EU Greenlights Hungary's Russia-Backed `Deal of the Century'

  • Russia provided a loan of 10 billion euros for nuclear project
  • Nuclear-deal probe unfolded as EU imposed sanctions on Russia

Paks Nuclear Power Plant in Paks, Hungary, on March 23, 2011.

Photographer: Xinhua/Gamma-Rapho via Getty Images

The European Union removed the final obstacle for what Hungary has called its “deal of the century,” a 12.5 billion-euro ($13.3 billion) agreement with Russia to expand its sole nuclear plant that put the former communist country in the EU’s cross-hairs over its ties with President Vladimir Putin.

The European Commission approved Hungary’s plans to use state funds for the project, resolving the last remaining probe, the EU’s executive arm in Brussels said in a statement on Monday. It ruled that while state aid was involved, Hungary had made “substantial commitments” to limit distortions in competition.

Hungarian Prime Minister Viktor Orban agreed with Putin in 2014 to allow Russia’s Rosatom Corp. to expand the Paks nuclear plant, scrapping plans for competitive bids. The project, to be financed by a 10 billion-euro loan from Russia, had also triggered an EU probe over potential violations of public procurement rules, which has since been dropped. Hungary has said it would tap the Russian loan after the EU gave its all-clear.

“The Commission’s role is to ensure that the distortion of competition on the energy market as a result of the state support is limited to a minimum,” EU Competition Commissioner Margrethe Vestager said in the statement. “During our investigation, the Hungarian government has made substantial commitments, which has allowed the Commission to approve the investment under EU state aid rules.”

Four Reactors

Authorities are planning to replace four reactors at the Paks site in central Hungary, whose construction started in the 1970s and which currently produce 50 percent of the country’s electricity. The existing blocks are due to reach the end of their lifespan by 2037, according to the power plant’s website. The two new, 1,200-megawatt reactors are slated to start production at the end of the next decade. Construction is scheduled to begin in 2018, Orban said on Feb. 2, after hosting Putin in Budapest.

The expansion, known as Paks II, will sell at least 30 percent of its total electricity output on the power exchange and the rest on “objective, transparent and non-discriminatory terms” via auctions, the EU said. Profits from Paks II will be used to pay back the government or to cover operational costs. The operator of the the expanded facility will be legally separated from the plant’s current owner to avoid excessive market concentration, the Commission said.

Orban’s nuclear tie-up with Putin unfolded as the trading bloc imposed sanctions against Russia over its annexation of Crimea and its support for rebels in eastern Ukraine.

Since the nuclear deal, Orban has been one of the least supportive of the penalties. The economic curbs were the “wrong answer” to a problem that’s “non-economic in nature,” Orban said on Feb. 2. Orban has nonetheless shied away in the past from vetoing EU decisions that require anonymity, allowing to keep the sanctions in place.

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