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07 Mar 2017

EU-Russia reach deal on Hungarian nuclear power plant

A Hungarian nuclear power plant, and the plans for building two additional reactors have brought the European Union and the Russian federation close. Relationships between them have been tensed since the annexation of Crimea in March 2014. In the aftermath, the EU imposed heavy sanctions on Russia which had serious impact on its economy. It seems now that, after 3 years of sanctions, EU and Russia begin to reach an understanding again.

In a statement released yesterday on behalf of the European Commission it was announced that EU has approved the construction of two new nuclear reactors and clears the investment counting on commitments made by the Hungarian government that it will limit distortions of competition. 50% of Hungary’s domestic electricity production is produced at the Paks plant, 120 km from the capital Budapest. The construction of Paks II was deemed necessary, to cover the needs for larger capacity.

But where is Russia involved in all this? The Paks II nuclear power plant investment was part of a deal made in 2014 between the President of the Russian Federation, Vladimir Putin, and the Hungarian Prime Minister, Victor Orban. The two leaders agreed that a 10-billions euro loan by Russia will be granted to Budapest with the rest  provided by the Hungarian state budget. The issue that alarmed EU officials was that the main candidate for managing the construction project was only one Russian company. An investigation was launched last year in order to ensure that EU rules won’t be violated and that it won’t harm competition which is one of the main principles of the European Union.

The Hungarian government, which in various cases has attracted bad attention for its behaviour on immigration and civil rights, argued that Rosatom, a Russian state owned energy company, is the only competent one to take over the project. The Hungarians said that there can be no other competitor because only Russians can work out a compatibility mode with the older nuclear plants that were built when the country belonged in the Eastern-bloc.

Under EU rules, competitive tenders can be skipped only if, for technical reasons, a contract can be executed by only one operator. Victor Orban, who is clearly a Eurosceptic, exercised his diplomatic skills told the EU that, if this project won’t be approved, it will lead Hungary directly to the hands of Russia, because of the natural gas that the country will have to buy from its former ally.

Opposition in Budapest said that the country’s vulnerability to Russia will increase and the tax-payers will face the significant cost of the project. Critics inside the EU argued, that the construction of the reactors undermined the EU’s efforts to limit energy dependency from Russia. They complained that Rosatom will become a serious competitor in the Hungarian market, while at the same time, other EU countries will have to face the consequences of the sanctions in their economic relations with the Russian federation. Neighbouring Austria is expected to challenge the approval in the European Court of Justice.