Orbán still committed to Rosatom deal, but questions around Paks II abound

Hungary, the Hungarian government, wants a nuclear power plant with zero emissions that will generate a lot of electricity. This is hardly a question at this point. Instead, the real question is who can be our partner in this, given the realities of the war in Ukraine and the situation in the EU. It is not easy to work on Paks II, and for Paks II under these circumstances. It is also clear that this is an extremely crucial and a needfully secret project. In other words, the leaders of the project are not likely to lament to journalists and share their thoughts about whether Russian construction is realistic at all, and if not, who in the West could be the main contractor alternative or what financing solution could be possible from the Middle East. The fact that the project has plenty of opponents doesn't help either: there are the NGOs, the Greens, the Austrians and most recently, the Germans. Indeed, in Paks, there is often a feeling that "the project has many enemies" including in the domestic political arena.

The latest conflict: the Siemens-case

Before we address the current status of the Paks project through a few questions and answers, here's a quiz for starters. We know that Germany's Foreign Minister (Annalena Baerbock) and its Minister of Economy (Robert Habeck) are from the Green Party. In light of the above, which of the following events do you consider likely?

• Greta Thunberg is taken away by German police for protesting against the expansion of a lignite mine.
• Germany supplies tanks for a war in Europe.
• Germany extends the lifetime of some of its nuclear power plants.

Surprisingly, all these statements are true. By contrast, one might as well describe it as 'normal' that the aforementioned minister, Robert Habeck is reportedly not in favor of the German company Siemens Energy supplying Hungary with a control unit for Paks II. If this is the case, we can of course still ponder whether the decision has to do with Hungary, Russia or the nuclear industry.

A recent announcement

In any case, at a recent press conference in Budapest, Hungarian Foreign Minister Péter Szijjártó said that the German Minister of Economy and the Foreign Minister intend to prevent Russia’s Rosatom from acquiring the control system from the German-French consortium. According to reports, Framatome, the French supplier, has already been granted an export license, but Siemens Energy has not been given the same green light.

What is this all about? Since nuclear technologies can at times be dual-use (peaceful and military) they often require an export-import license. Control technology is traditionally such a component, and the agency that grants the necessary license is indeed under the green economy minister.

Attila Aszódi, university professor, the Hungarian government’s commissioner for Paks and later state secretary believes that the position of the Hungarian foreign ministry is improved by the fact that the French have already "let go" of the delivery and the Germans are the only ones holding things up. The Russians have their own solution for the turbine and the control technology, but even in China and St Petersburg the division of tasks was that the "iron" was Russian, but the control technology was German-French. According to Aszódi, the Russians already know all about this control technology, which means that no new technology would be exported to Russia, and in addition, the deliveries do not have to go through Russia, as the components can come directly to Hungary.

On the other hand, energy expert József Balogh points out that the Russians are stuck without the German-French technology. As this old link reveals, the nuclear projects of our region have always had Franco-German "brains".

Do we actually want a Paks II in cooperation with Rosatom?

Népszava recently published a thorough analysis of the conflicts surrounding Paks II. In the face of such conflicts, wondering whether the commitment to the Paks II project is still unshaken at the highest level of the Hungarian government is justifiable. Prime Minister Viktor Orbán and Minister of Foreign Affairs and Trade Péter Szijjártó, to whose portfolio the project belongs, are still very 'enthusiastic'. And if the top leaders feel this way, then the executors under them will also be enthusiastic.

While there is certainly no lack of momentum based on the communication, it is also true that if we don't back out of the project, but instead, a contractual provision or a force majeure, perhaps another EU sanction, or an external factor (Germany) were to thwart its completion, it could be advantageous in a subsequent international compensation case, i.e. it is in Hungary's best interest to show commitment.

Additionally, political communication cannot be expected to paint an honest picture of the situation. After all, due to other energy (natural gas) or even subsequent legal considerations, it may be worthwhile to convey the message that the Hungarian side is fully committed to the Russians even if this may not actually be so straightforward to anyone.

Even “believers” are talking about confusion

When speaking with the experts, a few spoken or unspoken questions and grievances became clear. Such is the case including but not limited to the following:

• Why does Minister Szijjártó pretend that everything is fine with the Russians when it is not?
• Why is Energy Minister Csaba Lantos making a statement about Paks II, when it's not his department, and yet with his claims about the expected date of completion belies those in Paks and puts them in an uncomfortable situation?
• Why does the public not realize that the much-criticized Russian loan is no longer so unfavorable?
• Why is Austria attacking the project with arguments that would fail in international forums but could still cause delays and costs?

