Lithuania secures Russian agreement to split gas monopolist

By bne IntelliNews May 29, 2012

Tim Gosling in Prague -

Lithuania announced on May 28 that the unbundling of the country's gas monopoly has been agreed with foreign shareholders, including Gazprom. The separation of Lietuvos Dujos is key to Vilnius' drive for greater energy independence, however, it remains unclear exactly how it managed to end this particularly bitter fight.

Leveraging the EU's Third Energy Package, Lithuania has been pushing to wrest control of the country's gas pipelines from the Russian gas giant for months, as it looks to open alternative gas supply routes to the current total dependence on Gazprom. It plans to launch its own liquified natural gas (LNG) terminal in late 2014, but without control of the country's gas network, would not be able to use the facility.

Hence the bitter fight with Gazprom. The Russian company holds 37.1% of Lietuvos Dujos with Germany's E.ON owning 38.9% and the state holding the rest. Threatening undefined "sanctions", Lithuania had set a March deadline for agreement on unbundling the company, a date later pushed to the end of May. Gazprom, meanwhile, initiated international arbitration against the Lithuanian government in March

Little has been heard from either side since, but both Vilnius and Gazprom announced late on May 28 that all shareholders have agreed to split Lietuvos Dujos into three independent entities - controlling transport, distribution and sales - by 2014.

Gazprom will control the rump Lietuvos Dujos, which will continue to run gas sales. The Russian company will also retain control of one distribution business, but a new, larger distribution company will go to the Lithuanian state. Lithuanian news portal 15.lt reports that the transmission networks may be transferred to Litgrid, which operates the country's electricity transmission networks. The country's transport pipelines, meanwhile, will go to a new company, according to unofficial sources, which will be managed by the government and an unidentified "new" investor.

Alternative gas supplies will not only allow Lithuania to reduce the volume it buys from Russia, but will also introduce leverage on pricing, as Energy Minister Arvydas Sekmokas reiterated. He claimed recently that Lithuania currently pays the highest gas prices in the EU.

However, quite how Vilnius managed to pressure or persuade Gazprom to suddenly agree to the unbundling of the company is unclear. Analysts at VTB Capital in Moscow suggest that the lengthy build-up to the split means that "despite the fact that the news is negative for Gazprom, as the company would have less control over Lithuanian gas transit system, we believe it is already priced in by the market."

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