Hungary drafting ban on dividend payments from utilities -minister

Reuters

* Legislation being prepared by Development Ministry

* Part of government drive to reduce household energy bills

* Government plans new round of energy price cuts next month

* Ruling party gears up for an election in April or May 2014

By Gergely Szakacs and Krisztina Than

BUDAPEST, Oct 9 (Reuters) - Hungary is drafting legislationto ban dividend payments from utilities, Development MinistryState Secretary Janos Fonagy said on Wednesday, as the rulingFidesz party tries to boost state influence in the energy sectorbefore a 2014 election.

Prime Minister Viktor Orban's government, which saysHungarians pay too much for energy bills relative to what theyearn, has already flagged legislation to transform utilitiesinto non-profit organisations.

Germany's E.ON and RWE, France's EDF and GDF Suez and Italy's Eni all ownsubstantial stakes in Hungarian utilities. The companies eitherdeclined or were not immediately available to comment.

Fonagy said on state television that services forming a"natural monopoly", such as gas, electricity, water and others"serving important public interest" should come mostly undercentral or local government ownership on a non-profit basis.

"The profit generated as a result of decent corporateactivity could not be extracted as dividend, but rather, itshould be reinvested into the operation, maintenance and, veryimportantly, improvement of the service," he said.

The European Commission has declined comment on recentchanges in the utilities sector in Hungary but said it wasmonitoring developments in all affected EU member states.

"The Commission will continue to insist on phase-outtimetables for regulated prices being part of Member States'structural reforms," the Commission's office in Budapest said.

"Furthermore the Commission will continue to promotemarket-based price formation in retail markets, includingthrough infringement cases against those Member Statesmaintaining price regulation that is not meeting the conditionslaid down by EU law," it said in an emailed response to Reuters.

Orban, whose government has already imposed a 10-percent cutin household power bills from January and plans new reductionsnext month, has said his administration was in talks to buy out6 or 7 major utilities.

Orban, who says he has saved Hungary from financialcollapse, is still battling to lift it out of a protractedperiod of economic weakness, and his interventionist policieshave often scared investors.

Eric Depluet, the head of E.ON's Hungarian unit, hasrejected the government's rhetoric against banks and utilities.

"We have come here not to colonise, but because we had beeninvited, and we took on business risk and made seriousinvestments," he said last week.

The Hungarian state has already bought E.ON's natural gastrade and storage units via state-owned MVM as well as a51-percent stake in gas storage company MMBF from MOL.

MVM has said the transaction would give Hungary a greatersay in energy prices. MVM also said it would seek to renegotiatea long-term gas import contract with Russia's Gazprom,which supplies most of import-reliant Hungary's gas needs.

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