Economy
Hungary close to deal with Brussels on nuclear expansion - VP
Agreement on Paks II within reach
Budapest and Brussels are "approaching positive settlement" of all concerns raised by EU regarding Hungary's plan to build nuclear power plant together with Russia, EU energy chief Maros Sefcovic said in an interview at the third Central Eastern and South-Eastern European Gas Connectivity (CESEC) high-level group meeting in Budapest last Friday."If Hungary decides to build this nuclear power plant, which is in full accordance with the right of every member state to decide on their energy mix, they will be able to do it in accordance with EU law
, Bloomberg cited him as saying.Investigations in progress
There are currently two investigations over the Paks II project by the European Commission. One of them seeks to determine whether the capacity expansion project would offer an acceptable rate of return also amidst free-market circumstances, as the Hungarian government claims, or it would not.“The Commission will in particular assess whether a private investor would have financed the project on similar terms or whether Hungary's investment constitutes state aid. If the project is found to involve state aid, the Commission will investigate whether as planned it would lead to distortions of competition in particular on the Hungarian energy market," the EC said when it opened an in-depth state aid investigation last November.
The cabinet, citing a study by Rothschild Group, insisted that the project will achieve the expected returns.
According to press reports, the Commission has a different view on the matter, i.e. the project will be making losses and demand continuous replenishment from state resources. In that case, there will be state aid involved, but it seems the EC will let it pass and will not rule that it is illegal state aid. Such information have been confirmed by our expert sources that have knowledge of the case.
The other EU procedure against Hungary was opened because the country had chosen Russia’s Rosatom to carry out the project without an international public procurement tender, thus infringing EU public procurement rules. Budapest claimed only the Russians’ technology met the Hungarian technical and security requirements. Several expert sources claim that one of the conditions to the EU’s approval of this is that Hungary invites public procurement tenders to pick the sub-contractors, i.e. Siemens, Alstom and other European suppliers will be allowed to bid.
The discussions with Brussels have been concluded and now it is time for the wording of the Commission’s standpoint. It is important, though, that according to our sources, all concerns Brussels has about the Paks II project are now managed in a single package (state aid, violation of public procurement rules). Consequently, if the EC lets its concerns about state aid go, it will “forget about" its other concern too (the College of EU Commissioners will bring a uniform decision, as János Lázár, the Prime Minister’s cabinet chief noted earlier.)
Backstory
Hungary’s Prime Minister Viktor Orbán and Russian President Vladimir Putin agreed in early 2014 about the expansion of Hungary’s sole nuclear power plant. The two new 1,200 MW blocks will be added to those two 500 MW blocks that had been put into operation from 1982 onward. The first new block is expected to be added to the grid in 2023. 80% of the project will be financed from a 30-year Russian loan facility.The Paks II project was initially managed by the Hungarian Electricity Works (MVM) than it was assigned to the Prime Minister’s Office. The return calculation for Paks II is based on a model by Rothschild Group, which shows that by the end of the planned operating lifeline of (60 years) starting in the middle of the next decade, the two new 1,200-megawatt blocks of the Paks II project would yield a return at EUR 50.5-57.4 / MWh (LCOE or levelised cost of electricity). The cabinet’s analysis of the project expects at least EUR 65 / MWh electricity price for the period hence the promise of a return.
Read Portfolio's exclusive interview with Miguel Arias Cañete, EU Commissioner for Energy and Climate Action, in which he has also addressed the Paks II project.
