How Hungarian companies are affected by the Ukrainian crisis

Hungary imports fossil fuels worth EUR 8 billion from Russia annually. That accounts for 80% of Russian imports to Hungary. Besides the sheer size of that figure, the fact that the Russian partner enjoys a practically monopolistic situation represents a particular problem. If Russia drops out, Hungary cannot easily replace its energy in the short run, and the country may experience power shortages.

Gas

Aleksey Miller, CEO of Russia’s giant gas corporation Gazprom, says the company will stop gas export into and across Ukraine on June 1 because of disputes over Ukraine’s unpaid gas bills. The trans-Ukrainian Urengoy-Pomary-Uzhgorod pipeline is called Brotherhood (Bratstvo). Through it, Russia provides gas to the entire Central European region from Slovakia through Austria to Southern Germany. If Brotherhood is shut down, the gas supply to Hungary will stop entirely. Hungary consumes eight million cubic meters of natural gas annually. Some 80% of that arrives from Russia through Brotherhood. As Ukraine has access to the pipe as well, the quantity of gas that travels across the country is impossible to separate from the amount of gas that is consumed inside it. That means the only way Russia can prevent Ukraine from receiving gas is by blocking gas transmission across Ukraine altogether.

Crude oil

On May 5 this year, Russian oil company Transneft stopped crude oil transport through the Friendship (Druzhba) oil pipeline, which also carries crude oil to Hungary. Igor Dyomin, spokesman for the Russian monopoly, denied that stopping the crude oil transport has anything to do with the Ukrainian crisis. “Our company is carrying out maintenance and conservation works at the moment,” Dyomin told Reuters news agency. When the BBJ put the question to Hungarian gas and oil giant MOL, it denied that Transneft’s decision endangers the supply of oil products to Hungary. “The MOL group acquires raw materials necessary for its refineries from four different sources, which ensures the security as well as the continuity of the supply. 

Stock market jitters

According to the quarterly report of OTP Group, the corporation achieved HUF 5.8 bln in revenue after taxation in early 2014, which is 48% less than in the same period last year. According to OTP’ report, the drop is due to the subsidiary banks’ decreasing profit contributions. “Our Ukrainian subsidiary’s 2014 Q1 loss was HUF 7.5 bln, which, projected onto the whole year, might amount to HUF 20 bln. OTP’s management expects the Russian-Ukrainian conflict to be solved within a relatively short time. Ukraine will then step on the road to consolidation. In case it does not, and the situation escalates,” so the report goes, “it could seriously jeopardize the profitability of the whole group.” OTP has already been forced to close down its Crimean branches in Sebastopol, Symferopol, and Kerch.

-- This is an extract from BBJ print. For the full article see the print version.