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Last Friday Igor Sechin, the Deputy Prime Minister of the Russian Government, responsible for the energy sector, and the Chairman of the Council of Directors of “Inter RAO JES”, announced to the journalists that Russia “feels worries” because of the transit of electric energy, generated in non-sanctioned third countries, through the Russian powerlines in Belarus”.

 

Kaunas is becoming the first battlefield for the Russian energy specialists in Lithuania; the city mayor is searching for pieces of advice at the Government on how should be behaved but he is not receiving any official directions.

Should the today’s meeting of Kaunas City Council continue in this way, as planned, Rimandas Stonys, the Head of AB Kauno elektrinė will be the last but one to provide information on the construction of the new power plant. Members of the Municipality Council have included the consideration of the project on the 48^th line of the meeting agenda.

The plan of the modern combined heat and power plant in the capacity of 350 MW was presented to Kaunas City Council by the representatives of AB Kauno elektrinė a year ago. Mr Stonys states that up to the present moment AB Kauno elektrinė has received all the required permits, has security of intentions of foreign banks to finance the investment of 1 billion litas, has agreed with the future shareholder (it is planned that 51 % will be held by the Russian gas concern GAZPROM and the remaining part by the European Union Investment Fund, which has been unidentified so far), is about to complete negotiations with insurers, as well as has already selected its technical supervisor, namely the Finnish company “PoyryEnergy Oy”. Having bought Kaunas Heat and Power Plant in 2002, GAZPROM paid to AB Kauno energija 116.5 million litas and undertook the obligation to invest other 400 million litas into this purchase. Meanwhile, GAZPROM announced its plans to equip not fewer than six new gas turbines at the power plant and increase the capacity of the plant from 180 to 640 megawatts. “We had considered almost 16 options for modernisation and every time we came to the conclusions that renewal of the technological equipment of Soviet construction may lead to the reduction of pollution, but higher cost-efficient performance would not be ensured”, said Mr Stonys. That seems to have induced an idea for the construction of a completely new power plant.

Mr Stonys wonders: “The more project, planned in the National Energy Strategy, is developed, the more stormy discussions are likely to arise even though its benefit to Kaunas city, which has no other secured heat supplier, is obvious”. Currently, the power plant, acquired by GAZPROM, supplies 96 % of heat, required by the city, whereas under the contract with AB “Kauno energija” it undertook to purchase 80 % of heating steam, generated at the power plant. “In case we construct a new combined heat and power plant, the dynamics of heat prices to city consumers would be inversely proportional to the quantity of our sold electric power”, states Mr Stonys.

 

 

Interviewed by Verslo žinios, Kaunas Mayor Andrius Kupčinskas firstly emphasises that in 2002, as an ordinary member of city Council, he voted against the sale of the heat and power plant to GAZPROM. Same happens today, as he is unable to name this transaction as a perfect one: GAZPROM and partners fail to execute the investment programme for the renewal of the power plant, therefore, in the short run Kaunas Government is firmly determined to recover 17 million litas of penalty at the commercial arbitration. Mr Kupčinskas said to have understood the logics of current owners of the power plant, namely to not waste funds on the renewal of the outdated equipment: “However, the liability to modernise it has been recorded in the contract.”

“The problem, in my opinion, lies in the fact that after the shutdown of Ignalina Nuclear Power Plant GAZPROM and its partners in Lithuania gave birth to an idea to assay their power in the electric energy market and sell the heat surplus of the cogeneration cycle to Kaunas city”, contemplates Mr Kupčinskas. The Mayor agrees that consumers would be probably likely to be successful, but reminds that GAZPROM, when purchasing the power plant, signed the contract with Kaunas city and any obligations therein must be performed: “Kaunas city participates neither in the electricity business nor geopolitical games.”

Kaunas Mayor affirmed to have applied to the Government; last time it happened during its circuit meeting in Kaunas, where he asked for clear definition of the attitude of national authorities towards the project of the new power plant in Kaunas. However, confronted by the Ministry of Energy, the mentioned issue was not placed on the meeting agenda. Mr Kupčinskas said to have heard only a clear position of the President Dalia Grybauskaitė that a new natural gas-fired power plant was not necessary to Kaunas: “We are also discussing what energy sources we could combine for our needs additionally.”

Verslo žiniosdid not hear a clear yes or no either at the Ministry of Energy or the Government in terms of the idea for the construction of a new power plant in Kaunas. Only during one private conversation one member of the Presidential team specified that the public attitude of the Head of the State towards the construction of a new power plant in Kaunas did not imply any artificial political hindrances: “There are no prohibitions if business sees the chances for the construction of a power plant and sale of generated energy under market conditions.” However, according to the interlocutor, it does not mean that investors may expect exceptional buying-ups outpacing the power exchange market, which would start on 1 January 2010, all the more so that due to the increasing renovation of blocks of flats in Lithuania it is expected that the heat demand would go down.

