Hungary badly needs to secure more electricity. But despite recent deals in the Balkans, the country’s state energy company MVM has neither the nous nor the money to fulfil its regional dreams.
In mid-June, Hungarian Prime Minister Viktor Orban and his Serbian counterpart Ana Brnabic looked on as their respective presidents, Katalin Novak and Aleksandar Vucic, opened another chapter in the era of ever-closer ties between the two nations. In this case, Hungarian state-owned energy giant MVM Group and Serbian natural gas company Srbijagas had agreed on a deal to set up a trading firm that would jointly sell gas on the Serbian market. A memorandum of understanding was also signed over the construction of a Serbian-Hungarian oil pipeline, which will have an annual capacity of 5.5 million tonnes per year.
Orban and Vucic hailed the burgeoning bilateral relations. “Serbia is the key to the Balkans, and Hungary is the gateway to Central Europe – we are facing fantastic opportunities,” Orban gushed.
In Orban’s terms, this implies not just politics, but profitable business ties. In his “State of the Nation” address back in 2019, the nationalist-populist leader set out a new course for Hungarian companies in the Balkan region.
“A historic task awaits our successful entrepreneurs: they must create investments outside Hungary, whose profits will enable us to counterbalance the profits which are taken out of Hungary,” he said. “This is a truly national mission and a huge task which will take us at least ten years to realise.”
Although Hungarian-listed companies like OTP Group (banking), MOL Group (energy) and Richter Pharma have long been active in the Balkans, it is the fully state-owned MVM that is regarded as Orban’s key arm extending into the region. Perhaps part of the reason for that is it best symbolises the prime minister’s economic credo: state ownership and centralisation. However, there are more prosaic reasons why Hungary’s second-biggest company is so important to the Fidesz government in Budapest.
The problem is that Hungary urgently needs to secure more electricity to keep its economy growing. The two new blocks of the Paks nuclear power plant that are being built by Russia’s Rosatom are far behind schedule and may never even be built due to the war and sanctions. Meanwhile, the government is busy establishing Hungary as a European powerhouse for battery production – a highly energy-intensive industry.
“If Hungary had good relations with all its neighbours, for example with Romania or Ukraine, that have large electricity surpluses, we could easily import all the energy we need. But unfortunately, that is not the case,” Jozsef Turai, an independent energy expert in Hungary, tells BIRN.
That leaves the acquisition of generating assets in the surrounding region, a mission that MVM is doing its best to fulfil. Yet most experts doubt whether this company can live up to Orban’s expectations for several reasons.
Hungarian President Katalin Novak (front L) and Serbian President Aleksandar Vucic (front R) sign an agreement after a meeting of the Hungary-Serbia Strategic Cooperation Council in Palic, Serbia, 20 June 2023, as Hungarian PM Viktor Orban (back L) and Serbian PM Ana Brnabic (back R) look on. EPA-EFE/Noemi Bruzak
‘Pseudo-energy diplomacy’
Once primarily an electricity company, MVM has systematically bought up energy rivals in Hungary and is now the sole provider of gas as well as electricity to households and most of the country’s industry. It owns the existing nuclear power plant at Paks, Hungary’s main electricity producer, and the second biggest lignite-fuelled power plant in the north of the country.
On its website, the company proclaims the present-day structure “represents the all-time most complex MVM”, yet critics say the company is now so complex that it is practically untransparent, with a portfolio ranging from production and storage to trade and distribution, both in gas and electricity.
The company did not respond to BIRN’s enquiries.
Before the war in Ukraine broke out, it all looked very promising for MVM. In 2020, benefitting from the withdrawal of Germany’s E.ON from the region, MVM took over Innogy’s entire electricity and gas retail business in the Czech Republic.
“We are especially proud that MVM has become the new owner of Innogy in the Czech Republic,” MVM’s former CEO, Gyorgy Kobor, commented after the deal was signed.
Kobor added that the acquisition was fully in line with MVM’s regional expansion strategy to turn the company into a leading energy player across the Central and Eastern European region.
Yet Romania is so far the only country in the region where MVM has managed to invest in energy production; since 2015, the company has operated some small hydroelectric power plants in Transylvania’s Uz Valley.
