Corruption risks of the nuclear power plant investments: What can we expect in the case of Paks II?

Mihály Fazekas, Zsolt Főző, István János Tóth
Analysis of the corruption risks of the planned Paks nuclear power plant investment based on relevant economic theory and empirical results, summarizes the lessons learned from similar Hungarian and foreign investments, and gives an estimate of the expected social losses related to the investment, and arising from the corruption.
In January 2014 the Hungarian Government announced that it reached an agreement with the government of Russia about the construction of two new units, which are to replace the current capacity at the Paks nuclear power plant. The project with its approximate volume of 3-4 billion HUF will be the biggest investment in Hungary in the next decade. As agreed the investment will be financed from credit provided by the Russian government. Based on the aspects analyzed in the study, the Paks II. investment involves high corruption risks, which risks could and should be reduced. This is the vital interests of the Hungarian nation. Due to the application of the new technology the investment entails such an information asymmetry that could easily be misused by the contractor. Given the nature of the huge investment it will further increase corruption risks: these big, lasting projects create a complex relationship system, for project participants (organization set up by the customer, coordinating project office, contractors, sub-contractors), both for the sellers and the buyers it means higher misuse potentials than would be in case of simpler, smaller-scale projects.