Lithuania sets stage for energy investment

VILNIUS - As the first week of summer passes, the energy sector is abuzz with restructuring efforts. The big issues, the Belarusian debt and the creation of a single Baltic energy market, loom large and the city of Elektrenai could lose dozens of jobs.

On May 31, President Adamkus signed a law on the restructuring of the giant power company.

The law, said Audrius Rudys, an economic consultant for the president, enables the restructuring and creates milestones for the process. The main point of the law is that Lietuvos Energija is divided into three separate companies for generation, transportation and distribution and gives the government the legal requisite to create a program on implementing that law. Energy officials added that contracts with privatization adviser CIBC Wood Gundy will be signed in the nearest future.

Two elements of the law are slightly controversial. First, it raises doubts about the Elektrenai power station, Lithuania's main reserve generator, which currently only runs at roughly 3 percent of its capacity. Rudys explained that there were some doubts about the feasibility of separating the plant from Lietuvos Energija.

"The only question is who will finance that reserve," Rudys said. "When the president signed the law, at the moment he passed to the Seimas economic committee a letter where he asked to renew discussion [about Elektrenai] and maybe to pass amendments on that law."

"This restructuring could be a starting point for the large-scale restructuring of Lietuvos Energija in general, a sort-of warm up," said Jurgis Vilemas, chairman of the board of Lietuvos Energija. As a result of the separation of Elektrenai, from 80 or 90 workplaces could be eliminated.

This would save Lietuvos Energija $1 million per year.

Another controversial item is the issue of 110 kilovolt lines, some of which would be given to different entities after the restructuring.

"There are a lot of suggestions that all those lines have to belong to the Lietuvos Energija transportation company, not the distribution company," Rudys said.

"The President's position is to renew the discussion. He thinks the Seimas is a good place for taking into account all the arguments," said Rudys.

The essence of the new energy law, says the Ministry of Economy, is to define limitations for foreign monopolies investing in the Lithuanian energy sector. Forty other legal acts will also have to be implemented. Economic Minister Valentinas Milaknis stressed that all the laws would state the main aim of reforms, which is creation of a competitive energy sector.

"I am very pleased that the head of the state did not stop the reforms in this sector, which are needed for Lithuania to get ready for international competition in the energy sector," Milaknis said at a press conference June 2.

The power bridge project - the development of a structure that would link Lithuanian energy systems to Western energy markets - was also discussed.

According to Milaknis, this could bring down energy prices for Lithuanian consumers.

Energy sector officials also revealed a few large bumps in the road. One problem is the Belarusian energy debt to Lithuania, a total of roughly $80 million (320 million litas). An agreement signed between Lietuvos Energija and Russian Energiya on May 15 would see the Russian firm, acting on behalf of Belarusian energy interests, provide a partial repayment in the form of nuclear fuel for the Ignalina Nuclear Power Plant.

However, officials are still doubtful that the full sum will be regained any time soon.

"It will be a difficult process because the Belarusian side is not prepared to pay on time," said Arunas Keserauskas, managing director of Lietuvos Energija. Keserauskas added that there were also questions of Belarus' technical readiness to accept energy exports from Lithuania.

If all goes according to plan, exports would resume July 1, although, as Vilemas joked, "The middle of summer is a bad time to start [energy] exports."

On May 22, the government also organized a tender to sell-off the Belarusian debts totaling $56 million to the private sector. Some 19 local and foreign companies have already expressed interest. The deadline is June 19.

Also broached at the June 2 press conference was the daunting subject of the recent agreement between Latvia and Estonia energy companies to possibly merge the two companies. Latvenergo and Eesti Energia are both state-run companies with no intention to restructure or privatize. They didn't invite their Lithuanian counterpart which appears to be moving in a different direction in the path towards restructuring and privatization.

While Lithuanian energy officials were initially bothered by the agreement of its northern neighbors, officials at the June 2 press conference downplayed fears.

"The issue is blown out of proportion because the decisions have not been made at the highest level. The most important thing is that the heads of the states have stated that their policy is leading towards a single Baltic market," said Vilemas.

Vilemas added that the prospective deal between Latvia and Estonia "could only be a reaction to the reforms in Lithuania."