Lessons from the restructuring of the Hungarian electricity industry

Restructuring the monopolistic, state-owned, obsolete, and polluting utility industries of post-socialist economies poses a challenging ground for the utility deregulation wave travelling around the world. Utility restructuring in the region of Central and Eastern Europe (CEE) is unique from several perspectives, including the domination of foreign capital vs. national resources as the only feasible vehicle towards a drastic change in the industry; and the ambitious goals of harmonization with EU liberalization schedule to accelerate accession. It is also widely expected that deregulation will help bringing down world-record high energy intensities in these economies. Hungary has been the pioneer among economies in transition to unbundle, deregulate and privatize the utility industries and to make the first steps towards EU conform market liberalization within less than half a decade. The first stages of privatization and restructuring have been declared a success story in Western media. However, what is a success story from the perspective of foreign may be viewed differently from other viewpoints. The paper describes the process of the utility restructuring in Hungary, and examines its impacts from the economic, environmental and policy perspectives. The paper also gives an outlook to the CEE region, comparing the pathway of the pioneer Hungarian deregulation to that of the following countries in the region to restructure their energy sectors. However, the lessons to be learned from the Hungarian electricity industry restructuring are not only vital for other economies in transition in the line for utility deregulation, but are often universally applicable.