Lithuanian watchdog reveals privatisation probe against Gazprom

By bne IntelliNews October 1, 2013

Tim Gosling in Prague -

Lithuania revealed on September 30 that it is looking into potential violations by Gazprom of the agreement that governed the privatization of national gas utility Lietuvos Dujos. The move suggests Vilnius is ready to push back against recent Russian pressure on the country.

The Lithuanian Competition Council announced on its website that on September 24 it had extended an investigation into the Russian state-controlled gas firm's actions in Lithuania. The statement about extending the investigation is the first official acknowledgement of the probe into Gazprom that was opened on July 30 last year, although speculation it was underway had been widespread.

"We confirm that the Competition Council is conducting an investigation on a complaint over Gazprom's actions allegedly violating the terms and conditions of the Competition Council's permission to acquire a stake in Lietuvos Dujos," Viktorija Urbonaviciute, head of communications at the competition body, told BNS. "The opening of the probe shows that there is reason to suspect a possible violation, but this does not mean that such a violation exists."

The extension of the investigation means that conclusions from it will be due in three months, the website statement reads.

The decision to start the probe into Gazprom's actions is related to a complaint filed by an unnamed Lithuanian company in July 2012, and not with the European Commission's anti-trust investigation against the Russian company, the spokesperson said. The Commission is currently conducting a probe into Gazprom's pricing in Central and Eastern Europe. That move has been instrumental in encouraging Lithuania to push its own efforts against the Russian company and seek to diversify its supplies, which are currently 100% fulfilled by Gazprom.

The Lithuanian investigation centres on the competition body's approval of the 2004 acquisition of a 34% stake in Lietuvos Dujos from the state. The watchdog gave the deal the green light on condition that there would be no obstacles for Lithuanian consumers to buy gas from other gas suppliers, Urbonaviciute told reporters.

Speculation earlier this year suggested that a probe had been launched on the back of complaints from power utility Lietuvos Energija. The reports quoted unnamed sources as claiming that Gazprom had refused a gas swap deal which would have allowed the Lithuanian company to buy cheaper supplies from Europe.

Palpable threat

The report comes as Vilnius attempts to negotiate a new gas contract with Gazprom. However, those talks are not going well, according to Lithuanian officials. The president has furiously claimed the Russian company is making unreasonable demands, while Prime Minister Algirdas Butkevicius warned that it's starting to feel as if Moscow has launched an "economic war" against his country.

Butkevicius arrived in office close to a year ago promising a more "pragmatic" approach to Russia than that taken by his predecessor Andrius Kubilius, who pushed a strong programme to reduce reliance on Russian energy. However, a plan to launch operations at a liquified natural gas (LNG) terminal at Klaipedia by the end of 2014 remains on course.

The key to that project was to wrest control of the country's pipelines from Gazprom. Kubilius achieved that by leveraging the EU's Third Energy Package to insist that distribution assets must be unbundled from Lietuvos Dujos. A new pipeline operator - Amber Grid - was spun off in the summer. However, Gazprom has complained that it was forced to agree the move under duress from Kubilius - specifically, that the government had threatened to look closely at the 2004 privatisation deal, which some in Lithuania claim went through well below fair value.

Alongside a LTL5bn (€1.4bn) arbitration suit that Vilnius has lodged in Stockholm over gas prices in the current contract and the transit of gas to the Russian enclave of Kaliningrad, the acquisition of Gazprom's stake in Amber Grid is a major point of leverage in the negotiations over a new contract. However, Lithuania - which is also facing Russian trade restrictions in recent weeks - has met a Russian administration clearly in hardball mode.

With several former Soviet states set to sign up to association and free trade pacts with the EU in November, Russia is trying - via trade restrictions and gas prices - to pressure them into joining its Customs Union instead. Vilnius will host the meetings at which those agreements are due to be inked, and as current holder of the EU presidency has been front and centre in encouraging the likes of Ukraine and Moldova to continue their quest to the west.

The public revelation of the probe into the privatisation of Lietuvos Dujos clearly seeks to offer Lithuania another point of leverage. The threat of returning to the issue is clearly palpable. It was effective enough two years ago to force Gazprom into accepting the loss of the pipelines, which is a huge step down for a company that thrives on maintaining such strategic control.

The move also signals an apparent significant hardening of the stance in Vilnius, with many having severely criticized the PM for abandoning the aggressive approach of his predecessor. Just a month or so ago, Butkevicius leapt to condemn the speculation that an investigation had been launched.

"The competition council's probe over Gazprom's actions in Lithuania's market was inspired a year and a half ago by the previous government. However, it has not been conducted until now. I'd say that it's a strange coincidence that the competition council has started once again to talk about the probe at the time when the talks with Gazprom, which the current government has put many efforts into, are coming to an end, to be more precise, when the energy minister spoke up about a possibility to get a lower price of gas for Lithuania," Butkevicius told BNS on August 2.

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