Is it really the deal of the century? Russian nuclear power plant from Russian loan in Hungary

The Hungarian government stated that the nuclear power plant project in Paks is the deal of the century. The question is: for whom? Although the government has not presented Hungarian taxpayers any official calculations regarding the project’s financial feasibility, independent experts say this is surely not a good deal for the Hungarian society.

Photo: Vadim Mouchkin/IAEA

On January 14th, 2014 an intergovernmental agreement, along with three other framework agreements on the construction, operation and fuel supply of two new nuclear power plant units in Paks, Hungary, were signed in Moscow. The intergovernmental agreement was signed by Mrs László Németh, Hungary’s Minister of Development, and Sergei Kiriyenko, the head of the Russian company, Rosatom. For many, even for some government officials, this came as a surprise. However, a few experts, think tanks and watchdogs who have been closely following energy policy in Hungary were not surprised, as a parliamentary decision in March 2009 – under the previous socialist-liberal government – virtually green lighted to the construction of new reactors (a lack of tendering process, though, was unexpected for everyone). 1

In February 2009, Prime Minister Ferenc Gyurcsány, who until then rarely discussed nuclear energy, unexpectedly announced that two new nuclear blocks would be built by 2020. Soon afterwards the bill was sent to parliament. One week later the PM – amidst domestic political turbulence unrelated to the nuclear decision – announced his resignation. The government crisis did, however, not prevent parliament from voting on and approving the new nuclear power plant.

There were no obstructions – the economic as well as the environmental committee dealt with the issue for an hour, while the plenary discussion took around 10 minutes – voting included. Finally, after only a two-week parliamentary process and without any serious debate, 95% of the MPs voted for the new nuclear power plant. However, it is hard to believe that they understood what they were voting for. The background addendum attached to the proposal was only one and a half pages long, and did not contain any specific information. 2

According to the official statement, the government’s approval referred to the preparation of the project, as required by Law. 3 This explanation was, of course, false. The Law clearly states, that the government’s approval is needed for the extension itself, and not for the ‘preparatory activities’ – a small, but important difference. What’s more, the current government referred to the 2009 parliamentary approval when they signed the agreement with Moscow in 2014.

Expected costs of the Paks II project

Based on official information,  4 80% of the project’s total cost will be financed by a 10 billion euro loan from the Russian state. According to this information, the total estimated cost of the new blocks, which will have an overall capacity of 2400 MW, is 12.5 billion euros. This is a rather low estimate because, on one hand, cost overruns are very common in the case of nuclear power plants, and on the other hand, waste disposal and management costs, for example, are not even included in the 12.5 billion euro estimate.

According to the plans, construction of the new reactors will begin in 2018 and finish in 2026.

The Hungarian government claims that the costs of the new power plant will only arise after construction is completed, because that is when the loan repayment will start. However, the framework agreement precisely says that repayment must begin not later than 2026 – and not “after the project’s completion.” Thus, it can happen that the Hungarian state will be required to begin loan repayment before the power plant starts operating, e.g. without having received any revenue from the power plant’s operations. This would not be a surprising scenario, as there are significant time overruns in almost all nuclear projects around the world.  5

Taking the repayment period and schedule, the agreed upon interest rates,  6 and the expected investment cost timeline into account, Hungary will have already paid 30 million euros to Russia for the loan’s repayment by 2016 – before construction has even started. This will increase to 700 to 800 million euros annually in the later years of the repayment period.  7 For a comparison: this is nearly the same amount the government allocated for the entire operation of the Hungarian police force in 2015’s budget.

graf paks

Economic return?

The statement most often repeated by the Hungarian government in connection with the Paks II project is that only a new nuclear power plant can guarantee cheap electricity. However, the numbers do not convincingly prove this, especially if we consider investor interests in a project’s returns.

Under normal conditions, and according to the usual market calculations, of such a risky investment, a market investor expects 10-13% in real return. According to a recent model,  8 in order to ensure only an 8% investor return for Paks II, the power plant would have to sell electricity for 97-100 EUR/MWh. The current wholesale price for electricity in Hungary is around 45 EUR/MWh, with European prices even lower, at around 35 EUR/MWh. This means that the Paks II project will only pay off in the case of a very significant, 60-85% price increase – which is highly unlikely.

The European Commission’s 2014 spring report  9 calculates a 23% price increase compared to the current European prices for 2026, when the power plant is expected to start operating. We can see that in order for the Paks II project to pay off, the calculated electricity prices will be higher, which also calls into question the government’s statement that Hungary will have the cheapest electricity prices in the region in the next 4 to 5 years.

Unfortunately the Hungarian government has not released any calculations or documents regarding the financial feasibility of the project. The government commissioner responsible for the Paks II project, Attila Aszódi, has presented his calculations 10 in some periodicals and at conferences, however, as he admitted, these should not be considered official governmental calculations.

Budgetary impacts

The investment statistically will have to be accounted in the public sector, and will thus count as budgetary expenditure, having an effect on the state debt and fiscal balance.

