Lithuania launches another arbitration case against Russia

By bne IntelliNews January 31, 2014

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Having spent months trying to negotiate, Lithuania's largest gas utility Lietuvos Dujos announced on January 30 that it is to launch arbitration proceedings against Russia's Gazprom in a bid to force it to lower gas prices.

The company said in a statement the move was initiated at a shareholder meeting by the government, which holds 17.7%. Crucially, it was supported by Germany's E.ON; the biggest single shareholder with 38.9% appears to have swapped allegiances. That pushed the plan past Gazprom and its 37.1% stake, which voted against, according to Reuters.

The energy ministry "made a decision to initiate arbitration proceedings against the natural gas supplier OAO Gazprom in order to reduce prices for the gas supplied, which currently are too high," Lietuvos Dujos said in a statement. "The company, which holds 35-40% of the natural gas market of Lithuania, still has not been able to reach an agreement on more favorable natural gas supply conditions by negotiation."

The current Lithuanian government hoped when it came to office in December 2012 that it would be able to convince Moscow to lower gas prices by taking a less confrontational stance than its predecessor. However, that hope broke down in the second half of last year as Gazprom played hardball. That standoff saw both sides descend into throwing threats of disrupting one anothers' energy systems.

However, talk of gas was quickly overtaken by the EU summit hosted by Vilnius in November, in the lead-up to which Russia sought to prevent several former Soviet states from signing pacts with Brussels. Before the summit Russia imposed a ban on Lithuanian dairy imports and extra customs restrictions that hit the strategic transport sector for huge losses.

Prime Minister Algirdas Butkevicius' government now appears convinced that its softer stance will not work. The Lithuanian state already has a LTL5bn (€1.5bn) arbitration case lodged against Gazprom for compensation for past pricing, and officials have lined up over the past few months to claim that Lithuania pays the highest gas prices in Europe.

"Gazprom supplies to Lietuvos Dujos at much higher prices than to Latvia, Estonia, and higher than for Germany," the energy ministry said in a statement quoted by Reuters. "This is harmful to our consumers, our economy, and it also harms Lietuvos Dujos, which loses its customers and faces shrinking gas consumption."

Work is also continuing to push through the previous government's efforts to break Russia's 100% dominance of gas supplies to the Baltics. A liquified natural gas (LNG) platform is set to go into operation late this year. To make that plan work, Vilnius had to wrest control of the country's pipelines from Lietuvos Dujos, which it achieved last year, much to the Russian company's chagrin. Lithuania says that EU rules dictate Gazprom and E.ON must now sell out of new operator Amber Grid.

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