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Hungary seeks to push MVM expansion in central Europe

While Hungary's government seeks to support MVM's expansion to central European energy markets in a bid to gain a "competitive edge", some says the move could easily undermine the country's fight to cut public debt.

Hungary plans to expand MVM, the state-controlled electricity wholesaler, to increase the country’s influence in central European energy markets, reported Bloomberg quoting János Lázár, head of the ruling Fidesz party’s parliamentary group.

The government gained a “competitive edge” when it became the biggest shareholder in MOL, which controls refineries in Croatia, Italy and Slovakia, as well as at home, and MVM can serve as a vehicle to expand that influence and even compete with international companies, Lázár said in an interview in Budapest.

Hungarian Prime Minister Viktor Orbán’s government has said the acquisition of the MOL stake from OAO Surgutneftegas was the first step in expanding state holdings in strategic industries.

The government plans to help MVM expand in the natural gas market, Development Minister Tamás Fellegi said on June 14. MVM had assets of HUF 876 billion ($4.6 billion) and net income of HUF 22 billion in 2010, according to the company’s website.

MVM has offered €800 million ($1.1 billion) for E.ON AG’s Hungarian gas unit, Vilaggazdaság reported on June 29, without saying where it got the information. The offer hasn’t been accepted “for now” as Germany’s biggest utility demanded €1.2 billion for the unit, which includes gas wholesale, import contracts and underground storage, the newspaper said.

Hungary’s drive to snap up stakes in strategic industries may undermine its ability to cut public debt, Raffaella Tenconi, a London-based economist at Bank of America Merrill Lynch, said in a July 12 note. Its debt ratio is the highest in the eastern European Union at 77% of gross domestic product.

“Evidence is accumulating suggesting that the public debt reduction plan will prove much less than forecast, leaving Hungary more exposed to external vulnerability and failing to safely anchor the sovereign credit rating in investment grade territory,” Bloomberg quoted Tenconi as saying.

MVM plans to support a government goal of curbing Hungary’s energy dependency and improving security, the company’s Chairman and Chief Executive Officer Csaba Baji said.