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EU tells Hungary to end long-term power deals

The European Commission has told Hungary to end long-term power purchase agreements for electricity, saying they constitute unlawful state aid to power generators.

The purchase agreements should be terminated by the end of this year and Hungary must recover the aid granted to the firms since the country's EU accession in 2004, a statement from the EU executive said on Wednesday. “The phasing out of long-term purchase agreements is a crucial step in the liberalization of the electricity market in Hungary,” Competition Commissioner Neelie Kroes said in a statement. “The termination of very similar agreements in Poland in April this year has already led to lower electricity prices,” she said. “I hope that the advantages of genuine competition both for competitors and for consumers will become apparent on the Hungarian market as rapidly as they have in Poland.”

Around two thirds of the electricity generated in Hungary is sold under long-term power purchase agreements to the state-owned national power wholesaler MVM Zrt (MVM). The Commission concluded that such agreements can restrict competition because they close off a significant part of the market from new entrants. The statement said power purchase agreements concluded between MVM and 10 power generators between 1995 and 2001 “have been conferring unlawful and incompatible state aid to these generators”. (Reuters)