Lithuania to step back on efforts to reduce energy dependence on Russia

By bne IntelliNews April 5, 2013

bne -

The government of Lithuania, which took office late last year, has offered its strongest indication yet that it's ready to pull back on efforts started by its predecessor to reduce energy dependence on Russia. Economy Minister Birute Vesaite said on April 4 that Vilnius could benefit from lower gas prices if it implemented the EU's Third Energy Package at a slower pace, claiming the country is "paying for its mistakes".

"I'd think that we could implement the third liberalisation package the way the Estonians are implementing it, with minimum losses for our consumers. I'd think that the same goals can be achieved with more care about our consumers and our business competitiveness," Vesaite said in an interview with the radio station Ziniu Radijas, reports Baltic News Service.

The suggestion from the minister, a member of the Social Democrats which leads the coalition elected to replace the centre-right administration led by Andrius Kubilius in October, came as Prime Minister Algirdas Butkevicius prepares for a meeting with Russian Prime Minister Dmitry Medvedev on April 5. The Lithuanian PM has long maintained that his administration would seek to reduce confrontation with Moscow, which was infuriated by the previous government's stance to free the country from its energy grip.

Vesaite's words also followed April 3 comments from Russia's ambassador to Lithuania, Vladimir Chkhikvadze, who claimed neighbouring Latvia and Estonia, which have delayed the implementation of the EU energy package by choosing a less stringent option, are paying 20% less for gas than Lithuania. "We are paying for past mistakes," Vesaite said when asked to comment on the Russian ambassador's words.

A cornerstone of Lithuania's aggressive drive under Kubilius to improve energy security by devising alternative suppliers to Gazprom - which currently provides 100% of Baltic gas demand - is a plan to launch a floating liquified natural gas (LNG) platform by late 2014. Key to that scheme is wresting control of the country's gas network to distribute the imported energy.

Lithuania's pipelines are currently operated by gas monopolist Lietuvos Dujos, and following a long and bitter fight, Vilnius leveraged the most stringent options under the EU's Third Energy package to force a decision to unbundle the company past major shareholders Gazprom and Germany's E.ON last year. Gazprom maintains that it was coerced into the decision by threats from the government, and says it has not ruled out international arbitration.

However, on March 7, Lietuvos Dujos announced that it plans to complete the spin-off of its transmission networks from its supply operations on July 31, with the transfer of distribution activity to AB Amber Grid. Lietuvos Dujos reiterated at the time that EU regulations mean E.ON and Gazprom must sell their interests in the network.

However, a final vote on the terms and conditions of the unbundling by shareholders is still pending, it admitted. The comments from the economy minister on April 4 suggest that there may be a potential route to roll back the process for the Russian state-controlled gas giant.

Despite not being officially involved in deciding energy policy, Vesaite also appeared to insist in the same radio interview that Lithuania will not build a new nuclear plant to serve the Baltic region. That was another plan devised by Kubilius to reduce reliance on Russia, and involved teaming up with Latvia, Estonia and Japan's Hitachi to build a 1,300-megawatt (MW) reactor in the town of Visaginas. Since closing the Soviet-built Ignalina nuclear plant in 2009, Lithuania, which isn't connected to EU energy grids, also relies on imports of Russian power.

Butkevicius has said his government is studying whether energy independence could be achieved without nuclear generation and would make a decision in May. Last week he said he didn't think nuclear energy was a priority for the country.

"The reactor that Hitachi offered us is definitely not necessary or useful for Lithuania," said Vesaite. "We should refrain" from nuclear power in general, the minister said, according to Bloomberg. "It's not worth it, there are other sources of generation [although] renewables and the one power link with Poland, which isn't finished yet, can't ensure reserve capacity."

Butkevicius pushed to attach a non-binding referendum on the Visaginas plan to the October election, with the population reported to oppose the scheme due to its high costs. In February, the government delayed final approval of the award of a licence to explore for shale gas to US company Chevron, claiming it needs time to assess environmental concerns.

However, Butkevicius insists that he is merely toning down the rhetoric and opening up to discussion, rather than giving up on Lithuanian ambition to take greater control of its energy markets. In early February he denied speculation that the new government has promised to pull the plug on projects aimed at expanding Lithuania's options for gas purchases, and that it was already in negotiations with Gazprom on a gas price discount - suggestions which surfaced following a visit to Vilnius by a senior official from the company on February 1.

"The [Kubilius government] would not talk with anyone, therefore today we have the highest gas prices in Europe," the PM told Leta at the time. "I think that such talks have been going on earlier, so it was not the first meeting. There will be more of such conversations and they will take place not because of energy reform or suspension of liquefied natural gas terminal but in order to reach agreement with Gazprom so that Lithuania could purchase cheaper gas."

Butkevicius's office said he will meet Medvedev in St. Petersburg to discuss energy and other issues on April 5.

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