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Commission gives Hungary green light on Paks II expansion

The European Commission has concluded its investigation into whether Hungary’s decision to expand the Paks II nuclear plant would require restricted state aid, ruling that the expansion does not violate European regulations, according to a press release. As far as the EC is concerned, Hungary has a green light to move forward with the project, ending its investigation which has been ongoing since November 2015.

As part of its decision, in order to limit potential distortions of the competition the Commission secured commitments from the Hungarian government

  • To avoid overcompensation of the operator of Paks II. Any potential profits earned by Paks II will either be used to pay back Hungary for its investment or to cover normal costs of operation of the facility. Profits cannot be used to reinvest in the construction or acquisition of additional energy generation capacity.
  • To avoid market concentration. Paks II will be functionally and legally separated from the operator of the Paks nuclear power plant (the incumbent MVM Group) and any of its successors or other state-owned energy companies.
  • To ensure market liquidity. Paks II will sell at least 30% of its total electricity output on the open power exchange. The rest of Paks II’s total electricity output will be sold by Paks II on objective, transparent and non-discriminatory terms by way of auctions.

According to 444.hu, the third condition may pose the greatest risk to Hungary’s state budget.

The online daily reports that several studies have found that the energy produced at the Paks II plant will be more expensive than the market rate in the region. The investment would only be recouped if in ten years (when the first new reactor is expected to go online) the price of energy in the region exceeds EUR 55 MWh.

In 2016, the price of energy was EUR 41 MWh in Hungary but only EUR 29.45 in Germany and the Czech Republic, and EUR 32.4 in Slovakia.

In other words, if the Hungarian government’s projection that the price of energy will increase significantly does not come true, then no one in the region will buy the energy produced at Paks II at auction unless it is sold for less than it costs to produce.

Economists have criticized the government’s energy price projections on grounds that it is unrealistic for the price of energy to increase so dramatically in coming years. Recent declines to energy prices and the increased use of renewable energy lend legitimacy to such claims.

Despite moves on behalf of Germany to close nuclear plants and expand wind and solar energy investments, the Hungarian government is expecting the demand for more energy to increase in the region.

Benedek Jávor, a green party MEP from Hungarian opposition party Párbeszéd, says the Commission’s decision “only confirms that Hungary has a fundamental right to make stupid decisions.”

According to Jávor, the Hungarian government’s “right to make stupid decisions” will empower it to “spend trillions of Forint of Hungarian taxpayer money on outdated technology which damages the environment and endangers human life”.

Help from “Mr Russia” and EU Commissioner Günther Oettinger

In late 2015, the government published an “independent” economic analysis of the Paks II expansion project that it had commissioned from Rothschild & Co. The analysis essentially unpinned the government’s earlier estimates.

In 2016, then-European Commissioner Günther Oettinger took a plane to Budapest to meet Prime Minister Viktor Orbán. The plane was owned by Klaus Mangold, a German lobbyist (and executive at Germany’s Rothschild’s Bank) sometimes referred to as “Mr Russia” for endorsing favorable treatment of Russia despite its invasion of Ukraine and annexation of the Crimea.

The incident sparked controversy as Oettinger failed to declare the trip and the meeting in accordance with Commission rules, and further questioned efforts on behalf of the EU to maintain transparency in EU lobbying.


Benjamin Novak :