BUDAPEST (Reuters) - Hungary expects heated debate with the European Union over government plans to transform energy distribution in the household sector into a "non-profit activity", Prime Minister Viktor Orban said on Wednesday.
Orban's conservative government has often been at odds with Brussels over controversial policies such as Europe's highest bank levy or hefty windfall taxes on selected business sectors.
These new taxes have helped stabilize the budget but have contributed to an erosion of investor confidence in the government's unconventional policies.
"There will be another big debate (with Brussels), namely over the transformation of services related to utilities," Orban told an annual meeting of Hungarian diplomats.
"The shipment, distribution and trade of energy in the household sector can easily be a non-profit activity."
He said the government needed to find a solution that did not infringe the principles of the single market and the free movement of capital. Orban did not give any more details.
Hungary is in talks with the EU and IMF about a financing backstop which the country needs to cut high borrowing costs.
Limiting utility price increases was one of the key pledges of Orban's Fidesz party ahead of 2010 elections which Fidesz swept with a two-thirds parliamentary majority.
Hungary's energy utility sector is mostly foreign-owned, with Germany's E.ON, RWE and France's EDF, and GDF Suez among the main players. The companies were not immediately available for comment.
"Due to a lack of details it is hard to interpret these comments. The investment policies of these companies depend on their earnings prospects," said Tamas Pletser, sector analyst at ING in Budapest.
With an older tax levied on the telecommunications sector in 2010 already challenged at an EU court, the government levied a new tax on phone calls and text messages from July to raise revenue as the economy is mired in a recession.
On Wednesday Orban defended these measures, saying they helped avoid painful wage and pension cuts employed elsewhere in Europe and were vital elements of Hungary's crisis management plan, adding the taxes would remain part of the Hungarian economy for the next two decades.
He said such bitterly criticized steps, including the elimination of mandatory private pension funds, helped the government avoid austerity.
Public support for Orban's Fidesz party has crumbled since the last elections, and is at around 16-18 percent according to the latest polls, while over half of the electorate are undecided. The next elections are due in 2014.
In his speech, Orban also ruled out any cuts in pensions, saying Hungary's 3 million pensioners, or nearly a third of the population, were a key demographic segment and their support for democracy was a mainstay of Hungarian politics.
(Reporting by Gergely Szakacs and Krisztina Than; editing by James Jukwey)