This morning one of the very first articles I read about Sergey Lavrov’s visit to Budapest, in Népszabadság, had the following headline: “Good Hungarian-Russian relations don’t depend on the extension of Paks.” The Russian foreign minister uttered these words at the joint press conference he and Hungarian Foreign Minister Péter Szijjártó gave after their meeting. My first thought was that something had gone very wrong with Viktor Orbán’s pet project, the extension of the Paks Nuclear Power Plant, to be built by Rosatom and financed by a state-owned Russian bank. The Paks project has been severely criticized by both the Hungarian opposition and the European Commission.
Sergey Lavrov, unlike his Hungarian counterpart, is an exceedingly skilled diplomat who chooses his words carefully. I therefore suspected that something is going on which the Hungarian government had decided not to divulge. This wouldn’t be the first time that we learn from Russian sources details of Russo-Hungarian relations that Budapest decided to keep secret. As the day went by, I became increasingly suspicious because other Russian sources, for example reports on Lavrov’s visit by TASS, the Russian news agency, emphasized the issue of Paks. Rosatom’s contract to build Paks-2, as the project is called, is obviously important to Russia. As Lavrov said, “we consider this project to be a strategic one [and] we are convinced that this project will contribute to strengthening Hungary’s energy security, creation of new jobs, and development of the Hungarian economy in general.” Szijjártó assured the Russians that “the Hungarian side is committed to the implementation of this project in compliance with the plan.”
It was pretty clear even before Lavrov’s arrival that conversations would focus mostly on trade and economic cooperation. In anticipation of his meeting with Lavrov, Szijjártó said that because of the economic sanctions against Russia, trade between the two countries has slowed, and therefore Hungary is seeking direct investment opportunities in Russia. In passing, he also mentioned seeking better relations between Russia and the European Union, which is in Hungary’s interest. According to Russian sources, one of Lavrov’s missions in Hungary was to get Hungarian support in lifting the EU’s economic sanctions against Russia.
Lavrov gave an exclusive interview to Magyar Nemzet in which he expressed his hope that “the Hungarian government, which in the past more than once declared its commitment to the [Paks] project, will be able to give satisfactory answers to Brussels’ questions.” Indeed, János Lázár will make a trip to Brussels in a couple of days to discuss the project once again. He is optimistic that the EU will reach an accommodation with Hungary. He announced that he is expecting “a significant step forward” as a result of his conversation with Margarete Vestager, European Commissioner for Competition, whose main objection is that Rosatom received the job to build Paks-2 without a competitive bidding process.
My suspicion of this morning was strengthened this afternoon when, after days of inexplicable silence on the part of the Hungarian media, Népszabadság reported that a few days ago János Lázár said in parliament, in answer to a question of Bernadett Szél (LMP) regarding the Paks project: “Hungary’s money market’s position has greatly improved lately and therefore Hungary is ready and able in the near future to replace the [Russian] loan with capital obtained on the open financial market. Therefore we might be able to finance the project under more favorable conditions.” How this critical announcement was missed by the Hungarian media is simply beyond me.
Since the Hungarian government argued at the time it signed the loan agreement with Russia that the country couldn’t possibly obtain such a large 30-year loan from private sources, Lázár’s announcement is baffling. Moreover, private banks are disinclined to lend money for nuclear power plants because their construction usually takes twice as long as anticipated and costs twice as much. Therefore, it is unlikely that Hungary would receive such a loan from non-Russian sources, especially for a project built by Rosatom.
What lies behind this change of plans? One possibility is that Vnesheconombank simply doesn’t have enough money to finance such a huge project. Last year the Russian government had to sink 19 billion euros into the bank, which was struggling after financing the Sochi Olympics. The other possibility is that the Hungarian government thinks that getting non-Russian funding would appease Brussels, which then would drop its objection to the project. Benedek Jávor (PM EP), who as a member of a Green party is deeply critical of the Paks project, has an explanation for why the EU rejects Russian funding, which unfortunately is not at all clear from the Népszabadság article. His theory is that the European Commission finds the interest rates stipulated in the Russian contract unacceptable (probably a form of state subsidy). If the project were to be funded by non-Russian private sources, this objection would be eliminated, but the project would cost a great deal more.
If the first version is correct, Russia is reneging on its promise to finance the construction of Paks-2, which was presumably the most advantageous part of the deal Hungary had with Russia. Now, if the project is still on but Hungary has to go to the private market in search of funding, Russia gets what it wants without having to make financial concessions. That is, Rosatom will build Paks-2 and the Russian state won’t have to provide favorable financing. The money for the project will flow from western investors into Rosatom’s coffers. This sounds to me like a win for Russia, a loss for Hungary.