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Privatization of the Power and Natural Gas Industries in Hungary and Kazakhstan


This report consists of three parts: 1) comparative analysis of energy sector privatization in Hungary and Kazakhstan, 2) privatization of the power and gas industries in Hungary, and 3) privatization of the power and gas industries in Kazakhstan. Hungary and Kazakhstan began their reforms in the power and natural gas industries from different starting points. The Hungarian power and gas sectors had a long history of being relatively well managed. Though not perfect, the privatization program in Hungary for power and gas was generally well-planned, competitive, and transparent. The government increased retail prices to cost recovery levels in 1997 after privatization. Though faced with public opposition to such a large increase, the government eventually bowed to pressure from the investors. The major issue for the future of the power sector is how to comply with European Union requirements to allow buyers to purchase directly from producers rather than through the transmission company. In contrast, Kazakhstan inherited pieces of the old systems that were designed to serve the needs of the Soviet Union and had to develop new organizations to manage the systems. The major issue faced by Kazakhstan is how to privatize distribution for both power and gas. The country must also decide on how to structure its gas sector that involves complex economic and geo-political issues.