Hungary gets state aid clearance for Paks II project

Hungary can start construction of new nuclear power units at Paks next year as planned, following European Commission approval of commitments it has made to limit distortions of competition. The Commission said today it had concluded that Hungary's financial support for the Paks II project involves state aid, but it could approve this support under EU state aid rules on the basis of these commitments.

Paks currently comprises four Russian-supplied VVER-440 pressurized water reactors, which started up between 1982 and 1987. These units account for about half of Hungary's electricity production. An inter-governmental agreement signed in early 2014 would see Russian enterprises and their international sub-contractors supply two new units at Paks - VVER-1200 reactors - as well as a Russian state loan of up to €10.0 billion ($11.2 billion) to finance 80% of the project.

Margrethe Vestager, commissioner in charge of competition, said today: "Hungary has decided to invest in the construction of the Paks II nuclear power plant, its right under the EU Treaties. The Commission's role is to ensure that the distortion of competition on the energy market as a result of the state support is limited to a minimum. During our investigation, the Hungarian government has made substantial commitments, which has allowed the Commission to approve the investment under EU state aid rules."

The Commission's statement noted that Hungary considers the construction of Paks II as necessary to replace phased out generation capacity and to address the need for new capacity.

It said that, under the EU Treaties, member states are free to determine their energy mix and have the choice to invest in nuclear technology. The Commission's role is to ensure that when public funds are used to support companies, this is done in line with EU state aid rules, which aim to preserve competition in the Single Market.

"The Commission's state aid investigation found that the Hungarian State will accept a lower return on its investment than a private investor would do. The investment therefore involves state aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union (TFEU). These rules require state aid to be limited and proportionate to the objectives pursued in order to be approved," according to the statement.

"Hungary has demonstrated that the measure avoids undue distortions of the Hungarian energy market. In particular, it has made a number of substantial commitments to limit potential distortions of competition," it added.

To avoid overcompensation of the operator of Paks II, any potential profits earned by Paks II will either be used to pay back Hungary for its investment or to cover normal costs for the operation of Paks II. Profits cannot be used to reinvest in the construction or acquisition of additional generation capacity.

To avoid market concentration, Paks II will be "functionally and legally separated" from the operator of the Paks nuclear power plant - the incumbent MVM Group - and any of its successors or other state-owned energy companies.

To ensure market liquidity, Paks II will sell at least 30% of its total electricity output on the open power exchange. The rest of Paks II's total electricity output will be sold by Paks II on "objective, transparent and non-discriminatory" terms by way of auctions.

The Commission said it had therefore approved the measure under EU state aid rules because the amount of aid is "limited and proportionate to the objectives pursued, while the distortion of competition caused by the state support is minimised".

Hungary notified the Commission of its planned investment into the construction of two nuclear reactors at the Paks site in May 2015 and the Commission opened a state aid investigation in November the same year.

Separately, the Commission in November last year closed the infringement case against Hungary regarding the compatibility of the Paks II nuclear power plant project with EU public procurement legislation.

Project company MVM Paks II received an environmental licence in late September and in October submitted a site licence application for the two new units.

Hungarian Prime Minister Viktor Orban said last month, following talks with Russian President Vladimir Putin in Budapest, that he was convinced the Paks II agreements fully complied with EU requirements. Orban also said he hoped construction work could start as planned in 2018.

The first Paks II unit is to be completed in 2025 and the second in 2026.

Researched and written
by World Nuclear News