Tag Archives: Rosatom

A political deal was struck: The European Union, Hungary, and Rosatom

The independent Hungarian media has published about a dozen articles in the last few days about the revelations Benedek Jávor, Párbeszéd’s member of the European Parliament, managed to unearth about the European Commission’s decision to drop its objections to the nuclear power plant in Paks, to be built and financed by Russia. Less was written about it in the foreign press.

One of the Commission’s initial reasons for opposing the project was the lack of competition in awarding the tender to Rosatom, a company owned by the Russian state.

Benedek Jávor has been after these documents which, he suspected, would reveal that the rather abrupt shift in the Commission’s attitude toward the Hungarian project which occurred in November 2016 might have gone beyond legal or technical considerations. The EC officials were less than enthusiastic about providing Jávor with the documentation. In fact, he had to threaten them with legal action before he received the crucial documents that proved to him that a political deal had been struck between Brussels and Budapest which allowed the Russian-Hungarian nuclear project to proceed.

People have speculated for some time that Hungary had secret supporters within the European Commission. The chief suspect was Günther Oettinger, who visited Budapest in November 2016 in the company of Klaus Mangold, a German businessman with good Russian connections. As we now know from the newly released documents, there were others as well. The infringement procedure against Hungary was dropped when the EC cited “technical exclusivity” as the deciding factor, agreeing to Hungary’s argument that only Rosatom’s reactor fit the requirements for the project which, by the way, a lot of experts wouldn’t buy.

According to a well-known energy expert, “the term technical exclusivity is essentially a last resort.” He called attention to the fact that France made a similar argument in awarding the Flamanville nuclear plant’s contract to a company without inviting bids from others. He added that Hungary knew that the Commission would “roll over, as it did in the Flamanville case.” As we have now learned, the Hungarian government needed a little help in coming up with the “technical exclusivity” argument, and that help came straight from the “Brussels bureaucrats.”

It was at the end of 2014 that Jávor filed a complaint with the European Commission about the unlawful award of the Paks project to Rosatom without competition. For two years Hungary argued that the contract was legal because it was only Rosatom that would also provide a ten billion euro loan, and therefore Hungary had no choice. That argument led nowhere.

After two years the Hungarian government switched tactics and claimed that Rosatom was the only provider that would meet Hungary’s needs. As is clear from the documents, the Hungarian government was being coached by Tomasz Husak, the head of EU Commissioner for Internal Market, Industry, and Entrepreneurship Elżbieta Bieńkowska’s cabinet, who “walked Hungarian officials through the ‘main elements’ they should offer.” Polish friends can come in handy for Hungarians.

Once that was taken care of, the only question was what the European Union would ask in return. In the end, Hungary had to promise that in the future it will solicit bids for subcontracts, with the important proviso that they will be European companies. This option was described by Commission officials as a “global political solution.” It was most likely deemed a satisfactory alternative to what would have been the only legally acceptable solution: to proceed with the infringement procedure. Of course, Benedek Jávor is correct when he points out that a solution which overlooks one infringement of the law with the promise of not committing another in the future is “legally weak.”
Will the release of these documents have any further bearing on the future of the Paks II project? Can the decision be reversed? According to Politico, it cannot. However, the documents might have some relevance in the event of legal challenges to the Commission’s approval of Hungary’s state aid for Paks II, another EC decision in favor of Hungary.

One thing is sure: officials of Bieńkowska’s department will fight tooth and nail to defend the decision. Lucia Claudet, spokesperson of the European Commission, in answer to Jávor’s accusations, already denied any collusion between the EC and Hungary and announced that “any conspiracy theories or allegations of undue interference are unfounded.” According to Claudet, everything went according to the normal rules of dialogue between a member state and the European Commission.

In Jávor’s opinion, this agreement will have serious consequences for Hungary in economic terms. Originally, the Orbán government had negotiated a 40% Hungarian share of subcontracts but if, as Hungary has promised the European Union, 55% of subcontracts will be decided in open tenders, the Hungarian share might be very low. As Jávor figures, Rosatom will insist that the majority of work be done by the company, and therefore Hungarian firms will be squeezed out of the “investment of the century.” The real winners will be Rosatom and multi-national companies. Unless, as often happens, the bidding process is rigged.

