Russia offers to power Hungarian nuclear expansion

By bne IntelliNews June 6, 2012

Tim Gosling in Prague -

In a bid to grasp a share of the growing nuclear market in CEE, Russia's state-owned nuclear holding Rosatom said it is ready to offer full financing in the tender for the expansion of Hungary's Paks facility. The offer replicates a recent offer on a large contract in the Czech Republic, and suggests Russia has been taking Chinese lessons.

Hungary needs big new power plants to augment its aging fleet and the government is expected to issue a construction tender this year for up to 3,000 megawatts (MW) in new nuclear capacity at Paks, reports Reuters. The current plant uses four Russian-made VVER reactors with a total capacity of 2,000 MW and produces about 40% of the country's electricity.

Rosatom is ready to fully finance the new construction, which is expected to cost about HUF3 trillion (€9.9bn), Rosatom Deputy Director General Kirill Komarov told business daily Napi Gazdasag at a nuclear power trade fair in Moscow. The Hungarian government created a committee to prepare strategic decisions for the construction headed by Prime Minister Viktor Orban last week. The new nuclear blocks should come online between 2020 and 2030, increasing the country's reliance on nuclear power to 60% of the electricity mix.

Meanwhile, Paks CEO Istvan Hamvas told MTI that he expects at least five participants at the upcoming tender, with France's Areva, Toshiba's US subsidiary Westinghouse Electric and other Asian competitors to join the Russians. That would make the line-up similar to the one competing for the €8bn contract to build two new units across the border at Temelin in the Czech Republic. State-controlled energy giant CEZ is due to choose a winner from Rosatom, Areva and Westinghouse in summer 2013.

Illustrating its determination to win the hotly-contested tender, the Russian bidder - noting that the project is clearly putting CEZ under financial pressure - offered full financing or a strategic partnership, earlier this year. Neither of its remaining competitors has made a similar counter offer to date.

As one of the country's few successful hi-tech industries, the Kremlin has been pushing Russian nuclear technology across the globe as part of its drive to diversify the economy. Whilst it has seen significant success in winning business in Asia and the Middle East, it has struggled to make an impact in Europe.

With its main competitors hailing from the US and France - as well as Japan - it understandable that Russia appears to be concentrating on projects in CEE as a bridgehead into the EU. Whilst several Western European markets are off limits since the Fukushima disaster, others are ploughing ahead. Rosatom Deputy CEO Kirill Komarov told Ria Novosti on June 5 that the company "can act both as supplier of nuclear technologies and as investor, including investments in the construction of nuclear power plants" for the UK.

At the same time, Russia has another foot in the door in CEE, and is keen to exploit the fact that much of the existing nuclear infrastructure in the region is Soviet. By way of example, through subsidiary TVEL, Rosatom is the fuel supplier for Hungary's existing four Russian-made nuclear power blocks and has participated in their maintenance as well.

All of which clearly should give Russia's nuclear sales chief - Rosatom head Sergei Kiriyenko - an advantage in pushing into the EU from the east. However, recent history makes countries in the region wary, especially given that Moscow is also fighting hard to maintain its control of much of the rest of their general energy mix.

To aid its cause then, the Kremlin has clearly studied China's mode of operations as it too tries to crack the European nut. Chinese contractors increasingly appear at CEE tenders offering cut-price contracts powered by cheap funding provided by the country's rich state banks, which have the world's largest reserves - around $3 trillion - to leverage.

Whilst Russia is not in the same league in terms of financial clout, it is amongst the biggest savers in the world thanks to its oil and gas windfall in recent years, and has around $500bn stashed away. That's a tempting resource for CEE states facing huge capital investment projects in a time of crisis.

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