Poland gets tangled in Baltic gas link

Poland gets tangled in Baltic gas link
By Tim Gosling December 14, 2015

Poland's new government appears to be cooling on a plan to build a gas link to Lithuania, despite the EU having already granted hundreds of millions in co-financing. That will only raise concerns in Brussels over PiS' approach to working with the EU, as the GIPL interconnector is seen as a key project to end the energy isolation of the Baltic states.

During a trip to Vilnius on December 14, Polish Economic Development Minister Mateusz Morawiecki sounded far less enthusiastic on GIPL than his predecessors in the Europhile Civic Platform (PO) government. The pipeline, which would be the first to connect the Baltic networks with the wider EU, was scheduled to launch operations by 2019, according to a joint declaration, signed at an EU summit Brussels in October by the government's of Poland, Lithuania, Estonia and Latvia.

However, the new government in Warsaw sounds a lot less convinced. "We are ready to discuss a gas link with Lithuania," Morawiecki suggested as he traveled to Vilnius, according to PAP. "It is a matter for the future as it would require significant financial means from our side, [and from the] Lithuanians."

Yet the investment details on the link have not only already been agreed – Brussels has sent the cash. As the joint declaration lays out, the EU will pay €305mn of the €558mn costs on the interconnector, which has long been designated by the bloc as a "priority project".

In 2014, GIPL obtained co-financing under the EU's Connecting Europe Facility (CEF), according to the European Commission. A spokeswoman tells bne IntelliNews that the full sum was already made available. The agreement on GIPL is "signed and it is one of our PCI [Projects of Common interests] projects," states Anna-Kaisa Itkonen.

Missed the memo

Morawiecki appears to have missed the memo. Poland would seek EU financial support, if the project is agreed, he told reporters.

"With the signed agreement stipulating the project is going to receive financing from the EU, it looks as if the minister has not been properly updated on the project," an industry source told bne IntelliNews.

Morawiecki – who is also a deputy prime minister - is new in the job, and even to politics after arriving in the PiS cabinet from Poland's number three bank BZWBK just a month ago. However, his apparent lack of preparation for talks over Poland's single EU "priority project" doesn't appear to signal much enthusiasm in Warsaw for working with Brussels and regional partners.

Work on the 534km connection has been steadily progressing throughout 2015, despite some earlier disputes about how to divvy up the final bill. The Polish and Lithuanian gas grid operators embarked on a project to gauge demand in early August. Lithuania granted an environmental impact assessment a few weeks later. Poland and Lithuania agreed on the financial structure of the project in September.

Initial capacity on the route will offer the Baltics the potential to import 2.4bn cubic metres per year (cm/y) via Poland. The trio consumes around 5bn cm/y. Meanwhile, capacity in the other direction will total 1bn cm/y.


However, suggestions that GIPL is "for the future" will worry the Baltics. The timing of GIPL is vitally important for the region.

On the one hand, it would offer Lithuania's LNG terminal – which became the first alternative supplier to Russia in the region at the start of the year – access to European markets. Vilnius is desperately searching for new markets to help improve its financial performance and reduce the burden it places on consumers.

At the same time, a link between the Baltic network and Europe is an insurance policy in Latvia for those trying to force unbundling of the country's gas market monopolist, Russian-controlled Latvijas Gaze. The country's powerful gas lobby has previously argued successfully in Riga that EU rules saying internationally connected markets must apply the bloc's Third Energy Package do not apply while the Baltic states are cut off from the rest of Europe. While Brussels insisted recently that Latvia now must open its market by 2017, GIPL was seen as a backup.

Of course, the nationalist PiS will want to do no favours whatsoever for Moscow, and it should also welcome the development of any potential alternative gas supplies that could help its own push on energy security. It appears more likely that the government in Warsaw, which is already raising concern across the bloc, sees a chance to use the project to raise its leverage, and also to push the EU to pay even more of the costs. Brussels noted earlier this year that Lithuania will be the main beneficiary of GIPL.

At the same time, Poland is also just launching its own LNG terminal at last. On the one hand, a means to supply gas to its closest neighbours could also be a positive addition to the country's infrastructure. Yet, the Lithuanian platform might also represent competition, with Vilnius already saying it hopes to be able to sell gas to Ukraine and others in the region via the link.

Both the Polish development ministry and Lithuania's ministry of energy failed to respond to requests for comment.