What a bonanza! Hungary will have a nuclear power plant it doesn’t really need, a burdensome long-term debt load, and very little in the way of a short-term boost to the Hungarian economy. All in all, a wonderful investment.

November 26, 2017

Will Rosatom have its own airfield in Pécs?

A short while ago I devoted a post to the financial collapse of the City of Pécs, which, after many years as an MSZP stronghold, chose Zsolt Páva as its Fidesz mayor in October 2009. Within weeks it became evident that Viktor Orbán, in anticipation of his electoral victory, was using the city as a political laboratory. It was in Pécs that the new Fidesz leadership tried out the practice of “citywide consultations.” Páva sent questionnaires to the inhabitants, asking them questions to which the answer could only be “yes.” One of his most expensive moves, most likely at the urging of Fidesz, was the forcible takeover of the French share of the water company, which years later cost the city three billion forints in a legal settlement. The city’s attempt to take over the famed Zsolnay porcelain factory ended in failure due to the determination of the Syrian-Hungarian-Swiss owner. This was also a costly affair for Pécs because, in the course of the machinations to ruin Zsolnay, the city set up a rival company called Ledina Kerámia and enticed 150 Zsolnay employees to join the phantom firm. The city had to pay the wages of 150 workers for no work whatsoever.

These two financial ventures by themselves have been very costly, but they were only a small fraction of the enormous debt Zsolt Páva and the city council amassed in the last seven years. According to a new website called Szabad Pécs (Free Pécs), the city owes 7.5 billion forints, which apparently the national government will take over. That’s not all, however. There are several municipal-owned firms that are in the red to the tune of 10 billion forints. This is an enormous amount of money ($29 million) for a city of about 170,000 inhabitants with not much of a tax base. Viktor Orbán, while visiting the city at the end of August for the 650th anniversary of the founding of Hungary’s first university, established in Pécs, asserted that the city’s leadership got itself into this mess and they will have to pay for it.

I don’t think anyone knew at the time just what Orbán meant, but a few days ago local investigative journalists working for Szabad Pécs learned that the government is not planning to bail Pécs out without some kind of compensation. A week ago rumors began circulating in town that the city-owned Pécs-Pogány International Airport will be taken over by the government, which will in turn write off 2.8 billion forints of the city’s debt. On the face of it, such a government purchase wouldn’t be profitable. The number of passengers, which was over 6,000 in 2009, by 2014 had shrunk to 2,500. But the deal might actually be quite lucrative for the Orbán government because the airport will likely be leased to Rosatom, the Russian company that will build the Paks II Nuclear Power Plant. The distance between Paks and Pécs is almost 80 km, but the four-lane M-6 highway is sparsely traveled. Moreover, Mohács along the Danube is only 40 minutes from Pécs. Material could easily reach Paks via Mohács.

Pécs-Pogány International Airport

A few days after the appearance of Szabad Pécs’s article, a Russian delegation led by Alexey Likhachev, the CEO of Rosatom, visited the Pécs airport. He and his fellow Russians were accompanied by members of TEK, Hungary’s Counter Terrorism Center. The delegation first visited Paks. From there they traveled to Pécs to take a look at the airfield. The journalists of Szabad Pécs were on hand and took several photos. I may add that none of the local “government” news outlets said a word about either the government’s takeover of certain municipal assets in Pécs or the possible leasing of the Pécs airport to Rosatom.

The private plane of Alexey Likhachev, CEO of Rosatom, at the Pécs Airport

Despite the visit of Rosatom’s CEO to Pécs, János Lázár denied any knowledge of a deal that might exist between Rosatom and the Hungarian government. As he said, “this topic was not discussed at the cabinet meeting. We did talk about the situation in Pécs, but nothing was said about the exchange of property. As far as the airport is concerned, I read about it in the media.” Of course, the lack of discussion of the matter at a cabinet meeting doesn’t necessarily mean that such negotiations didn’t take place. But Lázár, as usual, went further. He claimed that “if that is important to Rosatom, it has to talk to the municipality. The government has no information, no knowledge of such negotiations. They didn’t approach us with such a proposal.”

