Pros And Cons Of Hungary's Nuclear Agreement With Russia

  • 4 Jul 2014 1:00 AM
Pros And Cons Of Hungary's Nuclear Agreement With Russia
Parliament is soon to adopt a law approving the Hungarian-Russian credit agreement on which the expansion of the Paks nuclear power plant is based. At present prices the tab runs to 10 percent of the Hungarian GDP.

When Minister of National Economy Mihály Varga spoke in parliament in favor of the government’s bill last week, he didn’t embellish his speech. He plainly asked the legislators to give their fiat to the Hungarian–Russian accord on nuclear cooperation, which had been signed on January 14, 2014, without a prior public discussion. At stake is a huge sum, so it would have merited an explanation in detail including calculations of the future installments and the justification of interest surcharges.

The Russian credit of EUR 10 billion may only be spent in connection to building two new nuclear reactors of 1200 MW each by paying 80 percent of the bills that the Russian side will submit after the Hungarian side has already paid the remaining 20 percent, also in euros. Varga was silent on any guarantee that both reactors are finished by 2026. Repayment has to begin even if the project is delayed. All permits, including those that will originate in the European Union, will have to be obtained by Hungary.

It was indeed unnecessary to explain why Hungary needs a loan to have the new nuclear facility built. It lacks the funds. The estimated full cost of the project: EUR 12.5 billion is over half of the entire funds transfer Hungary received from the European Union between 2007 and 2013. Besides, only Rosatom – which has the ambition to enter EU markets – had made such a generous offer.

But raising such a huge loan has its price. In the period until repayment begins (until the reactors are dedicated but not later than 2026) Hungary will have to pay an annual interest of 3.95 percent then, for a period of seven years, 4.5 percent, for another seven years, 4.8 percent and, in the final seven-year period, 4.95 percent. If there is a delay in repayment, the interest is raised two and a half times. In the first seven years Hungary will have to repay 25 percent of its debt, then 35 percent and finally 40 percent.

The debt is calculated in euros even though the Hungarian government justified the project by referring to the domestic demand for electricity, which means related revenues will be generated in forints. It seems to be unrealistic for Hungary to generate the annual revenue of about EUR 800 million from the sale of electricity as from 2026, especially because Viktor Orbán promised that electricity generated at Paks will be the least expensive in Europe.

To put those sums into perspective: the total annual revenue of the present nuclear power plant, whose capacity is only slightly smaller, is four-fifth of that sum and its profit, which could be used to pay the debt installment, is only one-sixth of it.

The new nuclear power plant is also supposed to generate the interest that is calculated to reach over EUR 2 billion in the period until 2026. It is very difficult to predict prices for a time horizon of thirty years. Today imported electricity is less expensive than that obtained from numerous domestic power plants. Consequently, several domestic power plants, including a new gas turbine of E.ON. at Gönyű, Győr–Moson–Sopron county, is on the back burner. (GDF Suez of France has already sold Dunamenti power plant at Százhalombatta, Pest county.) In 2013 Hungary met a third of its electricity demand from imports.

In Hungary there is a broad consensus, also confirmed by opinion poll data, that it is worth maintaining the country’s present nuclear power-based electricity generating capacity of 2000 MW. Consequently it would sound logical if the two new reactors became operational after the present nuclear power plant is decommissioned in 2032-36. However the current plan foresees the dedication of the two new reactors 8 to 10 years earlier. Many observers consider that an unnecessary risk.

When the Hungarian–Russian nuclear agreement was signed, the Hungarian government justified it by claiming that only half of the present capacity of Paks will remain operational until 2030 but it failed to offer a professional explanation why it is necessary to make up for the gap from a nuclear source.

In 2011 the governing parties approved a national energy strategy that called for increasing the reliability of the Paks nuclear power plant – and that is in harmony with the European Union’s emerging energy strategy. The European Commission, whose proposals will be discussed in late June by the EU’s heads of government and state, worked out its recommendations bearing in mind potentials disruptions in the supply of natural gas due to the crisis in Ukraine.

From that point of view the Paks nuclear power plant can be seen as a factor that increases the reliability of energy supply – especially for Hungary that meets 80 percent of its natural gas needs from import. By contrast, the new reactors to be built in Paks will not reduce Hungary’s dependence on the Russian energy resources because the Hungarian–Russian nuclear energy accord foresees that Russia will supply Hungary with fuel rods in the coming 20 years and perhaps beyond that. Hungary will continue to be reliant on the Russian supply, which the European Union, which prefers the geographical diversification of sourcing energy, is not welcoming.

Said provision of the Hungarian–Russian agreement doesn’t violate any EU rule. Even if the EU required that the Paks nuclear power plant should be able to use nuclear fuel rods from sources other than Russian, Hungary could do that already. When Hungary joined the EU in 2004 Paks was made ready to accept fuel rods from other producers. True, until now that has not occurred on a large scale.

The European Commission might criticize Hungary for choosing the Russian supplier without an international competition – even though it had prepared to do so for years. Worse, it could provoke an EU’s infringement procedure if the Hungarian government attempted directly to intervene to ensure the return on the investment and the required price of electricity.

Earlier this year the Együtt–PM party coalition attempted to initiate a national referendum on the scheme but the national election committee blocked it. Then Benedek Jávor, co-chair of the PM (Dialogue for Hungary) party, a freshly elected Member of the European Parliament, petitioned László Székely, parliamentary commissioner for fundamental rights, to petition the Constitutional Court to examine whether the Hungarian–Russian credit agreement of HUF 3000 billion violated the constitutional ban on increasing Hungary’s sovereign debt.

Source: HVG

Translated by Budapest Telegraph

  • How does this content make you feel?