Lithuania PM claims Gazprom ready to sell stake in pipelines

By bne IntelliNews February 10, 2014

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Russia's Gazprom is ready to sell its stake in Lithuania's gas pipeline network, the Baltic nation's prime minister claimed on February 7. While Vilnius - and the EU - appear to have upped their efforts to push the gas giant into concessions, the big question remains the price it charges countries in the east end of Europe.

Following meetings with Russian PM Dmitry Medvedev and Gaprom CEO Alexei Miller in Sochi, Lithuania's government released a statement quoting Prime Minister Algirdas Butkevicius as saying: "Gazprom agrees not to question (implementation) of the EU's Third Energy Package." Vilnius has said that under the terms of EU legislation, the Russian company must sell its 17.7% stake in Amber Grid, which holds the transmission system. Gazprom has refused comment on the issue, according to Reuters.

Amber Grid was spun off from national gas utility Lietuvos dujos last year, to the fury of Gazprom, which holds 37.1% in each. The Russian company claims both it and Germany's E.ON (38.9%) were forced to support the motion at board level under duress from Vilnius. Lithuania (17.7%) has previously said it is ready to buy the stakes of both.

Gazprom's exit from Amber Grid would hit its dominance of the Lithuanian gas market. Wresting control of the pipelines is key for Lithuanian plans to have its own liquified natural gas (LNG) platform up and running by the end of the year.

Moscow would also leave itself open to leverage. Lithuania hosts the only overland route for gas headed from Russia to the enclave of Kaliningrad, with the Baltic state sending 2bn cubic metres (cm) through to the territory last year. In the autumn, Lithuania's foreign minister flagged up his country's power over the route. Gazprom promptly reiterated plans to build an LNG terminal, although it has no current capacity to supply such a facility.

The EU's Third Energy package decrees that ownership of gas trading and distribution should be separate; however, member states have leeway over the pace and depth of reform. Lithuania is pursuing the most extreme options, as it fights to reduce Russia's 100% dominance of its gas market in order to secure cheaper supplies.

The Baltic state claims to currently pay the highest gas price in Europe, but is struggling to achieve concessions in ongoing talks over a new contract to replace the current one, which expires in 2015. With the support of E.ON - which looks to have jumped ship - Lietuvos Dujos announced on January 30 that it has launched an arbitration suit against Gazprom to force it to drop prices.

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. The government now appears convinced that the softer stance will not work. The Lithuanian state already has a LTL5bn (€1.5bn) arbitration case lodged against Gazprom for compensation for past pricing.

"I hope that the meeting with Miller will help to speed up the talks (on other issues)," Butkevicius said in the government statement.

The stronger stance in Vilnius has been encouraged by increasing pressure from the EU to push Gazprom to reduce prices and leverage across the eastern end of Europe. The bloc's competition chief reiterated the same day as the Vilnius statement that Gazprom has not yet satisfied European Commission concerns over pricing, reports Reuters. The EU executive, which claimed in late 2013 that it was "writing up the charge sheet," says it may now charge the Russian company with antitrust abuses.

With the growing antipathy between Russia and the West now seeing full expression in Ukraine, gas relations between Moscow and Brussels have been becoming more strained in recent years. The EU launched an investigation into Gazprom in September 2012 over suspected anti-competitive behaviour, including overcharging customers and blocking rival suppliers.

The Third Energy Package has proved the biggest weapon against Moscow's efforts to raise its dominance of European gas supply via North and South Stream - projects to build massive pipelines directly into the EU. The European Commission announced in early December that agreements between Russia and the governments of Bulgaria, Serbia, Hungary, Slovenia and Croatia pertaining to the South Stream project did not comply with European legislation and should be revised.

Moscow has regularly expressed outrage at demands it should release ownership of its pipeline projects, with President Putin having claimed it to amount to robbery. Gazprom said last month it wanted to settle the antitrust investigation but would resist regulatory pressure to change its pricing practices.

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