Well, as far as we know, the CEO of Rosatom didn’t visit Pécs to talk to the city fathers about leasing the Pécs-Pogány Airport. Moreover, as far as the journalists of Szabad Pécs know, the transfer of certain properties to the government is still on the table.

Today Attila Babos, the local journalist at Szabad Pécs, was invited to publish a longer article in Magyar Nemzet on the possible Rosatom takeover of the Pécs Airport. He claims that it is also likely that, in addition to the airport, the government will take over two city-owned companies: Pétáv Kft., the local district-heating company, and Tettye Forrásház Zrt., the city water company. The latter is the company the city established to take over the functions of the water company operated and partially owned by the French Suez Company. The city promised lower rates, which didn’t materialize, but at least the company is now profitable. Pétáv Kft. is also in the black. But, given the size of the debt, the fear in town is that several other pieces of property might end up in government hands. No one knows whether the city will have any say in what properties it is willing to part with.

Not surprisingly, Fidesz’s name is mud in Pécs. Páva and his coterie of Fidesz politicians, including the two Fidesz members of parliament representing the city, are blamed for the present state of affairs. As Attila Babos said in his article, “not even within Fidesz does anyone seriously think that the government parties [Fidesz-KDNP] can possible win in the city in the spring of 2018.” Still, Viktor Orbán cannot leave the city in the lurch. At the same time, the government feels that it has to make “the city pay” in order to show that such irresponsible behavior cannot be tolerated.

Finally, a few words about Szabad Pécs. On March 22 several internet news sites reported that three former employees of Dunántúli Napló who lost their jobs when Lőrinc Mészáros bought the last eight of the 109 regional papers not yet in government hands, including Dunántúli Napló which has been in continuous existence since 1946, decided to start an online paper, concentrating on Pécs and Baranya County. Without them we would know next to nothing about Rosatom’s interest in the Pécs airport or the quick visit of Alexey Likhachev. That tells us a lot about the state of the Hungarian media outside of Budapest.

September 21, 2017

Breaking news: Rosatom was Viktor Orbán’s piggy bank

Lajos Simicska, the former friend of and financial adviser to Viktor Orbán, at last revealed his long-kept secret about the Hungarian prime minister’s plan to buy RTL Klub, the Hungarian subsidiary of RTL Group, on Rosatom’s money, 24.hu reported about an hour ago.

The crucial conversation between Simicska and Orbán took place in 2014, right after the electoral victory in which Orbán’s party again won two-thirds of the seats in parliament. In the course of the conversation, which was mostly about Fidesz’s media program for the next four years, Orbán announced his plan to purchase RTL Klub, the most popular and profitable television network in Hungary. Once it was under his control, he would put an end to the network’s programing. When Simicska expressed doubts about the feasibility of such a move, Orbán wanted to know the approximate purchase price, which Simicska estimated to be about 300 million euros, or 100 billion Hungarian forints. Orbán’s reaction was: “No problem, Rosatom will buy it for me.” It was at this point, Simicska contends, that their friendship came to an end. A week later, when they met again, Simicska told Orbán that he would not be a party to such an undertaking.

Simicska originally told this story in a two-hour interview with Reuters, but the Hungarian businessman stopped the publication of the interview once he realized that Reuters refused to include this crucial part of his interview.

Viktor Orbán  never bought RTL Klub, but about three months after the conversation with Simicska took place the Hungarian government began its frontal attack on RTL Klub, announcing its intention to levy heavy taxes on the media based on advertising revenues. The move was structured in such a way as to specifically target the German-owned RTL Klub. The idea was to force its owners to part with the financially squeezed Hungarian subsidiary. Orbán’s plans were foiled by the German company’s forceful resistance.

