EU turns the screw on Hungary over nuclear plant deal with Russia

EU turns the screw on Hungary over nuclear plant deal with Russia
By bne IntelliNews November 18, 2015

The European Commission is reportedly threatening to suspend Hungary's Russian-backed €12.5bn project to expand the Paks nuclear plant because Budapest has infringed public procurement rules. While officials in Budapest confirmed Brussels is unhappy with the deal, they insisted on November 18 that it has followed all rules and that they have not yet received any official notice from the EU.

Budapest tore up an international tender in January 2014 to hand Russia a contract to expand the Paks plant. In return, Moscow agreed to lend Hungary €10bn in funding. The EU has remained remarkably quiet since, which has had Hungary on tenterhooks. Brussels, clearly concerned over deepening European dependence on Russia, now appears ready to challenge the deal.

Late on November 17, BruxInfo reported that the European Commission considers Hungary to have broken public procurement rules on the project. The EU executive will send a letter of formal notice to Budapest on November 19, calling on the cabinet to suspend all ongoing procurement and refrain from inviting new supply tenders related to the expansion of the country's only nuclear power plant.

The move has been confirmed by EU commissioner Elzbieta Bienkowska, Portfolio.hu reports. Janos Lazar, Hungarian Prime Minister Victor Orban’s chief of staff, told Nepszabadsag the report is accurate, but stressed that no official notification about the decision has been received yet.

The Prime Minister's Office reiterated that point in a statement, and rejected suggestions it has broken any rules. "Hungary’s position is that both the Hungarian-Russian intergovernmental agreement signed in January 2014, and the engineering, procurement and construction contract signed in December 2015 [sic] comply with the EU regulation on public procurement procedures," it reads.

Big guns

The EU move appears to target those latter agreements. Budapest and Moscow signed contracts on the design, construction and maintenance of the two new 1,200 megawatt reactors late last year. Many details have not been publicised due to "national security" concerns.

Hungary has drawn sharp criticism in Brussels over concerns that the project will deepen the bloc's dependence on Russian energy. However, the only public stance on its legality taken thus far by the European Commission came in April, when it informed Hungary that nuclear fuel agency Euratom has approved a contract under which Russia will supply fuel for the plant.

However, it now looks to be upping the ante as it steps closer to the core deals. While a ruling on state aid grounds is seen as the ultimate weapon against the deal with the Russians, the public procurement notice could prove a big gun.

It was just such a challenge to Bulgaria that signalled the start of the end for Russia's grand plan to build the giant South Stream gas pipeline into the EU. Budapest expressed worry as it was signing the contracts with Russia in December that the Paks project could go the same way as South Stream should the EU look to block it.

Quoting unnamed sources, the BBC reported in June that the European Commission would decide in October whether or not illegal state aid is involved in the project. That deadline has now passed, suggesting Brussels may be keeping that powder keg dry for the meantime. 

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