility protection fund aim to ensure that the utility price cap scheme can remain in place, Nemeth said.

He said that under the scheme, an average consumer’s monthly electricity bill comes to 7,750 (EUR 19) forints, which would be 50,833 forints without the utility price cap. Meanwhile, the average monthly gas bill totals 15,833 forints rather than 131,441 forints thanks to the scheme, he said.

The scheme saves consumers 158,691 forints a month, Nemeth said.

Answering a question, Gulyas said the government would do everything in its capacity to ensure the necessary energy supplies for families and the economy in the winter. This requires uninterrupted deliveries to the country and that its storage facilities are as full as possible, he said. The government has a contingency plan should gas deliveries be halted altogether, he said, but added that deliveries were continuous at present.

He added that the government was not planning to change its decision under which the cap on fuel prices would stay in effect until October 1.

Answering another question, Gulyas said Hungary could meet its climate goals of reducing carbon emissions by 2030 even if it increased coal mining.

Asked if the government was planning to assist those heating their homes with wood, he said the ban on firewood exports served this purpose. He said the government would survey the country’s firewood stocks and prepare a programme to promote wood heating.

Gulyas also said Hungary would “not have any obligations” should an acute energy crisis set in in Europe. “But we will be ready to help anyone as long as Hungarian families and the Hungarian economy are safe,” he added.

Meanwhile, Gulyas said the government was in the position to buy energy at “very high” prices and “if somebody can pay for that, they can do as they like”.

On the subject of recent changes to the rules of the small business tax (kata), Gulyas said the government had eliminated an opportunity for taxpayers to “bypass the original aim” of the kata system. Gulyas said that the kata tax, introduced in 2012, was aimed at offering a flat tax to small local service providers. Ninety percent of the first 100,000 kata taxpayers were such entrepreneurs, but now two-thirds of kata payers receive income from companies rather than being employed, he insisted. Gulyas called it “unacceptable” that while people in the kata system paid a flat tax of 50,000 forints (EUR 122) a month, a hospital nurse paid a monthly 184,000 forints in taxes. He insisted that the changes had not been aimed to improve the central budget but to eliminate discrepancies between the amounts paid by taxpayers. He also said changes in future tax revenues would depend on what form of taxation payers quitting the kata system would choose. All options will involve a higher tax burden than kata, he said, but they will “still pay less than a teacher or nurse”, he said.

Asked about a potential agreement on EU post-pandemic recovery funds, Gulyas said the government observes the country’s laws, adding that according to parliament’s house rules, the government has the right to initiate fast-tracked legislation four times in a parliamentary session.

Meanwhile, Gulyas said the EU and the government both wanted wage hikes in the health-care and education sectors, which was why the government considered it harmful that “the left and their international allies want to prevent Hungary” from receiving the EU funds it is entitled to.

Concerning a fresh draft report by the European Parliament’s civil liberties committee criticising Hungary, Gulyas said it was the EP that was “deliberately undermining European values” and that Hungary had been “at the receiving end of a smear campaign for an extended period of time”.

The rule of law report theoretically cannot be used to block the agreement on the recovery monies, but “in reality because the issue is a political one, there’s no way to know”, Gulyas said. He said Hungary’s recovery plan and operative programmes complied with the EU’s requirements.

As regards border protection, Gulyas said the government has decided to set up “border hunter” units, adding that hopefully the first units would be ready to serve from September.

Asked about Ukraine’s decision to recall its ambassador to Hungary, Gulyas said Hungary will not comment on who is appointed or recalled by other states. Hungary, at the same time, welcomes seeing representatives in Budapest who consider the government a partner rather than an enemy, he added.

Gulyas said the EU’s decision to grant Ukraine candidate status while requiring that it must respect national minority rights was a testament to the success of Hungarian diplomacy.

Meanwhile, Gulyas said the government will soon receive a report on the state of geothermal energy.

Nemeth said several studies had been compiled on geothermal energy, but up until now it had been considered too expensive. That has now changed due to soaring gas and electricity prices, he added.

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