Hungary extends fuel price cap

Wednesday, February 16, 2022

On Saturday, Prime Minister Viktor Orbán announced a three-month extension of a price cap on standard motor fuels in Hungary. The cap came in to effect on November 15 and would have ended on Sunday. The government hopes to undercut inflation and help the economy with this move, but does not indemnify petrol stations for their losses. A general election is scheduled for April 3, for which all opposition parties currently in Parliament but one have united to beat the ruling Fidesz-KDNP alliance, which is now in its twelfth year in tenure.

Fuel prices before and after the price cap initiation at a MOL petrol station in Szeged, Hungary. (Image: Xbspiro)

Orbán announced the extension in his annual speech, claiming "the 'price-stop' proved to be effective in this case too, so we will extend it for an additional three months." ((hu))Hungarian language: ‍Az árstop itt is bevált, ezért három, további három hónappal meghosszabbítjuk. The official gazette, Magyar Közlöny, published the corresponding government resolution No. 39/2022 a day later. A week earlier, deputy finance minister András Tállai said to news agency MTI that tax authority checks on over 2000 fuel stations had found no recurring price cap violations but 12 violators were fined a total of HUF3.2 million (USD10140). "The stations are operating in line with the rules set, which is reflected by the fact no recurring violations have occurred in the past three months." ((hu))Hungarian language: ‍A kutak azonban betartják a szabályokat, ezt igazolja többek között az is, hogy ismételt jogsértés az elmúlt csaknem három hónapban nem történt., Tállai added.

Orbán said "we have the fifth lowest fuel price [in the European Union]. We pay 480 [Hungarian] forints [per liter, but] without the 'price-stop' we would pay well over 500 forints." ((hu))Hungarian language: ‍Az üzemanyag ára nálunk az ötödik legalacsonyabb. Ma 480 forintot fizetünk, árstop nélkül jóval 500 forint felett járnánk. Price-aggregator site put uncapped prices to HUF512 for gasoline, and HUF530 for diesel, and reported that wholesale prices have exceeded consumer prices since February 4. Based on the price aggregator's data, reported three stations had closed permanently in the first week of February because of the price cap. By law, the government can appoint new operators for closed stations.

On November 10 the government had decided to introduce the HUF480 (USD1.52) price cap, and then briefed the press about it the next day. The official gazette published the related act, government resolution No. 624/2021, on the day of the announcement. The follow-up resolution No. 626/2021, published on November 13, detailed the procedure. The cap applies to unleaded 95 and standard diesel, and does not cover liquefied petroleum gas (LPG) or premium fuels, but stations have to sell premium fuels at this price, if they do not sell standard ones.

File photo of Prime Minister Viktor Orbán (Image: Presidential Press Office, Russia)

In effect, the losses are incurred by petrol stations as they cannot negotiate wholesale prices. During the November 11 press briefing, Minister of the Prime Minister's Office Gergely Gulyás said they do not plan to compensate for these losses, but added "vendors cannot be forced to vend" ((hu))Hungarian language: ‍kereskedőt kereskedelemre kötelezni nem lehet. The following day, the Hungarian Petroleum Association's secretary general Ottó Grád told ATV that owners of small, independent stations may think about closing. In contrast to the press briefing, the detailed resolution dictates that petrol stations cannot close temporarily or shorten their opening hours.

The government does not plan to reduce tax rates on fuel. The oil bulletin of the European Commission showed last week that out of the total consumer price in Hungary, 47% is tax for unleaded 95, and 45% is tax for standard diesel.

Cumulative data for 2021 by the Hungarian Petroleum Association shows that volume-wise unleaded 95 makes up for 79% of all gasoline, and standard diesel makes up for 88% of all diesel sales in the country. Between 2020 and 2021, year-on-year consumer prices for November 8 went up from HUF332 to 506 for unleaded 95, and from HUF341 to 517 for standard diesel, according to price-comparison site reported that the worsening HUF-USD exchange rates caused prices to climb even in July, when crude oil prices were dropping.

The Hungarian Central Statistical Office reported inflation hit 7.9% in January. In his speech announcing the extension, Prime Minister Orbán claimed the fuel price cap lowered inflation by 0.5%.