Lithuania warms up for gas company sell-off

VILNIUS - Lithuanian politicians have been working themselves into a frenzy over the myriad of models for privatizing the 92 percent state-owned natural gas distribution company Lietuvos Dujos. With the government now turning its full attention to this structural reform, which international institutions have been urging for years, the shape of the sell-off is becoming clear.

Meeting journalists on Aug. 30 Prime Minister Algirdas Brazauskas noted the government had promised the World Bank it would complete privatization of the gas center by the start of 2001 in return for a much-needed structural adjustment loan. "But with the change of government and other factors, very little has been done and we are now starting from scratch,"he said.

By contrast, privatization of Estonia's and Latvia's gas sectors began years ago.

The Lithuanian government has pledged that by mid-September it will finalize the terms of two parallel tenders for a total of up to 68 percent of Lietuvos Dujos shares to be sold to strategic investors and gas suppliers. Economy Minister Petras Cesna told The Baltic Times he hoped to see those tenders completed by the year's end and to get full payment for the stakes in the first quarter of 2002.

After a meeting with President Valdas Adamkus on Aug. 30, Brazauskas and Cesna said it was clear that a 34 percent stake of Lietuvos Dujos would be sold to a Western strategic investor, while another stake of 33 percent or 34 percent should be sold to suppliers. A genuine natural gas supplier, most likely the Russian gas giant Gazprom, could buy 25 percent, while Lithuanian intermediary companies and gas consumers would be offered 8 percent to 9 percent.

Cesna stressed it was essential to maintain parity between East and West and between investor and supplier. "In both Latvia and Estonia, which seem satisfied with their gas privatizations, Gazprom and Itera Latvija have taken part on the supply side, while Germany's Ruhrgas and E.ON are on the other side, with both sides staying roughly equal,"the minister said. "Such an arrangement would be good for Lithuania as well."

He also emphasized that the government would retain a 24 percent stake, allowing it to influence management decisions. That meant rejecting a petition by Gazprom that its companions in Lithuania be offered a 25 percent stake. Russian law prevents Gazprom itself buying more than 25 percent plus one share.

President Adamkus had reacted sourly to reports that Gazprom hoped to seize a controlling stake in Lietuvos Dujos. "Lietuvos Dujos is of strategic importance to our country. A Western strategic investor together with the Lithuanian state must maintain a majority,"Adamkus said in a statement on Aug. 28.

But he added that a "rational agreement"with Gazprom would be essential to avoid the type of supply problems that Lithuania's Mazeikiu Nafta oil complex faced after Russian oil giant Lukoil was left out of that company's privatization.

In his position statement, the president said transparency must prevail amid the many competing interests. He called "unacceptable"rumors that a consortium of Ruhrgas, Gazprom and Lithuanian partners was already working to win the Lietuvos Dujos tenders.

Ruhrgas and Gazprom already work together in Estonia, Latvia and elsewhere.

Cesna, for his part, said the Lietuvos Dujos tenders would be clean and competitive. He predicted several Western companies would bid for the strategic 34 percent stake. Besides Ruhrgas, Germany's RWE, France's Gaz de France and a Belgian gas group have been named by local media as possible contenders.

Meanwhile, Gazprom may face competition from Itera or some other Russian company in the gas recovery business, the economy minister added. "And even if Gazprom is the only bidder for the 25 percent part, there will be competition for the rest of the shares earmarked for suppliers,"he said.

According to Cesna, likely local bidders include Stella Vitae and Itera Lietuva, two intermediaries that account for about 60 percent of natural gas sales to Lithuanian consumers (leaving Lietuvos Dujos with the other 40 percent of the market). Another good candidate would be the Achema concern, which alone uses a quarter of all the natural gas consumed in Lithuania.

Lietuvos Dujos reported an unaudited profit of 25.8 million litas ($6.45 million) for the first half of this year, with a total turnover of 253.7 million litas. The company had a small audited loss of 114,243 litas in 2000.