Eastern Opening: Russia

Paks Nuclear Power Plant Expansion

Prime Minister Orbán and President Putin meet in Moscow during the signing of the Paks Nuclear Power Plant agreement.

Prime Minister Orbán and President Putin meet in Moscow during the signing of the Paks Nuclear Power Plant agreement.

On January 14, 2014, National Development Minister Mrs. László Németh of Hungary and CEO Sergey Kiriyenko of Russian state-owned nuclear-energy company Rosatom signed an interstate agreement stipulating that Rosatom would build two new reactors at the Paks Nuclear Power Plant in south-central Hungary at a cost of between 10 and 12 billion euros, representing one of the biggest investments the government of Hungary has ever made (source in Hungarian). The agreement calls for Rosatom to build the reactors with 10 billion in loans from Russia to cover 80 percent of the investment, while the government of Hungary will pay for the remaining 20 percent of the cost of construction (source A and B in Hungarian).

The state of Hungary will repay interest on the 10-billion-euro loan from Russian state-owned Vnesheconombank at a rate of 3.95 percent during construction of the reactors. Following completion of the reactors or in the year 2026 at the latest, even if the reactors are not finished, Hungary will begin repaying the loan to the state of Russia over a period of 21 years under the following terms: 4.5 percent interest on 25 percent of the loan over the first seven years; 4.8 percent interest on 35 percent of the loan over the subsequent seven years; and 4.95 percent interest on the remaining 40 percent of the loan over the final seven years. The state of Hungary will have to pay a penalty of 50 percent of the amount of the given installment if it is more than 15 days late in repayment. The state of Russia has the right to demand entire repayment of the outstanding capital and interest on the loan if Hungary is over 180 days late in repayment (source A and B in Hungarian). 

The Orbán government concluded the agreement with Rosatom to build the two new reactors at the Paks Nuclear Power Plant without issuing a tender for bids from other companies.

The Paks Nuclear Power Plant.

The Paks Nuclear Power Plant.

CEO István Hamvas of plant operator Paks Nuclear Power Plant Ltd told the Hungarian News Agency MTI on June 5, 2012, that “organizing the tender is an extremely important task, which must by all means be issued so that we can choose the contractor that will build the reactor in Paks.” Hamvas told MTI that he expected five companies, including Rosatom, the U.S. company Westinghouse, the French company Areva as well as companies from Japan and Korea, to submit bids in the tender (source in Hungarian). A spokesman for Areva told the British news agency Reuters that the company was interested in participating in the expansion of the Paks Nuclear Power Plant (source in English).

On June 4, 2013, National Development Minister Mrs. László Németh announced that the government would issue a tender for the construction of the new reactors at the Paks Nuclear Power Plant before the end of the year (source in Hungarian).

The spokesman for European Commissioner for Energy Günther Oettinger said that European Union specialists were examining the agreement to determine if EU regulations would have required that the government of Hungary call a tender for construction of the new reactors (source in Hungarian). 

State Secretary in Charge of the Prime Ministry János Lázár said that the government did not call a public tender for construction of the new reactors because its selection of Rosatom to build them was based on the 1966 Hungarian-Soviet agreement to build the original reactors at the Paks Nuclear Power Plant and thus represented an extension of an existng interstate treaty and not a new commercial deal subject to European Union tender regulations (source in Hungarian).

Foreign Minister János Martonyi of Hungary said during a meeting with Foreign Minister Frank-Walter Steinmeier of Germany on February 5, 2014, that the Orbán government’s choice of Rosatom to build the new reactors at the Paks Nuclear Power Plant was not based on geopolitical considerations, stating that “It is out of the question that with this Hungary is turning toward Russia” (source in Hungarian).

See Deal of the Century.

 Agricultural Exports to Russia

On October 11, 2013, Rural Development Minister Sándor Fazekas forecast a 15–20 percent rise in agricultural and food exports from Hungary to Russia, noting that the value of such exports rose nearly 25 percent year-on-year to 214 million euros in 2012 and 30 percent year-on-year on the first quarter of 2013 (source in Hungarian).

With regard to rising agricultural and food exports from Hungary to Russia, Prime Minister Orbán said in October 2012 “This is the Eastern Opening—this is what it’s all about. We must sell what we produce and for this we need markets” (source in Hungarian). 

Bilateral Trade 

The value of bilateral trade between Hungary and Russia increased by nearly 25 percent in the first three years after Prime Minister Viktor Orbán returned to power, rising to 2.64 trillion forints in 2013 from 2.13 trillion forints in 2010. In 2013, Russia was Hungary’s biggest trade partner among countries outside the European Union in 2013 ahead of China (1.63 trillion forints) and the United States (1.17 trillion forints) (source in English).

However, the value of bilateral trade between Hungary and Russia declined from 2.64 trillion forints in 2013 to 2.32 trillion forints in 2014, 1.49 trillion forints in 2015 and 1.19 trillion forints in 2016 as the result of economic sanctions that the European Union imposed on Russia in 2014 before rebounding to 1.52 trillion forints in 2017 (source in Hungarian).

China surpassed Russia to become Hungary’s largest trading partner among countries outside the European Union in 2015 (see Eastern Opening: China).

Sanctions

On July 29, 2014, the European Union imposed economic sanctions on Russia to penalize the latter country for having provided Russian separatists in Ukraine with the ground-to-air missile system used to shoot down Malaysia Airlines Flight 17 earlier that month (source in English).

On August 7, 2014, Russia imposed an immediate ban the import of fruit, vegetables, meat, fish and dairy products from the United States, Norway, Canada, Australia and European Union member states, including Hungary, in retaliation for sanctions that these countries had imposed on Russia to penalize the country for its military interventions in Ukraine earlier in the year (source in English). On August 13, Orbán government Minister of External Economy and Foreign Affairs Tibor Navracsics posted the following tweet on his Twitter account: 

Picture 2

Speaking on August 15, 2014, with regard to the European Union’s sanctions on Russia and Russia’s counter-sanctions in the European Union, Prime Minister Orbán said “We shot ourselves in the foot” (source in Hungarian). 

On August 22, National Economy Minister Mihály Varga stated that the European Union sanctions against Russia harmed the economic interests of Hungary, placing the country’s further GDP growth in jeopardy (source in Hungarian). 

Last updated: May 21, 2018.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s