Hungary to scrap energy price caps for high usage households

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BUDAPEST, July 21 (Reuters) – Hungary will scrap caps on gas and power prices for higher-usage households from Aug. 1, the government said in a decree on Thursday, which means many Hungarians will pay much more for the extra energy they consume.

The measures, flagged last week, will help the government plug holes in the budget after the price caps that have been in pace for almost a decade put an heavy burden on state finances as global energy prices have rocketed higher. 

The price caps helped nationalist Prime Minister Viktor Orban secure re-election in 2014 and had been a key plank of his election campaign in April when he won a fourth consecutive term in office.

Under the decree, households will be eligible for the current capped power price on electricity usage up to 2,523 KWh per year, but will pay about double that for power consumed above that, although the government said that would still be below the market price.

For gas, the annual usage limit for price caps is 1,729 cubic metres per year, above which a price close to market prices applies, bringing a seven-fold increase in prices.

Gas supplies to Europe have tightened and fuel costs have soared since Russia’s invasion of Ukraine in February and Western sanctions imposed on Moscow in response, leaving countries scrambling to refill storage and find other supplies.

That has added to pressure on Orban, who is facing his toughest challenge since taking power in 2010, with inflation at a two-decade high, the forint currency near record lows and European Union funds on hold in a dispute over democratic standards.

Under a 15-year deal with Russian energy giant Gazprom GAZP.MM signed last year, Hungary receives 3.5 billion cubic metres (bcm) of gas per year via Bulgaria and Serbia, and a further 1 bcm via a pipeline from Austria.

Foreign Minister Peter Szijjarto said earlier that Budapest was in talks to buy more gas on the global market before the heating season.

(Reporting by Krisztina Than; Editing by Edmund Blair)

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