Hungary hints Russia may pull out of funding deal for nuclear power plant

Hungary hints Russia may pull out of funding deal for nuclear power plant
By bne IntelliNews May 26, 2016

Speculation is rising in the Hungarian media that Russia may be seeking to pull out of its agreement to lend Hungary €10bn to power the expansion of the Paks nuclear plant.

When two years ago Budapest handed Russia the €12.5bn contract to expand Paks, Hungary’s only nuclear power plant, the government claimed that Moscow promised such advantageous financing that no market participant could compete. Thus, the cost of the extension is likely to increase should Hungary need to look for an alternative funding, while it is questionable how keen Western banks may be to finance a project by Russian state nuclear agency Rosatom that has faced intense EU scrutiny and while Russia remains under sanctions.

However, comments from Russia's Foreign Minister Sergei Lavrov, who visited Budapest on May 25, put earlier claims from the head of the Hungarian Prime Minister's office under the spotlight, the Hungarian Spectrum blog points out.

Lavrov told reporters in Hungary that “Good Hungarian-Russian relations don’t depend on the extension of Paks.” Parked next to comments from Janos Lazar that Hungary could look for alternative funding, suspicion has been raised that perhaps Moscow may seek to back out of the deal.

Lazar noted on May 17 during a parliamentary session that "there is an option for the early repayment of the loan given by Russia". However, he added, in the first such comments from any Hungarian official, that there may be an alternative. |As the sentiment towards the Hungarian money market has significantly improved recently, Hungary is ready, and might also be able – perhaps even in the near future – to replace [Russia’s loan] with loans from the open market,” he claimed.

Hungarian Spectrum points out that Lazar’s comments about a possibility of obtaining non-Russian funding might be a bid to appease the European Commission, which has launched several investigations into the project. Brussels says it suspects it does not comply with EU competition and state aid rules.

At the same time, Benedek Javor, a Hungarian member of the Greens in the European Parliament suggests that the European Commission might also find the interest rates included in the Russian loan contract unacceptable, local Nepszabadsag reported.

Speculation that Russia could try to pull out of the deal has been doing the rounds for months. Moscow's is struggling with fiscal issues due to the sanctions and recession, and has already scrapped some nuclear deals.

On the other hand, nuclear power is Russia's lone high-tech success story, and it has been keen to push exports. On top of that, increasing its presence in EU energy markets has more than economic motivation. Russian President Vladimir Putin stressed in February that Moscow has no intention of pulling out of the deal.