EFET mulling intervention over 'extreme' Hungarian power trading fee

19 April 2018 15:04 Source:ICIS

ICIS (LONDON)--Europe’s largest energy traders association is considering reopening negotiations with Hungary over a power trading fee that the traders’ body sees as a barrier to new entrants.

“Complete abolition of the fee would be the ideal solution,” European Federation of Energy Traders (EFET) policy associate Sandra Milardovic said. “We are considering restarting negotiations on that.”

The licensing fee has hit local and foreign electricity traders in Hungary for years. Hungarian Energy and Public Utility Regulatory Authority (MEKH) introduced the fee, also known as the regulatory fee, way back in 2007. Under the Hungarian Electricity Act, energy companies trading on the country’s wholesale power market are required to pay 0.06% of the value of all their sales excluding VAT.

This means the tax, which is unique to Hungary among European countries, is paid on revenue, not profit.

Even if an energy company has just entered the Hungarian market, an initial advance must still be paid for 0.06% of the expected annual revenue, according to Hungarian law.

The requirement is still binding even if an electricity trader generates a loss, added an industry source familiar with the matter.


Disproportionate

Alongside EFET, regional traders have also expressed concern that the tariff hits limited license holders trading in Hungary disproportionately.

Limited license holders are traders that do not deliver electricity to end users. Generators and speculative traders are disproportionately hit due to the fee being charged against revenue, not profit. So each time a company is on the sell side of a transaction, it has to pay.

Peter Vandrus, CEO of V-Energy which advises energy traders about Hungarian regulatory issues, said the real problem with the MEKH regulatory fee started in 2010 when the Electricity Act was amended and limited licences were introduced. The fee was then amended in 2012, rising to today’s 0.06% while also accounting for the introduction of limited licenses.

Vandrus suggested a “high-way sticker” style fee could bring some relief to market participants while retaining the government’s income. This would be a more unified fee for limited licence holders which is not based on revenue:

“It could be set, for example, as the average of the regulatory fees paid ... in the previous year,” Vandrus said.

A more equitable way of meeting the charge could resolve the long-contested licensing fee debate, by preventing spiralling expenses for energy companies trading in Hungary.

Despite there already being proposals on the table for how the debate could potentially be resolved, only the main body concerned – MEKH – appears unwilling to compromise in light of the market’s concerns.

MEKH said only that the fee was originally introduced, and still exists, to cover its costs.

Barrier to entry?

Hungary is Europe’s fifth most liquid over-the-counter power market. The most concerning element of the levy for market participants is that, as the Hungarian market grows and liquidity grows, the market as a whole will naturally see combined revenue grow.

This means companies trading in Hungary are subject to a gradually increasing fee linked to increasing revenues, but this does not necessarily mean increasing profit.

EFET is convinced that the fee imposed on traders is and will continue to be a barrier for potential new market entrants, and Vandrus backs this point.

The extra costs for firms can range from €10,000 to €300,000 annually according to one regional trader.

But “it can be even more,” added another trader, who described the contested fee as “a take it or leave it situation”.

“The compliant is legitimate. The regulation fee is disproportionate and extreme,” he said.

But the Hungarian wholesale power market – the benchmark for the southeast European region – can be so attractive due to its relatively high liquidity that energy companies compromise and “swallow” the additional cost. “All these complainants will go silent in the end,” he said. zsuzsanna.szabo@icis.com


By Zsuzsanna Szabo