Infringement procedure against Hungary on account of the Paks nuclear power plant

Well, it’s official. The European Commission called on the Hungarian government to suspend all further projects in connection with the construction of the Paks II nuclear power plant because Budapest hasn’t followed EU rules governing open bidding procedures. Here is the official press release:

Commission opens infringement against HUNGARY for lack of compliance of the Paks nuclear power plant project with EU public procurement rules

The European Commission decided today to launch an infringement procedure against Hungary concerning the implementation of the Paks II nuclear power plant project. Following exchanges of information with the Hungarian authorities and a thorough assessment of the terms of the award, the Commission still has concerns regarding the compatibility of the project with EU public procurement rules. The Hungarian government has directly awarded the construction of two new reactors and the refurbishment of two additional reactors of the Paks II nuclear power plant without a transparent procedure. The Commission considers that the direct award of the Paks II nuclear power plant project does not comply with EU legislation on public procurement (Directives 2004/17/EC and 2004/18/EC). The Directives consolidate the basic principles of the Treaty on the Functioning of the European Union of transparency, non-discrimination, and equal treatment. These principles seek to ensure that all economic operators have fair chances to participate in a call for tender and to win a contract. The European Commission has decided to send a letter of formal notice to Hungary, which constitutes an official request for information and is the first step in an infringement procedure. The Hungarian authorities now have two months to respond to the arguments put forward by the Commission.

As expected, the Orbán government is defiant. János Lázár in his usual fashion expressed his total disgust with Brussels and promised to bring suit against the Commission if necessary. In his harangue against the EU he judiciously avoided talking about the actual case, the lack of an open tender, which is an EU requirement. Instead, he talked about the EU allegedly prohibiting Hungary from signing bilateral commercial agreements with so-called third countries or such country’s citizens. Hungary has “the right to sign agreements with China, the Arab countries, or for that matter with Russia.” But of course, this is not the issue here. After all, as we learned from José Manuel Barroso’s letter addressed to Viktor Orbán, which I published on Hungarian Spectrum today, the contract with Rosatom was considered to be legal as far as EU law was concerned. The way the contract was awarded, however, was another matter. Barroso in his letter made this eminently clear. Barroso did not, as Lázár now claims, “promise his support of the project in principle.” On the contrary, he called attention to the problem of “the rules on public procurement and state aid.” That was a signal of further probes into the legality of the deal.

Nuclear Power Plants in the European Union

Nuclear power plants in the European Union

Lázár is trying to divert the conversation from the real issue–defiance of EU laws that are on the books to ensure fair competition. Instead, he is trying to show that the controversy is the result of the outsize influence of western multinational corporations. After all, he said, Paks II is one of the largest projects underway in Europe. Large amounts of money can be made by being one of the contractors or suppliers. So, according to Lázár, the issue “is not political but commercial.” Well, indirectly it might be commercial, but what the EU is directly complaining about is an illegal process. The Hungarian government transgressed several European laws and directives that are supposed to ensure equal opportunities to all.

János Lázár was right on one point. He bitterly complained about the length of time it took to deliver the infringement procedure. After all, it was about two years ago that the Hungarian government began final negotiations on the Paks II project. Indeed, it is hard to imagine that it would take two years of solid work to come to the conclusion that Hungary was in the wrong when it signed a contract with Rosatom without open competitive bidding. Népszabadság noted that despite all his blustering, Lázár said nothing about Hungary’s total unwillingness to repeat the bidding process, this time with multiple applicants.

Attila Aszódi, the government commissioner in charge of the project, was asked by many media outlets to comment on the situation. Aszódi is described in his curriculum vitae as an “energy engineer” (energetikai mérnök). Before he was called to head this project he was a full professor at the Institute of Nuclear Technology at the Budapest Engineering University. So, I guess one cannot be terribly surprised that Aszódi is not well versed in legal matters. In his numerous interviews he painted a simplistic picture of the Hungarian position. In his opinion, since the European Union “raised no objections of principle to the agreement from the perspective of article 103,” it means that “the Paks II project itself must be legal.” A huge misunderstanding of the issue.

Meanwhile it turned out that the Hungarian government has spent a fair amount of money already on the project. Moreover, it has drawn on its loan agreement with the Russian government which, if the project comes to a halt, will have to be paid back immediately in one lump sum.

The most amusing news I read in the Hungarian media today was Rosatom’s reaction to the EU suspension of the Paks II project. The mammoth Russian firm announced that “Rosatom follows the dialogue [between EU and the Hungarian government] and fully shares the opinion of János Lázár concerning the legality of the project.” What a surprise.

