Spending for the sake of spending, or why Rosatom’s new Hungarian venture is doomed to fail

The control room at the Paks nuclear power plant in Hungary.
The control room at the Paks nuclear power plant in Hungary.

Publish date: January 21, 2014

MOSCOW – A recent agreement signed between Russia and Hungary will have the Russian State Atomic Energy Corporation Rosatom build two new reactors at that former Eastern Bloc country’s Paks Nuclear Power Plant – a project expected to bleed the Russian budget by a sizable amount of over $13 billion in credit funds. Yet any talk of Rosatom’s imminent breakthrough into the coveted European market would be premature.

MOSCOW – A recent agreement signed between Russia and Hungary will have the Russian State Atomic Energy Corporation Rosatom build two new reactors at that former Eastern Bloc country’s Paks Nuclear Power Plant – a project expected to bleed the Russian budget by a sizable amount of over $13 billion in credit funds. Yet any talk of Rosatom’s imminent breakthrough into the coveted European market would be premature.

The Russian-Hungarian deal was concluded during last week’s meeting in Moscow between Hungary’s Prime Minister Viktor Orban and Russian President Vladimir Putin, the Russian news agency RIA Novosti reported, citing Rosatom head Sergei Kiriyenko as saying that up to $13.7 billion would be provided to Hungary for the building work. According to Kiriyenko, it was unlikely, however, that the whole amount would be used, the report said.

Given that the credit terms are yet to be settled, Kiriyenko is presumably giving here a ballpark estimate for what is commonly the price tag of a two-unit nuclear power plant (NPP) featuring VVER-1200 reactors – a standard package the corporation has been using for some of its newer domestic projects as well as in export deals.

But if signing up Budapest was hoped to provide a springboard to securing Rosatom a piece of the European market, Russia would be well advised to manage its expectations.

The Hungarian project – two new units to be added at the site of the old Paks Nuclear Power Plant, in Central Hungary, where four USSR-built VVER-440s were launched in the 1980s – would be the first for Rosatom to attempt in the European Union, which Hungary joined in 2004. Since the Soviet period, Russia has not been involved in building a reactor in Europe, one exception being the Belene plant in Bulgaria – a contract that the local government nixed after the disaster at Fukushima. But the reason Bulgaria gave to bail out of the deal was not the catastrophe in Japan but the financial terms of the credit that Russia had offered and which was never issued.

The Belene project was off to a good enough start; Germany’s RWE acted as investor of record and was to attract Western investments to the project. But several years’ worth of trying to scare up funding among private European banks yielded no results. The venture drew harsh criticism from environmentalists from various countries who convinced the banks that the project was severely lacking in safety – first and foremost, due to the seismic risks at the chosen site.

The Germans eventually abandoned the project, leaving Rosatom to fare on its own. Small wonder: Taking into account that a nuclear power plant’s payback period could exceed 20 years, this would seem a rather questionable offer to a private investor, better served by taking their money to an energy sector with a much higher rate of return. The famous American business magnate Warren Buffett, for instance, invests vigorously in renewable energy sources – which are safe, unaffected by fuel price fluctuations, and much more attractive from the investment perspective. These, too, are the factors behind the current stagnation of the US nuclear industry, the world’s largest.

But let’s get back to Bulgaria. After RWE’s departure from the Belene project, President Putin visited Bulgaria and promised that funding for the station would be coming from the Russian budget in any amount necessary – precisely the same assurances as have just now been extended to Hungary. The Bulgarian government hired an auditing firm to calculate the power plant’s price factoring in all the payments on the loan offered by Russia. This yielded such an interesting result – well in excess of the cost quoted originally, which was what the Bulgarians had based their expectations on when they signed the Belene deal – that Bulgaria thought it best to sever the contract. Even despite the risk of possibly having to respond in international courts over grievances on the part of Rosatom, which had already committed money to the construction. Just what kind of terms Russia will offer in the Paks deal and whether Hungary will prove agreeable to them remains to be seen.

Another Rosatom project in Eastern Europe fell flat even before it started: Negotiations with Slovakia on building another reactor at the site of Bohunice NPP, in the country’s west, were discontinued late last December. The official reason was, again, an economic one: The Slovak government failed to provide guarantees on the price of electricity expected from the future unit.

Recent developments have Rosatom looking to secure funding for a share in the Hanhikivi-1 project in neighboring Finland. The Russian daily Kommersant – which cites the contract value at $7.3 billion, including the fuel supply agreement – reports (in Russian) that Rosatom has been counting on up to RUR $80 billion ($2.38 billion) from the National Wealth Fund – a state-owned investment fund serving to support the Russian pension system – to buy out the Finnish nuclear power company Fennovoima’s 34% stake in the project, a move it has to complete before the end of February in order for the final investment decision to come through. Discussions regarding Rosatom’s bid to the National Wealth Fund have proceeded since last November, the paper said, but the prospect of the corporation’s receiving that funding remains unclear.

There is currently not a single nuclear power plant built by Rosatom on the territory of the European Union – if one doesn’t count the old Soviet reactors with looming decommissioning dates. Still, Rosatom is unwavering in its pursuit of a foothold in the promising European market – something that the nuclear corporation believes will serve as hard proof of its VVER-1200s’ safety. To date, Rosatom has only been able to land VVER-1200 construction contracts in developing countries, where nuclear safety standards could hardly be considered particularly stringent. And as for the Russian nuclear industry’s safety record, there is still that page in its file with Chernobyl’s name written on it.

Likewise, the political component of nuclear reactor deals should not be discarded. In essence, a country agreeing to have a foreign nation build a nuclear power plant on its land becomes indentured to its provider since, as a rule, the reactor’s provider then becomes the sole-source provider of the reactor fuel. Unlike power plants running on other kinds of fuel, a nuclear power station cannot simply be switched off: Even when offline, it requires a considerable supply of energy to maintain the safety systems of the already shut-down reactors. As an energy supplier, Russia’s reputation in the European Union is far from stellar. But while gas delivery holdups may have made for some tough winter breaks, these will seem like small-time hiccups compared to the sort of trouble disruptions in uranium fuel supply could spell.

Russia’s attempts to cook up new political leverage in its energy dealings with Europe, including by building new nuclear power plants on its territory, are unlikely to be appreciated in the EU. Moreover, the Hungarian deal may yet reveal certain flaws from the point of view of European energy laws. There are, for example, energy diversification standards in place – requirements enforced essentially to prevent excessive dependence on one single energy source. How would this standard be applied in the case of a two-unit 2,400-megawatt nuclear power plant that is expected to cover up to 80% of Hungary’s electricity needs?

Further, if Rosatom decides to enter the Paks deal and wants to settle on the future electricity price with Hungary the same way it attempted with Slovakia, this may turn up yet another bump in the road. If, on the other hand, Hungary agrees on a guaranteed purchase price, the deal could become the subject of a European Commission inquiry into a possible violation of state subsidy rules. Such an inquiry is currently under way in Great Britain with regard to a recently announced NPP project where the construction company received a government guarantee for a rather lucrative power purchase price.

All in all, having once again spent a significant portion of the Russian taxpayers’ money, Rosatom may once again end up at square one – only a few billion in federal funding lighter. Considering the government’s warnings of the tough economic times ahead, the rationale behind this new nuclear sales blitz is difficult to understand. Unless spending for the sake of spending is all the rationale the nuclear corporation needs.

This comment by Vladimir Slivyak, a frequent contributor to, originally appeared in Russian on Echo of Moscow’s website. It was translated by Maria Kaminskaya.