Other deals fizzled out. MVM had its eye on CEZ’s seven Romanian businesses when the Czech state-controlled company decided to sell up, but no deal was finalised. The Hungarian company also ran into political resistance in Slovakia in 2021, when it wanted to acquire a minority share (49 per cent) of Slovak power company Stredoslovenska Energetika (SSE).
Later that year, Kobor was dismissed from his post and political control over the company was stepped up.
Since Russia’s invasion of neighbouring Ukraine, the company’s prospects have only worsened.
MVM’s finances were severely shaken by the soaring energy prices in 2022, and in December the government had to inject 41 billion forints (108 million dollars) into the company to help stabilise it. This extra cash was needed to cover the skyrocketing gas prices while also keeping a cap on household utility prices – a key plank of government policy designed to woo voters.
The company’s regional ambitions, fostered by the government, are likely to be further hampered by these financial restraints. And with few allies in the region, Hungary has increasingly had to turn to Serbia as a focus of its attention.
“The only neighbour Orban can talk to is Serbia. [But] I am afraid we need them more than they need us, especially if we consider the forced re-industrialisation of the Hungarian economy and the massive investment in lithium-ion battery plants,” Turai believes.
Slow progress
Tamas Pletser, a well-known energy expert and oil and gas equity analyst at Erste Investment in Budapest, holds out hope for the planned joint venture, to be called SERBHUNGAS.
“Hungary and Serbia get their natural gas through the Turkish Stream [pipeline], which has a capacity of 16 billion cubic metres, but only 10 billion cm is currently used,” Pletser tells BIRN. “The rest could be sold elsewhere in the region.”
But Turai and others are critical of the planned Serbian-Hungarian oil pipeline deal signed between Serbia’s Transnafta and Hungary’s MOL, saying it is unlikely to do much to diversify supply sources and routes for either country.
Then there is the disparity between what is said at the highest levels and what happens in practical terms on the ground.
“Serbia and Hungary have a close political relationship, even in energy-related topics. You can have great dinners with the Serbs, you can sign a bunch of letters of intent, even in energy cooperation, but so far there has been very little achieved on the ground,” Turai notes. “I would call it pseudo-energy diplomacy – political support is strong, but in practice, there is soft resistance on the Serbian side.”
Anna Orosz, a regional expert at the Hungarian Institute of International Affairs, tells BIRN that while political relations are truly strong between Orban and Vucic, which is a clear boost to trade relations, negotiations at a company level are much slower.
“I seriously do not think the Serbs would relinquish control of any major assets or hand over management rights in any strategic company,” she says.
MVM has made some progress in Serbia, but experts see no major deals. In 2022, it bought 33.4 per cent of two subsidiaries of the energy infrastructure company Maneks Group, Energotehnika-Juzna Backa and Elektromontaza. That deal was hailed as an opportunity for MVM to gradually increase its presence in Serbia and the Western Balkans.
However, as energy expert Turai points out: “There is not much money involved here. Some engineering know-how, but this is not a breakthrough.”
Earlier in May, a media leak about MVM reportedly buying Serbia’s 11 hydropower plants caused a political uproar in Serbia. It turned out that the supervisory board of state-owned Elektroprivreda Srbije (EPS) had rejected an offer put on the table. Serbia’s Energy Ministry was not critical of the deal, but the acting director of EPS at that time, Miroslav Tomasevic, was against it, the media reported.
According to the reports, MVM proposed the creation of a joint venture, owned 50-50 by each side. The Hungarian partner would invest 600 million euros, while EPS would set aside roughly 360 megawatts of capacity from its hydroelectric power plants and some land for the construction of new plants. Tomasevic was removed from his post just a month later.
BIRN contacted MVM to discuss the reported negotiations but received no response.
Hungarian experts express scepticism that there is any deal to be done here. “These are the gems of Serbia’s electricity industry, it would be political suicide for anybody to sell those to a foreign investor,” Erste’s Pletser believes. “Some of these hydropower plants indeed need massive refurbishment, but MVM does not have the money nor the engineering know-how for that.”
Regional energy expert Turai agrees: “I would be very surprised if Serbia sold any of those hydroelectric plants. Why would they? The Western Balkans is much better off in renewables, including hydropower, than Hungary. We have not built any hydroelectric plants in the last 30 years.”, Balkan Insights reports.
