Hungary’s €12 billion plan to build two new nuclear reactors could push the country’s budget deficit over the limit set by EU rules, critics of the projects have warned, and regulators may be in the dark about its true costs.

In mid-July, the EU Council of Ministers warned the country is close to breaching the fiscal safeguards. With construction on Paks II expected to begin in 2018, there are concerns that the project’s costs could balloon beyond official estimates.

The uncertainty stems from one issue: The annual costs of the project, known as Paks II, are opaque.

“It is not spelled out … to what extent the spending targets reflect the extra costs of the nuclear power plant,” said a Commission report published in May on Hungary’s fiscal plans.

One explanation: “The project’s technicalities, financial setup and loan contracts … they’re all secret,” said Balász Romhányi, the director of the Fiscal Responsibility Institute Budapest, a nonprofit group that has scrutinized Paks II and is in the process of suing the Hungarian state to try to uncover the full costs of the nuclear plan.

The Hungarian parliament passed legislation on December 6 that will strip the country’s nuclear regulator of oversight authority over Paks II. That responsibility is now firmly in the hands of the Hungarian state.

A spokesman for Hungary’s government said that “there are no ‘secrets’ regarding the ‘costs’ of [the] Paks extension.”

“Every information will be available according to the international/EU standards,” said Zoltán Kovács, the spokesman for Prime Minister Viktor Orbán. “So the costs are known and planned in advance; will have no unexpected or unknown effects on the Hungarian budget.”

Romhányi insisted that the state is deliberately ignoring his calls for more details on the project’s planned budget. “I want to know what the details are for 2018, 2019, 2020,” he said. “[But] it’s secret. There’s a special law on it … [and] the law makes the expenditure number secret for 3 years.”

The project has also raised questions because of a €10 billion loan issued to the Hungarian government by the Kremlin’s Vnesheconombank — a struggling lender that is under EU sanctions and saddled with bad loans.

The Russian loan to Hungary will finance roughly 80 percent of the project’s estimated costs, while Hungary will foot the remaining 20 percent, according to the Commission.

“The Paks project is consolidated into general government, so the amounts will affect the Hungarian budget,” a European Commission spokesperson said.

Close scrutiny

Commission officials said they are monitoring the project closely. The EU’s executive arm assigns two desk officers for each EU member who scrutinize the country’s fiscal and economic development.

Officials are also present in each EU capital to engage directly with governments and report back to Brussels. They maintain partnerships with local think tanks and journalists as well, to get a close understanding of a county’s overall actions.

EU countries are expected to hand in their data centers’ economic information twice a year that is then passed on to Eurostat, the Commission’s statistical agency.

But Romhányi, the think tank director, said he isn’t convinced that the Commission “gets all the details” from the Hungarian government.

Hungarian MEP Benedek Jávor, an opponent of the Orbán government, said he shares Romhányi’s suspicions, warning that the numbers supplied by the Hungarian government may fall short of the real costs of Paks II.

“We have a lot of official numbers, but I believe that these aren’t the real ones,” the Green MEP said. “The real costs will only become clear just when the project is completed.”

“The Commission is in quite a difficult situation to figure out the total costs,” he continued. “But they are still trying.”

Red flags

Paks II has raised several red flags among budget watchers in the Commission. The EU’s executive arm has issued multiple documents noting that “further negative risks are linked” to Hungary’s plans for “the Paks nuclear power plant,” which has a “potential debt increasing effect of the construction of the planned nuclear power plant.”

And the additional costs of the project could be significant, said Jávor, who has submitted a report to the Commission on his estimates for them as part of a consultation on Paks last year carried out as part of an investigation into whether the project fell afoul of EU state aid rules. The investigation is still ongoing.

Jávor, who was invited to speak to the Commission about his findings, said that costs associated with Paks could expand by a further €10 billion — almost doubling Hungary’s estimates.

Expenses related to construction delays, waste management, safety upgrades, and decommissioning are only some of the financial hurdles that the project faces and have yet to be accounted for.

“We can expect that the original planned costs could be much higher than originally communicated,” Jávor said.

In that case, the Hungarian state will have to foot the bill, which could make it harder to stick within the EU’s budget deficit rules.

The rules set a limit of 3 percent of GDP on the budget deficit and a 60 percent cap on public debt for all EU countries under the so-called Stability and Growth Pact. The measures are intended to keep public spending in check and help prevent economic crises.

All EU governments must adhere to the rules, although eurozone countries face more stringent measures and stricter sanctions for violations than countries not using the euro like Hungary.

The Commission forecasts that the preparatory costs of Paks II will impact Hungary’s national budget by 0.4-0.5 percent of GDP per year.

The Hungarian government estimates that its headline deficit will increase to 2.4 percent of GDP by 2017, although it insists the red ink will then decrease gradually to 1.2 percent by 2020.

The EU Council of Ministers isn’t convinced, as the country’s budget is already under close scrutiny under the Commission’s so-called preventive arm — which sets medium-term fiscal targets to keep the deficit below 3 percent.

“There is a high risk of a significant deviation from the required adjustment in 2016,” a Council document said in July.

“The Council is of the opinion that there is a risk that Hungary will not comply with the provisions of the Stability and Growth Pact,” the document continued. “Therefore further measures will be needed … to ensure compliance.”

Despite numerous questions about the project’s funding and environmental and economic fallout, the Commission is expected to give Paks II the green light. Brussels last month closed an infringement case against Hungary, saying the non-competitive tender for the project didn’t break with EU transparency rules for public procurement. The result of the state aid investigation hasn’t been announced, but the Commission is poised to wave the project through.

Click Here: All Blacks Rugby Jersey