Orban flags tap of ‘extra profits’ after Hungary scraps fuel price cap

By Gergely Szakacs and Krisztina Than

BUDAPEST (Reuters) -Hungary’s government will take away “extra profits” reaped from higher petrol prices, Prime Minister Viktor Orban said on Facebook on Wednesday, a day after his government scrapped a fuel price cap amid a shortage of supplies.

Lower crude imports via the Druzhba oil pipeline from Russia, extended maintenance work at oil group MOL’s Danube refinery and surging fuel demand forced Orban to abandon the year-long cap just before the start of the holiday season.

Orban, a vocal critic of ‘Brussels bureaucrats’, blamed the fiasco on EU sanctions on Russian crude. MOL, Hungary’s main oil and gas group, has said the price cap was unsustainable as major players stopped importing fuel due to low prices, aggravating the shortage.

“In the past days, the oil sanctions of Brussels took effect and what we had been afraid of, has actually happened. From now on there are sanctions prices on petrol across entire Europe,” Orban said on Facebook, adding the government will “take away the extra profits generated by this” and redirect them to the state budget.

Orban did not specifically name MOL but website Index.hu reported that the government could sharply increase an existing windfall tax on oil firms at a meeting on Wednesday.

Re-elected for a fourth straight term in an April landslide, nationalist Orban is facing his toughest economic challenge to date, with inflation running above 20%, the economy headed for stagnation and the forint currency down 10% versus the euro this year.

Central bank Governor Gyorgy Matolcsy warned Orban in unusually blunt terms on Monday to scrap all caps on fuel, various foods and interest rates, saying the economy was in a precarious state, with inflation still on the rise.

MOL, where third-quarter net profit more than doubled to 262.1 billion forints ($672.59 million), has paid a 40% special tax on the Brent-Ural spread since the end of July.

At 1218 GMT, its shares traded 1.8% lower, reversing earlier gains of around 3% after the fuel price cap was ditched overnight.

With Orban’s government still haggling with the EU over rule-of-law conditions attached to billions of euros worth of recovery funds, the central bank is burning through its international reserves to ease pressure on the forint from Hungary’s rising energy import bills.

Eurasia Group’s Mujtaba Rahman noted that worries over the dispute with Brussels pushed the currency to an all-time low in October.

“Failure to make a deal stick would surely push the Forint even beyond this previous low, with a resultant negative impact on inflation given Hungary’s dependence on imported gas, oil and other raw materials,” he said.

($1 = 389.6900 forints)

(Reporting by Krisztina Than and Gergely Szakacs; Editing by Toby Chopra, Kirsten Donovan)