BUDAPEST TELEGRAPH    •   02.03.2015

Why Hungarian-Russian relations are front-page news

Russian President Vladimir Putin"s visit to Budapest has demonstrated that Moscow still has friends in the European Union. The Russians are looking for fresh markets for their high tech products. In exchange they seem to be ready to buy more farm produce from Hungary. Russia and Hungary won"t sign a new agreement on the Russian export of natural gas because in the next few years even under the present accord Hungary can access the unused quota. 

Vladimir Putin’s visit on Tuesday, February 17, has once again attracted international political attention to Hungary, and the visit’s positive and negative aspects are keenly analyzed. Russia and Hungary have totally different interpretations of the visit. For Hungary the visit was about energy security because, now that the South Stream appears to be dead and events in Ukraine are unpredictable, in the short run Hungary is facing serious energy-related risks. What if Russia halts supplying gas via Ukraine? Gazprom’s CEO, Alexey Miller predicts that scenario in four years’ time. If push comes to shove, Hungary could buy some Russian gas from its Western allies, but that could only occur via the pipelines that are or will be used to supply gas for Ukraine.

After the talks Hungarian Prime Minister Viktor Orbán told the press that although, legally speaking, the gas agreement is expiring this year, it can be used as a framework for further supplies. Back in 1996 the two countries agreed that Hungary would access 10 billion cubic meters of gas annually. But by now Hungary’s annual consumption of natural gas has plummeted to less than 6 billion cubic meters per year, which means there’s a massive amount of gas that it hasn’t accessed. Orbán told the press that Hungary had been allowed by Russia to access that amount in forthcoming years.

Experts put the unused amount to 17 billion cubic meters, so it can suffice for Hungary roughly for three years. So far there has been no talk in public of the crucial issue of price. Presently, the price of gas is determined on the basis of that of oil. That formula is rather unfavorable for Hungary. Some observers suppose that Orbán and Putin have agreed on Hungary buying the remaining quota of gas at a preferential price. All Orbán has said of that question in public is that Hungary won’t have to pay for it until after actually accessing it. In plain English that might mean that the price will be adjusted to the market price of the day. It appears that Putin and Orbán didn’t agree about the details of the gas deal in Budapest. However, Putin has briefly told the press that a more intensive utilization of gas storage facilities in Hungary will be a part of the deal.

 

For Hungary it would be unfavorable to have a long-term contract in which pricing is based on a relatively rigid formula as the fall of oil prices has made gas tariffs unpredictable. If flexible supply and pricing terms become reality, that could herald a shift in Moscow’s relevant strategy. As the Russian daily Nezavisimaya Gazeta puts it, it can mean fully replacing Ukraine with Turkey as a transit country and relying on the planned Turkish Stream pipeline.

In recent decades Russia has used gas exports for exerting an influence on its customers: a country that got along with Russia well got gas cheaper and under better terms.

The gas storage facilities are a part of that picture. Hungary has the biggest gas storage facilities in east-central Europe and is a member of the European Union. Small wonder, Gazprom would be delighted to get access to them. In 2014 the huge Russian firm pumped 700 million cubic meters of gas into them in a pilot project. That by the way is good news for Hungary, especially if supplies via Ukraine dry up before the capacity of pipelines transporting Russian gas from Turkey are sufficiently expanded.

Commenting on Putin’s visit to Budapest for RIA Novosti Russian news agency, Yuriy Ushakov, an advisor to Putin, spoke of the Turkish Stream rather than TANAP (the Trans Anatolian Natural Gas Pipeline) indicating that without Russian gas, the Turkish Stream project couldn’t become a major factor in Europe’s gas supply.

Whichever scenario takes shape, there might be a critical gap of up to four years for Hungary when it cannot expect gas from Ukraine anymore and no supplies from Turkey yet.

In December 2014 Rosatom of Russia and MVM Paks 2 Nuclear Power Plant Development Private Limited Company signed three agreements that augmented the Russian–Hungarian framework agreement dated February 14, 2014. The three documents refer to the construction of two new reactors, the supply of their equipment and fuel rods, and the storage of depleted uranium–gadolinium fuel. Russia is to grant a credit line of about EUR 10 billion for Hungary for the Paks 2 scheme, and Russia sells Hungary fuel elements worth about USD 80 million yearly.

