Cablegate: Hungary Planning Expansion of Nuclear Energy

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PP RUEHAG RUEHAST RUEHDF RUEHHM RUEHIK RUEHLN RUEHLZ RUEHMA RUEHPB
RUEHPOD RUEHROV RUEHSK RUEHSR RUEHTM
DE RUEHUP #1227/01 3581452
ZNR UUUUU ZZH
P 231452Z DEC 08
FM AMEMBASSY BUDAPEST
TO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 3734
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNNSG/NUCLEAR SUPPLIERS GROUP COLLECTIVE
RUEHMO/AMEMBASSY MOSCOW 0666
RUEHUL/AMEMBASSY SEOUL 0038
RUEHKO/AMEMBASSY TOKYO 0096
RUEAIIA/CIA WASHINGTON DC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEHBS/USEU BRUSSELS
RHEHNSC/WHITE HOUSE NSC WASHDC

UNCLAS SECTION 01 OF 05 BUDAPEST 001227

SENSITIVE
SIPDIS

DEPARTMENT FOR ISN/NESS MHUMPHREY, EUR/FO JGARBER AND
MBRYZA, EUR/CE JLAMORE, EUR/ERA, EEB/FO, OES/EGC, PLEASE
PASS TO NSC ASTERLING, COMMERCE DEPARTMENT SLOPP

E.O. 12958: N/A
TAGS: ENRG TRGY BEXP BTIO KGHG US RS FR HU
SUBJECT: HUNGARY PLANNING EXPANSION OF NUCLEAR ENERGY
CAPACITY

REF: STATE 127468

1. (U) SUMMARY: The probable expansion of the Hungarian
nuclear power sector offers significant opportunities to U.S.
firms engaged in nuclear-related manufacturing and services.
Hungary is currently considering building one or two new
nuclear reactor units at the Paks nuclear plant. There is
strong political consensus in Hungary behind nuclear energy,
which represents a clean, cheap energy source and limits
further dependence on Russian gas. Russian firms, however,
dominate Hungary's nuclear sector and, along with a variety
of Western European and Asian firms, are likely to present
stiff competition in any upcoming tenders related to the
expansion of nuclear energy in Hungary. END SUMMARY.

2. (U) In response to the Civil Nuclear Working Group's
request for information on Hungary's plan to expand nuclear
energy, EconOffs spoke with Dr. Joszef Ronaky, Director
General of the Hungarian Atomic Energy Authority, Dr. Miklos
Poos, Deputy Director General of the Ministry of Transport,
Telecommunication, and Energy, and Dr. Attila Aszodi,
Director of the Institute of Nuclear Techniques at the
Budapest University of Technology and Economics and Chairman
of the Committee on Energetics at the Hungarian Academy of
Sciences.

OVERVIEW OF CIVIL NUCLEAR POWER PROGRAM

3. (U) Hungary has one nuclear power plant comprising four
reactor units of an upgraded pressurized water VVER-440/V-213
Soviet design. The four units were brought into service in
1982, 1984, 1986, and 1987, respectively, each with a useful
life of 30 years. The Paks nuclear power plant generated
approximately 14,677 GWh of power in 2007, producing
approximately 40 percent of the country's electricity. The
four blocks underwent an extensive safety upgrade that was
completed in 2002, and Russia's Atomstroyexport is currently
upgrading the plant's capacity from 440MW to 500MW per
reactor, with projected completion in 2009. In 2005, the
Hungarian Parliament approved a plan to extend Paks'
operating life by twenty years. According to Dr. Ronaky, the
Hungarians have been working with the U.S. Nuclear Regulatory
Commission to apply U.S. experience toward the Paks lifetime
extension, particularly with regard to regulatory and safety
issues.

4. (U) Hungary's state-owned electric utility, Hungarian
Power Companies (MVM), is the primary shareholder in the Paks
nuclear plant. Local municipalities own a few shares and the
GoH retains a "golden share" in the power plant. The GoH is
currently considering a partial privatization of MVM but has
indicated that it would retain state ownership of Paks due to
its strategic importance.

5. (U) Strong political consensus exists in Hungary in favor
of nuclear power generation. A nationwide poll conducted in
2007 showed 75 percent in favor of the Paks plant's operation
and 22 percent opposed to it. The parliamentary resolution
to extend Paks' operating life received nearly 97 percent
support and in the same nationwide poll, 60 percent supported
its lifetime extension and 30 percent opposed it.

6. (U) Drs. Ronaky, Poos, and Aszodi are in agreement that
Hungary's plans to expand its use of nuclear energy are based
primarily on energy security, climate change, and cost
considerations. Hungarian leaders tend to view nuclear
energy as an important means of satisfying the country's
growing demand for electricity without deepening its already
substantial dependence on Russian gas. Moreover, Paks
already represents the cheapest source of electricity for
Hungary and nuclear power provides a clean, cost-effective
alternative to fossil fuels as Hungary strives to comply with
EU-mandated emission reduction targets.

