The financing (credit) agreement

Most of the information of this paragraph is on the content of the planned agreement that was published in Russian language by the Russian Government on the 13th of March 2014. The agreement was signed by both parties at 31st March 2014, in Moscow. Official translation of the agreement, either Hungarian, or English, has not been made public so far. Hence our analysis, which is based on articles appeared in Hungarian media and own translation, is only partial, and it covers only the most important details of the agreement.

• A state loan, with the maximal value of € 10 billion will be lent from Russia to Hungary;

• the loan is for building two units at Paks;

• the loan is available between 2014 and 2025;

• 80% of the costs can be covered by the loan; 20% of every invoice must be paid by the Hungarian partner since the beginning of the project;

• the loan must be repaid during 21 years; repayment starts after the two units has started to operate, but not later than 15 March 2026;

• repayment must be fulfilled by two installments annually, on the 15th March and 15th September every year;

• 25% of the loan should be repaid in the first, 35% in the second, 40% in the last seven years;

• the interest of the loan will be 3.95% until the units will be finished (or until 15 March of 2026); after repayment started, the interest rate will be 4.5% in the first, 4.8% in the second, and 4.95% in the final seven years;

• interest rates are fixed, those are not bind to any other conditions;

• accounting partners will be the Vnesheconombank from the Russian and the Government Debt Management Agency from the Hungarian side;

• there will be 15 days for the Hungarian partner to judge the submitted invoices;

• each year’s costs and the required amount of loan have to be determined at least 6 months before the next budgetary year, and agreed by the Financial Ministry and the Ministry of Economic Development from the Russian, and the Ministry of National Development from the Hungarian side;

• 15 days of delay in repayment results in a penalty rate of 1.5 times of the original rate;

• after 180 days of delay of any repayment installment the Russian side could quit the agreement and demand the repayment of the whole debt in one amount;

• there is possibility of prepayment, about which the Russian side is to be notified 90 days beforehand;

• there is practically nothing on managing risks, there is no mechanism elaborated, no international jury or any other forum is appointed for conflict resolution; as the repayment conditions are strict, the agreement could be disadvantageous for Hungary;

• the financing agreement will be introduced to the new Hungarian Parliament, however, it is disputed whether the Parliament has any right to make a decision on the contract.