The sharp-eyed reporters of vs.hu, a fairly new site favored by younger readers, discovered on http://www.pravo.hu.ru the Russian text of the Russian-Hungarian loan agreement in connection with the extension of the Paks nuclear power plant. Although some Hungarian media outlets claim the text is no longer available, it can still be downloaded from the link vs.hu provided. Here are a few details I gleaned from summaries of the Russian text.
There were rumors earlier that Viktor Orbán had originally turned to the Russians for a general-purpose loan but that in the end he had to be satisfied with a loan earmarked for Rosatom to build two new reactors in Paks, which will double the capacity of the Hungarian nuclear power plant. It looks as if the Russians tried to ensure that the Hungarian government can use the loan of up to 10 billion euros only for Paks. Moreover, the loan will cover at most 80% of the total cost. The remaining 20% (and all cost overruns) will have to be paid to Rosatom by the Hungarian government in euros.
From the text it appears that the Budapest team involved in the negotiations didn’t tell the whole truth about the details of the agreement. They repeated several times that the Hungarian government’s 20% contribution will be due only at the very end of the twenty-one-year period during which the loan must be paid back. This is inaccurate. Every time Rosatom submits a bill, it seems, Hungary will have to pay 20% of it from its own coffers, not from the loan. And the bill will have to be paid within 15 days. If Hungary can’t pay within 15 days, there will be a heavy penalty: 150% of the original sum. If Hungary can’t pay for an extended period (to be precise 180 days), the Russians can cancel the agreement and demand repayment in full. As some people have already pointed out, such an eventuality could bankrupt the country.
Beginning this year, Russia will grant Hungary an interest-only loan at an annual rate of 3.9%. Once construction is completed in 2026 (or presumably even if it isn’t), the principal balance will be amortized over 21 years, with an interest rate of 4.5% for the first seven years, 4.8% for the next seven, and 4.95% for the final seven. Every year there will be two payment dates: March 15 and September 15. Happy March 15th, Hungary!
As of now, only LMP responded officially to those details of the agreement that the Russians decided to make public. According to Bernadett Szél, co-chair of the party, there are several points that are unacceptable. One is that Hungary will have to start paying on the loan’s principal in 2026 even if the plant is not completed by that time. The Hungarian government until now had insisted that loan payments could be made from the sale of additional energy that the expanded Paks would produce.
I’m sure that within days experts will figure out how much this loan will actually cost Hungary and that the number will be staggering. As it is, Hungary’s indebtedness is large. Much larger than it was in 2010 when Viktor Orbán became prime minister. According to the latest estimate, it is 30% higher today than it was four years ago. And one must keep in mind that in the interim the savings of millions of people were used to lower Hungary’s indebtedness.
Oh, and by the way, only a few days ago I read claims that the extension of Paks cannot take place without building a dam on the Danube. Well, that would add a few forints to the bill.
All of these calculations may be academic, however. The EU might scuttle the power plant expansion altogether. It could object to the state subsidies that would implicitly be provided to MVM (Hungarian Electricity Ltd.) since Paks provides energy to the utility company. Such an arrangement would give an undue advantage to MVM vis-à-vis its competitors in Europe. And then there are the strained relations between the European Union and Russia as a result of Russia’s attack on Ukrainian sovereignty. With the EU outlining possible sanctions against Russia, it will be difficult for Orbán to sell the idea of initiating such a cozy relationship with Putin’s Russia. Mind you, I think that a EU veto would be a blessing in disguise because this deal should never have been made in the first place. Hungary’s financial situation at the moment is so shaky that such a major investment is out of the question. (I opted for the word “shaky” to reflect Reuter’s claim that “Hungary has made a particularly convincing case for turning the ‘fragile five’ [Brazil, India, Indonesia, Turkey, and South Africa] into a ‘shaky six’.”) I’m not saying that Paks shouldn’t be enlarged eventually, but not now and not with Putin’s Russia.