Privatization becoming energized

  • 2000-01-27
  • By Peter J. Mladineo
VILNIUS - An overhaul of another massive segment of Lithuania's energy sector is drew nearer as the government announced a tender for an adviser to commence the restructuring and eventual privatization of state-run energy company Lietuvos Energija.

The government advertized in the business daily Financial Times announcing its intention to restructure the energy company into separate generation, transmission, and distribution entities, which could eventually be sold as separate companies. All that is being sought for now is a financial advisor - an investment bank - to manage the company's assets and liabilities and begin the process of restructuring the company into more manageable units.

Interest in the sprawling Lietuvos Energija, which is an estimated hundreds of millions of litas in the red, has already been shown by accounting firms PricewaterhouseCoopers and KMPG, as well as the investment banks Dresdner Kleiwort Benson, Merrill Lynch, NM Rothschild, Fleming, and BNP Paribas.

The Economic Ministry also drew up a list of other potential advisers, which include Salomon Smith Barney, CIBI World Markets Deutsche Bank, Morgan Stanley Dean Witter, JP Morgan, Goldman Sachs and others.

The tender will be held open for 52 days following tpublication in FT, and the winner will be chosen one week later.

"[Lietuvos Energija] has many liabilities at the moment. [The appointed adviser will oversee the] future development of the company in its transition to the open market in Lithuania," said Vytenis Junevicius, the deputy minister of economy coordinating the tender.

Some experts have raised questions as to why the ministry has called for investment banks and not specialized consultants to advise the restructuring of the energy company. However, as Junevicius explained, this method actually streamlines the process of restructuring.

"It is just for the sake of coordination. Investment banks have to form consortia, including technicians and lawyers, with whom they could perform the assignment. It would be more difficult for us to coordinate the process if we hired consultants, lawyers, technicians and investment bankers separately."

Until late last week, it had been widely reported the tender would be closed - a method the government felt would have expedited the process.

However, Junevicius insists that this was only an option dismissed by the government in favor of an open tender.

"We just considered a couple of options and somehow the press made some confusion saying decision was already made," Junevicius said.

The closed tender, in which only certain companies were invited by the government to take part, turned out to be too reminiscent of the government's controversial sale of the state's oil complex to the Williams International oil concern for its own good. "That was one of the reasons we made the call for an open tender, to avert any public reaction against it," said Junevicius. "We decided to have an open tender just to calm down tensions."

However, Junevicius added, the results would have been the same regardless of whether an open or a closed tender washeld.

The plan to restructure seems to be unanimously supported by all concerned with the energy sector, although the decision to privatize Lietuvos Energija does not share similar staunch support.

Jurgis Vilemas, director of the Energy Institute of Lithuania, said that the need for reorganization is obvious.

"They're under inefficient management. In such a big vertically integrated monopoly, there is no incentive to make the system more efficient. They are hundreds of millions in the red. It will go to bankruptcy if not reorganized," Vilemas said.

While some government officials think that privatization could be achieved by this October, another government official close to the action admitted that there is a lot of wishful thinking going on.

However, as Vilemas explained, privatization is not nearly as great a priority as is restructuring.

"It doesn't urgently need to be privatized, but urgently needs to be restructured. The restructuring plan's political detractors include the Social Democracy 2000 party, the breakaway offshoot of the Social Democratic Party, which thinks that Lietuvos Energija's privatization will result in the increase of electricity prices in Lithuania. "

"In the case of the privatization of Lietuvos Energija, the cost of energy will be very high. This is the reason that our party, Social Democracy 2000, does not want the privatization of the company to be this year," said MP Jonas Valatka.

Valatka gives privatization better chances if it is delayed until after Lithuania's possible accession to the EU.

"Then competition with EU countries will be greater, and thus, energy prices will be not so high."

The Lithuanian daily Lietuvos rytas reported that another energy item slated for possible privatization is the state-run gas concern Lietuvos Dujos. Last week the Economic Ministry considered that the state sell 30 percent to 35 percent of the gas company's shares in an open tender. However, Eduardas Vilkas, chairman of the Privatization Commission, said that all of the shares of Lietuvos Dujos needed to be privatized without exception.

There have also been voices of dissent from the Christian Democratic Party, which didn't want the gas pipeline included in the sale.

Currently, the Lithuanian daily reports, interested buyers of Lietuvos Dujos - as is - include Gas de France, Germany's Ruhrgas, and Russia's Gazprom, the last of which owns similar companies in Latvia and Estonia. Williams International had also expressed interest in investing in Lietuvos Dujos.

If the gas pipeline were excluded from the sale, as some in Lithuania's privatization community would prefer, it would greatly diminish the field of potential buyers. Junevicius told reporters that the only firm that would still be interested in Lietuvos Dujos - minus pipeline - would be the Russian/Lithuanian joint venture Stella Vitae.