Hungarian Government Scraps Price Cap On Fuels As Shortage Worsens

Hungary's government scrapped a price cap on fuels on Tuesday after a lack of imports and panic buying led to fuel shortages across the country in the past days that oil and gas group MOL said created a "critical situation."

Prime Minister Viktor Orban's chief of staff told a briefing late Tuesday the government had to abolish the price cap, which was introduced a year ago, at MOL's recommendation immediately. The price cap was set to expire at the end of December.

"We could not wait any longer... as this is the only way to ensure security of supply," Gergely Gulyas told a joint briefing with MOL Chairman and chief executive Zsolt Hernadi.

Gulyas said the ending of the price cap will boost inflation but did not give an estimate. Hungary's annual inflation is already running above 21%.

MOL said earlier on Tuesday that the only solution to alleviate the serious fuel shortage was to create the conditions for increased imports, as MOL was not able to import any more products, while its Danube refinery was still undergoing maintenance and running at 50-55% capacity.

Foreign players have cut fuel shipments to Hungary since the government capped the price of petrol and diesel at 480 forints ($1.22) per litre a year ago, as part of Orban's measures to shield households in the run-up to parliamentary elections in April 2022, which his party won with a landslide.

In July, the government had to narrow the scope of eligibility, and since then the fuel price cap has applied to drivers of privately owned vehicles, farm vehicles and taxis.

"About a quarter of our filling stations have run completely out of stock," Hernadi said. He said it would take up to two months to restore imports, and stability. But the scrapping of the price cap would help alleviate the shortage on the market within a few days, he said.

The price of petrol will rise to about 640 forints per litre, while the price of diesel will be 699 forints.

Hernadi said MOL had also started ramping up crude oil processing at its Danube refinery. He also said MOL had to prepare for February when an EU ban on Russian oil product imports will lead to lower diesel supply in Europe.

($1 = 392.2900 forints)

(Reporting by Krisztina Than; Editing by Mark Porter and Lincoln Feast.)