Gazprom hitting roadblocks in Lithuania

The sale of a 34 percent stake in Lietuvos Dujos (Lithuanian Gas) has failed once again due to disagreements between Lithuanian and Russian officials over price and conditions of future delivery of natural gas to the Baltic country.

According to a bid it made in early March, Gazprom, Russia's natural-gas monopoly and the only potential bidder for the stake, was prepared to pay 80 million litas (23.2 million euros), about 36 million litas less that the Economy Ministry was expecting to pocket from the deal.

However, Deputy Economy Minster Nerijus Eidukevicius said the discrepancy in price was not the only reason the government had chosen to continue negotiations with Gazprom. The price and quantity of natural gas the Russian company will export to Lithuania have also proven to be thorny issues.

"There were many aspects of the offer that were unclear. We have asked Gazprom to clarify their offer, and when we receive it we'll examine it and determine how to proceed in the best interest of both sides," said Eidukevicius.

The government asked Gazprom on May 2 for unspecified adjustments in its offer and set a May 23 deadline for a response, arguing that the upcoming Russian holidays would inevitably delay the process.

"A letter has been received, and Gazprom will respond to the government's requests once it has had a chance to study this letter," said Ricardas Jarmulavicius, press secretary for the gas importer Dujotekana, which represents Gazprom's interests in Lithuania.

Nonetheless, the Economy Ministry was less than enthusiastic about the lack of selection it faces in its search for a strategic partner for Lithuanian Gas.

"As of yet, there is no alternative to Gazprom for the public tender. The ministry most likely would have been in a better position to negotiate if there had been other bidders in the process," admitted Eidukevicius.

Lithuanian Gas is currently 58.4 percent state-owned, with an additional 35.5 percent owned by a consortium led by the German gas suppliers Ruhrgas and E.ON Energie.

The German group paid an initial 116 million litas in 2001 for its stake, with guarantees to invest an additional 34 million litas if the government follows through on conditions of their agreement.

Gazprom's planned takeover of the central heating system in Kaunas has also run into obstacles.

According to a deal struck on Oct. 31 last year between Gazprom and Kauno Energija (Kaunas Energy), the municipally-controlled utilities authority, the gas supplier was supposed to assume control of the city's main heating plant on May 1.

However, even though Kaunas Energy has already received the agreed-upon 116 million litas for the Kauno Elektrine (Kaunas Electricity) plant, which provides heat for the majority of the region's buildings, Gazprom has yet to take control.

"Negotiations are continuing about certain technical aspects of the plant's operation," said Ramunas Garbaravicius, chairman of Kaunas Energy's board.

According to Garbaravicius, the two parties are currently discussing a permanent agreement on the specifics of the operation of the plant that either party could negate after a four-month trial period.

"We are negotiating the period of time that Kaunas Electricity will retain direct control of the plant, but there is no reason to believe that an agreement won't be reached very soon," assured Jarmulavicius.

The conditions of the agreement will give Gazprom a 51 percent controlling stake in Kaunas Electricity and will make it responsible for the supply of natural gas to the plant.

Other consortium partners include the American firm Clement Power Venture and Dujotekana, which will hold 25 and 24 percent, respectively.

Regardless of promises for a quick resolution to the outstanding disagreements, completion of the takeover has been significantly delayed due to quibbles between the two parties earlier this year, causing the entire privatization process to drag on for over a year.

"Gazprom has a long-term strategy for Lithuania, which it considers a serious prospective market," said Jarmulavicius.

"We don't consider our partnership with Lithuanian Gas to be the last such joint effort we'll have with a Lithuanian energy company. Our comprehensive strategy will be revealed over time," he said.