 

 

Mr Stonys regrets that the company is drawing up business plans without any guarantees from the Government of Kaunas city authorities. “Our highest risk is UAB “Inter RAO Lietuva”, representatives of which have the possibility to purchase at low prices in the internal market of Russia and sell in Lithuania”, says Mr Stonys. He admits that in general it is “the battle for a part of electricity market”. Mr Stonys says that due to aggressive expansion of “Inter RAO” there will be no other participants left in the electric energy market of Lithuania except only for Elektrėnai and “Inter RAO Lietuva”. Today Kaunas Heat and Power Plant offers electricity for producer’s price (15 cents) but, according to Mr Stonys, state orders reach only 30-40 % of capacities. “It is an open secret that “UAB Inter RAO Lietuva” offers 13.5 cents (by local producer), but without receiving quotas of purchased energy of the state there may be no possibilities in the market”, says Mr Stonys.

Jonas Garbaravičius, the Member of Board of UAB “Inter RAO Lietuva”, welcomes the “finally taken” political decision in Lithuania to purchase a third of electric energy and sell it without any restrictions. However, he says he would like that there were “less politics and more energy issues” in the energy market”. He criticises trading electricity quotas, established by the order of the Minister of Energy, which were received also by foreign energy producers. According to Mr Garbaravičius, it would not be bad if politicians created quota system according to more transparent principles.

“On the other hand, increase in the output of Elektrėnai Power Plant (AB Lietuvos elektrinė) by means of administrative measures the greatest benefit is received by natural gas suppliers”, says Mr Garbaravičius. He rejects any “speculations of opponents as regards the pricing by “Inter RAO Lietuva: “I am not able to comment on complex managerial mechanisms but I could say that trade of electric power is not solely customer billing.”

Representative of UAB “Inter RAO Lietuva” is positive about the project of GAZPROM and its partners to construct a new power plant in Kaunas. Nevertheless, in the opinion of Mr Garbaravičius, participation of GAZPROM in this market may bring certain advantages to some participants: “Should GAZPROM be willing that the new power plant in Kaunas operated successfully, they may supply gas there for a special price, but in case they choose another point of interest, namely that higher quantity of gas is combusted at Elektrėnai plant, the new Kaunas power plant would not be competitive: there may be neither technological miracles nor favourable assumptions for export.”

Rimandas Stonys, the Head of UAB Kauno elektrinė, states that electricity generation is not the profile business to GAZPROM, thus, following the currently signed contract, the new power plant in Kaunas would get natural gas for the similar price like the buyers from the other EU Member States. “As far as export and import conditions are concerned, we would like to hear the attitude of the Government: why “Inter RAO Lietuva”, which supplies electricity from Russia, pays lower import taxes than we, willing to export our generated energy to Latvia”, asks Mr Stonys.

 

 

Jonas Garbaravičius, the Member of the Board of “Inter RAO Lietuva”, expresses his hope that if politicians restrain from interfering into the electricity trading process the market itself will quickly reveal its leaders: “Pricing based on political principles is likely to be short-term.” “In his opinion, administrative attempts to restrict the alleged dependence on Russia is only a “political bugbear”, which impedes business, thus, he recommends asking the Georgians, who suffer almost from the state of hostilities from Russia, whether they get any inconveniences due to the fact that their energy company belongs to “Inter RAO JES”.

Nevertheless, on the 7^th of December during the absentee shareholders’ meeting of “Inter RAO JES”, held in Moscow, where the issue of electric energy distribution to subordinate company “Inter RAO Lietuva” was considered, an explanatory memorandum was produced (http:// www.interrao.ru/_upload/edi-tor_files/file0628.pdf), where it was noted that the contract had to “reinforce strategic Russia’s influence in the Baltic region”. Moreover, shareholders were notified that energy distribution to the sole operator UAB Energijos realizacijos centras (editor’s comment: former name “Inter RAO Lietuva”) had to ensure reliable supply of electric energy to Kaliningrad oblast”, as well as depreciate assumptions regarding the withdrawal of the Baltic States and the Ukraine from the common energy system. Being asked to comment the motives given to the shareholders of “Inter RAO JES”, Mr Garbaravičius said to Verslo žinios that “in that “Inter RAO JES”, which I know since 2000, I have not felt the influence of such matters”.

From the lips of Russian politicians it was known that the point of “energy diplomacy” doctrine of this country is the gas monopolist GAZPROM. Last Friday Igor Sechin, the Deputy Prime Minister of the Russian Government, responsible for the energy sector, and the Chairman of the Council of Directors of “Inter RAO JES”, announced to the journalists that Russia “feels worries” because of the transit of electric energy, generated in non-sanctioned third countries, through the Russian powerlines in Belarus”. To the Russian Agency ITAR-TASS he stressed that Belarus “should keep to technological safety rules and should not undermine energy supply to Russian and Belarusian customers”. Taking into account the comments online, this statement of Mr Sechin demonstrates pother of the Russian government, whereas “third countries” appear to be Lithuania and Ukraine, the companies of which agreed at the beginning of November on the supply of electric energy without mediation of Russia.

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