French heating giant signs Vilnius deal

The Dalkia unit of French utilities and communications group Vivendi has signed a 15-year deal with the city of Vilnius to lease and modernize the city's Soviet-era heating utility.

The deal, signed on Feb. 1, follows weeks of political wrangling and scandal in the Lithuanian capital.

Vilnius Mayor Arturas Zuokas told journalists the Dalkia deal was "the most important agreement the city has concluded in a decade, with significance for the whole Lithuanian energy system."

Zuokas said Dalkia would bring the capital total investments of almost 1 billion litas ($250 million) and guarantee Vilnius residents the lowest prices in the country for heat and hot water.

The inflow of Western capital means a further weakening of the influence of companies from the east in the local energy sector, he said, and this could positively impact the ongoing privatization of the country's natural gas utility and electricity distribution networks.

The Lithuanian Finance Ministry still has to approve the contract. But Zuokas said he expected that Vilniaus Energija, a newly established subsidiary of Dalkia, could assume control of the city's heating facility, Vilniaus Silumos Tinklai, as soon as April.

French Ambassador to Lithuania Jean Bernard Harth, who attended the signing of the contract, said he hoped Dalkia's large investment would serve as an example to other French and EU investors.

Dalkia has committed itself to invest 564 million litas in modernizing the heating facility and pay off 80 million litas of its debts.

It also pledged to expand the heating network into new Vilnius suburbs and pay for installing computerized thermostats in residential buildings to improve centralized heating services.

Under the agreement, residential heating prices are to be lowered 5 percent (from 10.880 to 10.332 Lithuanian cents per kilowatt-hour) from the day the French company assumes control of VST and may not be raised until 2004.

After that, prices are to be set by a mechanism based on natural gas and cold water prices, inflation and average monthly earnings in the country. Industrial clients will be able to renegotiate their contracts with VST at rates up to 20 percent lower than at present.

"We have taken on big obligations and we intend to fulfill them," said Dalkia's director for the Baltic and CIS countries Andreas Greim.

Boiling point

A Vilnius city commission named Dalkia the winner of the VST leasing tender in late October. Shortly after, claims were made that the tender involved shady dealings, while Zuokas accused some members of the small Lithuanian National Progress Party of blackmailing Dalkia. Later the prosecutor general's office cast doubt on the legality of some terms of the draft agreement.

Lithuanian President Valdas Adamkus and other national officials joined the fray before Vilnius City Council eventually approved the deal on Jan. 9.

Meanwhile, the talk of possible tender irregularities led Swedish development agency SIDA to back out of a separate project with the World Bank on providing a $30 million loan for modernizing VST.

"Because of the controversy, the World Bank did an independent evaluation of the bids and concluded that we agree with the choice of the Vilnius city commission," said World Bank representative in Lithuania Mantas Nocius.

"Once we clarify with Dalkia some technical details related to the lease agreement, and how they will finance the $13-million financing gap in the project, we can proceed with signing," Nocius told The Baltic Times.

The World Bank is to provide $17 million of the loan to VST, which the Vilnius municipality must guarantee.

Dalkia is the largest heating company in Europe, where it currently operates more then 260 district heating systems, including 48 in Central and Eastern Europe. Aside from the Vilnius deal, Dalkia has undertaken municipal heating projects in seven Lithuanian towns, with total investment commitments of 148 million litas.