Preventing an increase in the national debt rate, which is currently 79%, has already proven difficult for Hungary. According to the EU’s One-Twentieth Rule, which will apply to Hungary in 2016, this rate must be decreased by 1 percentage point annually until a rate of 60% is reached. Because of this limit, if the state wants to finance the Paks II project from a state loan, it will not only have to compensate for the baseline, but also for the 8-10 percentage point increase of the debt rate caused by the project.  11

In order to comply with the regulations, the Paks II expenditures should be accounted for elsewhere in the budget. According to calculations,  12 this would trigger the need for a 1-1.5 billion euro yearly adjustment package during the facility’s construction, thus already in 2018 and for eight years thereafter. This amounts to the sum of all family allowances, maternity leaves, pregnancy and motherhood aid allocated in the central annual budget.

The question is: if the government claims that it is feasible to save this much from the central budget annually over the course of eight years, is it really reasonable to use it for building a nuclear power plant? Is it wise to spend these public funds on a project whose economic return is more risky than average? It is, after all, the Hungarian state and Hungarian citizens, who are wholly bearing this risk.

Who benefits and why?

We do not have to think long about why it is a good deal for the Russian state: Rosatom is one of Russia’s biggest state-owned companies, and it is obviously in its interest to build more nuclear power plants, and expand in the European energy market. Besides, the project, and especially the state loan, can buy Russian political influence in the region. However, we could certainly debate about why lending this amount of money to Hungary with these conditions is beneficial to Russian taxpayers.

Nevertheless it is still unclear, in light of the aforementioned calculations, why the Hungarian government is trumpeting this as the biggest deal of the last forty years.  13 At the same time, the statement from János Lázár, Minister of the Prime Minister’s Office, is telling: “This is not a business project but an agreement between two states that prolongs a fifty-year cooperation.” 14

According to foreign policy expert, András Deák, of Central European University, it is highly likely that there are other significant underlying motivators of the agreement. It is difficult to prove that people in the government are only serving their own private interests by accepting an agreement so unfit for Hungarian society. It is more likely that another deal was made in the background that the government expects to be beneficial for the country at the macro-level, and one that counterbalances, at least partly, the possible negative consequences of the Paks II project, before the negative effects become apparent.  15

Although both the Russian and the Hungarian governments denied the existence of an interrelation between the nuclear project and other agreements, the timing and abruptness of the deal lead many experts to believe that the Hungarian Government’s underlying motivation was a desire to renew the long-term gas contract with Russia on more favorable terms (the current contract expires in 2015).

There are many “coincidences” widely discussed in the Hungarian press that support this speculation. The government purchased E.ON’s Hungarian gas wholesale subsidiary together with the long-term gas contract with Russia in autumn of 2013, which signalled that the gas wholesale trade that was privatized under previous governments, is once again considered to be of vitally important for the government.  Also a little later, Gazprom’s CEO, Alexey Miller, met with Viktor Orbán unexpectedly in Budapest in mid-December, just a few weeks before the nuclear deal was announced; and then a third round of household gas and electricity price cuts were set just a week after Orbán’s visit to Moscow.  16

Price cuts are high on the Hungarian government’s agenda, so the existence of an underlying gas deal is – though speculative – is a believable explanation for the Paks II deal. Although we might not ever know what has happened in the background, one thing seems quite sure: the high price we will pay for the Paks II project will exceed the short-term gains we might receive from temporary gas price cuts.


  1. Reuters, Special Report: Inside Hungary’s $10.8 billion nuclear deal with Russia, March 30, 2015
  2. Energiaklub, New build in Hungary: more questions than answers, November 5, 2009
  3. Act No. CXVI of 1996 on atomic energy, (accessed August 29, 2015)
  4. VisegradRevue, Paks Moscova: Russia to build two further nuclear reactors in Hungary, March 27, 2014,
  5. Paks Kontroll, Elszálló költségek, December 12, 2014,
  6. Paks Kontroll, Status report and short analysis on the project aiming to build two new units at Paks Nuclear Power Plant, May 9 2014
  7. Energiaklub, Budgetary policy aspects of the Paks II project, September  2014,
  8. Felsmann Balázs: Működhet-e Paks II állami támogatások nélkül? – Az erőműtársaság vállalatgazdasági közelítésben,  Budapesti Corvinus Egyetem, Energiaklub, June 2015,
  9. European Commission (2014): Energy prices and costs report. Comission Staff Working Document, SWD(2014) 20 final/2. Brussels, 17 March, 2014
  10. BME, Az energetikusok valójában jövőkutatók, December 19, 2014
  11. Country Report Hungary 2015 (COM 2015) 85 final, European Commission,
  12. Energiaklub, Budgetary policy aspects of the Paks II project, September  2014,
  13., Lázár: Az elmúlt 40 év legjobb üzlete a paksi bővítés, January 16, 2014,
  14. Napi Gazdaság, Lázár: Jó üzlet a paksi bővítés, January 16, 2014,
  15. Magyar Polip 2, A paksi bővítés – Szakpolitikai és uralmi dilemmák fogságában, Deák András György, 2014
Orsolya Fülöp

Orsolya Fülöp

is the Policy Director at Energiaklub Climate Policy Institute.