The Hungarian government is desperately trying to find an effective way to make the problem disappear. One point they emphasize over and over is that no nuclear plant anywhere inside the European Union was built after an open bidding process. So far I have not heard any reporter who could prove or disprove this assertion. It would certainly be a worthwhile undertaking to find out whether the statement is true or not. And if true, what makes the Hungarian case different.

The Russian-Hungarian deal on the Paks Nuclear Power PlanT is in trouble

Yesterday came the news from Bruxinfo, a Hungarian-language internet site specializing in news about the European Union, that the European Commission will require the Hungarian government to suspend all projects connected to the building of an extension to the existing nuclear power plant in Paks, just south of Budapest along the Danube river. The original plant was built by the Russians, and the two additional reactors, named Paks II, is to be built by Rosatom, the giant Russian nuclear power plant construction company. The very costly project can be undertaken only if Hungary receives a foreign loan, and it seems that it was only the Russian government that was ready to lend €10 billion to be spent on the project, which would be 80% of the cost. The rest is to be provided by the Hungarian government.

The reason for the suspension is that “Hungarian authorities failed to comply with EU procurement rules when they awarded an €12.5 billion project … to Russia’s Rosatom directly, without a tender.” A few minutes after the news broke journalists from Népszabadság were at János Lázár’s door, who confirmed that, although the official letter hadn’t arrived yet, the news didn’t come as a surprise to the Orbán government. However, Lázár added, “the Hungarian government has no reason to be worried [because] we have in our possession a piece of paper that was signed by José Manuel Barroso, former president of the European Commission, on January 14, 2014. Without this we couldn’t have signed the contract.” This letter, he indicated, will show that Hungary followed all the rules and regulations of the European Union. As we will see later, Lázár might be far too optimistic on this score.

The whole Paks II deal has been shrouded in secrecy, especially as far as the Hungarian side was concerned. It was on March 13 that sharp-eyed reporters from vs.hu discovered the Russian text of the loan agreement on www.pravo.gov.ru. This document showed that the Budapest team involved in the negotiations hadn’t told the whole truth about the details of the agreement.  For example, they repeated several times that the Hungarian government’s 20% contribution will be due only at the end of the twenty-one-year period, during which time the loan must be paid back. This turned out to be inaccurate. Every time Rosatom submits a bill Hungary will have to pay 20% of it from its own coffers. More details of the contract between Russia and Hungary are in my post on the subject, written on March 13, 2014.

A year later I wrote again about Paks II when Vladimir Putin had a bizarre conversation with Sergey Kiriyenko, head of Rosatom, on television. Here Putin talked about the Hungarian deal and stressed that “we offer good terms and advanced technology, so if the partner is forced to refuse [to cooperate], which they could have done, it would be damaging to Hungary’s national interests.” Kiriyenko assured Putin that “we have received confirmation from the government of Hungary that all the agreements are in force on a wide range of projects… Everything has been confirmed and coordinated and the contract is coming into effect.” At that time, practically the entire Hungarian media interpreted Putin’s words as a threat to Hungary. My own interpretation was that Putin either suspected or knew that the European Union had already put pressure on Hungary and that Hungary might have to abandon the project.

By that time, the Hungarian government had managed to overcome one hurdle regarding Paks II. Originally Rosatom was to supply fuel rods for the life of the reactors. Eventually, Lázár triumphantly announced that everything was solved. Hungary managed to convince Russia to accept a compromise on this particular issue. However, the nagging problem of the Hungarian government’s entrusting the project to Rosatom without an open bidding process was there from the very beginning. In fact, as soon as the contract was signed, the EU commissioner in charge of energy indicated that this particular aspect of the contract would be investigated in the future.

chess

“A lie has no legs,” says the English proverb. Of course, we know that an awful lot of lies go unnoticed, but perhaps the Hungarian government’s lies about Paks II may catch up with it. Péter Magyari of 444.hu has been trying to find out whether part of the Russian loan has already been received in Budapest. After he and other journalists had a conversation with Attila Aszódi, government commissioner in charge of Paks II, Magyari came to the conclusion that some Russian money has most likely already arrived and been spent on preliminary expenses. According to the commissioner, about 6-10% of all expenses will be spent between 2015 and 2018 on the project, before the cornerstone is laid. The problem is that, at least until September, Lázár had several times stated that not a euro cent had come from Moscow. The fear is that the Orbán government, knowing the concerns of Brussels, began speeding up the process of awarding contracts for the project in order to present a fait accompli, a situation that cannot be reversed. If, however, the project is either scrapped or has to start from scratch, Hungary will be stranded with a considerable debt that must be paid back to the Russian government immediately.

