The Intrigue Behind the Hungarian Nuclear Deal

Only a small group of people knew that Hungarian Prime Minister Viktor Orban was going to Moscow on January 14, and that he would sign a strategic deal following his meeting with President Vladimir Putin. Hungary has been preparing the deal for the past five years amid fierce political debates about the future of its power industry.

Only a small group of people knew that Hungarian Prime Minister Viktor Orban was going to Moscow on January 14, and that he would sign a strategic deal following his meeting with President Vladimir Putin. Under this deal, Rosatom is to build two power units one 1200 MW and another 1000 MW at Paks, Hungary’s only nuclear power plant, located 100 kilometers south of Budapest. Russia will also provide funding in the amount of up to 10 billion euros ($13.65 billion) for 30 years.

The details of the intergovernmental agreement have not been disclosed yet. The concrete contracts between Russian and Hungarian companies and the loan terms will be coordinated within the next few months, officials say.

Hungary has been preparing the deal for the past five years amid fierce political debates about the future of its power industry. Two years ago, Budapest adopted a government strategy saying it would reduce its energy dependence on Russia. It's no wonder, then, that its decision not to hold a tender for the power units, the conflicts this can provoke with the EU, the secret talks with Moscow and the signing of an intergovernmental agreement three months ahead of parliamentary elections, created a sensation.

“Everybody is surprised. Because up until some time ago Viktor Orban was not a friend of Moscow, and years ago he used also rhetoric against Russia. For many of his supporters it was also a big surprise,” said Agoston Mraz, director of Nezopont, a Hungarian political think tank associated with the government.

Grand strategy

The Hungarian media and experts speak frankly about the strategic importance of the nuclear deal.

“Regarding grand strategy, in the Brzezinski sense, this is perhaps the most important event of the four years of the Orban government. Beside the EU presidency in 2011, this deal, if it really comes into reality, will have extremely high strategic importance – both geo-strategically, by security and by the political means as well,” said Andras Racz, senior fellow at the Hungarian Institute of International Affairs. “From the perspective of the government realizing its own objective, this deal seems to be a success.”

Racz has estimated the deal to account for between 25% and 40% of Hungary’s annual budget.

“It’s really huge money. Simply from the size of the deal and the amount of money involved, this agreement will most likely shape Hungary-Russia relations for the next three decades, for such a long credit has to be paid back,” he said.

“The prime minister wrapped up a deal that pawned off half the country in a single day,” writes the liberal German-language newspaper Pester Lloyd.

Breakthrough into Europe

The deal is also important for Russia’s nuclear industry and its long-term positions in Europe.

“Europe is a major energy market, and many European countries, despite everything, plan to continue developing their nuclear industry. Russia now has an opportunity to demonstrate the safety features of its nuclear power units in an EU member country,” said Alexander Uvarov, president of Atominformcenter, a Moscow-based research institution.

He believes that the nuclear power plants built in Europe during the Comecon era seem to be a solid foundation for cooperation, yet Rosatom has so far failed to build new power units in Europe.

The first such deal was signed with Finnish partners in December last year. Under the deal, Russia will contribute to the construction of the Russian-designed Hanhikivi 1 nuclear power plant, take over 34% of the plant, supply fuel and provide maintenance services for the plant for 60-80 years.

Considering the drawn-out tender to modernize a nuclear power plant in the Czech Republic and the suspended project to build a nuclear power plant in Bulgaria, the Finnish and Hungarian deals are crucial for strengthening the positions of the Russian nuclear industry in Europe, Uvarov said.

Intrigue with Brussels

Has Brussels approved Hungary’s deal with Moscow or not? This is one of the main forms of intrigue.

EU Energy Commissioner Gunther Oettinger’s spokesperson Sabine Berger said the deal “will be examined shortly by experts.”

