The Hungarian government has formulated plans to privatize the energy sector over the next three years:

•The government will sell 30 to 35 percent of MOL, the state oil and gas company, to strategic investors and reduce the state share to 25 percent plus one vote. The rest is to be sold off to institutional investors or left in the hands of local authorities and compensation funds. (MOL closed last year with an after-tax loss of 1.2 billion forints on its preliminary balance sheet, due to losses on the wholesale natural gas market and higher-than-expected mining royalties.)

•MVM, the state electricity company, is to sell off 50 percent minus one vote of its national distribution center, but will retain full control of the Paks nuclear plant and the national grid. The government also plans to sell 100 percent, less one golden share, of the regional electricity companies and the non-nuclear power stations (both of which are under MVM), with 50 percent plus one share going to strategic investors.

•The regional gas supply companies are also to be sold off almost completely (100 percent less one golden share), with 50 percent plus one share to go to strategic investors.

But two key questions will need to be answered before privatization starts:

Gas and electricity prices rose by over 50 percent at the beginning of this year, but it is estimated that a further rise of around 100 percent is needed to bring them to world levels and to cover production and modernization costs. The latest price rises were accompanied by a 9 billion forint (73 million dollar) compensation package, and current political debate suggests that the government will wish to see household prices remain low.

The power sector unions want the state to retain a majority holding in MVM, which would retain control over its subsidiaries (i.e., the regional electricity companies and non-nuclear power plants). This proposal would give foreign investors portfolio rather than controlling stakes and thus represents a radical departure from last year's plan. There are now two energy sector union leaders on the MVM supervisory board, raising fears that they may exert undue influence over the privatization process. The union leaders have been pressing for employment guarantees, shares for employees, and consultation rights with new owners after privatization.

The debate on the state's role in a partially privatized utility sector centers on such issues as control of Hungarian oil and gas fields; whether the state should keep a majority stake in Mineralimpex, the wholesale oil and gas trader, in order to regulate the wholesale markets; and whether or not Mineralimpex should be combined with the state oil and gas company.

Other unresolved issues include:

•When and in what order to sell off different parts of the highly monopolized energy sector.

•The percentage of shares to be set aside for employees or to be released for privatization coupon holders.

•The kind of capital injection that is needed.

•The criteria for determining the type of investor to be preferred (such as strategic or portfolio investors) and the rights that should be accorded investors.