In this interview, the green Hungarian politician Benedek Jávor explains the history of Paks II, the controversial Hungarian-Russian deal to expand the four nuclear power plant units in the southern Hungarian town of Paks by adding two more units. Austria’s Federal Environmental Agency has recently raised concerns over the project, referencing seismic risks. The construction, pushed by the Government of Prime Minister Viktor Orbán, is to be financed by an expensive Russian loan. The conditions of the deal, which was reached without a tender, led to a European Commission infringement procedure that was finally dropped in 2016, despite a lack of convincing arguments justifying Rosatom as the best candidate.
Benedek Jávor is a Hungarian biologist, environmentalist and politician, a former leading member of Politics Can Be Different (LMP), and a current leading member of the Dialogue for Hungary (PM) party. He was a Member of the Hungarian Parliament (2010-2014) and Member of the European Parliament between 2014-2019 in the group of The Greens–European Free Alliance (Greens/EFA). Currently he is the Head of Representation for Budapest City Hall in Brussels.
Mr Jávor, you are known as a staunch critic of Paks II, the Hungarian-Russian deal to build two VVER-1200 nuclear power plant units 120 km south of Budapest, as an extension of the already-existing four such units built to Soviet design with VVER-440 technology in the 1980s. In a recent Facebook entry, you pointed out that Hungary’s nuclear watchdog, the Atomic Energy Authority, withheld permits for the planned construction and is seeking further assessments, most likely due to expert reports of earthquake risks related to an active seismogenic fault passing directly below the Paks II site. Could you give us an overview of how you have become involved with this issue?
I’ve been dealing with energy and climate politics for 20 years as an environmental activist and politician. The Paks nuclear power plant first came under my scrutiny following the incident in 2003 that damaged fuel assemblies at Unit 2 due to inadequate coolant circulation within the cleaning tank. The incident was classified as severe on the International Nuclear Event Scale.
In the 2010 general elections (when FIDESZ won two-thirds of the seats of the national legislature, AF), I won a seat in the Hungarian National Assembly and chaired its Sustainable Development Committee. This is when I started to intensively confront the issue of a possible Paks II expansion. The Fidesz Government informed us that an international call for tenders with six potential candidates would be launched, including Russia’s Rosatom, Westinghouse, France’s Areva, South Korea’s KEPCO, several Japanese consortia, such as Mitsubishi, Toshiba and other Japanese companies, and the sixth participant would have been a Chinese company. In a series of pre-negotiations, Westinghouse tailored their offer to the needs of the Hungarian market. By 2013, even Fidesz’s expert politicians considered the latter as the most likely partner for the expansion of the nuclear reactor.
It was in this context that, in January 2014, the contract with Moscow was signed and the project was given to Rosatom without any tender or explanation.
Was this a private deal between Orbán and Putin?
This was obviously a political pact without technological arguments. The Hungarian government claimed that the Russian party was the only one that also offered a bank loan in its package to create a nuclear plant.
A loan that will make Hungary indebted to Russia for decades to come? (The Paks II investment is estimated at 12.5 billion EUR, of which 10 billion EUR is a Russian loan. The credit agreement was approved by the Hungarian Parliament in 2014.)
Yes. The Hungarian Government’s trick was to omit to tell all the interested parties that they were looking for financing as well. This way they could say that they had chosen the Russian partner for this reason. The other potential partners later explained that if they had been asked to include financing in their package, they could have, but this wish had simply never been articulated from the Hungarian side.
In November 2015, the European Commission launched an infringement procedure for lack of compliance of Paks II with EU public procurement rules, based on a complaint you submitted about the lack of a tender in 2014.
It was only in 2016, in the course of the infringement procedure, that arguments emerged stipulating that the Russian party had been the only one that met the technical needs of Hungary. This is obviously false, as this had never come up before the Russian pact in 2014. We know that Westinghouse had met the technical requirements. Strangely, on 17 November 2016, the Commission accepted the no-bid contract, based on technical exclusivity, and dropped the infringement procedure, even though Hungary could not put forward real technical arguments which justify that only Rosatom could execute the contract.
Tell us more about the loan agreement, please.
It is a financial catastrophe! Originally, repayment was to begin on 15 March 2026 and last 20 years. That start date was postponed earlier this year, as there had already been five years of delay in construction. However, the Russians insist that the end date should remain the same, 2046, meaning that the repayment period has been shortened from 20 to 15 years, generating much higher annual costs for the state budget. The modification didn’t touch the timetable of gradually increasing interest rates.
