The EU Court strikes down state aid for Paks II
2025-09-11
The Court of Justice of the European Union (CJEU) annulled the European Commission’s authorization allowing Hungary to grant state aid for the construction of Paks II in September 2025. For the project to continue, the Commission most likely will conduct a new state aid notification procedure; this time round the failure of carrying out a public procurement cannot be ignored. This calls into question the future of a project that has already been delayed by a decade and has become significantly more expensive compared with the price set in the 2014 contracts – a project which was already an ill-founded decision.
The CJEU’s Grand Chamber delivered its final, appellate judgment in the case brought by Austria challenging the state financing of the new Paks nuclear power plant. In 2017 the European Commission authorized state aid for the construction of the two new Paks reactors, but – unlawfully – failed to properly examine compliance with public-procurement rules; that is, Hungary awarded the project to the Russian main contractor by direct award, without an open tender.
The judgment has significant consequences for the fate of the Paks expansion, which has been dragging on for 11 years and was originally planned to be completed by 2025. Should the Commission launch a new investigation, it will cause more uncertainties and thus lead to further delays. According to the view of Energiaklub Climate Policy Institute, the Hungarian member of Joint Project, instead of pushing ahead indefinitely with the ever-more-expensive Paks II, the focus should be on developing wind and other renewables, expanding storage capacities, and investing in energy saving and efficiency. To put it simply: a new energy-policy direction, based on decentralized, renewable-based systems, is needed.
Background
The issue of Paks II’s compliance with EU law has been dragging on for more than seven years. In 2017 the European Commission authorized Hungarian state aid for the construction of two new Paks reactors, despite the fact that the contractor—Nizhny Novgorod Engineering, a subsidiary of Russia’s Rosatom—received the assignment without a public-procurement procedure. Austria challenged this decision in 2018, arguing that EU public-procurement and state-aid rules had been breached.
At first instance, in 2022, the General Court of the European Union dismissed Austria’s action. However, an appeal was lodged, and the case went before the CJEU’s Grand Chamber. In February 2025 , advocate General Laila Medina delivered an Opinion proposing that the General Court’s judgment be set aside. In her view, the European Commission committed an error of law by failing to examine with sufficient rigor whether the choice of contractor infringed EU public-procurement rules. She confirmed the argument put forward by Austria that the tender is needed to determine the lowest possible as a base for determining the needed state aid.
Why does state aid require approval?
The European Commission must assess whether state aid is compatible with the EU internal market under Articles 107–108 of the Treaty on the Functioning of the European Union (TFEU). According to today’s judgment, if the state aid is also connected with another breach of EU law (e.g. infringement of public-procurement rules), the Commission cannot authorize it – even if the aid might otherwise be market-conform.
Why was the Russian company approved without competition? Was that a good idea?
The construction of the new plant was based on an intergovernmental agreement, which included the provision that the Russian contractor, Nizhny Novgorod Engineering, would receive the assignment without competition. The Commission did not examine this thoroughly; this was one of the main points in Austria’s action, and, according to the Court’s decision, it did not comply with EU rules.
What has changed?
A new procedure must now be launched by the Commission, which must also take into account the public-procurement infringement. The status of the aid will remain legally uncertain until then.
What is happening at present?
The investment has been at a standstill for 11 years, and the Paks II project has become economically and politically irrational. There is no progress, only further legal and political disputes. Paks II is currently not under construction; only the so-called excavation pit has been prepared. The pouring of the base-slab concrete – from which the nuclear power plant would officially be considered “under construction” – was, according to promises, supposed to start in March, which did not happen; according to new promises, Rosatom would begin it “by February next year”.
What will happen in the near future?
The further fate of the investment has become uncertain; the state-aid review procedure must be carried out again, and it must also cover the issue of the missing public procurement. The new investigation could take a year to a year and a half, pushing back the start of construction even further. Importantly, the external economic and political conditions have changed significantly compared with the 2014 contract date. Although the price was fixed in those contracts, the extent of the cost increase is currently being negotiated by the Russian and Hungarian sides, which means the level of state aid for the project and its economic viability must be recalculated.
Article by András Perger, Energiaklub