The European Commission (EC) dropped the last of its probes into Hungary's project to expand the Paks nuclear power plant on March 6.

Hungary's planned €12bn expansion of its only nuclear plant has been controversial at home and abroad since the contract was handed to Russian state nuclear agency Rosatom in January 2014. Russia will finance 80% of the project and operate the plant. Critics claim the deal will hand Moscow increased leverage in European energy markets.

The EC launched two infringement procedures against Budapest in 2015. The first, on the lack of a public tender, was closed in November, reportedly thanks to the help of Brussels officials. Now the EC has dropped its second probe - over state aid - into the project to build two new VVER-1200 reactors to eventually replace the existing four at Paks.

The EC said in a statement that it has concluded that Hungary's financial support for the construction of two new nuclear reactors in Paks does involve state aid. However, "it has approved this support under EU state aid rules on the basis of commitments made by Hungary to limit distortions of competition”.

Margrethe Vestager, EC competition commissioner, stated: "Hungary has decided to invest in the construction of the Paks II nuclear power plant, its right under the EU Treaties. The commission's role is to ensure that the distortion of competition on the energy market as a result of the state support is limited to a minimum. During our investigation the Hungarian government has made substantial commitments, which has allowed the commission to approve the investment under EU state aid rules."

The EC underlined that “to avoid overcompensation” of Paks II's operator, any profits earned will either be used to repay Hungary for its investment or to cover normal operation costs.

"Paks II will be functionally and legally separated from the operator of the Paks nuclear power plant (the MVM Group) and any of its successors or other state-owned energy companies,” the commission added.

The statement continued that “Hungary also agreed that to ensure market liquidity" Paks II will sell at least 30% of its total electricity output on the open power exchange. The rest of Paks II’s total electricity output will be sold by Paks II on objective, transparent and non-discriminatory terms by way of auctions.

Paks produces around 50% of Hungary’s domestic electricity production. Work on the expansion is due to start next year. However, Hungary’s green party LMP last week announced plans to initiate a referendum on the project.