Lithuanian Gas likely to raise prices

  • 2005-02-02
  • By TBT staff
VILNIUS - Lietuvos Dujos (Lithuanian Gas), a national natural gas distributor, may receive the go-ahead to increase prices after a revaluation of assets, government officials said this week.

Anicetas Ignotas, state secretary at the Economy Ministry, told the press that the value of assets should increase by a factor of 3.5 as a result of the revaluation, providing Lithuanian Gas with the opportunity to increase prices.

As Vidmantas Jankauskas, chairman of the national control commission for prices and energy, explained: "The increase in the value of assets could lead to an increase in amortization deductions, which might have an effect on prices."

The possible price-increase comes amid a Cabinet battle over limiting the company's profit. Economy Minister Viktor Uspaskich last month proposed putting a 7 percent cap on Lithuanian Gas' profitability and earmarking surplus profits for a subsequent price decrease.

"These companies are monopolistic organizations that operate almost without any risks. So the return on capital should not exceed the average yield on securities or the interest rates established by banks," said Uspaskich, leader of the Labor Party that ascended to power last year on a range of populist promises, including reducing energy prices.

Prime Minister Algirdas Brazauskas shunned the idea, striking it from a Cabinet meeting agenda in mid-January. The head of government was reportedly against the idea since it was beyond the government's powers and ran counter to an agreement with Gazprom, Russia's gas monopoly.

The proposed changes would have primarily affected Dujotekana, the largest supplier to Lithuanian consumers last year, as well as Lithuanian Gas by revising the methodology of natural gas price calculations. Large industrial users, such as heat suppliers, are forced to buy natural gas at higher prices from Dujotekana, since Lithuanian Gas, which sells gas to households and small companies, cannot meet the demands of all major users.

Finally, on Jan. 19, the government approved amendments to the natural-gas law that allow for a partial regulation of gas prices for large industrial users by slashing prices of gas sold by Dujotekana. The Cabinet proposed a provision stating that the price of gas sold to large industrial users would be regulated if the profit margin exceeded 15 percent and was above 7 percent of the profit ceiling set for gas suppliers.

Authorities began regulating gas prices for large industrial users in 2003, though they were forced to renege six months later on pressure from Gazprom, which threatened to pull out of the deal with Lithuanian Gas.

So far this year electricity prices in Lithuania have increased by about 7 percent and are likely to rise further following the revaluation of assets by the country's two power grid operators last year. Jankauskas said that an increase in natural-gas prices would not be as large as the increase in electricity prices.