Lithuanian parliament: Gazprom should lose its pipelines in Lithuania

  • 2011-07-06
  • By Rokas M. Tracevskis

GO AHEAD, MAN!: U.S. Secretary of State Hillary Clinton greeted the intentions of Lithuanian PM Andrius Kubilius to diversify the Lithuanian energy sector during their meeting at the Lithuanian PM’s office on June 30.

VILNIUS - On June 30, the Lithuanian Parliament, despite public protests by Russian PM Vladimir Putin, adopted amendments to the Law on Natural Gas, which means splitting of the gas supply company Lietuvos Dujos into three entities and the taking of Lietuvos Dujos-owned gas transportation pipelines into the ownership of the Lithuanian state after mid-2013 (this term can be prolonged in case of some difficulty in negotiations with the current owners over compensation). Now German E.ON Ruhrgas owns 38.9 percent of Lietuvos Dujos shares, Russian Gazprom - 37.1 percent, the Lithuanian state – 17.7 percent, and minor shareholders – 6.3 percent. Gazprom is the only supplier of gas to Lithuania at the moment.

According to the Lithuanian government’s plans, the construction of the Lithuanian state-owned LNG terminal in the Lithuanian seaport of Klaipeda will be completed in 2014 and the EU co-sponsored pan-Baltic LNG terminal in Riga is expected to start functioning at a similar time – the latter terminal causes some fears in Vilnius due to possible participation of Gazprom-related companies in that project. The parliament’s decision was made, implementing the European Union’s Third Energy Package of 2009, aiming to liberalize the EU’s energy markets by splitting big utility groups, which have the status of monopolies, and allowing for all gas suppliers unhindered access to EU infrastructure.

The victory of the Lithuanian PM Andius Kubilius-backed move was clear: 81 MPs voted in favor of amendments while 23 MPs voted against and seven abstained. Some MPs of the oppositional Order and Justice Party’s parliamentary group spoke against the amendments, but the most vocal opponents to the Kubilius initiative during the parliamentary debates were the opposition Social Democrats.

Interestingly, the opposition Labor Party supported the ruling center-right coalition on the issue of these amendments. “We have some doubts, but we will support this project,” Vytautas Gapsys, head of the Labor Party’s parliamentary faction, said during the debates in the parliament.

“We are running from Ivan, but he will take our last trousers!” shouted Petras Grazulis, MP of the Order and Justice Party, pointing to prices of Gazprom’s gas supplies, which are 15 percent higher for Lithuania than for Finland, Estonia and Latvia, which postponed implementation of the Third Energy Package, avoiding in this way the gas price repercussions from Gazprom.
“The EU expertise showed that it will be finally beneficial for our country,” Kubilius said. “The EU expertise forced Finland, Estonia and Latvia to choose another way,” Social Democrat MP Vytenis Andriukaitis disagreed. The Social Democrats are stating that such reorganization of the gas sector is foolish while Lithuania has no alternative for Gazprom’s gas supplies.

The Social Democrats were always more friendly towards Gazprom than their center-right opponents. For example, Social Democrat MP Birute Vesaite is known in the parliament mostly only for two reasons: a constantly and loudly expressed love for Swedish feminism and Gazprom. After the parliament passed the amendments, Algirdas Butkevicius, leader of the Social Democrat Party, stated that “there is too much politics in this decision.” The Social Democrats warned that this reorganization of the gas sector can cost the Lithuanian state some 1.5 billion litas (400 million euros) due to compensation for the pipelines’ current owners. It was the former Social Democrat-led government of PM Algirdas Brazauskas which privatized Lietuvos Dujos in two stages, with E.ON Ruhrgas (in 2002), and its traditional Russian partner, Gazprom (in 2004), taking more than a third of the gas company’s shares each.

“It was a big mistake to sell the transportation pipelines eight years ago,” Kubilius said after the vote on the amendments.
The amendments provoked nervous reaction from the current owners of Lietuvos Dujos. “Once again we underline: if any undertaking has procured gas volumes at the Lithuanian border or seashore and has concluded a contract with any gas consumer in Lithuania, gas transmission to the respective gas user is guaranteed by the existing laws and legal acts.

Therefore, the new draft LoNG [Law on Natural Gas] is not related at all with ‘de-monopolization’ or ‘liberalization,’ but very much with nationalization. The splitting of the company into three undertakings (as it is envisaged) would only result in an increase in operating costs and consumer transportation tariffs,” reads Lietuvos Dujos’ statement of June 9.

Bronislovas Lubys, the biggest shareholder of the Achema Group (leading manufacturer of nitrogen fertilizers and chemical products in Lithuania) and president of the Lithuanian Confederation of Industrialists, expressed his skepticism about such an anti-Gazprom move, pointing out that the price of 1,000 cubic meters of Gazprom gas for Lithuania was 426 U.S. dollars in June, and the price will be 486 U.S. dollars in the coming December, while the price of Gazprom’s gas for Latvia is the following: 349 U.S. dollars in June and 425 U.S. dollars in December (according to a forecast by German banks and the Latvian gas company Latvijas Gaze). Lubys expressed his doubts that the reorganization of Lietuvos Dujos will cause a reduction of gas prices in Lithuania in the short term.

“The reorganization of Lietuvos Dujos will go on by arranging agreements with the Lietuvos Dujos’ shareholders on the terms of this process. The European Commission will participate in this dialogue because we are implementing the laws of the European Union,” Lithuanian Energy Minister Arvydas Sekmokas said in his press conference on June 30. He refused to speculate on the exact price which the Lithuanian government will pay to compensate shareholders of Lietuvos Dujos, stating that it is “a matter of negotiations.” Sekmokas said that the Lithuanian consumers will win due to the parliament’s amendments.

“I did consult with operators of the gas transporting system of the Netherlands and representatives of the Dutch government institutions regarding the implementation of the Third Energy Package. They confirmed that such reorganization needs certain efforts and investments in the short term, but the separation of ownership gives the best benefits to consumers in the long term,” Sekmokas said, emphasizing that the implementation of the Third Energy Package is a top priority for the European Commission.