These are, of course, predominantly the thoughts of the proponents of the nuclear project. Those who have been critical from the outset are sticking to their previous arguments: the technology is not attractive, the project is expensive and will be delayed in time and cost anyway, and Russia is not the partner with whom one should enter into a long-term relationship nowadays.

Below is a closer examination of what is happening around the project.

Why was Szijjártó so positive about it?

The question might even be posited as an exciting physics puzzle: what is it that accelerates while slowing down? The answer is: the Paks II project. Telex recently reported (LINK) that Foreign Minister Péter Szijjártó – much to the surprise of the industry – posted from New York that he had held talks with the Russian Deputy Prime Minister for Energy Alexander Novak, and that they agreed to speed up the Paks II project.

The minister wrote that

"The rapid construction of new nuclear power plant units is crucial for our country. For this reason, naturally, we will not support any proposal from Brussels that would make Hungarian-Russian nuclear cooperation even slightly more difficult or potentially impossible. We are in agreement about accelerating the investment wherever possible."

According to our sources, the problem is that there are actually quite serious legal and financial conflicts going on right now: the Russians are demanding the payment of bills, everyone is consulting lawyers, and contracts are being taken to pieces. In this atmosphere, Péter Szijjártó's optimistic statement could be 'anesthesia', it could be a distraction, but it could also be wishful thinking, and even a negotiating technique. In neither of these cases is the project in any way in a calm phase.

What about Hungary’s lawsuit with Austria?

The Austrian lawsuit is perhaps the least problematic. As Telex previously reported, it seems that Hungary is winning the case against Austria. The Court of Justice of the European Union has dismissed Austria's Paks II lawsuit, which challenged the European Commission's decision of approval made in early March 2017. The ECJ upheld the Commission's decision, ruling that the commissioning of the two new Paks units would not distort the market or hinder the use of renewable energy sources. Our sources do not yet know whether Austria has appealed the decision announced on 30 November, or whether it has taken any further legal action in the proceedings, which started four years ago.

In Paks, Austria is seen as a potential nuisance. Vienna takes action whenever someone wants to build a nuclear power plant in Europe. So this is not about Hungary. The British have just won a long case in which Austria sued on environmental grounds to stop the construction of the Hinkley Point C nuclear power plant. According to our information, Austria is for example, in alliance with Luxembourg, which also does not rely on nuclear energy, and they are in a perpetual battle with France and the V4 group, all of whom are supporters of nuclear power.

Those we spoke with all said that the Austrian claims were unfounded, that Paks is a very well known site, and that both satellite images and spatial geodesic models have been made of the potential earthquake risk, so the Austrian claims did not seem to be well founded. Nevertheless, even though they had been previously investigated and closed, the National Nuclear Energy Office (Országos Atomenergia Hivatal, OAH) reportedly accommodated the Austrian questions in the spirit of bilateral friendship and made extra efforts to clarify the situation.

In any case, this hardly seems to be the biggest problem with the project.

Is there any construction going on right now?

It is perhaps worth recalling the launch of the Paks II project. It was on 14 January 2014 – somewhat unexpectedly before the 2014 elections – that Hungarian Prime Minister Viktor Orbán and Russian President Vladimir Putin signed an intergovernmental agreement on cooperation in the peaceful use of nuclear energy, which included the construction of two new VVER-1200 reactors at the Paks site. Also present were then Minister of Development Lászlóné Németh and Rosatom CEO Sergei Kiriyenko.

Since then, everything has been moving very slowly, but by August 2022 the project had at least reached the stage where the National Atomic Energy Agency had granted the license for construction.

According to our sources, work is underway, but not yet on key sites. Real estate utilization, office construction, earthworks – these were the phrases we heard the most, with some self-critically remarking that things could be further ahead. According to our information, several companies, such as Bauer, Duna Aszfalt, and Vertikal, are currently active in the area.

A major part of the work was launched in September 2022, involving the excavation of one million cubic metres of soil.

As far as we know, the workers have reached a depth of 5 metres (the impermeable layer) under the future Block 5. The work is easier up to that point, and then comes the waterproofing, our sources explained to us. But that's still "nothing", they still need to get to 23 meters below ground, i.e. the depth of a high-rise building, and then there's still Block 6. In addition to this, preparatory work is under way on around 100 different ancillary facilities (steel plant, concrete plant, offices). In the field, one hears more Hungarian where the excavation work is going on and mostly Russian where the steel structures are being built. There are sometimes posts about the construction work on Facebook as well.

The number of those working in Paks at any one time varies. It is also important to note that the handover of the turnkey power plant is essentially a Russian task, with the Hungarian side being more active only in checking the permits and documentation.

