Russian-Owned Hungarian Plant Avoided €655 Million in Carbon Payments and Fines

A power plant supplying electricity to ISD Dunaferr, Hungary’s largest steelworks, broke European Union law for five consecutive years by avoiding more than €655 million ($761 million) in carbon payments and penalties, OPIS has learned.

Russian President Vladimir Putin personally oversaw majority Russian ownership of the company operating the complex in 2010, while his ally, Hungarian Prime Minister Viktor Orbán, issued a decree in 2022 guaranteeing the continued operation of the power plant.

The ISD Power plant, a 100%-owned subsidiary of the ISD Dunaferr steelworks to which it supplied electricity, did not buy European Union emissions allowances (EUAs) to cover emissions of 4.15 million metric tons of carbon over 2019-2023, data compiled by OPIS show.

During that period, ISD Dunaferr was owned by Cyprus-based Steelhold Limited, a subsidiary of Industrial Union of Donbass (ISD), in which Russian state development bank Vnesheconombank (VEB) had a stake via proxies of just over 50%, according to another shareholder.

Large emitters subject to the European Union’s Emissions Trading System (ETS) are legally obligated to obtain and surrender an EUA for every metric ton of carbon equivalent (CO2e) they produce each year, but the operator of the natural gas- and metallurgical gas-fired plant did not do so.

If ISD Power had paid for its carbon emissions on time, the cost of those 4.15 million allowances would have been approximately €171.85 million, taking average OPIS-assessed benchmark EUAs prices for each year over 2019-2023.

The cost of emitting carbon is now higher than during most of that period. Buying 4.15 million allowances would cost the operator of the plant €299.13 million, using the current OPIS-assessed benchmark December 2025 EUAs price of €72.05/mt.

In addition to the unpaid allowances, OPIS calculations show that the installation had incurred a further €483.53 million in penalty fees by the end of 2023. Such penalties are mandated by EU law if allowances are not surrendered on time and are calculated at €100 per unpaid allowance plus inflation.

ISD Power Kft. Erőmű Verified Emissions Data (metric tons) and Surrendered Allowances

The complex is a key strategic part of the Hungarian economy, producing steel for the construction sector and automotive suppliers, but both the power plant and the steelworks went offline in 2024 and are currently subject to separate liquidation proceedings.

The last published accounts for the steelworks showed that it made a loss of 54 billion Hungarian forints ($160 million) in 2019. Its power plant stopped fulfilling its legal obligations to pay for all of its carbon emissions in the same year.

Shortly before instigating the liquidation of the steelworks in 2022, the Hungarian government said that ISD Dunaferr had accrued debts equivalent to $1.46 billion. By that time, the Dunaferr complex was also contending with soaring energy costs across Europe, and the ISD power plant was threatened with having its own power source cut off by energy distributor E.ON because the plant did not have an energy trading account.

Viktor Orbán signed a decree on November 30, 2022, which prevented that scenario. “The network licensee may not terminate the electricity supply at the registered office and premises of ISD Power…and to the network user supplied by the company,” the decree stated.

At the start of 2023, Orbán said that the government would step in to pay the wages of 4,000 Dunaferr workers for a six-month period while seeking a new buyer.

The liquidation process ended with Liberty Steel, a U.K.-based company owned by Indian businessman Sanjeev Gupta, buying the steelworks for €55 million.

Ukrainian company Metinvest also wanted to buy the steelworks but said that it had been excluded from the tender process because of a delay to a national security vetting procedure. Metinvest contended that Dunaferr was worth up to three times the price paid by Liberty Steel. The European Commission later approved the deal to buy ISD Dunaferr and its coke supplier ISD Kokszoló.

Liberty Steel bought the assets in 2023—the same year that it emitted 1,281,302 metric tons of carbon at its Liberty Ostrava steelworks in the Czech Republic but did not comply with its legal obligation to surrender carbon allowances to pay for those emissions, as reported by OPIS on May 14 this year.

The company declined to answer questions posed by OPIS four months ago about why it broke EU law by not paying for its Ostrava emissions, even though it was handed 3,319,867 free allowances by the Czech government at the start of 2023, which far exceeded its Ostrava emissions.

(Free allowances are allocated on an annual basis by EU governments to domestic industrial operators in difficult-to-decarbonize sectors such as steel to prevent them from being at a disadvantage to imports from countries without levies on carbon emissions. Many installation operators consequently do not pay for their emissions.)

Earlier this month OPIS asked Liberty Steel why it was able to buy ISD Dunaferr in 2023 but not surrender allowances to pay for its emissions at Ostrava in the same year, but it declined to comment.

Liberty Steel’s ownership of Dunaferr was short-lived, with the company blaming high operational costs for shutting down the steelworks’ last blast furnace in August 2023, just after it took ownership of the plant.