BUDAPEST 00001227 002 OF 005

NUCLEAR POWER EXPANSION

7. (U) In April 2008, the Hungarian Parliament in its
medium-term energy policy framework took the initial legal
step toward expanding Hungary's nuclear power generation
capacity when it formally requested that the GoH explore the
possibility of constructing new nuclear reactor units.
According to Dr. Poos, the GoH will submit its findings to
Parliament in the spring of 2009, at which point Parliament
will most likely give a green light for a detailed
feasibility study. The capacity expansion will most likely
take place at Paks, which was originally built to accommodate
six reactors. Hungary will be seeking "third generation"
reactors, which are safer, faster to construct, and thus
easier to finance. Dr. Aszodi expects Hungary to prefer
pressurized water reactors for the new blocks, based on its
experience with this technology at Paks, although light water
or boiling water reactors might also be considered. He
suggested the Russian VVR-1000, the Westinghouse EP-1000, and
the Mitsubishi/Areva Atmea 1 as likely 1000MW candidates.
Alternatively, Hungary could purchase a single 1500MW reactor
made by Mitsubishi and retain a site at Paks for future
expansion. Aszodi also mentioned GE, Toshiba, Hitachi,
Siemens, and firms from South Korea and China as likely
competitors.

8. (U) According to Dr. Poos, it is too early in the process
to discuss financing for the Paks expansion and what, if any,
role the GoH might assume. Given the plant's profitability,
he seemed confident that Paks could arrange bank financing on
its own, though he did not discount the possibility that
government guarantees might provide additional support.

URANIUM MINING

9. (U) Hungary's only uranium mine, near Pecs, was closed in
the early 1990s due to high production costs. Based on
revived interest in nuclear energy throughout Europe,
however, Australia's WildHorse Energy has obtained permits to
conduct exploration in the area. Dr. Aszodi expects it will
take several years before any resources are extracted and Dr.
Ronaky believes Hungary's uranium mining potential to be
relatively small scale.

NUCLEAR FUEL SUPPLY, STORAGE

10. (SBU) Hungary obtains fuel for the Paks plant under a
long-term agreement with the Russian firm TVEL. According to
Dr. Poos, however, part of Hungary's motivation to expand its
nuclear sector lies in the relative ease of diversifying the
fuel source. In fact, Paks, together with Finland's Loviisa
nuclear power plant, successfully tested fuel from British
Nuclear Fuels (BNFL)/Westinghouse at a test fuel assembly at
Loviisa, but the fuels have not yet been used at Paks. Dr.
Aszodi mentioned problems the Czech Temelin nuclear plant had
experienced with Westinghouse fuel as a probable factor, but
also alluded to "the economic and political game" behind most
energy-related decisions in Hungary.

11. (U) In the 1990s, Paks installed a modular dry storage
facility for intermediate storage--up to 50 years--of spent
fuel. The facility was designed by the British company GEC
Alsthom. The Public Agency for Radioactive Waste Management
(PURAM), in cooperation with Belgium's Tractebel Engineering,
operates the facility with revenues from the State Nuclear
Fund, which channels a portion of Paks' operating revenue
into spent fuel storage, final disposition of low-level
radioactive material, and the eventual decommissioning of the
plant. A low and intermediate-level waste disposal site went
into service in 2008 near the southern Hungarian town of
Bataapati.

12. (U) Hungary is conducting exploration in the southern
part of the country for a deep geological site for long-term
disposal of high-level waste and has located a potential

BUDAPEST 00001227 003 OF 005

formation near Boda, in the Mecsek mountains, but has not yet
determined if it will be of sufficient scale. According to
Dr. Aszodi, Hungary needs to begin harvesting still-useable
fissionable material from its nuclear waste before burying
it, as only about 5 percent of the spent fuel is truly
hazardous waste.

NUCLEAR REGULATORY AUTHORITY

13. (U) The Hungarian Atomic Energy Authority (HAEA) grants
all licenses for the construction, modificatin, and
operation of Hungary's nuclear facilities and retains full
power to inspect and, if necessary, fine or shut down these
installations. The HAEA is a government office that is
accountable to the Prime Minister's Office. The Minister of
Transport, Communication, and Energy, also responsible for
energy sector development, serves as intermediary between the
HAEA and the GoH. Although the HAEA lacks legal
independence, according to Dr. Ronaky, it enjoys de facto
independence in the execution of its functions as the
Ministry is legally prohibited from giving the HAEA orders on
issues related to nuclear safety and the HAEA's decisions can
only be overridden by court decision. Moreover, the HAEA is
almost entirely self-financed; the fees it earns for its
licensing and inspection activities generate more than 90
percent of its budget, which by law cannot be diverted to any
other government agency. There are currently about 80
employees at the HAEA, but this number is likely to increase
significantly as Hungary pursues expansion of its nuclear
power sector.

