This comes amid the announcement of both a rise in energy prices and the naming of possible suitors for the Lithuanian gas company.
The reorganization of Lietuvos Energija AB will see the introduction of four new companies - two electricity distribution companies and two electricity generation companies. The former mother company, Lietuvos Energija AB, will work as a power transmission company, controlling high-voltage transmission lines.
Two new companies, Elektrenai and Mazeikiai, will generate electric power.
Lietuvos Energija AB will continue to be responsible for transmitting the power from the generators to the distribution companies which have been divided between the east and west of Lithuania, Rytu Skirstomieji Tinklai (Eastern Distribution Network), and Vakaru Skirstomieji Tinklai (Western Distribution Network).
The reorganization of Lietuvos Energija AB, approved by both the government and Parliament, was carried out to further privatize the energy market in Lithuania and bring it in line with EU standards, said Anzelmas Bacauskas, senior specialist at Lietuvos Energija AB.
The EU experts want to ensure third-party access to the transmission network, the unbundling of production, transmission and distribution and the liberalization of the electricity market.
"This should ensure that Lithuanian standards are in line with EU standards as well as create Pan-Baltic competition," said Jorgen Falck Christensen, an EC preaccession adviser for Lithuania.
The EU has been involved in the reorganization of the company in what is called the Twinning Project as part of the Phare program. It has brought together experts from Elkraft System, a Danish transmission system operator, and Lietuvos Energija AB. Elkraft will be assisting in the transition to full EU compliance.
According to Christensen, the collaboration between the two companies will be an advantage to Lietuvos Energija AB because of the experience Elkraft has had in the similar process in its home country.
A possible side-effect of this restructuring has been the increase of electricity prices to residents in Lithuania.
The national price and energy control commission has increased the price from 27.4 cents to 29 cents per kilowatt-hour, a 5.5 percent increase.
Despite having some of the lowest electricity rates in all of Europe - after Latvia and Estonia - prices will more than likely continue to rise given the effects restructuring will have on the market. No longer will Lietuvos Energija AB control all aspects of the electricity market or cover any possible losses acquired by one or another part of the company as previously was the case.
Bacauskas believes that there will be an increase in competition but will be part of a larger phenomena as the electricity market becomes not strictly Lithuanian but Pan-Baltic.
For now, the technical aspects of reorganization may pose as an immediate disturbance.
"The creation of technical conditions in the electricity market may demand additional costs," explained Bacauskas.
He also believed that with the eventual shut down of the Ignalia power plant, which supplies three quarters of all electricity in Lithuania, prices would undoubtedly increase.
Bacauskas said that nuclear power generation is 2-3 times cheaper than other power generation methods.
The EU would like to see the eventual closure of the nuclear plant by the year 2009 and international donors have already promised millions of dollars to help in the cost associated with such a move.
Prime Minister Algirdas Brazauskas told reporters on Jan. 4 that a draft would be presented to Parliament in February with a timetable and cost analysis for shutting down the nuclear power plant.
Safety issues have always been a concern for the EU and has figured significantly into the pre-accession talks between the EU and Lithuania.
Of more recent concern is a crack in one of the reactor walls that has caused the plant to temporarily shut down one of its two Chernobyl-style reactors.
Jan. 4 also saw the second of two potential strategic investors for the privitization of the Lithuanian gas utility Lietuvos Dujos.
Gaz de France and a German consortium are the two potential suitors. Both purchased the prospectus necessary to enter their bids to buy a portion of the company. Currently the Lithuanian state owns more than 90 percent of the company.
If their offers are accepted, each company will receive a 34 percent stake in the Lietuvos Dujos. The deal may be closed as soon as May.
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