Court of Justice of EU annuls Commission's approval of state aid for construction of Paks II nuclear plant

The Court of Justice of the European Union has annulled the European Commission's approval of Hungarian state aid for the construction of the Paks II nuclear plant, the court announced on Thursday. According to the ruling, the European Commission should have ascertained whether the construction of the two new plants being entrusted, by a direct award to a Russian undertaking was in compliance with the EU's public procurement rules.

In accordance with the Russian-Hungarian agreement, the Russian company Nizhny Novgorod Engineering was directly commissioned to build the new reactors. In the same agreement, the Russian state committed to providing Hungary with a state loan to finance the building of the new reactors.

In a 2017 decision, the European Commission had approved investment aid from the Hungarian state for two new nuclear reactors.The State of Austria later challenged this decision before the General Court of the European Union, the lower court of the European Union.The General Court dismissed the suit in November 2022. Péter Szijjártó, Hungary's Minister of Foreign Affairs and Trade called this a great victory for Hungary at the time, saying that “the European Court of Justice has given its stamp of approval for the Paks investment in terms of both licensing and financing.”

The Austrians lodged an appeal, however, and in February the Advocate General recommended that the court overturn the judgment of the General Court, which had ruled that the European Commission's approval of the subsidy for the two new nuclear reactors in Paks was acceptable. The court usually, but not always, follows the opinion of the Advocate General.

Thursday's ruling set aside the General Court's judgment and annulled the European Commission's decision of approval. Unlike the General Court, the Court of Justice ruled that the European Commission should not have been satisfied with examining whether the subsidy complied with EU regulations. It should also have examined whether the contract for the construction of the two new nuclear reactors being directly awarded was in compliance with EU public procurement rules, as this was an integral part of the aid measure.

According to the court, the fact that an infringement procedure initiated against Hungary in 2015 found that the direct award was in line with public procurement rules is not sufficient justification in itself. (The European Commission initiates such proceedings when it suspects that the authorities of a Member State are violating EU law.) The court concluded that such a reference does not allow for an understanding of the specific reasons leading to this conclusion.

Bóka sees no legal obstacle, Tordai cannot imagine a new approval

At Thursday's government briefing, Hungarian Minister for EU Affairs, János Bóka emphasized that the ruling did not state that the investment did not comply with public procurement rules, only that the European Commission had not examined this, or at least had not justified its position. "As in the past," the Hungarian government "will continue to act in accordance with EU law and the principles of loyal cooperation," he said, referring to a fundamental principle of EU law. He added that they will provide all necessary assistance to the European Commission so that it can make a new decision that is also considered lawful by the court. “Since the court did not find either the system of state aid or the public procurement procedure to be unlawful,

there is no legal obstacle for the Paks investment to continue according to the current schedule.”

Independent MP Bence Tordai said on Facebook that the ruling means that the European Commission must reopen the Paks files and must not only take today's ruling into account, but should also look into a complaint he filed at the end of July. “In the current situation, when one of the EU's main goals is to wean itself off Russian energy, it would be inconceivable for Paks 2 to be granted a new license.”

Greenpeace called the ruling a milestone and called on the European Commission to withdraw its approval of state subsidies for Paks II. According to the environmental organization, a possible domestic review of the project could help Hungary move closer to implementing the European Commission's timeline, aimed at ending EU member states' dependence on Russian energy. We are currently quite far from this goal, as Hungary, along with Slovakia, is the EU member state most dependent on Russian energy sources.

Greenpeace called the ruling a milestone and called on the European Commission to withdraw its approval of state subsidies for Paks II. According to the environmental organization, a possible domestic review of the project could help Hungary move closer to implementing the European Commission's timeline, aimed at ending EU member states' dependence on Russian energy.

We are currently quite far from this goal, as Hungary, along with Slovakia, is the EU member state most dependent on Russian energy sources. The European Commission presented a draft in May which would see the EU completely decouple from Russian energy sources. According to this, Russian oil, gas, and nuclear energy would be gradually phased out from EU markets, but there were no deadlines set for the latter. Nuclear energy was also omitted from the related legislative proposals made in June, which Hungarian Minister of Foreign Affairs and Trade, Péter Szijjártó perceived as resistance from the nuclear industry in the West, which has ties to Russia. (A German and a French company are also involved in the Paks expansion.)