The separate liquidation processes resulted in ISD Power filing a petition in October 2024 to liquidate Dunarolling Dunai Vasmű, one of the two companies set up by Liberty Steel to operate the site. ISD Power said that the rolling division of the complex owed it 287 billion forints ($850 million) in unpaid bills.

At the end of 2024, the Hungarian government instigated the liquidation of the Liberty Steel-owned companies. Liquidation proceedings for the steelworks are nearing a conclusion, according to Hungarian media reports.

Asked if the unpaid carbon allowances accrued by the power plant will remain outstanding after the liquidation process is over, a spokesperson for the European Commission said: “The obligation to surrender allowances to cover reported emissions is independent from the status of an installation, including a liquidation process.”

The Commission also said that ETS rule changes mean that non-compliant installations will no longer receive free allowances. During the 2019-2023 period in which ISD Power did not surrender allowances to cover all of its emissions, it still received 269,812 free allowances, European Commission data compiled by OPIS show.

High-Level Power Plays Amid Dunaferr Decline, Liquidations

The Dunaferr steelworks has been prized by its different owners for its ability to produce steel in smaller batches for construction companies and automotive suppliers. But the complex has also had a longstanding strategic value, with Russian, Ukrainian and Hungarian interests vying to control Hungary’s largest steel producer over the last two decades.

Dunaferr was one of the steelworks in Central and Eastern Europe owned by the Ukraine-based Industrial Union of Donbas (ISD), which also had interests in eastern Ukraine and the Donbas region — the industrial heartland of Ukraine currently 88% under control of Russian forces. Despite not currently occupying all of Donbas, Vladimir Putin has made full control of the region one of Russia’s preconditions for ending the current conflict with Ukraine.

ISD took out loans in 2008 from VEB, Russia’s state development bank, which is under the control of the Russian government and was overseen by Putin when he was prime minister of Russia. VEB is currently sanctioned by the US, EU and UK due to the invasion of Ukraine.

ISD ran into financial trouble due to its debts and falling steel demand, which resulted in the opportunity for VEB, as its creditor, to gain control of ISD and Dunaferr in December 2009, while two of the three original owners, Ukrainian Serhiy Taruta and Ukrainian-Armenian businessman Oleg Mkrtchyan, kept minority holdings.

Putin, who chaired VEB’s supervisory board, oversaw the deal to buy the majority stake in ISD, according to a report published in January 2010 by Russian newspaper Kommersant. The publication is owned by Alisher Usmanov, a Putin ally who was also listed as one of the new Russian investors in ISD.

VEB—subject to US, EU and U.K. sanctions since the start of the invasion of Ukraine—has never formally acknowledged the size of its effective stake inISD. Media reports in 2010 listed Swiss-based steel trader Carbofer, co-ownedby Russian businessman Alexander Katunin, as one of the stakeholders.

However, in an interview in 2016 with Censor, a Ukrainian news portal, Serhiy Taruta said that VEB was the real owner of ISD. “Those who acted as nominal owners were dependent people,” said Taruta. “They took loans from VEB. Management [came] from above [them].”

Taruta also told German news network Deutsche Welle in 2020 that VEB’s ownership was concealed behind a web of foreign companies. “Important decisions at VEB are made by the Russian Ministry of Finance together with the head of government, who is the chairman of the supervisory board,” he added.

Deutsche Welle also reported that Ukrainian politician and oligarch Viktor Medvedchuk, often described as Vladimir Putin’s closest ally in Ukraine, participated in the negotiations on the future of ISD.

Earlier this year, Ukrainian President Volodymyr Zelenskyy claimed that shortly after Russia’s invasion of Ukraine began in February 2021, he was approached by a group of Ukrainians who delivered a message from Putin. “They told me I should step down, that they would replace me with the pro-Russian Medvedchuk,” said Zelenskyy.

Putin and Orbán discussed the finances of Dunaferr in a bilateral meeting in Moscow in January 2014, several months after Hungary’s economy minister Mihai Varga said the Hungarian government wanted to nationalize the steelworks.

The bilateral meeting was attended by the vice president of VEB, a Hungarian official told domestic media, adding that VEB representatives were set to visit Hungary during the following month. The Hungarian government’s nationalization plan for Dunaferr was subsequently dropped.

The Kremlin, VEB, the office of Viktor Orbán, the Hungarian Ministry for National Economy, the Hungarian Ministry of Energy, the Hungarian Emissions Trading Authority and ISD Power did not respond to requests for comment.

–Reporting by Anthony Lane, alane@opisnet.com and Nia Simeonova, nsimeonova@opisnet.com; Data work by Guadalupe Ruiz, gruiz@opisnet.com; Editing by Humberto J. Rocha, hrocha@opisnet.com

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