Hungary wins final EU approval for Russian-built nuclear plant

Commissioner for Competition Margrethe Vestager argued that her investigation focused only on avoiding “undue distortion of the internal market”. [European Commission]

The European Commission cleared the last hurdle on Monday (6 March) for Hungary’s Paks II nuclear plant project, despite outstanding concerns about the role of the national regulator and uncertainties over how spent fuel will be managed.

The Commission said that Hungary’s investment, backed by a €10 billion loan from Russia, did represent a form of state aid, and imposed a number of conditions before giving the green light.

After assessing the project, Brussels concluded that Budapest would get a lower return than a private investor would have got, invalidating Hungary’s argument that the project was economically viable.

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To ensure public support does not distort the market, the EU executive imposed three conditions.

  • First, profits generated should be used to pay back Hungary and not to reinvest in additional capacity.
  • Second, Paks II should be functionally and legally separated from the operator of Paks I.
  • Finally, the new project will be forced to sell at least 30% of its electricity on the open power exchange.

“During our investigation, the Hungarian government has made substantial commitments, which has allowed the Commission to approve the investment under EU state aid rules,” said Margrethe Vestager, the EU Competition Commissioner, in a statement published on Monday.

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Nuclear waste

The decision will allow Hungarian Prime Minister Viktor Orbán to proceed with the project, which is a priority for his national political agenda.

But past concerns remained unanswered in regards to the decreased powers of the nuclear regulator in Hungary and the management of spent fuel and other radioactive waste.

In August 2014, Hungary shipped damaged spent nuclear fuel to Russia. The Commission concluded that this breached EU law as the ultimate responsibility for the disposal of these materials remains with the member states.

Despite various attempts, Hungary and the EU executive failed to reach a solution for the management of spent fuel and radioactive waste. The Commission considered launching an infringement procedure by April 2016 to address this issue, according to internal documents seen by EURACTIV. Brussels urged the Hungarian government to find a solution “as soon as possible”.

All told, the Commission does not know how the Hungarian government intends to manage spent fuel coming from Paks II either.

According to a Commission letter sent to Green MEP Benedek Jávor, Hungary is considering a deep geological disposal by 2064. But Hungarian authorities did not provide information over an interim storage facility, either at home or abroad.

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Regulatory oversight?

Critics also worried that the Commission gave its final clearance to the project despite the concentration of powers, including regulatory competences, staying in the hands of the Hungarian government.

“The remedies adopted have not addressed a major aspect of the concentration of power, namely the fact that there are specific regulatory exemptions for the authorisation of new nuclear installations giving the government the possibility to circumvent the Nuclear Authority via decrees,” Javor told EURACTIV.

The Hungarian MEP emphasised that this is “particularly worrying” in light of the technical problems this type of reactor (VVER), built by Russia, is facing across Europe. “The current decision allowing for the accumulation of powers is not only a major market distortion but also a potential threat to nuclear safety,” he added.

The reform of the role of the regulator set alarm bells ringing at the Commission, which asked Hungary months ago to amend some of the law’s provisions.

“The European Commission will continue to follow the matter closely and take action to ensure compliance with all provisions of the Euratom Treaty and its secondary legislation,” Vestager said in a letter sent to Greenpeace Europe last January.

But she underlined that the assessment under EU state aid rules focused on avoiding “undue distortion of the internal market”, not safety issues.

For Greenpeace, “this way of thinking in silos is spectacularly irresponsible”.

“The Commission is allowing massive subsidies for a project backed by a government that openly challenges the importance of independent oversight for nuclear safety,” Andrea Carta, legal strategist at Greenpeace Europe commented.

In his view, it would have been wiser to wait until the independence of the regulator was guaranteed by national law.

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Profitability questioned

Some of the remedies proposed by the executive were questioned by previous assessments.

Candole Partners, an energy consultancy firm focusing on Eastern Europe, found that Paks II “is not economically viable without state subsidies”.

Therefore, there would not be any revenues to pay back to the state, as the Commission requested on Monday.

Initially, Hungary argued that the project was state aid-free because the expected return would be about 7-9% on the investment. In its view, this investment would be seen as profitable by any private investor because the authorities projected a lower weighted average cost of capital of 6-7%.

Commission officials defended their decision, saying state aid was needed in this case. They added that the compromise reached with Budapest would create more transparency. Additionally, it would help to avoid market distortion, as it would avoid horizontal concentration and would ensure that the electricity is also available for traders and suppliers.

The Paks II project raised concerns in Brussels since the project was announced in January 2014. Hungary decided to handpick the Rosatom proposal to build two additional reactors at the Paks site without opening a public tender.

Russia provided a €10 billion loan to cover most of the €12.5 billion investment needed.

Hungary’s decision breached EU rules on public procurement, but despite this, the EU executive was prepared to facilitate a solution.

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The controversy grew after revelations that Günter Oettinger, the EU commissioner in charge of the energy portfolio until November 2014, travelled to Budapest in the private jet of a lobbyist with close ties with Russia, and working for Orbán on this dossier.

The business and technical details of the project were intended to be hidden from the public for 30 years, according to a law adopted by the Hungarian parliament in 2015.

The executive forced Hungary to amend this legal act, as it breached EU law granting public access to environmental information.

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In May 2015 Hungary notified to the European Commission for assessment under EU state aid rules its planned investment into the construction of two nuclear reactors (VVER 1200 (V491)) at the Paks site.

The Commission opened an in-depth state aid investigation in November 2015.

Separately, the Commission in November 2016 closed the infringement case against Hungary regarding the compatibility of the Paks II nuclear power plant project with EU public procurement legislation.

The Hungarian government directly awarded the construction of two new reactors and the refurbishment of two additional reactors of the Paks II nuclear power plant without a transparent procedure.

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