Commission Report 2002 (Hungary)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 14: Energy

Progress since the last Regular Report

Since last year`s Regular Report, Hungary has made progress in preparing for accession in the field of energy, although alignment with the acquis in both the electricity and gas sector has been slower than originally envisaged. However, a major positive development is the adoption of the Electricity Act as an important step towards integrating Hungary into the internal EU electricity market.

With regard to security of supply, Hungary adopted new legislation on security stockpiling of imported crude oil and petroleum products in 2001. The modified provisions will partly enter into force in 2002 and partly at the time of Hungary`s accession to the EU.

As regards the issues of competitiveness and the internal energy market, the most important development of the reporting period was the adoption of the Electricity Act in December 2001. The Electricity Act aims to align Hungary`s legislation with the acquis and constitutes an important development in the energy sector. It provides for a minimum opening of 33% of the market by the beginning of 2003, corresponding to approximately 200 eligible customers. Customers with an annual consumption exceeding 6.5 GWh can select their electricity providers for 50% of their needs. This limitation, as well as a limitation related to electricity imports, will remain in place until accession. However, certain provisions of the new law - especially those related to the status and independence of the Hungarian Energy Office, which is the market regulator, and those of the independent system operator MAVIR Rt. - already entered into force in February 2002. The Electricity Act also provides for regulated third party access to the grid, for the unbundling of activities and for establishing new capacity through an authorisation procedure.

No progress was made in the gas sector, where alignment with the acquis has not yet been completed. However, a new system of gas price regulation took effect in July 2002.

With respect to solid fuels, the share of coal in energy supply declined from about 27% in 1998 to about 16% in 2001. In addition, the Government closed a further two mines in the reporting period.

Responsibility for energy policy lies with the recently established Ministry of Economic Affairs and Transport, where a separate Directorate-General deals with energy policy. Within this Directorate-General, a separate division is responsible for energy regulatory matters. The Ministry regulates the prices for electricity and for natural gas, with annual tariff schemes being adjusted in January for electricity and in July for gas. The Energy Directorate-General of the Ministry of Economic Affairs and Transport and the Hungarian Energy Office currently share the regulatory tasks concerning electricity, gas, quality of public services and consumer protection. New institutional functions were delegated to the Hungarian Energy Office (HEO), including the monitoring of trade and foreign trade to ensure that the level of services within the electricity and gas industries is not impaired by the liberalisation process.

The HEO is an agency of the state administration with independent responsibilities and jurisdiction on a national level, controlled by the Government and supervised by the Minister of Economic Affairs and Transport. The new legislation further strengthened the functional and financial independence of the HEO. Its main responsibilities are licensing, price regulation and consumer protection. Its president is appointed for a period of six years, during which he/she can only be removed under strict conditions. Furthermore, its financial independence is ensured by the fact that the Office covers its operating costs from licensing duties.

At present the Hungarian Energy Office has a staff of 88, as compared to 83 in 2001. In 2001, the HEO issued 112 resolutions, 50% of which were related to the supply of electricity. The Energy Interest Reconciliation Council, which is a tri-partite consultative body embracing the regulator, the consumers and the suppliers of the industry, meets on a regular basis to discuss problematic issues.

As regards energy efficiency and renewable energy, alignment with the acquis was continued in the reporting period by the adoption of additional legislation on the energy labelling of a number of household products. Furthermore, an energy efficiency programme was introduced in 2001 with the main objectives of promoting the use of renewable energy sources and improving public energy awareness. The original amount of HUF 2.5 billion (EUR 9.7 million), foreseen for the implementation of the programme in 2002, has recently been doubled to meet the increased demand. In 2001, some 4612 applicants received direct subsidies of HUF 3.8 billion (EUR 14.8 million) for energy efficiency projects within the framework of the Széchenyi Plan. The total share of renewable energy in the energy balance is 3.6%. The aim of the Hungarian government within the framework of the Hungarian Energy Conservation Programme and Action Plan is to reach a share of renewable energy consumption of at least 6% by 2010.

The main administrative body in this area is the Energy Centre, which deals with energy efficiency, renewable energy, environmental protection, labelling and energy statistics. The staff of the Centre was considerably increased in 2002 from 20 to 65 (40 permanent staff and 25 contracted staff).

In the field of nuclear energy, Hungary operates one nuclear power plant located at Paks. There are four VVER 440/213 type units in operation.

As regards nuclear safety, Hungary has made progress in the strengthening of the independence of the regulatory body. However, the amendments to the relevant legislation have not yet been adopted by Parliament. With regard to the specific recommendation in the June 2001 Council Report on Nuclear Safety in the Context of Enlargement that Hungary complete the regulatory assessment of the bubbler condenser containment function under design basis accidents, Hungary, together with the Czech Republic and Slovakia, is financing a set of additional experiments to support this review. The evaluation of the results is due to be presented by December 2002 to all three regulatory authorities. As regards the Council Report`s recommendation for Hungary to complete, within the legal framework, the strengthening of the independence of the Hungarian National Atomic Energy Authority (HAEA) from the promotion of energy of nuclear facilities, no progress has been made during the reporting period.

