Earlier in September 2025, the Court of Justice of the European Union (CJEU or the Court) delivered its judgment in Case C-59/23 P, Austria v Commission, annulling the European Commission’s 2017 decision to approve Hungarian State aid for the construction of two new nuclear reactors at the Paks II nuclear power station. The ruling is a significant development in EU law, as it expands the scope of the Commission’s obligations when assessing State aid measures that are structurally intertwined with public procurement decisions.

Background: The Paks II Nuclear Project & Hungary’s Notification

The case arose from Hungary’s plan to replace nuclear infrastructure by constructing two new reactors at the Paks site. The project was to be financed by the Hungarian State and implemented by MVM Paks II, a state-owned entity that would receive ownership and operational control of the reactors free of charge. The construction contract was awarded directly—without a public tender—to the Russian company JSC NIAEP, pursuant to an intergovernmental agreement signed in January 2014 between Hungary and the Russian Federation. That agreement also included a €10 billion Russian state loan to support the development. 

In 2015, Hungary notified the measure to the Commission as aid. In its 2017 decision, the Commission found that the notified measure indeed constituted State aid but declared it compatible with the internal market pursuant to Article 107(3)(c) TFEU. As for the direct award of the construction contract to JSC NIAEP, the Commission concluded that it did not produce additional distortion of competition in the electricity market and therefore did not examine it. It also noted that Hungary’s compliance with procurement law had been examined in separate infringement proceedings under Article 258 TFEU, which had been closed without a finding of infringement.[1]

Austria challenged the Commission’s decision before the General Court, arguing that the Commission had failed to assess whether the direct award complied with EU public procurement rules. The General Court dismissed the action in 2022,[2] prompting Austria to appeal to the CJEU. In its appeal, Austria argued that the General Court erred in law because, first, it excluded the construction of the reactors from the definition of the aid, and second, it found that the direct award of the construction contract was not inextricably linked to the aid.[3]

The CJEU’s Ruling: State Aid Review Must Encompass Aid-Linked Procurement

The CJEU upheld Austria’s appeal and annulled both the General Court’s judgment and the Commission’s 2017 decision. Its reasoning focused on three main issues: first, it corrected the definition of what the aid actually covered, confirming that construction was part of the aid’s purpose; second, it found that the construction contract was legally inseparable from the aid and had to be assessed as part of it; and third, it held that the Commission had failed to provide adequate reasoning.

The “Aid” Encompasses the Construction of the Nuclear Reactors

The Court first addressed Austria’s challenge to the General Court’s narrow definition of the aid’s object. The General Court had held that the object of the aid consisted solely of “the provision free of charge of two new nuclear reactors to the Paks II company for the purpose of their operation,” excluding the tender procedure relating to the contract for the development and construction of the reactors.[4] The CJEU found this to be a mischaracterisation.

Drawing on the notification submitted by Hungary and the Commission’s own decision, the Court considered that “[a] process the essential aspects of which are apparent from the notification of the aid measure at issue and which forms an integral part of that measure cannot be excluded from the object of that measure, since it amounts to a factor that is necessary for the implementation of that measure and, therefore, for the attainment of its objective.”[5] Indeed, the identity of the constructor and technical specifications of the nuclear reactors were embedded in the aid notification itself.

In this case, the objective of the aid was to support nuclear energy production, pursued through the development of two new reactors, which, the CJEU found, inherently includes their design and construction.[6] The CJEU pointed to multiple elements confirming that construction was embedded in the aid’s object. The Commission’s own decision described the measure as “the development of two nuclear reactors […] whose construction is fully financed by the Hungarian State,” and referred to the aid as “an appropriate instrument for the construction of the new reactors” serving “the objective of common interest of the promotion of nuclear energy.”[7] Moreover, the financing arrangement—comprising a €10 billion Russian loan and €2.5 billion in Hungarian public funds—was specifically earmarked for the design, construction, and commissioning of the reactors.[8] Yet, the Commission had approved a State aid measure for the delivery of nuclear reactors without assessing the legality of the construction process itself, effectively leading to the project being awarded directly to a Russian contractor, bypassing EU procurement rules and excluding potential EU competitors from participation.

As such, the Court concluded that the construction of the reactors was not merely preparatory or external to the aid—it was necessary for the aid’s implementation and for achieving its objective. It therefore formed an integral part of the notified measure and could not be excluded from its object.[9]

The Direct Award of the Construction Contract Was “Inextricably Linked” to the Aid

The Court then turned to whether the direct award of the construction contract to JSC NIAEP without a public tender was an aspect inextricably linked to the object of the aid. The General Court had held that it was not, thereby relieving the Commission of any obligation to assess procurement compliance.

However, the Court rejected this view. It reaffirmed the principle that the Commission must assess not only the compatibility of aid under Article 107 TFEU, but also whether “the indissociable aspects of the object of aid, that is to say, the modalities which are so indissolubly linked to its object that it is impossible to evaluate them separately” contravene other provisions of EU law. Such modalities must be examined as part of the compatibility review, ensuring the Article 108 procedure does not produce results contrary to the Treaty.[10]

In this case, the direct award of the contract for the construction of the nuclear reactors to JSC NIAEP was indispensable to the implementation of the aid. Without the aid, the reactors could not be constructed, and the aid could not achieve its intended effect, i.e., “the provision free of charge of two new nuclear reactors to the Paks II company ….”. The award of the contract was not a legally distinct or ancillary measure—it was a core modality of the aid itself. The financing arrangement confirmed this: the €10 billion Russian loan and €2.5 billion in Hungarian public funds were released directly to JSC NIAEP as construction milestones were met. The Court concluded that this structure “confirms that the direct award of the contract for the construction of those reactors to JSC NIAEP is inextricably linked to that provision free of charge.”[11]

The Court therefore held that the Commission was required to assess whether the direct award complied with EU public procurement rules as part of its compatibility review, clarifying that even if a procurement infringement affects a market different from the one targeted by the aid (e.g., the construction market rather than the electricity market), it may still distort competition and must be considered in the Commission’s analysis under Article 107(3)(c) TFEU.

