Gazprom launches legal challenge to Lithuanian unbundling

By bne IntelliNews March 2, 2012

Tim Gosling in Prague -

Lithuania's fight to reduce its dependence on Russian energy hotted up on March 1 when Gazprom announced that it has appealed to an international arbitration tribunal against Vilnius' unbundling plan for gas utility Lietuvos Dujos. The statement drew a sharp response from Lithuania, which is playing the EU card to back the move.

Gazprom announced its decision to appeal to the UN Commission on International Trade Law during a Lietuvos Dujos board meeting that was due to vote on breaking up the company's business in compliance with Lithuania's new legislation and the EU's Third Energy Package.

Lithuania, which has been accelerating its bid for greater energy independence in recent months, secured an agreement with German energy giant E.On, which like Gazprom is a shareholder in Lietuvos Dujos late last year to push through the toughest option under the EU policy for separating the ownership of the sales and transmission assets of its gas industry. Lithuania holds 17.7% of Lietuvos Dujos, E.On has a 38.9% stake and Gazprom has a 37.1% stake.

Gazprom, however, claims that the Baltic energy markets are isolated from the EU and so the EU's policy grants them a delay in implementation until they create open market conditions. At a meeting on February 27, Gazprom, the Lithuanian government and the European Commission agreed to continue talks on the issue. Vilnius is reported to have agreed to delay the deadline for preparation of the unbundling programme by two months, but also claimed that Gazprom agreed to drop its resistance.

CEE is increasingly becoming the battlefield on which Moscow's opposition to the EU's Third Energy Package is being played out. On the one side stands Russia's large financial resources and its huge share of the gas markets from the Baltics to the Balkans. On the other side, CEE states are keen to reduce their dependence on Russian gas imports. This sees many caught in the middle of Moscow and Brussels. In late February, the European Commission issued a final warning to a handful of member states that have yet to reveal how they intend to implement the Third Energy Package, including Slovakia and Estonia.

Like Poland, however, Lithuania has enthusiastically embraced the momentum that the Third Energy Package offers to wean itself off Russian imports, and Vilnius reacted with anger against Gazprom's move. "We're puzzled," Kestutis Jauniskis, a spokesman for Energy Minister Arvydas Sekmokas, told Baltic News Service. "These steps don't help maintain the dialogue achieved in the February 27 meeting."

Lithuanian Prime Minister Andrius Kubilius was more straightforward, telling Bloomberg that unbundling will go ahead as planned. "The end of 2014 is for us when unbundling has to be implemented according to our law," he stated, also reiterating that Gazprom Export chief Alexander Medvedev had agreed at the February 27 meeting that Gazprom would no longer question the unbundling plan.

Vilnius and Moscow have been at odds over the issue for over a year. Vilnius approved amendments to legislation in February 2011 to force the unbundling through, just a month after it asked the European Commission to investigate possible market abuse by Gazprom following the company's statement that it would not offer Lithuania the same pricing conditions as its Baltic neighbours due to the issue.

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