A series of direct negotiations between representatives of the Hungarian Government and those of Surgutneftegas, a Russian oil company, has been concluded with an agreement on the fate of a 21.2% MOL share package held by the company.

In the wake of intense discussions performed in rapid succession, it has been decided that the Government wishes to repurchase the entire package. This measure is the first, and internationally significant, step towards a governmental strategy aimed at increasing the weight of the State’s participation. The acquisition of an ownership share in a successful national energy company that is also a market leader in Central and Eastern Europe will increase public property, stabilise the regional and the domestic energy market, and add to the safety of energy supply in Hungary and abroad. The agreement also marks the removal of a serious barrier to further development in Hungarian-Russian bilateral relations.

Over the past few weeks, representatives of the Hungarian Government and those of Surgutneftegas, a Russian oil company had a series of direct discussions on the fate of a 21.2% MOL share package held by the company. The negotiations have led to an agreement between the parties, pursuant to which the Hungarian State will purchase the entire MOL package from the Russian company. Under a sale and purchase agreement, the Hungarian State will pay EUR 1.88 billion to the Russian company, which corresponds to the average share price recorded during the last three months prior to the price agreement. During the conclusion of the deal, the market price of a share was 10% higher than this. The most recent equity analyses have set the average target price at around HUF 26,700; which is roughly the same as the one set in the analyses published during the price agreement, and corresponds to a purchase price of around EUR 2.3 billion.

The Hungarian Government will finance the share purchase from the previously drawn down IMF loan. As a result, the deal will have no direct impact on Hungary’s public debt or the level of the budget deficit. The transaction will become an actual legal obligation through the relevant amendment of the Budget Act and an affirmative resolution adopted by Parliament and required by the high amount of funds involved. If Parliament approves the deal, a state-owned company or institution - to be appointed at a later date - will have to conclude the sale and purchase contract by 31 August 2011 at the latest.

In line with its election promises and programme, ever since its creation the Government has been consistently striving to restore or strengthen the role of the State as an owner in the companies of the various sectors of strategic importance in the national economy. A high profile target is to enhance the independence and increase public property in a manner to have direct economic and financial implications, which bears special relevance to the energy sector, because the safety of energy supply and reduction in the region’s energy dependence are not merely economic, but also national security and foreign policy priorities.

Dragged political instability in North Africa, a region which has an important role in energy supply to Europe, has unequivocally proved the vulnerability of the energy markets and countries relying on energy imports, such as Hungary. For this reason, the Government assigns strategic significance to the maintenance or creation of its status as an owner in energy companies and to strengthening the national corporate character, as one of its important economy protection tasks. Using the means at its disposal, it will endeavour to keep the influence of foreign governments and companies and their acquisition of ownership within reasonable limits in the future as well.

MOL is a company of overriding significance in the Hungarian energy market as well as in the Central and Eastern European region. It is the Hungarian Government’s clear intention to increase the company’s regional role through setting up and stepping up co-operation with other state-owned energy companies. The Government acknowledges the company’s achievements made so far, and one of the primary conditions of obtaining ownership was for the company to have favourable prospects. As a minority owner, the Hungarian State supports the management and MOL’s successful business strategy.

By settling the fate of the share package, one of the most important barriers has now been removed from the way of further development in Hungarian-Russian relations. In this dispute, the negotiating parties managed to achieve a breakthrough after the last meeting of the intergovernmental joint commission in Moscow. The agreement that has been made is a clear sign of the fact that the relations between the two countries, which have been placed on a new footing, are now built on mutual respect and advantages. Representatives of the Hungarian Government and Surgutneftegas have already agreed to continue long-term co-operation in energy matters after closing the transaction. This agreement now offers a solution to a plight in the Hungarian-Russian relations, while also reducing the energy dependence of Hungary and the region, and enhancing the strategic significance of MOL.

The MOL Group is one of Central Europe’s leading global integrated oil and gas companies; its operation affects 40 other corporations in Europe, the Middle East, Africa and the CIS countries. The MOL Group employs 32,000 people globally, with its market capitalisation exceeding USD 14 billion as at end-April 2011. The MOL Group has a total of five oil refineries in Hungary, Slovakia, Croatia and Italy. It has a network of over 1,600 filling stations in Central and South-Eastern Europe and operates a 5,800 km long high-pressure natural gas pipeline system in Hungary through FGSZ, its 100%-owned subsidiary. MOL has several decades of experience in hydrocarbon production, currently it produces hydrocarbon in 7 countries and participates in research in 13 countries. The Petrochemical Division of the company group is involved in the supply of European plastic moulding companies as one of the ten largest participants in the European polymer market.

(Ministry of National Development , Department of Communication)