{"id":11897,"date":"2016-01-13T12:00:00","date_gmt":"2016-01-13T09:00:00","guid":{"rendered":"https:\/\/vo.afonico-test.ru\/novosti-otrasli\/european-commission-seeks-clarity-on-paks-ii-state-aid-issue\/"},"modified":"2016-01-13T12:00:00","modified_gmt":"2016-01-13T09:00:00","slug":"european-commission-seeks-clarity-on-paks-ii-state-aid-issue","status":"publish","type":"post","link":"https:\/\/vosafety.ru\/en\/novosti-otrasli\/european-commission-seeks-clarity-on-paks-ii-state-aid-issue\/","title":{"rendered":"European Commission seeks clarity on Paks II state aid issue"},"content":{"rendered":"

Hungary has so far failed to explain how the Paks nuclear power plant expansion project does not conflict with state aid rules, the European Commission said yesterday. In response, the Hungarian government said the EC\u2019s investigation of the matter contains \u201ca number of inaccuracies and misunderstandings\u201d as well as \u201cunfounded and misleading assertions\u201d.<\/strong><\/h4>\n

An inter-governmental agreement signed in early 2014\u00a0would see Russian enterprises and their international sub-contractors supply two VVER-1200\u00a0reactors at Paks, as well as a loan of up to \u20ac10\u00a0billion ($10.5\u00a0billion) to finance 80% of the project. Paks currently comprises four Russian-supplied VVER-440\u00a0pressurized water reactors, which started up between 1982\u00a0and 1987.<\/p>\n

Since the EC first formally expressed its concerns in November last year, Hungary has argued that the project complies with the market economic investor principle (MEIP)\u00a0\u2014 an EC criterion for assessing state aid.<\/p>\n

But in a report summarised in the Official Journal of the European Union<\/em> yesterday, the EC said Hungary had not provided sufficient information on whether the investment is profitable on economic terms. It has come to the preliminary conclusion that \u201cthere are doubts\u201d as to whether the measure entails state aid within the meaning of Article 107(1) TFEU\u00a0\u2014 Treaty on the Functioning of the European Union. The EC \u201cin particular questions whether the measure could be implemented by any economic investor in the market under similar conditions.\u201d<\/p>\n

The publication of this document also means that the \u201copportunity has emerged\u201d, the EC said, for third parties to make comments in the coming month as to whether the Paks capacity maintenance project involves any state aid.<\/p>\n

Economic analysis<\/h4>\n

The EC said that information Hungary submitted included an economic analysis for the project that shows a post-tax internal rate of return during operations higher than the weighted average cost of capital and hence the state investment would be profitable\u00a0\u2014 that is, in compliance with the MEIP test. But Hungary has not provided sufficient information whether the investment is profitable on economic terms, taking into account the allocation of risks under the contract, and expectations on future revenues\u00a0\u2014 based on future electricity prices, the EC said.<\/p>\n

In addition, the EC said it \u201cdoes not have sufficient elements to conclude whether, should the measure constitute state aid, the conditions for the compatibility with the internal market in accordance with Article 107(3)\u00a9 TFEU are met, in particular whether the aid is necessary and, in particular, if there are market failures that affect new investments into nuclear projects in Hungary and what these market failures are.\u201d<\/p>\n

The EC requires information regarding the \u201cpossibilities of new nuclear investments\u00a0\u2014 without state support\u00a0\u2014 and their timing given the specificities of the Hungarian electricity market and its expected evolution and market modelling in this respect\u201d.<\/p>\n

The EC \u201chas doubts\u201d that the notified measure is proportionate, \u201cas, at this stage, it is not clear how and to which extent Paks II will remunerate the state\u2019s investment\u201d. In addition, the EC is concerned about the project\u2019s \u201cpossible distortive effects\u201d on competition and trade.<\/p>\n

\u201cThe Hungarian electricity generation market is characterised by a relatively high market concentration with the current Paks nuclear power plant providing some 50% of domestic generation. At this stage not much new capacity is known to join the market, despite the projected generation gap. Therefore Paks II is expected to represent at least one-third of the forecasted domestic demand in 2030\u00a0and could thus lead together with the still running\/not yet retiring Paks reactors to enhancing the market concentration\u201d, the EC said.<\/p>\n

It also considers that aid to such \u201cbaseload capacities characterized by a high load factor and a lower level of levelised cost of energy may serve as a barrier to entry for new market players and displace further down the merit curve a certain amount of existing higher cost generation capacity\u201d.<\/p>\n

The Hungarian Prime Minister\u2019s Office yesterday responded to the EC report with a written statement that said: \u201cThe Hungarian government takes the view that the decision of the European Commissioner for Competition of 23\u00a0November 2015\u00a0and the summary published in today\u2019s edition of the Official Journal of the European Union<\/em> contain a number of inaccuracies, misunderstandings, and unfounded and misleading claims. The Hungarian government firmly believes that the Paks II project is competitive and offers an acceptable rate of return also amidst free-market circumstances, and there is therefore no need for resorting to state aid. It also transpires from the decision dated 23\u00a0November that even in the wake of preliminary consultations under competition law over a period of almost two years, the European Commission was unable to present a set of well-founded arguments which would refute the position of the Hungarian party which claims that the project involves no state aid\u201d.<\/p>\n

The government noted that Commissioner Margrethe Vestager had \u201cherself stressed\u201d that the EC needs time to conduct a comprehensive investigation and to provide the opportunity for other Member States, market players and third parties to state their comments on the basis of the relevant Brussels procedure.<\/p>\n