The Commission Failed to State Reasons to the Requisite Legal Standard

Austria also argued that the Commission had failed to adequately explain its fallback conclusion that the direct award complied with EU procurement law. In its decision, the Commission had stated that “Hungary’s compliance with [Directive 2014/25 had] been assessed in a separate procedure by the Commission where the preliminary conclusion on the basis of available information [had been] that the procedures laid down in [that directive] would be inapplicable to the entrustment of construction works of two reactors on the basis of its Article 50(c).”[12]

The Court held that this reasoning was insufficient as a mere reference to closed infringement proceedings, without explaining the methodology or specific legal basis for the conclusion, did not meet the standard required under Article 296 TFEU.[13] The Commission had not disclosed how it reached its conclusion, nor clarified which directive applied—especially since Directive 2004/17 had not yet been repealed at the time.[14] The Court also rejected the assertion that the Commission could supplement its reasoning ex post during litigation. As put by the Court, “[s]ave in exceptional circumstances, the statement of reasons may not be explained for the first time ex post facto before the Courts.”[15]

Accordingly, the Court concluded that the Commission had failed to provide a legally sufficient explanation of its procurement assessment, and that the General Court erred in accepting it.

Legal Significance: Reframing the Boundaries of State Aid Review

The CJEU’s judgment in Austria v Commission (C-59/23 P) introduces an expansive conception of State aid review: it requires the Commission (1) not only to assess the compatibility of aid under Article 107(3) TFEU, but also the modalities of its implementation, where those modalities are “indissociably linked” to the object of the aid; and (2) to assess State aid compatibility not only in accordance with State aid principles, but also in light of the broader body of EU law.

In principle, this approach reflects a broader principle of systemic integrity: the Treaties and secondary EU law are not seen as a menu of discrete obligations but as a coherent legal order. Thus, according to the CJEU, a measure that relies on a legal breach of EU law—such as a violation of procurement rules—cannot be deemed compatible with State aid law if that breach materially shapes the economic advantage conferred.

This approach, however, sits uneasily with the structure of EU law as it presupposes a degree of legal integration that is not doctrinally supported. Breaches of procurement law, or (to hint at the Commission’s recent decision in Antin)[16] Treaty provisions such as Articles 267 or 344 TFEU do not ipso facto render a measure incompatible with State aid rules. These are distinct legal regimes, each with its own enforcement mechanisms and procedural safeguards. For example, a violation of procurement law should be addressed through infringement proceedings or annulment actions—not through the State aid framework.

The Court’s reasoning appears to blur this boundary by requiring the Commission to assess whether the modalities of aid implementation, when “indissociably linked” to the aid’s object, comply with other EU law.

From the Court’s perspective, systemic coherence demands that the Commission cannot approve a measure that is structurally dependent on a legal breach of EU law. If the aid’s execution relies on a direct award that violates procurement law, the economic advantage conferred may be distorted in a way that undermines the internal market. Moreover, without this integrated review, Member States could embed unlawful modalities into aid measures and shield them from scrutiny by compartmentalising legal regimes.

On the other hand, the principle of legal coherence cannot be allowed to mutate into a catch-all legality review. Not every breach of EU law should impact State aid compatibility. The Court’s test, focusing on “indissociable aspects of the object of aid,” is intended to provide a limiting criterion. Only where the unlawful modality is structurally embedded and indispensable to the aid’s execution should it trigger compatibility concerns. Otherwise, the Commission’s mandate may be overextended, undermining procedural safeguards in other areas of EU law, and creating uncertainty for Member States and beneficiaries.

After all, the Commission’s role in State aid control is not to police every aspect of EU law, but to ensure that the aid measure, as such, complies with the conditions for approval under Article 107(3). State aid control should not become a proxy for general legality. The Court’s reasoning in Austria v. Commission may reflect a legitimate concern for coherence, but it must be read against the grain of EU law’s institutional structure.

By Maria Paschou and Dániel Dózsa

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[2] Judgment of the General Court of 30 November 2022, Austria v Commission, T-101/18 (see also Press Release No 192/22), available at: https://curia.europa.eu/juris/documents.jsf?num=T-101/18.  

[3] See Judgment of the Court of Justice of the European Union (CJEU) in Case C-59/23 P | Austria v Commission (Paks II nuclear power station) (Austria v. Commission), available at: https://curia.europa.eu/juris/document/document.jsf?text=&docid=304240&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=16077781, para. 51.

[4] Austria v. Commission, para. 56.

[5] Austria v. Commission, para. 60.

[6] Austria v. Commission, para. 61.

[7] Austria v. Commission, para. 62.

[8] Austria v. Commission, para. 63.

[9] Austria v. Commission, para. 64-65.

[10] Austria v. Commission, paras. 70-71.

[11] Austria v. Commission, paras. 72-74.

[12] Austria v. Commission, para. 103.

[13] Austria v. Commission, para. 107.

[14] Austria v. Commission, paras. 108-109.

[15] Austria v. Commission, para. 111.

[16] Commission Decision (EU) 2025/1235 of 24 March 2025 on the measure State aid SA.54155 (2021/NN) implemented by Spain – Arbitration award to Antin (notified under document C(2025) 1781) (Antin), available at: https://eur-lex.europa.eu/eli/dec/2025/1235/oj/eng#ntr12-L_202501235EN.000101-E0012.