Russia's Gazprom and the Hungarian Development Bank signed an agreement in March to allow the formation of a joint venture (JV) to build the Hungarian segment of the South Stream natural gas pipeline. The signing ceremony was attended by the Russian and Hungarian Prime Ministers, Vladimir Putin and Ferenc Gyurcsány. South Stream is a EUR10bn (US$13bn) project designed to deliver Russian gas to central Europe through the Black Sea and central European countries, a route that will bypass Ukraine, the traditional hub for Russian gas pipelines. Russian relations with Ukraine have remained tense following the two countries' latest gas dispute in early 2009. Both parties also signed an agreement providing for the construction of an underground gas storage facility that would be able to hold Russian gas in Hungary. The facility would be built jointly by Gazprom and MOL, Hungary's major oil and gas company. Putin said its capacity would be over 1bn cubic metres, 'a large volume, which will enable us to ensure energy security and the stability of Hungary's energy sector'. Gyurcsány said the storage facility would hold enough gas to meet half the country's annual needs. Officials said that the Hungarian section of South Stream would be built in 2015 and the storage facility would be completed in 2012-2013. Hungary is heavily dependent on Russia to meet its gas consumption needs. At the time of the Russian- Ukrainian dispute at the beginning of January - the middle of winter - many Hungarians were left without heating gas. The Hungarian Prime Minister noted that his country had an interest in diversifying its sources of supply. 'Hungary is not interested in there being one gas pipeline or one oil pipeline', he said, adding 'Hungary is interested in having as many pipelines as possible'. In our newly released Hungary Freight Transport Report, BMI forecasts that despite the impact of the recession, Hungarian pipeline traffic will grow by an average of 1.6% per annum in 2009-2013. Our forecast is based on a number of factors. The economy will contract in 2009, and be virtually flat in 2010, although it will grow by an average of 1.2% in the five years to 2013. With demand for energy remaining relatively income-inelastic, and Hungary involved in both the South Stream and Nabucco regional pipeline projects, we see pipeline throughout holding up well. Other transport modes will experience the recession more acutely. Tempered by difficult market conditions across Europe and renewed financial difficulties at the now privatised airline Malév, airfreight will experience an average annual increase of 1.9% during 2009-2013. Inland waterways will grow at the slowest average annual rate of 0.6%. Road freight will expand by 1.9% on average, with railfreight at 1.2% in our composite scores, Hungary scores a freight rating of 52.9 (out of a theoretical maximum of 100). It could score on the somewhat restricted competitive environment, as state-owned companies (some of which are lossmaking) still dominate the transport sector. The total value of Hungarian transport and communications GDP will rise to US$15bn in nominal terms by 2013, representing 8.7% of Hungary's GDP. The transport and communications sector employed 299,300 people, or 7.7% of the labour force, in 2008. We see the number of people employed in the sector falling marginally to 296,300 by 2013, although it will remain constant in relative terms at 7.7% of the total labour force.
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