Lithuania scraps "25% rule" to push energy independence drive back on track

By bne IntelliNews May 2, 2013

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Beset by complaints from the country's major gas consumers over the "25% rule," and facing an investigation from the European Commission, Lithuania says it has come up with an alternative scheme to support its plan to develop an LNG terminal. The move appears to confirm recent denials from Vilnius that it is considering dropping plans to improve energy independence.

The Lithuanian energy ministry has put forward a new plan, under which regulated electricity and heat producers will be obliged to purchase gas through a state-authorized supplier. That company, which is yet to be formed, will purchase a minimum of 540m cubic meters of gas per year from the liquefied natural gas (LNG) facility which Lithuania plans to launch by the end of 2014, in a bid to break its 100% reliance on Russian imports.

"The new scheme concerns regulated heat and electricity producers instead of all consumers. Other consumers are free to choose their source of gas," Daiva Rimasauskaite, from the energy ministry, told BNS. "This will enhance competition in the gas market, since the authorized supplier will be a new market player, which will offer to buyers both LNG and pipeline gas," she said. The authorized supplier would be a strategic company, in which the state would control at least two thirds of votes.

"The idea of the decision is that the state, at any rate, is paying money to heat suppliers, Lietuvos Energija," Energy Minister Jaroslav Neverovic told reporters late on April 29. "We support electricity generation, spend that money to purchase gas specifically. Thus those orders would be diverted to the terminal through our decision. And gas will be specifically purchased from the terminal thus securing the minimum quantity which is required for the project to be commercially viable."

"For this project to be fully viable in commercial terms, we need a certain minimum quantity, which is fully covered by the needs of heat suppliers and Lietuvos Energija," the minister said. The quantity of gas used by heat suppliers alone would suffice for the LNG facility to pay its way, he said. The planned LNG terminal in Klaipeda, which Vilnius will take on a ten year lease, will have an annual capacity of 2-3bn cm.

Essentially, the new plan places the Lithuanian state in the role of guarantor of the economic viability of the LNG facility. The current "25% rule" puts that onus on commercial companies that are major gas consumers. They would be forced to purchase at least 25% of gas supplies from the platform, and another 25% from Russian exporter Gazprom, starting in 2015.

Unsurprisingly, that has seen those consumers kick up quite a fuss over the last year. Chemicals company Achema and gas importer and distributor Lietuvos Dujos - which is due to be unbundled in order to free Lithuania's pipelines from the control of major shareholder Gazprom - filed complaints with the European Commission. Despite its enthusiasm for Lithuania's efforts to break away from full dependence on Russia, Brussels has launched a preliminary investigation. But Vilnius says the new scheme will put a stop to that.

"Informal consultations with the Commission on the new scheme are ongoing. With the new scheme put forward, the EU Pilot procedure ... will be closed," Rimasauskaite claimed.

On top of smoothing the way for EU support to resume, the move is the latest push from Vilnius to reinvigorate the energy independence drive, which was built by the previous government, with an extremely aggressive stance towards Russian attempts to keep the Baltic region's energy networks firmly under its thumb.

The new government, which came to power in December, offered signs earlier this year that it was considering dropping the major elements of the plan, including the unbundling of Lietuvos Dujos - without which the LNG project may as well be scrapped. However, April has seen ministers lining up to declare that the drive is still on, promising also to push a stalled tender on shale gas exploration and suggesting it could reopen talks on a pan-Baltic nuclear power plant - a plan it ditched on coming to office.

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