VZCZCXRO3604
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