Now let’s return to János Lázár’s claim as of yesterday that all’s well with the project because “we have in our possession a piece of paper that was signed by José Manuel Barroso, former president of the European Commission, on January 14, 2014. Without this we couldn’t have signed the contract.” János Lázár’s memory is not the best. The “piece of paper” he is talking about was dated February 7, 2014 and was an answer to Viktor Orbán’s letter to Barroso written at the end of January. Orbán informed the president of the European Commission about “the recent developments with regards to nuclear energy cooperation between Hungary and the Russian Federation.” Orbán in this letter tried to downplay the fact that the job of building the nuclear power plant was given to Rosatom without any competitive bidding process.

It was to this letter that Barroso reiterated the Commission’s “respect for Member States’ basic choices concerning their energy mix.” Barroso added, however: “Member States’ commitment to comply fully with the rules of the Treaties and secondary legislation, in particular those governing the internal energy market, and to act in a spirit of coordination and full transparency, remains vital.” After the Commission examined the draft agreement, it “raised no objections of principle to the agreement from the perspective of article 103.” However, this was not a blanket endorsement of the Russian-Hungarian agreement because “there are … other aspects of EU law to be observed, such as the rules on public procurement and state aid.” (emphasis mine) All this can be read in my post of February 26, 2014.

I’m afraid you will have to trust me when it comes to the veracity of these quotes because today when I tried to get back to the links I provided to kormany.hu, the Hungarian government’s official website, I couldn’t find either Orbán’s letter to Barroso or Barroso’s to Orbán. They are both gone. I wonder why.

I was lucky to have recorded the most important sentences from Barroso’s letter. This way we have in front of us the message of this “piece of paper,” which doesn’t support János Lázár’s contentions. But what else is new?

Paks, the European Union, and the Russian threat

It looks to me as if Viktor Orbán has managed to maneuver his country into an untenable position between Russia and the European Union. It has taken five years, but he has succeeded in making Hungary the target of both Moscow and Brussels.

First, he tested the patience of the European Union, which under José Manuel Barroso’s presidency seemed infinite. After a while, drunken with success, he imagined himself to be a statesman who could be an equal player on the world stage with the leaders of the dominant EU countries.

At first, he was satisfied with waging verbal battles with unsuspecting western diplomats unaccustomed to Viktor Orbán’s way of dealing with those who stand in his way. Later, he decided to solicit “an ally” who would add weight to his words. The desired Hungarian “sovereignty,” in his myopic worldview, could be achieved by balancing Russia against the European Union.

Viktor Orbán did not realize that the world around him had changed in some fundamental ways. Vladimir Putin had over the years acquired the unsavory reputation of being a reactionary autocrat, one of the many his country managed to produce over the centuries. As far as the West was concerned, doing business with Russia was fine, but having cozy relations with the lord of the Kremlin was definitely not. And Orbán in his usual fashion went out of his way to ingratiate himself with Vladimir Putin, just as he did with the leaders of China while the West watched warily. Their concern only grew when Putin annexed the Crimea and incited a rebellion in the mostly Russian-inhabited areas of Ukraine. But it was too late for the EU. Orbán had already committed his country to having Rosatom build two new nuclear reactors with the help of a Russian loan. And it was also too late for Viktor Orbán. His quest for an “independent” Hungarian foreign policy was doomed as soon as it became apparent that the West would not take the Russian aggression against Ukraine lying down.

