Boston, MA -- (ReleaseWire) -- 04/14/2014 -- Hungary's long-term power security looks more assured following the confirmation in February that the Russian government will provide a EUR10bn loan for the upgrade of the Paks nuclear power plant. However, the work constructing two new reactors is set to be completed in 2023/24, meaning the increased capacity will not come online during the course of our forecast period, with Hungary set to remain a net energy importer over the next decade.
In February the Hungarian parliament approved a deal with the Russian government, which will provide Hungary with a EUR10bn loan for the construction of two new 1,200MW reactors at the country's sole nuclear power plant, Paks. In the very long term this will ease Hungarian reliance on imported oil and gas for power generation, however, the impact of the expected increase in generating capacity at Paks (2,000MW to 4,400MW) will not be felt over the course of our forecast period, with the new reactors expected to come online in late 2023/24. While the move is set to prove politically popular, there has been vocal opposition to the deal from some quarters, arguing that by taking the credit line from Moscow, Hungary is further dragged into Russia's energy sphere of influence. Hungary already imports much of its natural gas and oil supply from Russia, a situation that is unlikely to change given the failure of the Nabucco West pipeline project, and Hungary's subsequent support for Gazprom's South Stream pipeline. By relying on Russian financing and technology to shore up its nuclear capacity the country remains exposed to the whims of the Kremlin with regard to its energy policy.
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While the expansion of Paks remains a vote winner for the government of Viktor Orban, with his ruling centre-right Fidesz party facing a general election on April 6, another populist measure set to affect the power sector is the government's programme of state-mandated cuts to household energy prices. Following on from three cuts to energy prices in 2013 and early 2014, the government has promised a further 6.5% cut to gas prices on April 1, and two further cuts to household power and heating prices respectively should his party win re-election. Given our Country Risk team's expectation for Fidesz to remain in power, these price cuts look set to be implemented. While lowering household energy prices these measures will continue to deter private investment into the power and energy sector, especially from foreign firms, which have already been targeted by punitive taxes.
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