The interest rate of the Russian loan is already 2-2.5 times more than the available market rate. Basically, it costs twice as much as what we could otherwise get on the market. Until 15 March 2026 it is 3.95%, then it will increase to 4.2% and will finally rise to 4.95% by the end of the 20-year payback period. Now, due to the delay, the costs will appear later, most of the loan will be drawn on at a higher interest rate, and the repayment will begin with a five-year delay. This means that in fact the effective applied interest rates will be even worse than originally estimated. Today the Hungarian state can issue state funds with an interest rate of 2-2.5%. So the reason why the Government gave the nuclear plant construction contract to Russia is, in actual reality, not an advantage but a disadvantage of this project, and with the delays it worsens day by day. If the Hungarian state had taken up a state loan and paid the construction that way, we would have been better off.
By the way, the money doesn’t even enter Hungarian soil. A bank account was opened at a Russian bank for Hungary. The Russian party hands in the invoices of the completed work to the Russian bank, the Hungarian government signs it and the Russian bank pays the Russian party and adds the sum to the debt Hungary has incurred.
So the money stays in Russia the whole time…
It does, but it’s us who will be indebted. Even the Hungarian Government has since acknowledged how bad this loan construction was. So what we are currently doing is: As soon as the Russian loan is drawn on, the Hungarian Government takes on EU or US dollar-based loans from the market and immediately pays back the Russian loan with this money. At the end of the day, Hungary is paying back a double loan to avoid paying off the high interest rates of the Russian loan in the long run.
Could Hungary still pull out of this business?
In theory yes, even though the Government has attempted to put pressure on the controlling body, the Hungarian Atomic Energy Authority, to accelerate the affair. In Austria a nuclear reactor just outside Vienna was ready to go into operation when a referendum stopped it in 1979.
The Paks II project is still in its planning phase. We’ll start paying big amounts once it gets into the implementation phase. Currently, the construction of the reactors has not begun yet, because the Hungarian Atomic Energy Authority announced on 30 September that following 15 months of scrutiny, it needed further documents from Rosatom. So far, the Hungarian Government has spent less than 500 billion HUF on this project, as opposed to what we’ll have to pay once the construction begins, which I estimate at 4000-5000 billion HUF in total.
The problem is that the government has hampered the development of renewables, banning the installation of new wind energy capacities through administrative measures since 2010 and placing all its bets on Paks.
Why is the extension of Paks I, the existing four power units, necessary?
This remains an unanswered question. In the beginning, the Government used to talk about capacity maintenance (and not extension). The existing four blocks were built between 1982 and 1987. Their original life cycle was planned for thirty years (up to 2012-2017), and then it was prolonged by the Hungarian Atomic Energy Authority for 20 more years till 2032-2037.
The Government’s decision to extend the nuclear plant by two further units by 2025-26 was thus not about maintaining capacity, but extending it, as PAKS I and II would, in this case exist, in parallel for 10 years.
However, as nuclear plant constructions often suffer remarkable delays, launching Paks II by 2025-26 is not realistic, and it could be delayed up to 2032 or even beyond. When constructing a nuclear plant, these delays are the main contributors of extra costs.
If the old and new units still ended up operating simultaneously, many technical problems would arise. The capacity of the four old and two new blocks would cover 80 percent of Hungary’s energy supply. Nuclear energy is very difficult to regulate. We would produce much more energy than needed at night, when energy consumption is much less than in the daytime, and we couldn’t even sell it abroad. So, we would build a very expensive nuclear plant, and then we wouldn’t know what to do with the energy it produces.
There could be a problem with the cooling water, too, in this case, in particular with letting the cooling water flow back into the Danube: With parallel blocks, the water could not be cooled down quickly enough and it would heat the Danube far beyond the project’s environmental permit and the river’s ecological tolerance.
In any case, the parallel operation of both nuclear plants raises serious technical and environmental issues, questioning whether it is worth investing in a project where the calculation of the costs is not feasible, not even according to the project owner, with a potential delay of six, eight, or 10 years, meaning increasing production costs.
How did the Hungarian Government manage to sell this project to its citizens, though?
They don’t make a big fuss about it, except for simply explaining that cheap energy will be guaranteed by Paks II. A big part of Hungarian society accepts this and does not seek to go beyond this explanation.
Clearly, this deal is not about energy-related or economic interests, but about politics: It has reinforced the alliance between Hungary and Vladimir Putin. Basically, Paks II represents the costs of this deal.
/Proofread by Gwendolyn Albert/