It wasn’t only the Russian-Ukraianian conflict that changed the political landscape. There was something else that Orbán didn’t take into consideration. Last November Barroso’s presidency came to an end and with it perhaps Brussels’ lackadaisical attitude toward Viktor Orbán’s antics. The front runner, Jean-Claude Juncker, was the worst possible choice as far as the Hungarian prime minister was concerned. Orbán, following David Cameron of Great Britain, voted against him in the European Council, but the two of them remained in the minority. The reason for Orbán’s opposition was that it was known that Juncker supports a stronger,  more unified European Union, the last thing Orbán wants. What was even more worrisome was that Junker named Frans Timmermans of the Netherlands to be his first deputy, and Timmermans was known to be an outspoken critic of Viktor Orbán’s illiberal views. Orbán found himself in a very uncomfortable position because there were signs that the European Union, with an entirely new leadership, would at last crack down on Hungary’s repeated infringements of EU laws.

This change in attitude on the part of the EU might finally have arrived. Those familiar with Viktor Orbán’s political tactics might consider his references to the death penalty no more than a PR move to boost his flagging popularity and steal votes from the neo-Nazi Jobbik party, but I think it was one of the issues that made the European leaders have second thoughts about giving Orbán so much leeway. In addition to withholding billions of euros from Hungary, this is the first time that an official of the European Commission talked about Article 7 as a real option in connection with Hungary for “solving crises and in the interest of holding on to the values of the European Union.”

Vladimir Putin and Sergey Kiriyenko, May 5, 2015 TAA / Photo Alexey Nikolsky

Vladimir Putin and Sergey Kiriyenko, May 5, 2015
TASS / Photo Alexey Nikolsky

And now comes Vladimir Putin’s bizarre conversation with Sergey Kiriyenko, head of Rosatom. First of all, although this conversation took place in Putin’s office and looks like a private conversation, it was shown on Russia’s state television. Surely, it was meant to be a message for a wider audience. The conversation was about the Paks nuclear power plant. According to Putin, “we offer good terms and advanced technology, so, if the partner is forced to refuse [to cooperate], which they could have done, it would be damaging to Hungary’s national interests.” Kiriyenko assures Putin that “we have received confirmation from the government of Hungary that all the agreements are in force on a wide range of projects…. Everything has been confirmed and coordinated and the contract is coming into effect.”

Practically all the Hungarian media interpreted Putin’s words as a threat to Hungary. One exception was the official “Híradó” (News), which provides news to Magyar Televízió and Magyar Rádió. There the headline read:”Putin is worried about Hungarian national interests.” The other exception was “Pesti srácok” (Kids of Pest), a far-right Fidesz Internet site, which claimed that “Putin is satisfied with the Hungarian government’s stand against the European Union,” a blatant misinterpretation of the conversation between the two men.

Although the available translations are rather poor and the subordinate clause “which they could have done” is not at all clear, I believe that Putin either suspects or knows that the European Union has already put pressure on Hungary and that Hungary might have to abandon the project. János Lázár has repeatedly assured the country that all is well and that work will begin on time, but these assurances were probably not grounded in reality. Although Euratom eventually approved the plan to have Russia supply fuel rods for the new reactors, there are still serious hurdles for Hungary to overcome. Negotiations are in progress and, judging from Putin’s unusual “conversation” with Kiriyenko, they might not be going well.

Not surprisingly, the Orbán government didn’t respond to Putin’s warning to Hungary and the European Union. Most likely the spin doctors are planning an appropriate response and perhaps tomorrow János Lázár, in his usual Thursday morning press conference, will say that all is well with Paks, the European Union, and Rosatom and that he doesn’t know what all the fuss is about.

Euratom, the European Commission, and Paks

Last night an article appeared in The Financial Times, written by Andrew Byrne in Budapest and Christian Oliver in Brussels. The reporters had heard earlier that the European Atomic Energy Community or Euratom, which must approve all nuclear supply contracts signed by EU member states, had serious reservations about the contract signed by Russia and Hungary and would most likely withhold approval of the plant’s fuel supply. By yesterday they learned that Euratom had definitely “refused to approve Hungary’s plans to import nuclear fuel exclusively from Russia.” Hungary appealed the decision without success and, according to “three people close to the talks, the European Commission has now thrown its weight behind Euratom’s rejection of the contract.” In brief, that part of the contract that gave Rosatom the exclusive right to supply Paks2 with nuclear fuel for the next twenty years must be renegotiated. As a result, for the time being at least, the Paks project is stalled.

