Russians wanting a massive Paks 2 nuclear contract eventually got pushed out

An important public tender related to the construction of the new Paks 2 nuclear power plant blocks has been announced at the beginning of the summer. It concerns the purchase of the control system which oversees the safe operation of the power plant.

The tender is important not only for security but also for financial reasons. Main parts of the system cost almost 300 million euros. The Hungarian government publicly stated that it wants this valuable contract to be given to a Western company.

Direkt36 learned that this tender has triggered a conflict between the Hungarian government and the Russians involved in the development project from the beginning, since the Russians wanted this contract for themselves. However, the Hungarian government was arguing in favor of Western companies because they have already proved to be reliable partners during the reconstruction of the currently operating Paks nuclear power plant blocks. Moreover, the government believes that a Western supplier could better guarantee the system’s protection against cybersecurity threats.

The position of the Hungarian government now seems to be taking over. According to documents published on the website of Rosatom, the Russian nuclear industry giant in charge of the Paks 2 construction and related tenders, no Russian bidder had applied for this tender. Even though a British bidder teamed up with a Russian-owned Czech company as business partners, this consortium was later disqualified from the tender. Therefore, only two bidders remained, a French-German group and a South Korean consortium.

Neither the ministry in charge of the Paks project nor Rosatom responded to our inquiry.

Hungary’s government favors Western suppliers

Rosatom announced the tender about the purchase of the control system’s main parts at the beginning of June. The control system is a key instrument practically functioning as the nuclear power plant’s nerve system.

Szabolcs Hullan, deputy director at the Hungarian Atomic Energy Authority (HAEA) told Direkt36 that this system constantly performs tests and either takes automatic actions on their basis or warns the power plant staff to intervene. For example, if the system detects reactor temperature or pressure exceeding the set value, it shuts down the reactor automatically.

According to Hullan, the Atomic Energy Authority – which is in charge of authorization – wants the public tender’s winner to supply the power plant with a system that is in line with Hungarian regulations. He highlighted rather strict regulations like, for example, not only one but three separate protecting systems capable of reacting automatically are required (in case one of them malfunctions).

Minister in charge of Paks expansion Janos Suli told in an interview earlier that he expects Rosatom to contract a Western company for delivering the control system. The minister did not elaborate why, but mentioned that this was another important contract that could go to Western suppliers in addition to the contract about the power plant’s turbines.

After Hungary’s government handed the Paks expansion to Russia’s Rosatom without any kind of public bidding procedure, it had to involve Western companies in the project in order to win approval from authorities of the European Union. The Hungarian government managed to persuade the Russian counterpart that 55 percent of the value of tenders should go to companies independent from Rosatom. The acquisition of the control system would fulfill a serious part of this commitment. Another significant portion of this is the contract of supplying the power plant with turbines, which has been sealed already. The contract, worth 800 million euros, was won by GE Hungary, local subsidiary of the U.S. General Electric company, jointly with one of the Alstom companies also in GE’s ownership

Russians wanted it for themselves

According to our information, the Russians wanted to win this contract since the very beginning of the project, which resulted in a serious conflict between the parties and it has been raised on all levels.

Hungarian counterparts had multiple reasons for favoring Western subcontractors. Hungarian engineers had good experience with Western systems during the reconstruction of Paks 1 blocks. Western companies started upgrading the control system of the old Paks blocks in the 1990s when the power plant switched from analogue to a digital system. German and French companies carried out this transformation smoothly despite the fact that the old blocks were built with Soviet technology.

The other important reason was related cybersecurity, according to Direkt36’s information. Hungarian counterparts believed that Western suppliers could better guarantee that the control system would be protected against potential hacking attempts. An important aspect of the power plant’s cybersecurity is that essential, security-related parts of the control system should be completely separated from the outside world. These parts cannot have any external access or connection to the internet, they need to operate in an isolated way.

At the end of July, three consortia applied for the public tender but the Rosatom subsidiary producing its own control system was not among them. Moreover, even the consortium that included a Russian-owned company was disqualified at the end of August. The British Rolls-Royce made a joint bid with the Czech Skoda JS company – the latter is owned by a subsidiary of Russian state company Gazprom. Skoda JS is also a cooperating partner of Rosatom in several other nuclear power plant investment projects. The reason for disqualification was that one of the subcontractors of the consortium did not reach the required score.

Both members of this consortium have been active in Hungary recently. Last January, Rolls-Royce signed a memorandum of understanding with one of the daughter companies of the state-owned Hungarian Electrical Works regarding the control system of Paks 2. Hungarian daily Nepszava earlier reported that, when Czech President Milos Zeman visited Hungary in May, the involvement of Skoda JS in the Paks project came up during talks between the Czech and Hungarian delegation.

Currently, the two other bidders are still in the competition. One of them is the group consisting of France’s Framatome and Germany’s Siemens. These are the same two companies who delivered parts of the control system that is currently operating the old Paks 1 blocks. A Hungarian daughter company of Siemens signaled its interest in supplying Paks 2 as well with a control system already a few years ago. The second bidder is a subsidiary of a South Korean nuclear power plant construction company. Current bids do not yet contain price offers.

The current public tender concerns only the main part of the control system, other parts would also have to be supplied, and those remaining contracts still offer a chance for Russian companies’ involvement. A new public tender about supplying diagnostics for the control system has already been announced this summer. In addition to the consortium of Rolls-Royce and Skoda JS, two other Moscow-based companies made a bid.

  • András Szabó

    András worked eight years as a journalist at Origo, a then prestigious online news site, but also spent several years at Index and news outlets. At Direkt36 he covers Russian-Hungarian relations, activities of business circles close to Fidesz, and political decision making processes of the Orbán government. In 2011 he received the Gőbölyös Soma Award dedicated to investigative journalism in Hungary, and in 2010 he won the Quality Journalism Award, both for a series of articles that focused on a corruption case connected to the former Socialist-led government.