EU may block Russia-Hungary nuclear power deal

Think EU members are sovereign? Think again.

originally appeared in Financial Times.

Hungary's deal to award up to €12bn in nuclear power contracts to a Russian state-owned company is facing a growing threat from EU regulators who have the power to block the project.

A veto or prohibitive fine from Brussels would be a bruising setback for Viktor Orban, Hungary's prime minister, who has made the project the centrepiece of his strategy to forge deeper political and economic ties with Russia, despite the ostracising of Moscow by the west over Ukraine.

Opponents of the deal say it both carries financial risks and deepens Hungary's energy dependence on Russia. The country already relies on Russia for 80 per cent of its oil and 60 per cent of its gas imports.

Budapest awarded contracts to design, build and maintain two 1,200 megawatt reactors in the town of Paks, 75 miles south of Budapest, to a subsidiary of the Russian atomic energy company Rosatom in December. But the decision to conceal some details of the contracts on grounds of national security provoked suspicion among Mr. Orban's critics and in Brussels.

Although the European Commission did not raise objections to an intergovernmental agreement signed by the two countries just over a year ago, the award of contracts for the Paks plant has thrown up thorny competition concerns.

Two EU agencies are now examining the agreements. Euratom, the nuclear watchdog, is withholding approval for the plant's fuel supply on technical and financial grounds, though talks are ongoing, said one official briefed on the matter. All nuclear fuel supply deals by EU member states must receive the green light from the agency.

Competition investigators from the European Commission are also looking at state subsidies and the legality of contracts awarded to Rosatom and its affiliates without a tender.

The probe into the how the nuclear contracts were procured — described as a possible case of violation of EU law by officials — is still at an early stage, giving Hungary an opportunity to strike a bargain with Brussels before a possible full formal investigation.

The battle of wills is part of a broader struggle between EU technocrats and Russia over Europe's energy security. Last year, Moscow scrapped its $50bn South Stream gas pipeline into eastern Europe after EU regulators said Gazprom, Russia's gas export monopoly, would break competition rules by both supplying the gas and owning the pipeline.

For EU diplomats, Mr Orban's decision not to hold a competitive tender underlined fears that his close links with Moscow could lead Hungary to resist attempts to ramp up sanctions against Russia.

On an official visit to Budapest last week, Vladimir Putin, Russia's president, confirmed that Moscow would finance 80 per cent of the project's total costs, saying he attached "great importance" to it.

Politicians from Hungary's green LMP party, who have launched legal challenges to the project's secrecy in a Budapest court, warned that Paks would be an expensive mistake.

"We would like to see our country break free from Russian energy dependence, while Mr Orban seems to be seriously addicted to it," said Bernadett Szél, the party's co-leader.

Yet in a sign that Budapest was prepared for a confrontation with Brussels on the matter, Mr Orban declared last week that energy policy was a sovereign matter: "We will have a major problem . . . I expect an escalating conflict."

A Hungarian government spokesman said the commission was trying to interfere in national energy policy "by stealth" and warned that attempts by Brussels to build a single internal energy market threatened EU member states' sovereignty.