Russia tells Hungary it will still bankroll Paks nuclear project

Russia tells Hungary it will still bankroll Paks nuclear project
The Paks II nuclear project, which has provoked concern in Brussels, appears to be seen by Moscow as a strategic and political priority.
By Tim Gosling in Budapest February 18, 2016

Moscow is committed to funding the expansion of the Paks nuclear plant, and the project will continue without interruption, Russian President Vladimir Putin stressed on February 17 after meeting Hungarian Prime Minister Viktor Orban.

Orban's trip to Moscow on February 17 was surrounded by speculation that the controversial deal, in which Moscow will lend Budapest €10bn of the estimated €12bn project costs, could break down due to Russia's economic problems. However, the Hungarian project, which has provoked concern in Brussels, appears to be seen by Moscow as a strategic and political priority.

"I confirmed to the prime minister today that the Russian side is fully ready to perform undertaken obligations," Putin said at a press conference after talks with Orban, according to Tass.

While Budapest may feel more confident it will be able to secure the cash, it has other challenges to Paks II to negotiate. The EU has taken its time responding to the 2014 deal, but late last year it launched an infringement procedure over the public procurement on the project as well as a probe into whether it includes illegal state aid.

Hungary has previously said it hopes Paks II will not go the same way as South Stream. The plan to build a giant pipeline to carry Russian gas into southern Europe – which would have run through Hungary amongst other countries - was pulled by Moscow last year because of EU opposition.

Friendly face?

Few of the other headlines stemming from Orban's trip will have raised a smile in Brussels either. The Hungarian leader has made it a badge of honour to thumb his nose at Brussels during the stand off with Moscow, by offering support to Putin. For its part, Russia is a master of picking off individual EU states in a bid to subvert the bloc's policy.

On top of the nuclear deal, the two delegations discussed an end to EU sanctions against Russia, plans to increase trade, and the migrant crisis, which is straining the EU at its seams.

Orban claimed the sanctions are unlikely to be extended this year, when they come up for renewal. "I think that in the middle of this year there will be no opportunity to extend sanctions automatically," he said, according to Reuters.

The Hungarian PM also thanked Putin for the fforts that “he has made for the sake of Russian-Hungarian friendship, even in difficult times",” the Hungarian Prime Minister's Office noted. “It might sound immodest, but we can say that the good things in our relationship are our achievements, but we are not responsible for the bad things.”

Coming to Orban's favourite topic of the moment, the Hungarian and Russian leaders enjoyed a good bout bashing Brussels for its stance on the migrant crisis. Both were careful to keep to the conservative and nationalist agendas that have helped them consolidate a tight grip on power.

Ahead of a feisty debate expected at an EU summit starting on February 18, Orban said "Christian and national values will be as important in the future as they were in the past", for Hungary, according to AP.

Many analysts say it is clear that Russia's military actions in Syria are designed to provoke the migrant crisis to weaken the EU. Putin said he refuses to weigh in on an EU domestic issue, but praised Orban for his resistance to Brussels' efforts to persuade EU members to take in more refugees.

"We sympathize with the stance of the Hungarian leadership, the prime minister of Hungary, to defend the European identity, the identity of their country, their people," he said. Defeating extremism and rebuilding the fractured Middle East states are essential for stemming the migrant flow, he added.

The pair appeared to enjoy having a rare friendly face around for once, although some suggest things are not so straightforward. One Hungarian political analyst and lobbyist insists to bne IntelliNews that the relationship is purely pragmatic.

"Orban and Putin hate one another," he insists. "However, as head of a small country hugely reliant on Russian energy, Orban saw a window of opportunity to secure benefits for Hungary as Moscow is ostracized by the West. One of his main aims is to reduce energy costs to hand Hungarian companies a competitive advantage."

The regular meetings with Putin, and a "very competitive new gas deal" signed last year, are testament to the success of Orban's policy, the analyst claims. The Russian president also announced during the meetings in Moscow that the supply contract has been extended to the end of 2019. Assuming it goes through, the funding for Paks II could perhaps also be added to the list of achievements.


Attila Bally, deputy CEO at Hungary's state-owned power and gas holding MVM insists to bne IntelliNews that the nuclear expansion is the best way to ensure Hungary's energy security over the next 50 years or so. However, he declines to discuss whether the company – which owns and operates Paks I – will become involved in the project, which remains a state-level project.

Elsewhere, the view on Paks II is uniformly negative amongst those polled by bne IntelliNews. Hungarian analysts and opposition leaders stress the huge cost, and suggest taxpayers will end up paying the bill for decades. Unless European power prices improve dramatically the plant will be hugely unprofitable, all claim.

Bernadett Szel, co-Chair of the small opposition party LMP, says the deal is one sided, and leaves Hungary holding all the risk. Budapest will pay should the project budget overrun, she claims. "This means the Russian state company that will build the project has a motivation to make it cost as much as possible."

However, the details remain secret, the government having locked them up for decades by designating the deal as strategic. All also note the corruption risks: "Any deal of such size inevitably leaves the way open for politicians to find a little extra revenue," one analyst notes.

There is also the potential impact on the rest of the Hungarian power sector to consider. Tamas Moro at Concorde Securities worries that Paks II will push investment out of renewables and innovation in the energy sector.

Double standards

There was other business on the table aside from Paks II, as the pair seeks to cement the growing special relationship with hard cash.

MOL – the Hungarian oil and gas in which the state holds around 25% - has signed a new agreement allowing the company to search for new production and exploration fields in the Western Siberian and Volga-Ural regions, Hungarian Minister of Foreign Affairs and Trade Peter Szijjarto announced.

The minister, who has declared that Hungary's foreign policy will be led by economic and trade interests, also announced that an unnamed Hungarian enterprise has been handed contracts to participate in construction of three football stadiums in preparation for the 2018 FIFA World Cup Russia. He also noted a joint venture in the rail car manufacturing.

Szijjarto will welcome Russian counterpart Sergey Lavrov in Budapest in the spring in another sign of the enthusiasm on both sides to cement relations despite the chill that still hangs between Brussels and Moscow.

While Budapest has been roundly criticized for breaking ranks, Hungarian analysts also accuse the West of double standards."Look at Germany," says a political analyst and lobbyist, who requested anonymity due to the sensitive nature of the topic. "It has very strong business connections to Russia – think of the Nord Stream project – but no one says a word."