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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Hungary’s Russian Nuclear Energy

28 January, 2014 - 09:09

In the middle of January 2014 while most countries were slowly recovering from their winter sleep, Hungarian Prime Minister Viktor Orban and Russian President Vladimir Putin finalized the deal between the two states to build two further nuclear reactor blocs in the area where Hungary’s only nuclear energy producing reactor exists, in the town of Paks. The contract was signed by the head of Rosatom, Sergey Kiriyenko and Ms. Laszlone Nemeth, Hungary’s minister for economic development.

The matter got into the political crossfire in Hungary. The divisive political atmosphere in Budapest has made it impossible to contemplate objectively the new situation. What are the contested political and economic issues? How does this matter appear in Hungarian politics?

Viktor Orban (51 this year), who was Prime Minister of Hungary between 1998 and 2002 and again since 2010 has been known as anti-Soviet politician who retained his negative assessment extending to Russia. He made his name when on June 16, 1989 at the funeral of Prime Minister Imre Nagy, executed in 1958 called on the Soviet troops to leave Hungary. Political mythology would attribute some heroism to this although, in fact, the Soviet leadership was also working on the departure of the troops. Later he kept joking about the Soviet Union, a state he did not know at all. His anti-Soviet, anti-Russian rhetoric, his immature jokes displeased his Russian partners.

FIDESZ (the Alliance of Young Democrats) and KDNP (The Christian Democratic People’s Party) won the elections in 2010, and gained more than two-thirds majority of the seats in Parliament. With such majority it was possible to do practically anything including the changing of the fundamental laws and adopt a new constitution. The leadership with massive concentration of power in the hands of the prime minister was not hesitant to use and abuse its power, like in the case of the confiscation of funds in the private pension funds that happened not long after his government was formed in 2010. Some of the arbitrary decisions generated sincere doubts about the democratic commitment of Viktor Orban. These doubts notwithstanding, Hungary gives the impression of a democracy although democracy is severely curtailed.

In the foreign policy of the country two tendencies are noticeable under the current government.

The maximization of sovereignty and marginalization of external influence and monitoring of state affairs by international actors. In consequence, the country reimbursed the loan taken by earlier governments to the IMF and now finances the public debt externally from the international market at significantly higher cost (interest rate) than offered by the IMF. This is contrary to economic rationality but not to political logic. It was the main objective of the Hungarian government to avoid the IMF’s monitoring of economic performance and commenting on it. For the same reason, the Hungarian government has taken issue with the EU, including some of the fundamental values and entered a number of legal disputes with the European Commission.

It has started to reorientate the foreign policy of the country under the callname of “Eastern opening.” This means reduced reliance on the West in foreign trade, investment and more broadly. As of now, Hungary conducts nearly 80 percent of her foreign trade with other EU members and it is the objective of the government to reduce it to 70 percent.

It is necessary to call the attention to the fact that this objective can be reached by increasing the share of extra-EU trade or by reducing the intra-EU trade. For a country, like Hungary, that is heavily reliant on foreign trade, the former may be heaven, the letter hell. As foreign direct investment that would come to Hungary not so much to sell its produce in the country proper, but to use it as an export base, is in decline (except for two major investments agreed by Orban’s predecessors with Audi and Mercedes, respectively), contraction of export will follow.

It is apparent that the Hungarian prime minister enjoys the company of his colleagues who run their illiberal democracies from Moscow to Beijing and further to the Gulf-states. In the end, there is one matter that is dear to him: his own power and its perpetuation.

However, as of now the Eastern opening has not brought any fruit. Consequently, opening to Russia (rather than to hesitant China that has decided to regard Bucharest its main partner in east-central Europe rather than Budapest to the disappointment of the latter) is an idea that might bridge the distance between Hungary’s new-born ideas and the reality.

The political surprise has come with the signing of a major agreement to build two new reactor blocs due to the fact Hungary, under the current government, did not share particularly warm relations with Moscow. It is nothing but sheer mutual interest that has motivated the two parties in their attempt to conclude a major deal on investment.

Russia has long been attempting to return to east-central Europe with her nuclear industry. The Hungarian head of state (a largely ceremonial function), Laszlo Solyom told in an interview that at his meeting as head of state with Vladimir Putin two matters were stressed strongly by his Russian partner. One of them was to modernize and expand the nuclear power based energy production by a Russian company. The fact Russia has achieved this is of symbolic importance. It fits, among others into the long list of Russian foreign policy successes (Snowden affair, Syrian chemical weapons, easing sanctions on Iran). Interestingly, it is a success for Hungarian Prime Minister, Viktor Orban, as well: it demonstrates that Eastern opening has some perspective and is not completely lost.

If we take a look to the timing of the agreement it is understandable why the Hungarian political class has been so divided on the matter. It does not fit in the general trend associated with the government and the prime minister. Certainly not with Viktor Orban of the 1980s and 1990s. However, with the pragmatic, populist Viktor Orban of the era since the turn of the century it would fit perfectly. What matters is power, reaping economic benefits for the political support base (friends, people from his village, team mates in the local football team) and the message that the government is acting, actually governs. Demonstrating activism and thus dominate the political agenda and the media matter. This has been achieved and not only by massive control of the electronic media. The government for years has fully thematized the political discourse.

Hungary will hold parliamentary elections on April 6, 2014, i.e. very soon. It is open to question whether it was a good idea to sign such a contract less than three months before it. Although it can be taken for granted that Viktor Orban’s party will win the elections and he will form the next government, it is not clear whether the majority of the government will be similarly overwhelming as it is nowadays. Hence there were some reasons to complete the deal with Russia before the elections.

As far as economic interests, they are complementary. On the one hand, Russia’s Rosatom wants to increase its market share generally, and in Europe specifically. Its economic interest is apparent. Every company in the world does the same. Russia, as a state is also interested in this matter as building reactor blocs is big business. The Russian state and the banking sector appear behind the deal with massive credit to the Russian investor. It is approximately 10 billion euro, a huge sum, particularly for Hungary, a small state that kicked out the IMF with its credit. The credit should cover 80 percent of the total cost of investment and shall be reimbursed in a 30-year period upon the completion of the project. There is again clear rationality behind it. Russia wants to have the deal and Russia, as of now, has enough money to credit the building of the reactor blocs. Providing credit is also in the interest of Hungary, a state that has been traditionally (actually for centuries) short of investment capital. Hungary will still reimburse the credit when the Russian economy will have less resources from selling oil in the world market.

As for the cost: there are analyses that demonstrate this will be the most expensive reactor Rosatom has ever built. However, Hungary will reimburse the creditor when the reactor already provides electricity. The Hungarian prime minister is of the view that it is in the country’s interest to produce 40 percent of electricity from nuclear reactors. This may well be the case, it is more difficult to contemplate now whether it will be economical to do it. But the Hungarian prime minister has never been hesitant to take risky and damaging decisions as long as the consequences would not appear soon and would not massively affect the popularity of his government.

It is not clear whether this project causes damage. However, it can be taken for granted that the disadvantageous consequences of this project, if any, will appear only in the long run. Hungary will remain an indebted country in the very long run that will continue to spend a large share of her GDP on debt servicing. Reimbursing this additional debt will be the task of the next two generations. It is not clear whether this will have consequences for Hungary’s political course as well and whether the country will pursue a political course that shows “more understanding” to Russia’s position. Currently, the Hungarian government’s policy would make this possible due to the departure of Budapest from the established democracies just after 20 years (1990-2010).

Pal Dunay is Hungarian political scientist, transitologist, director of international security programs at the Geneva Center for Security Policy in Switzerland

By Pal DUNAY, special to The Day