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Feb 20, 2016

Reducing Utility Prices

“Take the reduction of household utility bills. It had been universally accepted that there can be no such thing: household utility bills cannot be reduced, they can only be increased. We said that this is not impossible, we would do it – and we did it.” Prime Minister Viktor Orbán, January 14, 2016

In 2010, Hungarians paid some of the highest prices in Europe for utilities thanks to a lack of domestic energy resources as well as energy monopolies. In order to ease the financial burden on Hungarian families, the government undertook a gradual cut in public utility costs.  By the end of 2014, Hungarian families were paying 25 percent less for energy than in 2010. 

Back then, cutting household energy prices by 25 percent was regarded as unsustainable, but the critics were wrong. Not only are the reductions sustainable, but additional cuts for households and businesses will become possible in the future.

Today, according to Eurostat, the nominal prices of both gas and electricity in Hungary are now among the least expensive in the European Union. Electricity is cheaper only in Bulgaria, whereas Romanians pay the least for gas. In 2014, EU households paid 2.9 percent more on average for electricity compared to the previous year. Whereas in France, the bills went up by 10 percent and in Hungary they fell by 9.9 percent.

The policy to reduce utility costs figures as an important point in the Orbán Government’s overall energy strategy since 2010. The strategy calls for reducing energy dependency, diversifying energy sources and buying back de-nationalized energy producers and retailers that were sold off prematurely in the 1990s. The First National Public Utility Service Provider was set up in 2015 and supplies low-cost gas, electricity and district heating.

Under private, foreign ownership, the energy producers and retailers sought high profits and drove up prices. Returning these companies to state ownership helped control prices and passed along savings to consumers and businesses who benefit from lower energy prices, bolstering domestic consumption and household savings. These cuts in public utility prices have improved household economic confidence, contributed to job creation, reduced costs for Hungarian companies and made the country more competitive by attracting foreign direct investment.

In addition to improving competitiveness, lowering energy prices has also helped keep inflation near zero since January 2015. In 2015, consumer prices shrank 1.4 percent on average compared to the previous year.