The European Commission (EC) has decided to launch an infringement procedure concerning the planned extension to Hungary’s Paks nuclear plant under the contract awarded to Russian state nuclear corporation Rosatom.

Last year Hungary chose Rosatom to build two new units at Paks without first going to international tender. Russia agreed to provide a favourably priced €10bn ($10.7bn) loan to cover 80% of the project costs.

A EC’s statement of 19 November says: "Following exchanges of information with the Hungarian authorities and a thorough assessment of the terms of the award [of the contract], the Commission still has concerns regarding the compatibility of the project with EU public procurement rules." The Commission considers that the direct award of the Paks II nuclear power plant project does not comply with EU legislation on public procurement (Directives 2004/17/EC and 2004/18/EC).

"The Directives consolidate the basic principles of the Treaty on the Functioning of the European Union of transparency, non-discrimination, and equal treatment," the Commission said, stressing that these principles seek to ensure that all economic operators have fair chances to participate in a call for tender and to win a contract. The EC will send a letter of formal notice to Hungary, which constitutes an official request for information and is the first step in an infringement procedure. The Hungarian authorities have two months to respond to the EC’s arguments.

The intergovernmental agreement concerning nuclear cooperation, which provides for construction of two VVER-1200 reactors on the Paks site, was signed on January 14, 2014. The project cost is estimated at €12.5bn. Previously, Hungary said it will go ahead with its plans to expand the Paks plant despite press reports about the expected EC measures.

"The Commission raised concerns about the compatibility with the EU public procurement rules," Commission spokeswoman Lucia Caudet told reporters following the announcement of formal infringement proceedings. She said Hungary had two months to respond, but did not say whether the EC had asked Hungary to suspend preparations for the project.

Hungary insists that it had respected all relevant laws when it awarded the contract. Prime Minister Viktor Orban’s chief of staff, Janos Lazar, told a news conference that Hungary would draft a detailed response to the EC, but would continue with its plans. "Regarding the expansion and maintenance of capacity of Paks, everything will proceed according to the government’s intentions," he said. Hungary has been in continuous contact with the Commission about the plans ever since, Lazar said, adding that EU regulators had already approved the fuel supply and technical parameters of the project before lodging the new challenge.

He noted that Hungary had first notified the EC about Hungary’s plans to enter a bilateral nuclear deal with Russia in November 2013, adding that then Commission president, Jose Manuel Barroso, did not raise any concerns "of principle" about the matter at the time.
Rosatom said in an emailed statement to Reuters that it agreed fully with Lazar’s assessment and would fulfil all its obligations outlined in the contracts between Russia and Hungary.

"This is not a political debate but a commercial debate about whether Hungary has the right to enter into a €12bn commercial or business deal with a non-EU state," Lazar said. The debate would revolve around how EU-based companies can access the expansion deal, which will see two new 1200MWe Paks units scheduled to begin operation in 2025 and 2026. He said no investors apart from Rosatom were interested in a deal. Hungary is ready to defend its position in court if needed, Lazar stressed.