VILNIUS - Leo LT, the joint-venture vehicle set up to lead the development of Lithuania's new nuclear power plant, is being investigated by the European Commission (EC) to decide if it has violated European Union directives on public-private partnerships.
The Commission has written for explanations on whether the provisions on legislation concerning the new plant, and the decision to invite a private company into the joint-venture Leo LT without a public tender, complied with European Union directives.
The letter outlined the EC rules on public procurement and concessions to public-private partnerships stipulating that "if the task assigned to the public-private entity is a public contract fully covered by the Public Procurement Directives, the procedure for selecting the private partner is determined by these Directives. If the task is a works concession or a public contract that is only partially covered by the Directives, the fundamental principles derived from the EC Treaty apply in addition to the relevant provisions of the Directives."
Therefore, if construction and operation of the plant could be considered a public contract, a concession contract or even an exclusive right, then strategic partners need to be selected by a competitive procedure in accordance with relevant directives and the EC Treaty.
"The direct selection, by Lithuanian authorities, of the strategic partners for the national investor company (Leo LT) raises a problem of non-compliance with the EU Public Procurement Law," the EC letter says.
Lithuania's Prime Minister Kirkilas confirmed that the government would respond to the EC as to why the private-partner for the establishment of Leo LT was selected without a competitive procedure. "We will provide as many explanations as needed. I have no doubts that [they] will understand our position. In effect, the competitive procedure did take place; we reviewed all companies and selected that particular company - VST [NDX Energija, the owner of VST]. There are various forms of competitive procedures, we have selected this company," Kirkilas said.
Leo LT was established through the merger of state-run Lietuvos Energija and RST with the private company VST, controlled by NDX Energija, which is part of the VP Group. The participation of NDX Energija in Leo LT, without going through a public tender, was set forth in the previously mentioned legislation passed by parliament. The government and NDX Energija own 61.7 percent and 38.3 percent of Leo LT, respectively.
The Commission noted in line with the nuclear plant legislation the purpose of the national investor company was to "gain benefits for it and all shareholders," and the company had already been awarded or might be awarded tasks which might qualify as public procurement. In that case the private partner should have been selected in accordance with the EU public procurement legislation or the principles of the EC Treaty, the letter said.
The Commission has requested Lithuania's authorities to provide all information regarding the set-up of the company, including the tasks that had already been assigned or would be assigned to it, and the procedure used in the selection of the private partner.
EU experts say that the letter indicates an initial stage of possible EU legislation infringement procedures, and that whether this goes further will depend on Lithuania's responses.
The European Commission is also taking a close look to determine whether Leo LT can be ruled a monopoly, and if so would then require that its subsidiaries' activities be split in the future.
European Union Energy Commissioner Andris Piebalgs said that in this case, Lithuania would have to un-bundle its electricity transmission and distribution grids.
Kirkilas assured that under this scenario, "We would have to un-bundle. There are various options. We are members of the European Union; we live in accordance with its legislation and follow its provisions."
In a reply to letters from MEP Ona Jukneviciene, Piebalgs claims that Leo LT should observe the requirements of the EU Electricity Directive, that is, to un-bundle transmission and distribution grids, both legally and physically. The grids might be owned by larger integrated companies although they should be operated by separate, independent subsidiaries.
In its present structure, Leo LT has direct control over three subsidiaries: Lietuvos Energija (Lithuanian Energy), which is the operator of the transmission system, and RST and VST, which are the operators of the distribution system. Such unbundling would be insufficient, says Piebalgs. The Commission has in the meantime worked out a new draft on the effective unbundling of electricity transmission grids from supply and generation.
The Ignalina plant is scheduled for closure next year, and in an effort to avoid an energy crisis, officials are working on getting an operating extension. At a recent informal meeting of the EU energy ministers, the idea was broached on letting the plant run until 2012 or even longer.
Lithuanian Economy Minister Vytas Navickas believes "It is very important for us to have Ignalina nuclear power plant running at least until the launch of power links with Poland and Sweden. The existing unit of the plant, if considering its technical parameters, could operate even longer - until 2017 - then it would require additional investments." The reactor came online in 1987, and has a 30-year design life.
Lithuania aims to build power links with Poland and Sweden by 2013-2016.
As a condition for joining the European Union, Lithuania closed one of the Soviet-era plant's two reactors in December 2004 and promised to shut down the second one in late 2009.
European Commission President Jose Manuel Barroso has invited Kirkilas to Brussels on Sept. 14 for a working lunch that will address the situation after the plant's decommissioning.
Lithuania's special envoy for energy security issues, Aleksandras Abisala, met with Latvian Prime Minister Ivars Godmanis and both concluded that the shutdown of Ignalina at the end of 2009 will not leave a substantial impact on the Baltic region.
Godmanis' spokesman Edgars Vaikulis however pointed out that after the closure of Ignalina a necessity will arise to create new energy capacities, at least until the new plant is operating.
"The issue of energy is pressing not only for Latvia, but for the whole EU as well," Vaikulis said, noting that the closure of the existing plant and the construction of the new one are vital issues both for Lithuania and Latvia, and that each country has its priority issues.
