Hungary's legislation on oil security

Part of Oil Security Toolkit

Hungary’s response to oil supply disruptions is primarily governed by the provisions of the Act No. XXIII of 2013 on Security Stockpiles of Imported Crude Oil and Petroleum Products (hereinafter: MSIC) that repealed and replaced Act No. XLIX of 1993 on the Security Stockpiles of Imported Crude Oil and Petroleum Products which aims to implement relevant European Union legislation governing emergency oil stocks.


According to article 9 MSIC, the emergency provisions of the MSIC may be triggered in two situations: first, when the balance of supply and demand for crude oil and petroleum products is disrupted (article 9(1) MSIC). In such cases, demand restraint measures may be ordered. Second, the MSIC provides for the release of emergency oil stocks when there is a major supply disruption or a crisis in crude oil or petroleum products supply (article 9(2) MSIC).

A major supply disruption exists when there is a ‘substantial and sudden drop’ in the ‘supply of crude oil or petroleum products to the European Union (EU) or to a Member State, irrespective of whether or not it has led to an international decision to release stocks’ (article 1(3) MSIC).

An ‘international decision to release stocks’ is a decision by the International Energy Agency (IEA)’s Governing Board to release emergency stocks (article 1(2) MSIC).

A ‘crude oil or petroleum product supply crisis’ is a situation when the decrease of import supplies compared to domestic consumption reaches 7% and domestic demand can be met only by using the emergency oil stocks or when the European Union or the IEA recommend the taking of emergency measures including in particular international decisions to release stocks (article 1(5) MSIC).

Price fluctuations are explicitly excluded as circumstances triggering the provisions of the Hungarian emergency response system (article 1(5) MSIC).


For the purposes of measures taken pursuant to articles 9(1-2) of the MSIC (demand restraint measures and release of emergency stocks), it is the minister in charge of energy policies (article 5(3) MSIC) who may authorise such measures. However, according to article 3(7) no emergency stocks may be released unless there is a written authorisation of the Hungarian Hydrocarbon Stockpiling Association (hereinafter: HUSA).


General

Article 2 MSIC provides that Hungary shall maintain emergency oil stocks which shall be administered by the HUSA. With respect to the definition of the term ‘emergency oil stocks’ the MSIC incorporates (article 1(1) MSIC) the European Union’s definition of this term which is contained in the first paragraph of Section 3.1. of Annex C to Regulation (EC) No. 1099/2008 of the European Parliament and of the Council of 22 October 2008 on energy statistics. In order to prepare for oil supply emergencies, article 11(1) MSIC obliges the minister in charge of energy policies to prepare and to regularly update a contingency plan.

Storage Agency

Hungary’s central stockholding entity is the HUSA. The HUSA calculates the level of emergency stocks (article 2(3) MSIC), it purchases, stores and sells emergency stocks (article 12(1) MSIC) and it executes (article 3(7) MSIC) the release of emergency stocks. The HUSA is funded by contributions from its membership which is comprised by entities that distribute or import petroleum products (article 40(1) MSIC).

Storage Quantity

According to article 3(4) MSIC, the HUSA must maintain emergency oil stocks corresponding in volume to 90 days of average daily net imports. When calculating storage levels, the HUSA should take into account Hungary’s specific dependency on oil imports (article 3(2) MSIC) and at least one third of emergency stocks must be held as petroleum products (article 3(3) MSIC). Further, the HUSA is entitled to maintain specific stocks (article 4 MSIC).

Availability of stocks

According to article 1(4) MSIC, emergency stocks must be stored in such a manner that they can be released and delivered effectively to end users ‘within the time frames and conditions conducive to alleviating the supply problems’ (see also below and article 7(c) MSIC).

Storage Locations

According to article 7 MSIC, emergency oil stocks must be stored in authorised storage facilities which preserve the quality of stored stocks, guarantee the availability and control of oil stocks at all times and that ensure the physical accessibility of oil stocks. Such storage facilities may be located on the territory of Member States of the European Union (article 8(1) MSIC)) and emergency stocks can be stored in other Member State if an agreement exists between their Governments.

Sale of excess stocks

According to article 3(5) MSIC, the HUSA may sell emergency stocks exceeding the minimum quantity of 90 days of average daily net imports with the decision of the Board of Directors if such a sale does not disrupt the market. 


General

In times of emergency, the Hungarian minister in charge of energy policy can decree the taking of demand restraint measures and/or the release of emergency stocks. The eventual release of emergency stocks is subject to written authorisation of the HUSA (see section 3 above). In 2015, Hungary developed a manual (handbook) to manage successfully any disruption and emergency situation. (“Manual On the Emergency Measures in the Supply of Crude Oil and Petroleum Products in Hungary”). This handbook describes how to collect data and information critical for decision-makers and list the tasks to be completed in order to ensure an adequate response to the supply disruption.

