Hungary eyes green light for Russian-backed nuclear project

Hungary eyes green light for Russian-backed nuclear project
The EU may turn a blind eye to Paks II for political reasons.
By Blanka Zoldi in Brussels January 10, 2017

Brussels seems to be less worried about Orban’s desire for closer ties with Russia than it used to be, at least regarding the project to expand the Paks nuclear power plant. While the EU Commission sharply criticized Budapest in 2015 for handing Russia a €12.5bn contract to expand the facility, last year officials from the EU executive advised Hungary on how best to justify the project, according to press reports.

The commission had long questioned the fiscal wisdom and legality of the intergovernmental agreement between Moscow and Budapest struck in 2014 to expand Hungary's sole nuclear facility. Twin probes were launched into the project the following year: an infringement procedure concerning public procurement rules and a state-aid investigation.

The public procurement investigation was based on a complaint submitted in 2014 by Benedek Javor, a Hungarian MEP with the Greens/EFA Group. “For a long time, [the European Commission] showed no enthusiasm to take care of this issue. However, by the summer-autumn of 2015, the commission seemed to have become committed to actually enforce European law, and that November – with two EU probes launched – was difficult for the Hungarian government,” Javor tells bne Intellinews.

The EU’s tough stance, however, has slackened. The “Brexit-panic” has played a significant role, claims Javor. “The European Commission feared that pushing member states too hard would create a breeding ground for further eurosceptic forces,” he suggests.

At the beginning of 2016 it seemed Brussels’ probes could hinder Hungary’s nuclear plans. In February – at a meeting between Hungary’s Secretary of State Balazs Sonkodi and EU Director General for Energy Dominique Ristori - Budapest failed to present valid arguments to justify the absence of a public tender, according to an internal commission memos obtained by Euractiv.

Ristori however, “was prepared to recall” at the meeting that Brussels had earlier accepted the lack of a public tender in a similar case – the Flamville project in France – after the French government used the “technical exclusivity” exemption, Euractiv writes. The exemption permits granting a contract without a public tender when a project can be executed only by one company due to technical reasons.

Six months later, the commission said it was going to close the the investigation "given that the technical exclusivity clause invoked by Budapest was valid”. The European Commission refused to clarify when Budapest posed the new argument, and officially announced the public procurement probe closed in November.

While the state aid probed remains open, Hungary has been heavily encouraging speculation that it is about to get the final green light in recent months. Budapest was reported in late 2016  to have struck a “secret deal” with Germany that would see Berlin support Paks II in return for Hungary toning down its confrontational stance towards EU migrant quotas. The upcoming meeting between the Russian President Vladimir Putin and the Hungarian Prime Minister Viktor Orban on February 2 may therefore enable the two strongman leaders to toast the EU's approval of the project.

It was not only Dominique Ristori, but also the German commissioner Guenther Oettinger, that was reported to have advised Prime Minister Viktor Orban on "how to handle" the probes. Oettinger flew to Budapest in May 2016 in a private plane offered by Klaus Mangold, a German businessman with strong Kremlin ties. Budapest insists Oettinger was not involved in the closure of the investigation.

“The final position of the European Commission comes from different, complex forces. In the grey zone created by an uncertain legal framework, there is significant room for manoeuvre depending on current political conditions,” Javor tells bne IntelliNews.

He points out that the Euratom treaty – which is unchanged since 1957- and the Treaty on the Functioning of the EU provide different rules and conditions for nuclear energy compared to other sources of energy. That leaves loopholes that allow nuclear investments to be exempted from competition and public procurement rules.

The commission’s decision making process on the Paks project mainly reflects doubt and uncertainty about current and future EU regulations, Andras Deak, senior researcher at the Institute of World Economics of the Hungarian Academy of Sciences tells bne IntelliNews.

“The final decision will have a significant effect on the nuclear market. If the Paks project – which violates public procurement rules as much as a project can – is accepted by the commission, it will create a precedent for future investments,” Deak says. He adds that even if the commission requests modifications and lays out strict conditions, it is yet to be seen how the EU will be able to monitor whether those conditions are met.

“This case is likely to finish at the European Court of Justice,” Javor says, agreeing that the outcome will not only affect Hungary. He adds that the Czech Republic is already examining “the Hungarian model” for nuclear investment.