Power Sector Reform In Hungary

Abstract:

It is a well known fact that there are certain sectors in the economy, which are not profitable. In such cases the government takes on the responsibilities of these sectors. Given below is a detailed description of the economy of Hungary before as well as after the power sector reform in Hungary. The various stages through which the country had to pass through has also been highlighted.

With regard to energy usage, the Power sector in Hungary has undergone three stages in the last couple of years. The details and characteristics of the three stages are mentioned below.

Characteristics of the Hungarian power sector prior to power sector reform in Hungary: First stage(prior to 1990): This phase was characterized by extensive use of energy. There was positive growth in the GDP by approximately 1%. During this stage, considerable attention was given to the industries, which were energy intensive. The cost of energy was also low as well as subsidized.

Second stage (1990 to 1993):

As part of the power sector reform in Hungary, the government embraced market based procedures. There was also a switch over to a market economy. A very important segment of the economy declined dramatically. The segment comprised the downfall of:

Aluminum industry

Iron and steel industry

Mining sector

Heavy chemical industry

As a result of the downfall, there was a decrease in the gross domestic product by 15%. Primary energy usage also went down by 25 percent.

Third stage (1993 to 2001):

There was marked recession in the economy during this period. The gross domestic product was an all time low. After the country attained this status, the government started reforming as well as restructuring the economy.

As part of the power sector reform in Hungary, the manufacturing sector enjoyed the first breeze of privatization. This took place in the early nineties. Power sector reform in Hungary also introduced the Competition Law. The Electricity And Gas Acts were launched in the year 1994. Implementation of the above reforms healed the gap between the power sector in the country and the directives propounded by the European Union. In other words, Hungary was able to abide by the norms set by the EU or the European Union.

During the process of transformation to an economy, which is market oriented from a centrally managed economy was evident from the indicators, which implied the space of the transformation.

The private sector contributed approximately 80% of the gross domestic product by the year 1998.

There was small scale as well as large scale privatization in the country.

Corporate governance was made more stringent. Efforts were also made so that corporate governance is better implemented.

There was price liberalization in Hungary.

Majority of the tariff barriers were lifted. Trade as well as foreign exchange norms were revamped.