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As noted in the official letter to the PM by Valery Golubev, the Deputy Chairman of the Management Board of GAZPROM, the Russian concern GAZPROM undertook the obligation to refrain from changing the price of heat generation under the contract for the purchase of Kaunas Power Plant of 2003, whereas later, namely from the spring of 2008, it was obliged to set prices under the formula linked to the movements of prices of oil products on the European market.

 

GAZPROM, the major shareholder of Kaunas Heat and Power Plant, kept its commitment. From 2003 to 2008 Kaunas Heat and Power Plant was producing heat without raising its price. Once the given period terminated KHPP-generated heat was subject to mandatory pricing.

 

Seven years ago GAZPROM purchased Kaunas Power Plantfrom Kauno energija, managed by Kaunas City Municipality, for more than 100 million litas.

 

It is estimated that during the period from 2003 to 2008 the Russian gas concern suffered the damage costing around 342.22 million litas due to the procedure for heat price calculation, as adjusted by the State of Lithuania, which is likely to be on the rise on an annual basis.

 

Thus, GAZPROM proposes to the Lithuanian Government to settle this dispute through peaceful means and pay to the concern the foregoing amount as a compensation of the damage suffered.

 

Moreover, the letter of the gas concern emphasises that in case the Lithuanian State continues to ignore the international obligations, undertaken under the agreement with Russia concerning investment protection, GAZPROM will be forced to refer to arbitration concerning the indemnification of damage.

 

“Objections by the Russian concern demonstrate the concern of the major KHPP shareholder with the resultant situation. Representatives of GAZPROM themselves are obliged to advise of the further actions”, stated Antanas Pranculis, the Director General of KHPP.

 

He highlighted that the recent decision of Vilnius Court of Commercial Arbitration concerning the reimbursement of 5.4 million litas from KHPP in favour of Kauno energija could lead to new mutual claims to be addressed together and by peaceful means, first of all, responding to the interests of heat consumers in Kaunas city.

 

KHPP refrains from any comments in terms of arbitration decision. This issue is to be dealt with within the context of GAZPROM’s claim against the Lithuanian Government.

 

Head of KHPP Mr Pranculis asserted that the damage had been calculated from 2003 because since then the company had suffered the loss due to a lower tariff applied for heat and no loss recovery was ensured hitherto.

 

“KHPP and Kauno energija were in agreement that the tariff would not be changed for five years and later would be calculated applying a formula. Taking into account the fact that the law was amended since 2008, GAZPROM lost a huge amount of money because of making no changes to the tariff for five years”, said Mr Pranculis.

 

According to him, losses are calculated on the basis of what the difference had been between the prices of gas, supplied by GAZPROM to the power plant, and the market prices.

 

 

Both the Prime Minister Andrius Kubilius and the Ministry of Energy refrain from giving any comments concerning the validity of GAZPROM’s claim. According to the Minister of Energy Arvydas Sekmokas, the Government is planning to reply to this claim by sending an official letter within about one month.

 

The Press Office of the Prime Minister distributed the press release stating that GAZPROM’s claim regarding the recovery of alleged losses was a legal dispute between Kauno energija and KHPP, run by GAZPROM, with the State acting as a third party.

 

Contract between Kauno energija and KHPP does not mean that the State is not entitled to regulate energy and heat price or pass certain laws”, citation of Mr Kubilius in the press release.

 

 

KHPP is continuing the implementation of a billion-worth investment project without awaiting the upshot of the dispute between the major KHPP shareholder GAZPROM and Lithuania. One of the most modern combined heat and power plants is planned to be constructed in the second largest Lithuanian city. This is the greatest investment in Kaunas.

 

The new combined heat and power plant is constructed at the expense of investors only. Power plant construction in Kaunas attracts Western commercial banks and the European pension funds, which ensure financing and transparency of mobilisation of funds. Western financial institutions agree to contribute even during the economic crisis. Credits are insured by the state German company “Euler Hermes Kreditversicherungs-AG”.

 

The Finnish company “Poyry Energy”, which consults the construction of the power plant, will take part in organising an international tender for the general contractor of the new Kaunas Power Plant and supervising the construction process. Following the evaluation of the Register of Energy News (ENR), “Poyry” is considered to be the best world consulting and design company of combined heat and power plants.

 

The new power plant is under construction because the old one is at a critical operation threshold. After five years it will not meet environmental requirements of the European Union, as well as technological standards of the Union for the Co-ordination of Transmission of Electricity of Western and Central European countries, thus, it will be brought to the shutdown. Apart from KHPP, Kaunas Power Plant investment project engages also the Western European investment pension funds that will own half of Kaunas power plant shares. Combined heat and power plant will generate both heat and electricity.

 

International contract tender will commence in the short run. In autumn it is expected to sign the power plant construction contract. Furthermore, a detailed feasibility study for the selection of conception of the technical design was conducted, environmental impact assessment report was prepared and approved, the permit for the development of capacity was obtained from the Ministry of Economy, the study of the cable power connection selection was conducted, which is meant for energy connection with the national distribution network, as well as project financing was ensured and guarantees were obtained. It shall be stressed that GAZPROM is ready to ensure steady gas supply to the power plant for 20 years.

 

The new Kaunas Power Plant will come into operation in the spring of 2013. Electricity, produced in this plant, would definitely lead to cheaper heat for Kaunas inhabitants. Technology of combined cycle gas turbines is highly valued all over the world due to their low environmental pollution level and high energy generation efficiency. A number of such kind of power plants has been constructed not only in the Western Europe but also in the neighbouring Sweden and Latvia. The first power plant of such type has already been built in Lithuania, namely Panevėžys.

 

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