Lietuvos Dujos ­ Gazprom saga winding down

  • 2003-09-04
  • Steven Paulikas
VILNIUS - The drawn out government sell-off of Lietuvos Dujos (Lithuanian Gas) is on
the verge of completion, with Russian gas giant and sole bidder Gazprom
poised to finally acquire the noncontrolling stake on offer.
The breakthrough in negotiations was announced on Aug. 29 by the French bank
BNP Paribas, which has worked as the government's consultant during the
privatization process.
The public tender offer encountered controversy this spring when Gazprom,
the only applicant that managed to fulfill the government's rigid criteria
for bidders, submitted an offer of 80 million litas (23.1 million euros), a
sum only two-thirds that of the privatization committee's original asking
price, for a 34 percent stake in Lietuvos Dujos.
After a period of heated negotiations, Paribas declared that Gazprom's
revised bid of 91 million litas contained no inherent roadblocks to a
finalization of the deal, although details were still to be hammered out on
specific issues related to regulation of the domestic market.
"It would have been better had we gotten 100 percent of what we wanted, but
put into context I think we can say that the deal is entirely not that bad,"
said Antanas Malikenas, director of privatization at the State Property
Fund, the body charged with administering state-held assets.
"Of course, I'll be happiest when it is all settled, but this process is
clearly reaching its end," Malikenas said.
One of the points of contention between the two parties was the government's
requirement that Gazprom import most of the gas sold by Lietuvos Dujos while
refusing to lift price caps.
It now appears that the government will agree to lift certain caps while
significantly revising its definition of large consumers who purchase gas in
a more lucrative unregulated market to include a much larger proportion of
Lietuvos Dujos' customers.
In exchange, the government would receive a 9 million litas bonus from
Gazprom at the beginning of 2004.
Currently, only customers who consume more than 15 million cubic meters of
natural gas per year make their purchases in the unregulated market. If the
deal is agreed to by state regulators this level would be revised down to 1
million cubic meters, a possible boon for Lietuvos Dujos.
In 2002, almost none of Lietuvos Dujos' sales were conducted with clients
using more than 15 million cubic meters of gas per year. By the first half
of 2003 only three of its customers, constituting 11 percent of its total
sales, had consumption levels above the government-mandated threshold for
unregulated pricing.
Joachim Hockertz, commercial director for Lietuvos Dujos, said that while
his company hypothetically stood to enjoy higher profits from having more
customers who paid unregulated prices if the limit was lowered, the
structure of gas supply in Lithuania would not change overnight.
"We are one of the most transparent companies in Lithuania when it comes to
pricing. Both regulators and customers are very aware of our pricing system.
And if there is a change in the rules, say, at the end of the year, you
can't renegotiate with 90 customers overnight," he said.
Hockertz also pointed out that residential customers who used gas primarily
for heating and cooking would see little difference in prices, regardless of
the outcome of privatization.
Other observers have taken issue with the State Property Fund's
administration of the tender offer for resulting in only one bidder, giving
Gazprom the upper hand in negotiations.
"The State Property Fund's requirements meant that, in reality, the only
viable bidder would be Gazprom," said Remigijus Simasius of the Lithuanian
Free Market Institute.
"Because of these restrictions, it's impossible to say that market forces
determined the price the government received for its tender offer," he said.
In terms of Lithuania's larger national energy strategy, Simasius claimed
that the government's piecemeal deregulation of disparate bodies was an
ineffective means to maximum economic efficiency.
"The government treats the combined gas, electric and heating industries as
a natural monopoly, but the more closely you look at it and see the
potential for competition between these industries, the less it seems like a
natural monopoly," said the analyst.
The State Property Fund hopes to conclude the remaining formalities of its
contract with Gazprom by the end of the year.
Lietuvos Dujos is currently 34 percent controlled by a consortium consisting
of the German companies Ruhrgas and E.ON, which paid 116 million litas for
their portion of the company in 2002. The government plans to retain control
of a 24 percent stake, with individual shareholders holding the remaining