Lithuania sets up for next fight with Russia's Gazprom

By bne IntelliNews September 26, 2014

Tim Gosling in Prague -


Lithuania will continue with its €1.5bn arbitration suit against Russia's Gazprom, the prime minister insisted on September 25. The pledge comes as Vilnius prepares to overturn Russia's total dominance of the Lithuanian gas market and negotiate a new supply contract with the state-owned giant.

Vilnius launched a LTL5bn (€1.45bn) suit at Stockholm's international arbitration court against the Russian state-owned gas giant in October 2012, claiming the supplier - who currently delivers 100% of the 3bn cubic metres (cm) or so Lithuanian consumes annually - had been overcharging since 2004. The case was one of a number of pieces of ammunition Lithuania has used in a vicious fight against the Russian company over the last few years.

"The Stockholm case is proceeding according to the schedule set by the tribunal," Prime Minister Algirdas Butkevicius told parliament, according to Reuters. "Lithuania will present the final document in late November, while an oral hearing is planned for the next summer. The "government's claim ... that Gazprom breached (the) privatisation deal [for national gas utility Lietuvos Dujos] and unilaterally raised gas prices still stands," he said.

The announcement comes as Lithuania sets up for yet another fight with Gazprom over prices, and suggests Vilnius is in no mood to soften the confrontational stance it has employed towards the Russian gas supplier since the turn of the decade. Using a raft of leverage, Vilnius has pushed Gazprom out of both Lietuvos Dujos and its gas networks.

There was much speculation that Lithuania had agreed to drop the arbitration case in May, when Gazprom finally agreed to lower prices on its current contract with Lietuvos Dujos. Officials in Vilnius complained before the deal was clinched that the country was paying the highest price in Europe. Butkevicius strongly denied the case had been dropped, but a second arbitration suit from Lietuvos Dujos has not been mentioned recently.

Seconds out, round two

However, the Baltic minnow will need all ammunition it can get as it sets up for another fight, and pressing the arbitration suit is part of that strategy. The current supply contract with Gazprom will finish at the end of 2015, and talks on a new agreement will start around the end of this year.  

Around the same time, Lithuania will launch a liquefied natural gas (LNG) platform, which will break Russia's dominance of the market - the long fight over the gas networks was a prerequisite for this. The terminal is due to cover around 20% of annual consumption. A contract on transiting Russian gas to the enclave of Kaliningrad is also due for renewal, handing Vilnius another bullet.

However, the recent breakdown of relations between Moscow and the West clearly complicates the matter. On top of that, Vilnius looks to be losing some of its support. The confrontational stance it has used to such effect - ironically enough leveraging EU regulation to its fullest extent - is at odds with the lack of conviction in Brussels. With the EU seemingly now very keen to smooth over relations with Moscow, Brussels said on September 19 it has delayed a probe into Gazprom for suspected anti-competitive behaviour in Central and Eastern Europe that threatened fines of up to €11bn due to the Ukraine crisis.

A leading hawk on Russia's actions in Ukraine and critic of what it says is weakness on the part of the EU, Lithuania will not have welcomed Brussels announcement, which reduces the leverage to be gained through the arbitration suit. Gazprom is thought to have been trying to persuade Vilnius to drop the case for over a year, aware that a ruling against it in Stockholm would likely weigh against it in the EU probe.

Lithuania will be hoping instead that the Russian gas giant will be worried that the case could also weaken its position in negotiations with Poland and other Eastern European importers, as analysts at Russian investment bank Uralsib suggested last year. However, that may be overly optimistic; Gazprom is currently limiting supply to the region in an apparent flexing of muscle.

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