Stockdraw

Sale/Tender

According to article 9(2) MSIC, the Hungarian minister in charge of energy policies may decree the release of emergency stocks in response to major supply disruptions, to a crude oil or petroleum product supply crisis or in the event of difficulties in the supply of fuels. A ministerial decree of this kind is to specify the quantity of stocks to be released (article 9(3)(a) MSIC) and the time at which the released stocks shall have been replaced (article 9(3)(b) MSIC). Any stocks to be released shall be sold by the HUSA (article 9(5) MSIC). The Minister may grant priority access to the released emergency stocks for consumers ensuring the proper functioning of the country (article 9(4)(c) MSIC). In respect of the released stocks remaining after satisfaction of the consumers to the benefit of whom stocks have been released for specific purposes under the decision of the Minister, the members of the HUSA’s Oil Section shall have pre-emptive right in proportion to their net contribution fees, due and paid according to the balance of sales performed in the calendar year preceding the release of the stocks.

HUSA send them the delivery contract for signing immediately on the day when the ministerial decree is published. The delivery contract is a standard form contract available also on the HUSA’s web-site (Delivery Contract). Contracting partner shall open a bank guarantee and the physical delivery can start immediately.

If there are members not drawing their right, or those who have not responded, the HUSA invites a quick tender for the released quantity which was not sold among the members.

Physical deliveries are possible within 48-72 hours following a stock draw authorization in all cases. Strategic stocks are held in commercial storage terminals which shall be operating non-stop in a crisis situation.

Production Surge

Hungarian primary legislation does not appear to provide for the possibility of production surges in response to oil supply disruptions.

Demand restraint

Article 9(1) MSIC authorises the Hungarian minister in charge of energy policies to order the taking of measures that restrict petroleum product consumption in such a manner that the balance between supply and demand of crude oil and petroleum products may be restored.

Fuel Switching

N/A

Relaxations of Road Traffic and Transport Laws

N/A


The Hungarian emergency regime is monitored and enforced on the domestic, regional and international level. Each will be considered in turn.

Domestic

Reporting duties

Article 5 MSIC obliges the HUSA to keep records on emergency oil stocks including the names of the storage facilities, the quantity of stocks held and details concerning the composition of stored stocks. The Hungarian minister in charge of energy policies is entitled to access such records at all times (article 5(3) MSIC).

The members of the HUSA must, in turn, notify the HUSA on a monthly basis about the quantity of petroleum products they have released, discharged, imported, purchased or used in the previous months (article 42(1) MSIC; see also article 46(3) MSIC). The information submitted by members to the HUSA is subsequently verified by the HUSA itself (article 46(2) MSIC) and submitted to the National Tax and Customs Administration of Hungary that verifies the veracity of the information submitted (article 42(9) MSIC).  

Enforcement

According to article 38 MSIC, members of the HUSA that fail to pay their membership fees shall be subject to the penalties set out by the Hungarian Act on the Rules of Taxation. Additional enforcement measures against offending members, including the initiation of liquidation and/or insolvency proceedings, are available (article 39 MSIC).

The activities of the HUSA are supervised by the Hungarian minister in charge of energy policies (article 45(1) MSIC), who can request the HUSA to supply information and who may impose additional reporting obligations on the HUSA (article 45(2)(c-d) MSIC).

Regional

European Union

As a Member State of the European Union, Council Directive 2009/119/EC obliges Hungary to maintain a minimum volume of emergency oil stocks corresponding to 90 days of average daily net imports or 61 days of average daily inland consumption, whichever of the two quantities is greater. The Directive also imposes strict requirements concerning the composition and location of the emergency oil stocks, so as to guarantee their availability and accessibility in case of need, among other provisions.

Hungary’s compliance with the provisions of the directive is monitored and enforced by the European Commission. If a Member State is deemed not to be compliant with the EU Directive, the Commission might decide to initiate an infringement procedure, which might ultimately lead to refer the case to the Court of Justice of the European Union (articles 258-259, Treaty on the Functioning of the European Union).

International

The IEA

As a Member of the IEA, Hungary is obliged, pursuant to art. 2 of the International Energy Programme (IEP), to maintain oil reserves equal to 90 days of net imports of the previous year. IEA Members are obliged to submit information concerning their emergency measures to the IEA secretariat (art. 32 IEP) on a continuous basis and the IEA monitors Member countries’ compliance with the IEP. The IEP does not, however, make any provision for the enforcement of any obligations imposed by the IEP.