Lithuania launches first gas privatization tender

VILNIUS - Lithuania has officially launched the first of two tenders to privatize the 92 percent state-owned natural gas distribution company Lietuvos Dujos. Western strategic investors were invited on Nov. 19 to bid for an initial 34 percent stake.

The announcement is the result of months of agonizing over how Lithuania can balance its goals of integration with the West against the present reality of dependence on supplies from the East.

The terms of this first tender, approved by the government on Nov. 14, exclude participation by Russian natural gas suppliers such as Gazprom and Itera and their local partners. They also bar members of any consortium that buys the strategic stake from participating in a later tender for suppliers.

Such safeguards should, say privatization officials, prevent Gazprom and Itera gaining the kind of commanding position they recently gained on the board of Latvia's gas utility Latvijas Gaze.

The government hopes to complete the sale of the first stake by June and then to sell another 34 percent stake to a gas supplier.

On the advice of the World Bank the government will sign a special agreement with the strategic investor governing key management decisions and future share-ownership changes.

"The terms and criteria set out in the Lietuvos Dujos privatization program seek to ensure that the strategic investor will be a reliable Western company with sufficient experience in the gas business," the government said in a statement.

The strategic investor must originate from a country in the European Union, NATO, the Organization for Economic Cooperation and Development, or from an EU associate country and have at least 10 years experience in the sale and distribution of natural gas.

Potential investors must submit expressions of interest in the strategic stake by Dec. 19. Final bids are due Apr. 2.

Investors must commit themselves to supporting economically viable projects which would either link Lithuania to the EU's gas distribution networks or would increase the capacity of the country's gas transit pipelines.

"Based on our earlier contacts with potential investors, I think the terms we have approved will be acceptable to them," Economy Minister Petras Cesna told The Baltic Times.

Germany's Ruhrgas is widely considered the front runner to win the tender for the strategic stake, partly due to its existing investments in the Latvian and Estonian gas utilities. Ruhrgas has said it intends to bid in a consortium with E.ON, another German energy firm.

France's Gas de France has also said it plans to bid for the strategic stake.

The newspaper Lietuvos Rytas reported on Nov. 16 that Lithuanian fertilizer maker Achema was seeking to buy some of the Lietuvos Dujos shares by forming a consortium with either the French group or an unnamed Polish partner. The paper questioned whether Achema could be considered a supplier of natural gas due to some of its secondary operations. Achema is the largest consumer of natural gas in Lithuania.

Lietuvos Dujos has an authorized capital of 341 million litas ($85.25 million). The nominal value of the 34 percent strategic stake is 116 million litas.

The utility reported an unaudited net profit of 3 million litas, for the first nine months of this year, on turnover of 304 million litas.

During the same period it imported 1.82 billion cubic meters of natural gas from Russia, of which 540 million cubic meters were sold to Lithuanian consumers and 1.26 billion cubic meters were for transit.