European Commission opens in-depth investigation into support for Paks II nuclear power plant in Hungary

By issuing an opening decision on 23 November 2015, the European Commission has opened an in-depth state aid investigation into Hungary's planned financing of the construction of two new nuclear reactors in Paks (Paks II project). The Commission will determine whether the investment constitutes state aid and if so whether the aid can be considered as compatible with the European energy market. The opening of an in-depth inquiry gives interested third parties an opportunity to comment on the measure, but it does not prejudge the outcome of the investigation.

The Paks II project began in 2014 when the Russian Roszatom and the Hungarian Government entered into an agreement. Construction of two VVER-1200 reactors, each of 1.2GW, was due to begin in 2015 but this is currently postponed to 2018. The Paks II project, estimated to be worth around 12.5 billion euros, is backed by an 10 billion euros intergovernmental loan from Russia, expiring in 30 years and leaving 2.5 billion euros to be invested directly by the Hungarian government.

The Commission’s main task will be to determine on the basis of the agreed transaction terms and in view of the EU’s energy market projections whether a private investor would have financed the project on similar terms, which may be difficult due to a lack of comparable projects financed by private investors and given the political impacts of such a project, too.

It is to be noted that the Paks II case might be affected by the current proceeding and the General Court’s judgment in the publically highly debated case of state support to Hinkley Point nuclear power station in the UK. The Hinkley package was approved by the Commission in October 2014 but was later on appealed by the Austrian Government and environmental NGO Greenpeace. One of the main issues in the Hinkley Point case was the lack of any open and competitive tender process as the Project was simply offered to the French parastatal EDF which seems to be the case in the Paks II Project as well.

It will be interesting to see which path will the Commission choose in this case, especially in the absence of a Single European energy market. Currently, the promotion of nuclear energy is a choice of the Member States, lying within their national competence, as Member States may freely determine their energy mix pursuant to the EU legislation. However, when public money is spent to support companies, the Commission must verify that this is done in line with the EU’s rules on state aid, which implies the possibility to use State aid rules to foster the one or other energy policy.