 

Ganz Engineering and Energy Machine-Building Limited Liability Company, in which Rosatom holds a stake of 51 percent, produces fuel cassettes (cells), machinery that moves them and hydraulic pumps to be used in power plants. Ganz Engineering sells those products to Russia in the value of USD 100 million yearly. Besides, during his talks in Budapest Putin spoke at length of how favorable Paks 2 is for Hungary.

The way the Russians look at it, Putin’s visit to Budapest is important both business-wise and in demonstrating that Putin is not an outcast in Europe, that is to say, there is a country that is a member of both the European Union and NATO that is ready to receive him. The other day Russian political scientist Sergey Mikheyev, who is close to Putin, has told this weekly that the visit is to demonstrate “Moscow’s respect for Hungary’s independent stance.”

Moscow looks for new markets

This weekly has learned from circles close to Putin’s delegation that during the talks in Budapest the issues included both traditional Hungarian–Russian topics like retrofitting wagons of Line 3 of the Budapest subway, the debt of Malév, Hungary’s now-defunct air line, the Paks nuclear power plant and gas supplies, and new fields of cooperation that the Russian side proposed. By recommending additional fields for cooperation, Russia is, on the one hand, recognizing Hungary’s relatively independent position within the Western alliance and, on the other, seeking fresh resources in order to compensate for the consequences of the Western embargo on technological products. An example can be the Russian machine-tool industry that badly needs innovation. Such cooperation obviously has some very sensitive aspects that affect the joint Western policy of sanctions, so Hungary must think twice before making decisions about it.

The Kremlin is worried because the level of its foreign exchange reserves is going down and fast at that, so Russia is looking for new markets because it cannot give up on Europe – its most important trading partner. The European Union accounts for about 42 percent of Russia’s external trade. The package of recommendations that Putin’s delegation brought to Budapest includes the offer that Russia would supply to Hungary high tech, turn-key, thermal and electricity power plants of minor size that would burn both solid waste of communal and industrial origin and bio waste. That proposal has been made by the prestigious Design Bureau Aviadvigatel, whose portfolio includes the engines of the strategic transport aircraft Il-76. Besides, an Il-76MD military transporter had airlifted Putin’s bulletproof limousine to Budapest airport before the visit. Aviadvigatel and its partner, the Machine-Building Factory of Perm, are members of a major Russian matériel conglomerate: ODK, the United Engine Corporation.

GARD-Hajbulla company of Bashkortostan [at the Ural Mountains] would like to use Hungary as a gateway to markets of the European Union by supplying high-tech, controllable, mobile aerosol systems that can be used in crop protection. During the talks in Budapest it was offered by the Russians that as early as from the first half of 2015, such aerosol generators, which can be mounted on trucks, could be assembled in and then exported from Hungary. The package would include both the export of such units and offering services using such units in Hungary and elsewhere in the European Union. Promekologiya company, also of Bashkortostan, would like to obtain Hungarian attestation for Russian-developed and Russian-manufactured energy-efficient burners. In fact the relevant agreement appears to have already been concluded with Tüki company of Miskolc, Hungary. Malév airline’s debt, an issue that has been dragging on for years, is now broached because of Russia’s squeeze of foreign exchange. Russia says Hungary’s debt amounts to EUR 126.5 million. A source has informed this weekly that Moscow is keen on reaching an agreement about Malév.

 Exporting farm produce sub rosa

Hungary’s farm exports are a sensitive issue because that sector has been hit the hardest by the European Union’s policy of sanctions and the Russian countermeasures. The European Union compensation fund only covers a fraction of Hungary’s losses. That is why Moscow’s compromise offer attracted keen attention in Budapest. Moscow would be ready to ease for Hungary the Russian countermeasures that were introduced on August 7, 2014. The Hungarian agricultural producers could thereby re-introduce their commodities to the Russian markets in the same quantity as before the embargo. The sources of this weekly say that the greater part of the proposed bilateral measures are meant to be “interpersonal,” that is to say, they wouldn’t be communicated for the general public. Besides, the details of the agreements on the Paks nuclear power plant are also to get even more classified than before.

Statistics of the Russian customs authority say that between January and November 2014 the embargo hit the hardest the Hungarian meat and meat product supplies. Compared to the corresponding period of 2013, they fell by 74 percent in volume, and their value decreased from USD 81 million to USD 21 million. The Hungarian canned meat and canned fish products have lost nearly half of their markets in Russia. By contrast, the export of canned Hungarian vegetables and fruit only decreased by 9.4 percent. Unofficial Russian sources indicate that a part of the Hungarian agricultural exports reached Russia by making a detour, that is, via third markets.

Source: Figyelő

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