\u201cThe government takes the view that the revenues of Paks II will be sufficient to cover all costs, including the capital and capital costs, fuel costs, and the costs of operation, maintenance, waste disposal and disassembly, and the project\u2019s anticipated rate of return is in harmony with the level expected by market investors,\u201d the statement reads. This was also confirmed by the detailed economic analysis prepared by the Rothschild Group on the basis of international comparative data, it said. This analysis is available in full on the project company\u2019s and Hungarian government\u2019s websites, it added.<\/p>\n

Finnish \u2019twin-project\u2019<\/h4>\n

\n

The EC has overlooked the similarities, the government said, between the Paks expansion project and Finland\u2019s plan to build the Hanhikivi 1\u00a0nuclear power plant, which also draws on Russia-backed financing.<\/p>\n

\u201cRegrettably, the European Commission\u2019s decision of 23\u00a0November neglected the circumstance\u00a0\u2014 which is relevant to the issue of state aid\u00a0\u2014 that in the Hanhikivi 1\u00a0atomic power plant project in Finland, which is greatly comparable with the Paks II project in technical terms, private investors, too, undertook to play a role within the boundaries of a consortium who expect an adequate level of profitability from the Finnish atomic power plant project\u201d, the government said.<\/p>\n

Russia\u2019s Cabinet of Ministers in January last year approved up to RUB150\u00a0billion ($2.3\u00a0billion) in funding from the country\u2019s sovereign wealth fund for the Hanhikivi 1\u00a0project. To be built in Pyh\u00e4joki, in northern Finland, Hanhikivi 1\u00a0is scheduled to start generating electricity by 2024. The project is owned by Finland\u2019s Fennovoima, of which another Finnish company, Voimaosakeyhti\u00f6, has a 66% share. The remaining 34% of Fennovoima is held by RAOS Voima Oy, a Finnish subsidiary set up in 2014\u00a0by Russia\u2019s Rosatom specifically to hold a stake in the company.<\/p>\n

The Hungarian government statement added: \u201cDespite the fact that the consortium also features municipalities and Russian state-owned actors, the Commission does not call into question whether the \u2019Finnish twin-project\u2019 is implemented on a market basis, without state aid\u201d.<\/p>\n

In its summary published yesterday, the EC \u201cmisleadingly\u201d invited third parties to submit their comments regarding the possible involvement of state aid, \u201cdespite the fact that they did not at all prove the existence thereof\u201d, the government said.<\/p>\n

Hungary pointed out a \u201cnumber of methodological errors\u201d related to the EC\u2019s calculation of the project\u2019s capital cost and rate of return, \u201cwhich call the well-founded nature of the Commission\u2019s conclusion into question\u201d, it said.<\/p>\n

The government said it will respond to the misunderstandings \u201citem by item\u201d in its next submission to the EC.<\/p>\n

\u201cThe Hungarian government is ready to face a formal investigation, as part of which we shall maintain that the project does not involve state aid\u201d, it said.<\/p>\n

Russia has appointed JSC Nizhny Novgorod Engineering Company Atomenergoproekt (JSC NIAEP), a subsidiary of Rosatom, to construct the new Paks units, while Hungary has appointed MVM Paks II Nuclear Power Plant Development Private Company Limited by Shares (Paks II) to own and operate them.<\/p>\n

Hungary wants to grant investment support to Paks II in the form of equity for the construction of the reactors, arguing that keeping nuclear generation in the national fuel mix is necessary to replace phased out capacity, address the need for new generation capacity and meet European climate objectives.<\/p>\n

Attila Asz\u00f3di, the government commissioner responsible for Paks II, said in November that he still expected construction work to start in 2018, with Paks 5\u00a0and 6\u00a0starting commercial operation in 2025\u00a0and 2026.<\/p>\n

European Atomic Energy Community (Euratom) approved a contract between Hungary and Russia on nuclear fuel supply for the project last April. Then in September Hungary received confirmation from the EC that the project meets the objectives of the Euratom Treaty. That approval relates to Article 41\u00a0of the treaty\u00a0\u2014 the requirement that persons and undertakings engaged in certain industrial activities communicate to the European Commission investment projects relating to new installations and also to replacements or conversions.<\/p>\n","protected":false},"excerpt":{"rendered":"

Hungary has so far failed to explain how the Paks nuclear power plant expansion project does not conflict with state aid rules, the European Commission said yesterday. In response, the Hungarian government said the EC\u2019s investigation of the matter contains \u201ca number of inaccuracies and misunderstandings\u201d as well as \u201cunfounded and misleading assertions\u201d. An inter-governmental…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[15],"tags":[],"class_list":["post-11897","post","type-post","status-publish","format-standard","hentry","category-novosti-otrasli"],"translation":{"provider":"WPGlobus","version":"3.0.6","language":"en","enabled_languages":["ru","en"],"languages":{"ru":{"title":true,"content":true,"excerpt":false},"en":{"title":false,"content":false,"excerpt":false}}},"acf":[],"yoast_head":"\nEuropean Commission seeks clarity on Paks II state aid issue - JSC \u201cVO \u201cSafety\u201d<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/vosafety.ru\/novosti-otrasli\/european-commission-seeks-clarity-on-paks-ii-state-aid-issue\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"European Commission seeks clarity on Paks II state aid issue - 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