András Giró-Szász, one of the many government spokesmen, argued that the information obtained by The Financial Times was inaccurate. He especially objected to the sentence in the article that read: “The EU has blocked Hungary’s €12bn nuclear deal with Russia.” Nobody “blocked” anything. Initially the Hungarian government talked about demanding a retraction from the newspaper. By the next morning, however, Zoltán Kovács, another government spin doctor, gave up on the idea, especially since The Financial Times had no intention of changing a story that had been verified by three independent sources.

The Hungarian charge might have been based on an erroneous translation of the verb “to block.” Although one of the word’s meanings is “to stop,” it can also mean “to obstruct” or “to impede.” In the latter sense The Financial Times correctly described the situation that developed as a result of Euratom’s decision, sanctioned by the European Commission. As the FT text continued, “The result is to block the whole Paks II expansion. To revive it, Hungary would need to negotiate a new fuel contract or pursue legal action against the commission.” So, the deal is not dead but it must be renegotiated. I might add that in Hungarian “blokkolni” (to block) means only to stop.

Another reason for the confusion, in addition to semantics, is Hungarian secretiveness. 444.hu learned that the Hungarian government insisted on secrecy in its negotiations with Euratom. Therefore, neither the head of Euratom nor the European Commission can say anything about the details of the situation that developed in connection with the Russian contract.

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Since the Hungarian government has already lost its battle with Euratom and the Commission, the matter of the nuclear fuel supply must be renegotiated with Rosatom. János Lázár, in an interview on Kossuth Rádió this morning, referred to extensive discussions with “the members of the Russian negotiating team.” There has been some talk about getting nuclear fuel from other suppliers. Westinghouse has been mentioned several times as a possible source, even by János Lázár himself. However, Benedek Jávor, Hungarian MEP of the Greens, got in touch with Westinghouse and the firm denied in writing that there have been any talks between them and the Hungarian government.

What can the Hungarian government do under the circumstances? It could abandon the whole project. The Russians might be quite happy with such a decision since the Russian economy is in serious trouble and the Russian state might not have the resources to lend such a large sum to Hungary even if the project would be beneficial to Rosatom.

The other possibility is to renegotiate the deal and to convince Russia to allow other suppliers to participate in selling nuclear fuel to Paks2. But that might not be too attractive to the Russian partners. The revenues Rosatom receives from selling fuel to nuclear power plants all over the world are an important contributor to the Russian economy, especially now that the price of natural gas and oil is falling. The Russian government might be willing to finance, through its loan to Hungary, a Russian company, but it doesn’t sound like good business from the Russian point of view to finance nuclear rods supplied by, let’s say, Westinghouse or Siemens. Or at least this is what Miklós Hegedűs, an economist specializing in energy matters, said in an interview on HírTV this morning. Finally, the Hungarians can fight the decision of Euratom and the European Commission. Such a move would delay the completion of the project, probably for years. I myself don’t think that Viktor Orbán would venture into such a losing battle.

What we must also keep in mind is that the question of the nuclear fuel supply is not the only one that the European Commission is interested in. Another concern is the Russian loan itself. Is it a form of “state aid,” which is forbidden by EU law? Will it give Paks2 an undue advantage that will distort the Hungarian energy market? If the European Commission decides that this the case, the whole project will have to be scrapped. Still another concern is that the Russians received the job of expanding the nuclear power plant without any competition whatsoever. If the Commission finds the lack of competition a stumbling block, the fate of the project will be sealed.

At the moment, the appropriate cabinets of the European Commission are investigating whether an in-depth investigation of these aspects of the Russian-Hungarian agreement is warranted. Their decision will undoubtedly be influenced by political considerations. How much does the EU worry about Russian influence within the European Union and the role Hungary might play in Vladimir Putin’s power game? If they consider Russia a serious threat to European security, the Commission might be less understanding and forgiving than it has been in the past five years. Until now Viktor Orbán has been lucky, but it is possible that the Brussels bureaucrats will scrutinize Hungary’s blatant disregard of EU laws and its common democratic values more closely now, given Russia’s perceived threat to Europe.