Hungary awards $14bn nuclear project to Russia

Hungary awarded a contract Tuesday worth nearly $14 billion for Russia's atomic energy corporation to more than double production at the EU nation's only nuclear power plant. The inter-governmental agreement signed after talks between Hungary's visiting Prime Minister Viktor Orban and Russian President Vladimir Putin is likely to draw criticism both at home and from EU officials because it came without a formal bidding process. "We value the progress achieved by your leadership," the conservative Hungarian premier told the Russian leader. "In the area of trade, our progress is unparallelled, and the signature of these documents should serve as another step in this direction," the Interfax news agency quoted Orban as saying. The deal also comes amid increasing concern in several eastern European countries and Brussels about undue reliance for energy on Russia, which enjoys a dominant position in providing natural gas to a number of states. Putin for his part said the deal would help "improve Hungary's energy independence and help solve issues associated with energy security." The head of Russia's Rosatom state atomic energy corporation said Moscow would provide Budapest with a loan of up to 10 billion euros ($13.7 billion) for Hungary to boost production at its Paks facility to 4,400 MW from 2,000 MW. "The loan's agreement between our finance ministries is now in its closing stages," the Prime business news agency quoted Rosatom chief Sergei Kiriyenko as saying. The Paks plant -- located about 100 kilometres (60 miles) south of Budapest -- is responsible for producing 40 percent of the energy consumed in the former member of the now-defunct Soviet-led Warsaw Pact. The facility is operated by Hungary's state-owned MVM -- a group that also imports natural gas from Russian energy giant Gazprom and would like to negotiate a price cut. The Hungarian parliament approved a decision in 2009 to add two more reactors to the four already running at the site. France's Areva and US electric company Westinghouse along with Japanese and South Korean power suppliers had previously expressed interest in bidding for a contract of the Hungarian plant's expansion. But Hungary's Nepszabadsag daily reported that Russia's Rosatom was the only potential bidder willing to offer pre-financing. It added that total investments of 13.3 billion euros ($18.2 billion) would make it by far the biggest project assumed by Hungary since it joined the European Union in 2004. The deal with Russia could prove controversial for Orban because no formal bidding process for the plant's expansion had ever been launched. European Union rules stipulate that any state project must be awarded through a bidding process. But some experts believe Orban could try to sidestep the regulation by arguing that the Russian contract was awarded for the expansion of an existing facility and not the construction of a new plant. "In this case, we are only talking about the expansion of an existing plant and not the construction of a new one," the unnamed source told Gazeta.ru. "Based on this, we can hope that the EU leadership will not have substantial complaints about the tender's annulment." Paks was launched by Soviet nuclear power engineers in the early 1980s and its first reactor's lifespan expires within the next 15 years. Analysts note that the complicated process of winning the necessary licences and environmental oversight approvals -- as well as the length of the construction itself -- means Hungary must act quickly to meet its future energy demand. Russia is currently Hungary's most important trade partner outside the European Union. But Hungary suffers from a big trade imbalance which favours Moscow and would like to broaden its agricultural sales to Russia to close the gap.