NUCLEAR LIABILITY REGIME

14. (U) Hungary is a party to a number of international
conventions governing nuclear safety and liability in the
event of an accident. These include the Vienna Convention
and the Joint Protocol on Third Party Liability, the
Convention on Nuclear Safety, the Joint Convention on the
Safety of Spent Fuel Management and on the Safety of
Radioactive Waste Management, the Convention on Early
Notification of a Nuclear Accident, and the Convention on
Assistance in the case of a Nuclear Accident or Radiological
Emergency. Hungary's domestic nuclear liability law is
covered by the Atomic Energy Act, which implements the Vienna
Convention. The amount of liability for nuclear damage is
set at 100 million Special Drawing Rights (SDRs) in case of
an incident in a nuclear power plant and at 5 million SDRs in
case of an incident during transport. This compensation may
be supplemented by a contribution from the GoH amounting to
250 million SDRs. (Note: An SDR is an international reserve
asset based on a basket of key currencies. As of December
2008, 1 SDR is worth approximately 1.48 USD. End note.)

DOMESTIC NUCLEAR MANUFACTURING AND SERVICES CAPACITY

15. (U) Hungary does not have a domestic nuclear
manufacturing base. Hungarian firms supply various
generators, heat exchangers, and turbines and several
Hungarian nuclear services and engineering firms support
operations at the Paks facility, but the core nuclear
technology is imported.

NUCLEAR WORKFORCE

16. (U) Hungary's nuclear workforce has a high degree of
expertise based on the country's long history with nuclear
energy and its strong academic training programs in nuclear
engineering. The Institute of Nuclear Techniques at the
Budapest University of Technology and Economics has an
on-site research reactor and maintains close cooperation with
Paks. The Hungarian Academy of Sciences operates a separate
research reactor at Csilleberc, near Budapest, through its
Central Physics Research Institute. A particle accelerator
at the Institute of Nuclear Research in Debrecen further
enhances research efforts in Hungary.

BUDAPEST 00001227 004 OF 005

17. (U) Hungary is likely to face a tight market for nuclear
professionals, however, and could have to look abroad to fill
some staffing vacancies as it seeks additional personnel at
Paks and at the HAEA to support the Paks lifetime extension
and expansion. According to Dr. Ronaky, Hungary's core
nuclear-trained workforce is aging and has not been
sufficiently replaced by a new generation of engineers and
experts as business, law, and the humanities tended to
attract greater numbers of students than scientific and
technical fields after 1989. He believes the situation is
now improving as students recognize the long-term
opportunities in this field, particularly as the government
starts to publicize plans for further investment in nuclear
power. Dr. Aszodi emphasized the international growth in the
nuclear power industry and resulting competition for this
highly-trained, specialized, increasingly-international
workforce. He pointed out that the French nuclear industry
alone expects to create 1300 new jobs per year for the next
four years and he expects Hungary will have to compete with
other countries for its own nuclear-trained workers.

U.S. COMPANIES LIKELY TO FACE STIFF FOREIGN COMPETITION

18. (SBU) The potential expansion of Hungary's nuclear power
sector presents numerous opportunities for U.S. firms engaged
in nuclear-related manufacturing and services, but potential
players should anticipate intense competition from a variety
of Russian, West European, and Asian firms vying for a piece
of this business. According to Dr. Poos, there will be an
open tender process for the Paks expansion, probably sometime
between 2010-2012 in order for the new units to become
operational by 2025. He suspects Russian firms will retain
an advantage in competing for the Paks plant expansion
because the existing plant was built with Russian technology
and uses Russian-supplied fuel. EU firms, however, could
have a cost advantage due to their ability to provide goods
and services duty-free. Dr. Poos also noted that Hungary's
"strategic partnership" with France, which encompasses
nuclear cooperation, could benefit French competitors; a
French firm performed the safety upgrade at Paks.

19. (SBU) Dr. Aszodi expects a Russian firm to perform the
work on the Paks lifetime extension, which is currently still
in the planning stages. Along with the lifetime extension,
Dr. Aszodi believes that Paks will probably need a new
instrumentation and control system. Germany's Siemens and
France's Areva provide the technology and maintenance for the
current system, but Aszodi believes this might present a
potential opportunity for a U.S. firm, although no plans for
such an upgrade have yet been made public.

20. (SBU) Dr. Poos assured us that politics will not play a
role in determining the outcomes of the tenders for Hungary's
nuclear sector expansion, but that they will be decided based
on the objective criteria of proposal quality and price.
Moreover, he told us the tender offers would be issued either
by MVM or by Paks rather than by the government, and that the
issuer would determine the winner. However, he also hinted
further at the prospect of Russia's continued dominance of
Hungary's energy sector when he said "cooperation with the
Russians is relatively good... more than relatively good."
Dr. Aszodi was perhaps a bit more blunt when he posited that
the tenders will be open to all, but they will become a
"political game." MPs from the governing Socialist party
tell us they would very much like to see American firms
compete for--and win--the Paks expansion contract, but they
caution that a Russian offer would likely include provisions
for the disposal of spent fuel.

21. (SBU) COMMENT: Given the strategic importance of the
Paks nuclear plant and the high stakes involved in its
expansion, both for Hungary and for potential suppliers, we
tend to agree more with Dr. Aszodi that the GoH is almost
certain to play a role in deciding the outcome of the tender

BUDAPEST 00001227 005 OF 005

and that factors beyond construction specifications and costs
will influence the final decision. We accordingly recommend
engagement with the GoH in parallel actions by interested
American corporations. END COMMENT.
Foley

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