What about the Russian loan?

The Hungarian-Russian loan agreement was signed in March 2014, but as Vg.hu reports, it has been amended since then. The Russian side is providing the Hungarian side with a state loan of up to EUR 10 billion (covering 80% of the project's cost) to finance the work, services and equipment needed for the design, construction and commissioning of units 5 and 6 of the Paks nuclear power plant.

This Russian loan is basically seen as a safety net in Paks. From the outside, however, it doesn't seem very rational that the Hungarian side always withdraws the installment due under the contract and then pre-pays it with more favorable loans from other sources.

On top of this, there is now a dilemma or a deadlock, even though the Russian loan is not that expensive any more. Our sources have shared several interpretations on this. Some say that the loan always has to be withdrawn, but can be prepaid without a fee. This has been the case with some 30 major bills so far, and

there are currently two bills being settled.

However, in contrast to the positive spin, we have also heard negative interpretations such as the sharp controversy surrounding the two ominous bills from last year. In any case, the interest rate on the Russian loan is now roughly on the same level as elsewhere where Hungary can borrow foreign currency from, but it would be much more favorable if we could borrow at European rates in line with RRF conditions.

The interest rate on the loan is rising, first it's 4.5, then 4.8 and finally 4.9 percent. This has generally not been so attractive in the past, but unfortunately, now it is no longer considered expensive. Euro rates for the same maturity on the Hungarian market are currently at 4.8 percent, while EU rates are at 2.8-2.9 percent.

The loan agreement was amended just a year ago. It requires an agreement from the parties at least six months prior to each successive annual budget period on the amount of the loan to be used during that period. Then, the Hungarian Ministry of Finance may inform the Russian Ministry of Finance before 1 July of the year in question, but is obliged to pay a stand-by fee of 0.25 per cent of the agreed amount of any unused credit.

The Hungarian party is to repay the amount of the credit actually used on 15 March and 15 September of each year for 16 years.

When could it realistically be finished?

The construction of Paks II is officially scheduled to conclude in 2030. Although no one on the market has long considered this to be realistic, it was not possible to officially call this date into question. Just like it was with the fuel price cap, which everyone knew was untenable, but right before it was phased out, government politicians were still denying its harmful effects en masse and then a day later their whole group was suddenly enlightened.

In this case, there was one voice that didn't sing in unison: energy minister Csaba Lantos gave a more realistic date of 2032 in Vasárnapi Újság.

Of course, we most likely won't have a functioning new unit even by 2032, but at least the minister gave a date that is somewhat closer to reality. True, he upset those in Paks, who are "forced to clown around" with the wrong date, while the minister, who must be kept away from the project because of the rules on separation from Paks I goes around saying things like this.

Hungary has to keep the Paks I and Paks II projects separate. To put it very simply: the first is under Csaba Lantos, the second under Péter Szijjártó. For example, one of our sources said that "the announcement of 2032 by Csaba Lantos is a bad message for the EU, as it indicates that there is no separation between the two, even though 2030 was indeed an unfounded "success communication" by Péter Szijjártó. But this good cop – bad cop situation is still hard to understand, as Lantos has actually put Szijjártó in an uncomfortable position with this statement."

Since then, Csaba Lantos' state secretary Attila Steiner has also given an interview. He was more cautious when speaking with G7:

“I cannot comment on Paks II, it is not our responsibility. Separation conditions are imposed on us.”

Is it moving ahead or has it been halted?

So is it all going forwards or backwards? One of our sources answered with a line from a song by Hungarian music group Hobo Blues Band (which is originally from Jack Kerouac):

“To be on the road is happiness, to arrive is death.”

In other words, the suggestion is that the government very much needs this project because there is a lot of money to be spent on it, so the insiders will get work and therefore make a lot of money, but the end point is uncertain. There were sources who said the project was going well, others who said it had completely slowed down, but there were also those who said the most important thing right now was that if any changes were needed, the project should be on the right legal footing – and whether that legal work now amounts to speeding up or slowing down is for everyone to decide for themselves.

In any case, the government still seems to be united in its view that the need for a zero-emission energy producer, a large-scale base-load power plant is bigger than ever.

So it is no coincidence that the Prime Minister and the Foreign Minister continue to prioritize the plant and to speak about its importance. But behind the scenes legal discussions, negotiations and fine-tuning are ongoing. Moreover, as another source pointed out, since the personnel changes and management changes around Paks II, everything has slowed down. The city and the employees have less insight into the real processes and goals than before, when there was still an established system of relations between the leaders and the team at the local municipality.