The government is progressively backing out of administrative price controls

HUNGARY - In Brief 01 Aug 2022 by Istvan Racz

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On July 30, the government reduced eligibility to administratively controlled low-price motor fuels to cars operated by households, agricultural vehicles and cabs, excluding from eligibility all cars owned or operated by legal entities. The measure was enforced with immediate effect. Simultaneously, the extraordinary tax imposed newly, as part of this year's fiscal adjustment measures, on the energy sector - essentially a tax on MOL, the only remaining fuel wholesaler - was raised from 25% of the Urals-Brent price difference (currently $32/barrel of crude oil) to 40%. The immediate reason for the measure was a supply problem. Under the administratively fixed retail price regime, about 75% of all fuels had been sold at two-thirds of the wholesale price derived from international market prices and the USDHUF exchange rate. The loss on retail sales is to be covered by wholesalers. MOL, by far the biggest wholesaler, can recover its losses by buying large quantities of currently cheap Russian oil, but other wholesalers, like OMV and Shell could not do so, and so they scaled back their local activities drastically. MOL cannot serve the whole economy alone, and now its only big local refinery needs to be shut down temporarily for summer maintenance. Retail sales are at a seasonal peak because of summer tourism, and the lack of supply at gas stations has become an immediate danger as a result. MOL and the government will have to import more expensive fuels, refined from non-Russian oil, to ease the problem. In addition, the new measure is believed to lead to reduced fuel consumption. Based on initial estimates, the new measure will reduce the share of retail sales under the a...