Lithuania to create utility giant

  • 2007-03-28
  • By TBT staff

BIGGER IS BETTER: Lithuanian Energy chief Juozaitis will now have two distribution companies to cope with, like in the old days.

VILNIUS - The Lithuanian government announced last week that it would merge three energy companies to form a single mega-utility capable of raising financing for, and eventually running, the proposed nuclear power plant that the country hopes to build by 2015 with its Baltic neighbors and Poland. The decision cancels plans to privatize Rytu Skirstomieji Tinklai (RST), operator of the eastern grid and one of the three companies, and signifies the renationalization of privately owned VST, which runs the western half of Lithuania's grid.

The government has drafted legislation on the merger, which will also include the state-owned power transmission firm, Lietuvos Energija (Lithuanian Energy).
According to the bill, the state will retain a 51 percent stake in the merged entity, which will also be responsible for carrying out other ambitious energy projects currently on the drawing board, such as an underwater power link with Sweden and a grid connection with Poland.

Thus the new, larger utility company will act as a "national investor" in expensive, high-profile projects essential for continued development in Lithuania's energy industry.
The decision is a complete reversal of a previous strategy worked out five years ago to place part of the power industry in private hands as a means to boost effectiveness and competition.
However, in light of new developments in the European energy industry 's particularly the pressing need to facilitate maximum energy security 's Lithuanian leaders are now keen on creating a power-behemoth that can hold its own in infrastructure development projects worth billions of euros.

Prime Minister Gediminas Kirkilas described the merger as "unique" and that the three abovementioned energy projects would require an enormous amount of finance from Lithuania alone.
"The value of the assets of the (planned) group of companies would be in line with our future financial obligations in this international project. Lithuania may have to invest as much as around 7.5 billion litas (2.2 billion euros)," Kirkilas said.
The prime minister said that the state's stake in the merged company would likely add up to more than 51 percent, but that there are tentative plans to float some shares on the stock exchange.

Regardless of the final structure, the bill will have to address stakes in RST and VST that are currently in private hands. Germany's E.ON, one of the world's largest investor-owned energy service providers, owns a 20.28 percent stake in RST, while VP Market, the Baltics' largest retailer and Lithuania's second largest taxpayer, owns 97.1 of VST via NDX Energija.
NDX Energija chairman Zilvinas Marcinkevicius said that the company would like to participate in the future energy projects and contribute funds if the state is indeed committed to creating a modern energy system. He did not exclude selling VST back to the government.

"We understand the interests of Lithuania. If some find us unacceptable, we may, for example, consider selling the shares in VST," he was quoted by the Lietuvos Rytas daily as saying.
Rimantas Milisauskas, CEO of RST, lauded the merger plans. "The idea is right. A strong consolidated company would emerge in Lithuania, capable of financing the largest projects and operating on an international scale without support from the state," he said.

Lithuanian Energy CEO Rymantas Juozaitis said that E.ON would be invited to join the project or sell its shares.
The decision brings Lithuania's power industry full circle. In 2002 VST and RST were spun off of Lithuanian Energy in order to boost competitiveness in the industry. EU law requires that energy production and distribution companies in one country be separate entities, but they may be part of the same umbrella.
But as the government eyes a 34 percent stake in the 4 billion euro atomic power plant project, a bigger company is better.
The state currently owns 96.59 percent of Lithuanian Energy and 71.35 percent of RST.
For both E.ON and NDX Energija, parting with the assets will not be easy. Energy sales are a lucrative business in a growth market such as Lithuania. VST, for example, increased sales 10 percent last year to 928 million litas, while earnings soared 23 percent to 60 million litas.

Curiously, RST earlier this month filed an application to the Vilnius Stock Exchange to have its shares transferred from the current list to the official list, which includes blue chip stocks.
Ostensibly the move is dictated by the need to create interest in the stock 's and thus prop up its price 's prior to any merger so that RST will be better weighed vis-a-vis its privatized brother, VST.