This is why Orbán always wins: we explain Hungary’s unique utility price protection scheme

Political experts agree that the so-called utility price protection scheme is one of PM Orbán’s most effective innovations, contributing to his landslide victories in the general elections. But how does the system work, and how did Fidesz modify it last year, following the energy crisis?

PM Orbán’s most successful political product

Péter Magyari explained the system’s operation method in a detailed article on Válasz Online. He said when he tried to explain the system to a German MP, he could not understand what utility price reduction meant. When Mr Magyari told him that service providers and real estate managers must show consumers how much money they saved thanks to the system every month, he called that brilliant. But later, he added that such a system could not be feasible in Germany.

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Orbán’s Fidesz introduced the scheme in 2013, and it has become one of the most successful political products of the ruling party. The system helped the nationalisation of the Hungarian energy sector (Hungarian service providers should not rip off the consumers, Orbán stressed at that time) and Fidesz to win four consecutive supermajorities. The Hungarian opposition was speechless for once. They only came up with demands regarding the system’s expansion.

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Immense profits

The government reduced electricity, gas and water prices in 2013 and froze their costs at that level in November 2013, months before the 2014 general elections. The prices did not change until 2022. The system concerned everybody regardless of their income. In 2010, when the Socialist-Liberal government lost the elections, people spent 25% of their monthly expenditures on utilities. In 2013, that rate went below 20%. How was the system sustainable?

Thanks to the global energy price decrease. In 2016, 2017 and 2018, the Hungarian service providers bought electricity and gas cheaper on the market than the reduced price was. Thus, E.ON started an ads campaign saying they would give energy cheaper than the government-fixed price. As a result, the government attacked the German company, and they terminated the campaign. In 2017, European gas prices were so low that the state-owned MVM reaped an immense profit, which the government distributed as utility bonds in the 2018 parliamentary election campaign. In the first nine years, the state budget was in balance, concerning the utility price protection scheme.

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Utility price protection will remain ‘forever’

When energy prices started to skyrocket in mid-2021, the government realised they had to make the system more resilient and foolproof. Earlier, critics bashed the system arguing it hindered energy saving and related developments. Their effort was fruitless though as the government pledged the system would remain in effect forever. What further complicated the issue, service providers did not have the necessary resources for system development. This is the reason why it is so complicated to adjust your solar panels to the network in Hungary because it is outdated and cannot tolerate the extra load.

As a major plot twist, in 2022, the system collapsed. However, the government was not in a position to say goodbye to one of its most successful and profitable programmes. Therefore, they introduced a consumption limit for gas and electricity. Those consuming over a certain amount must pay domestic market prices, which happen to be above the global market prices. That meant a sevenfold and twofold price increase concerning gas and electricity. Even though prices decreased this year, the Orbán administration did not change the system because they want to regain the massive sums they lost last year. Moreover, they do not know how the prices will fluctuate.

There is only one segment where the government did not do any modification: district heating. The 650 thousand Hungarian households burn a lot of gas, but pay the same as in 2014 despite the energy price increase. That is because people living in the housing estates are the most important electorates for Fidesz.