Overall assessment

With regard to security of supply, current levels of oil stocks exceed EC requirements. The strategic oil stocks are held and managed by the Association of Crude Oil and Oil Products Stockpiling.

As regards the internal energy market, with the exception of the internal gas market, the legislative framework is in place. The adoption of the new Electricity Act, which is an important step towards alignment with the Electricity Directive, needs, however, to be followed up with appropriate implementing legislation. In the field of electricity, the legislative framework for the internal market is thus now in place, including the mechanism for efficient regulation in this area.

The rapid adoption of the Gas Act, which is delayed in Parliament, is, together with the adoption of implementing legislation, required to bring Hungarian legislation gradually into line with EC requirements.

Further efforts are needed to improve energy efficiency and to encourage the use of renewable energy. The adoption of the energy efficiency programme is a significant step in the right direction. The programme should be fully implemented.

As for administrative capacity, the regulatory functions are in place, notably the Hungarian Energy Office, and seem, for the time being, appropriate both in terms of staffing and organisational independence. However, a further strengthening of the office might be needed in the future, given the increased obligations and responsibilities deriving from the liberalisation of the gas and electricity markets. In addition, the Energy Centre is well placed and has, after the considerable increase in staff in 2002, sufficient administrative capacity to carry out the promotional activities on energy efficiency and renewable energy.

The European Union has repeatedly emphasised the importance of a high level of nuclear safety in candidate countries. In June 2001 the Council of the European Union took note of a Report on Nuclear Safety in the Context of Enlargement. This Report contains recommendations to all candidate countries to continue their national safety improvement programmes, including the safe management of spent fuel and radioactive waste and the safety of their research reactors.

During the first half of 2002, a special Peer Review on nuclear safety assessed the progress made by candidate countries in implementing all recommendations. This exercise under the auspices of the Council resulted in a Status Report, published in June 2002, which concludes that Hungary has accepted and addressed all the recommendations contained in the Report on Nuclear Safety in the Context of Enlargement of June 2001. Most recommendations have been adequately addressed. With regard to one specific recommendation concerning completion of the full verification of the containment bubbler-condenser systems for the Paks NPP units 1-4, Hungary has indicated adequate measures, but the Status Report emphasises that Hungary is expected to ensure that they are implemented.

As regards administrative capacity, the Hungarian National Atomic Energy Authority (HAEA) seems, for the time being, to have sufficient staff available. It exercises its functions as the competent regulatory authority and maintains a register on nuclear and radioactive material. However, its independence from the promotion of nuclear energy facilities still needs to be strengthened.

Long-term solutions for spent fuel and nuclear waste will continue to need attention.

Hungary will need to ensure compliance with Euratom requirements and procedures. In this respect, due attention must be given to preparing for the implementation of Euratom Safeguards, in particular regarding the reporting of nuclear material flows and inventories directly by the persons or undertakings operating nuclear installations or storing nuclear material. It should be noted that Hungary has concluded a Full Scope Safeguards Agreement with the IAEA.

Conclusion

In its 1997 Opinion, the Commission concluded that, provided efforts were maintained, Hungary should be in a position to comply with most of the then existing EC energy legislation in the next few years. It added, however, that matters such as the adjustment of monopolies, access to networks, energy pricing, state interventions in the solid fuels and uranium sectors, and the development of energy efficiency needed to be closely followed. The Commission further pointed out that, although no major difficulties were foreseen regarding compliance with Euratom provisions, nuclear safety standards should be tackled appropriately in order to bring the nuclear power plant to the safety level required. It further stated that longer-term solutions for waste would need attention.

Since the Opinion, steady progress has been made, notably with regard to the internal energy market, particularly the electricity sector, the promotion of renewable energy, nuclear issues, and the gradual development of administrative capacity. The preparations for the internal gas market have not proceeded as quickly as foreseen. Overall, Hungary has achieved a good level of alignment with EC requirements in this sector, with regard to both legal transposition and administrative capacities.

Negotiations on this chapter have been provisionally closed. Hungary has not requested any transitional arrangements in this chapter. Hungary is meeting the majority of the commitments it has made in the accession negotiations in this field. However, delays have occurred as regards the adoption of the Gas Act. This issue needs to be urgently addressed. Delays in the Electricity Act, the adoption of which was foreseen for the end of 2000, have been made up; the Act was adopted in December 2001.

In order to complete preparations for membership, Hungary's efforts now need to focus on ensuring full and timely implementation of legislation in this area, in particular with regard to the internal energy market (notably gas), on the improvement of energy efficiency and on maintaining the administrative capacity in the sector, in particular the Hungarian Energy Office, the Energy Centre and the National Atomic Energy Authority.

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