UPDATE 2-Russia to increase Hungary's nuclear power

Tue Jan 14, 2014 12:15pm EST

* Russia's Rosatom to add 2,400 MW capacity at Paks plant

* EUR 10 bln Russian state loan to finance 80 pct of cost

* Hungary faces elections in 2014, opposition would review deal

By Marton Dunai and Thomas Grove

MOSCOW/BUDAPEST, Jan 14 (Reuters) - Russian nuclear power company Rosatom will expand Hungary's only nuclear power plant, more than doubling its capacity in the biggest construction project in Hungary's post-Communist history, the two countries agreed on Tuesday.

Russian President Vladimir Putin said that he and visiting Hungarian Prime Minister Viktor Orban had signed an agreement on the project at Paks, in central Hungary, which already runs four Russian-made VVER-type reactors built in the 1980s.

The Paks expansion is expected to become a hot topic ahead of parliamentary elections in April or May when Orban will seek reelection. Opposition parties were quick to criticize the deal, with one saying it made Hungary over reliant on Russia for energy. Orban's centre-right Fidesz party has led in all polls by a wide margin.

Hungary relies on Russia for most of its gas and oil imports, and the Paks nuclear plant covers about 40 percent of its total electricity needs.

Russia's state atomic agency head Sergey Kirienko said Moscow was ready to lend Hungary up to 10 billion euros ($13.65 billion) for the construction of two new units, which will cover the lion's share of the costs.

"The agreements signed today foresee the construction of two new energy blocks at the power station," Putin was quoted as saying after talks with Orban at his residence in Novo Ogaryovo.

Janos Lazar, a leading member of Orban's cabinet, said in Budapest that the European Union had already approved a draft plan for the building the blocks, each with capacity of 1,200 megawatts (MW) at a likely cost of around 10-12 billion euros.

Lazar said 80 percent of the financing would be covered by a 30-year sovereign loan from Russia, while Hungary would have to put up the remaining 20 percent. He would not say how the plant's operator, state-owned MVM, would figure in the deal.

The new blocks are not expected to come on line before 2023 and will remain in Hungarian state ownership, Lazar said. He said the construction could add 1 percent to Hungary's economic growth per year and up to 10,000 jobs.

QUESTIONS MARKS IN HUNGARY

Orban's political opponents at home said he had decided on the future of Hungary's energy supply behind Hungarians' back.

The biggest opposition party, the Socialists, have already said if they oust Orban they will review the deal.

"The Socialist-led government after the spring elections will review the obligations undertaken by Orban, because a responsible decision about the expansion of the Paks plant can only be based on... a broad social and professional consensus," the Socialists said on Tuesday.

The green liberal opposition party LMP, which has opposed the nuclear power expansion, said Orban was selling out Hungary's sovereignty by making it dependent on Russia in energy.

"Viktor Orban practically sells Hungary out to the Russians," LMP deputy Bernadett Szel told national news agency MTI.

In 2009, before the last election, the Hungarian parliament overwhelmingly approved a plan to expand Paks.

"The main question is whether we need it now, whether we need to do it in such a rush," said Ada Amon, director of the advocacy group Energia Klub, which has opposed the Paks expansion. "This decision is too early to be made."

She said that since 2008 total energy consumption, including electricity consumption, has declined.

"We are buying nuclear fuel from Russia, we are buying natural gas from Russia, we are getting oil from Russia, so most of our energy resources are coming from Russia," she said.

Lazar argued that the expansion of the Paks plant would not make Hungary more dependent on Russia.

"I don't believe our dependence would grow," he said. "Energy security would grow. We have committed to Russian technology at least until 2037 (when the existing plant will shut down). This means sustaining that commitment, which is good for the people of Hungary and the economy."

Officials at state-owned energy group MVM, which runs the Paks nuclear plant, have said Hungary would aim to renegotiate its gas import contract with Russian supplier Gazprom soon, which is due to expire in 2015.