“At this stage we cannot yet provide an assessment on [its] compatibility with EU rules,” she told journalists in Brussels. “Contrary to some reports, the Commission has not made any statement on whether the Hungarian authorities should or [should] not scrap a tender for a nuclear project,” she said Wednesday at the daily press briefing of the commission.

However, the Hungarian government hinted that they have the EU's approval. Reuters wrote on Tuesday: “Janos Lazar, a leading member of Orban’s cabinet, said in Budapest that the European Union had already approved a draft plan for building the blocks.”

Nepszabadsag, a newspaper with close ties to the opposition Socialist Party, on Wednesday cited unidentified government sources as saying that the cabinet used the services of the Rothschild family and German law firm Hengeler Mueller to obtain Brussels’ approval of its deal with Moscow. A leading journalist of the newspaper told RIA Novosti that this is reliable information.

“The most important thing for Russia is that the decision has been coordinated with the EU,” Uvarov said. “It’s good that the EU has approved Hungary’s decision to avoid formalities and to scrap the tender for building the power units. A tender would have drawn out the proceedings.”

But Andras Deak, an energy policy expert at the Hungarian Institute of International Affairs, is not sure his government has EU approval.

“Brussels never gives such blank approvals,” Deak said. He expects problems under the law on competition because the tender has been scrapped, and “very heavy questions” about financial monitoring, because the deal will increase Hungary’s sovereign debt by more than 10%.

“Still, I think that the EU is going to accept the deal” because Orban’s government can resolve these problems, he said.

Nuclear fuel for elections

The deal will certainly be a prominent issue during the nascent election campaign in Hungary.

The date for the parliamentary election has not been approved yet, but it is expected to be held on April 6. While Orban was in Moscow, Hungary’s main opposition parties announced the decision to establish a broad coalition, to compile a joint list of national candidates, and to support Hungarian Socialist Party leader Attila Mesterhazy for prime minister. They have joined forces against Orban and his center-right party Fidesz, which together with its partners has controlled over two-thirds of parliament and has ruled the country since 2010.

Polls show that Orban will most likely retain his post, but Fidesz may lose its constitutional majority.

Andras Racz believes that in this situation the government will seek to ratify the agreement with Russia “as soon as possible.”

In fact, the experts with whom we have talked agree that the signing timeframe and the details of the agreements’ preparation are directly connected with the upcoming election.

Mesterhazy and other opposition leaders are sharply criticizing the manner in which Orban has made the deal, rather than the agreements themselves. Ironically, the initial decision to build new power units for the Paks plant was made by the socialist government in 2009, when Orban was firmly against it.

“We oppose the way [in which] the Orban government handled the Paks issue. There were no negotiations with the opposition at all,” Mesterhazy told RIA Novosti through his press secretary.

According to him, “this project could define the energy supply of the country for 20-30 years ahead,” and so the decision to use nuclear energy “should be […] made at a referendum.”

“Orban has not given any chance to the opposition to get involved in this national issue,” Mesterhazy said.

Agoston Mraz said this issue “will be the hottest potato in the [election] campaign.” However, it in not the deal itself but the methods of making it that will be criticized.

“Nobody would say that the deal itself [is] a bad deal, because the financial construction of the deal is good for Hungary. The only thing the opposition parties can criticize is that the solution was found in secret negotiations,” Mr. Mraz said.

According to Deak, the Czech and Polish governments would have been forced to resign had they scrapped such a tender and held direct talks with Moscow. But the situation in Hungary is different, and so the government can afford to do what it has done.

“We are at a point when the Red Army is out, the state debt is settled, historical questions are gradually losing importance because generations are changing, and bilateral trade has been steadily increasing since 2003,” Andras Racz said.

He sited a recent public opinion poll in which 60% of Hungarians said the Soviet Union and Russia had damaged Hungary the worst in the past, but at the same time, 70% of respondents advocated closer economic cooperation with Moscow.

“This deal fits very well into this trend of increasing the pragmatic support of bilateral relations,” he said.

This article was originally published in Russian on

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