Although experts say the project could create a huge financial burden for the state, the government is pushing ahead with its proposal to build two new blocks at the nuclear power plant in Paks. But it will have to get the plan approved by the EC.
When the Hungarian government signed an agreement with Russia in January 2014 to add two new blocks to the existing nuclear power plant at Paks, there was a broad range of opposition to the deal.
Greens were perplexed as to why renewables did not receive long-term backing instead. Economists stressed the staggering burden of the costs. Others expressed fears over a growing Russian influence as a result of Moscow’s loans for the project. Energy experts projected heavy losses down the road because of the huge energy surplus that would be generated. And critics were upset at the lack of transparency: The documentation of the entire deal was classified for 30 years this March.
Despite these objections, preparations are in full motion. Yet, there are still obstacles ahead. Most importantly, the investment is subject to European Commission approval.
Dr. Attila Aszódi, government commissioner in charge of the project is confident about the positive outcome of the ongoing EU proceedings. “We have been fully cooperating with the European Commission from day one. So far we have got their consent in several aspects, now we are awaiting the decision to declare that no state aid is at play,” Aszódi told the Budapest Business Journal. “We firmly believe that the electricity to be generated by the newly built units can be sold under market conditions and no outside capital injection from the government would be necessary after the commissioning of the plant.”
This assertion is countered by the calculations of REKK, a Corvinus University of Budapest research center that is projecting HUF 140-190 billion may have to be paid from the state budget in the first ten years of operation and the second decade would require additional financing of HUF 50-117 bln.
What can be taken for granted is that eurocrats know exactly what to look for when they are on the hunt for hints of state aid, Attila Holoda energy expert and former state secretary pointed out to the BBJ. But the government is likely to get lucky. “The EC is a very bureaucratic institution, so any investigation aimed at imposing sanctions may drag on for years. In the meantime the construction may even be completed,” he said.
However, there’s a long way to go until the Paks 2 blocks start functioning in early 2026, if things progress smoothly. “It’s a very complex process where a total of 6,000 permits and licenses are needed. There are five bigger sets of them from which the construction license should be in our hands by the beginning of 2018,” Aszódi said.
The Russians are doing their part by starting the planning phase, while the Hungarians have requested the international environment license. A key part of the effort is touring European countries where detailed information will be given on the impact of the investment.
“Even though there are no cross-border effects at play, 30 states were invited to participate and in the end 11 of them signed up. Under this initiative, we are holding expert consultations and public hearings in order to answer every question that may arise in relation to environmental concerns,” Aszódi said.
The communication campaign has been operating at full steam within the national borders as well. At first, public forums were organized in 41 dwellings in the area surrounding the nuclear power plant, then targeted information was published in print media. Young people were approached at major summer festivals.
The most hotly discussed issues about the whole construction are profitability and financing, though. REKK estimates costs would reach HUF 3 trillion, the equivalent of more than 10% of Hungary’s GDP in 2012.
“Such projects have an evolutionary process, which means actual costs are bound to exceed initial calculations. And by the time construction takes place, new technology will have emerged for which the costs cannot be predicted now. It’s irresponsible to deny such factors,” Holoda said.
The overall profitability of the venture is further questioned by losses projected by REKK not least because the new blocks will operate in parallel to the old ones for around ten years. Immense surplus energy will be generated which could well be hard to sell. The government dismisses criticism concerning profitability, claiming that future energy market prices are underestimated and investment costs are exaggerated.
Many also frown upon the fact that the project is financed through Russian state loans. “Their involvement is driven by political intentions as they are keen to build reference power plants abroad. It’s far from rational to lend money at 3.95-4.95% to Hungary if financing Russian debt, through selling Russian government bonds, costs 16-18% per year,” Holoda noted. “The bottom line is that if it was worth it from ordinary loans and under normal market conditions, investors would jump at the opportunity. That’s not the case, however,” Holoda pointed out.
Despite his, and other critiques of the deal, the current government seems determined to get the new blocks built.