Lithuanian Governament’s deal with E.ON could give boost to talks with Gazprom

Lithuanian Governament’s deal with E.ON could give boost to talks with Gazprom

With the West imposing sanctions on Russia amid the Crimea crisis, the Lithuanian government’s negotiations with Gazprom on gas prices and other supply terms have stalled again, but experts interviewed by BNS underlined the importance of the talks for both sides and some of them said that a deal with Germany’s E.ON to buy its stakes in Amber Grid and Lietuvos Dujos (Lithuanian Gas) would give a fresh impetus to the talks with the Russian gas monopoly.


Arvydas Sekmokas, a former energy minister, believes that if E.ON, which is currently the largest single shareholder of Amber Grid, sold its stake in the gas transmission company to the government, the talks with Gazprom could continue. He thinks that Lithuania must take back control of its gas pipelines.


“I think this is an opportunity that should be seized. Lithuania must take control of the energy infrastructure into its hands. It was the control of the gas transmission pipelines by E.ON and Gazprom that posed huge problems. Each state must control that infrastructure,” the former minister told BNS on Friday.


“As far as I know, talks with E.ON on the acquisition of the shares are underway. I have been informed by sufficiently reliable sources that this is ongoing and that there is an offer. It is, perhaps, worth considering. This is the first step toward further talks with Gazprom,” he said.


Sekmokas said that talks with Gazprom must continue, even in the context of the events in Ukraine.


“The overall background of the talks is rather complicated, as are all negotiating issues. I do not know if these issues will be resolved this year, but certain issues will certainly be negotiated. It would be a mistake not to talk, even in the Ukrainian context. The talks have been very unbalanced so far. The prime minister has focused his sight — regarding gas supply and prices — to the East, which is a big mistake,” he said.


Vidmantas Jankauskas, deputy director general of the Lithuanian Confederation of Industrialists and a former chairman of the country’s energy market regulatory authority, said that there is some information coming from the West that Gazprom will possibly try to negotiate anew and might even offer price discounts.


“In my opinion, we must negotiate with the supplier and there is more than one reason why we have failed to reach agreement. In the light of the Ukrainian tensions, it appears that it will be even more difficult to reach one, but information is coming from the West that Gazprom will possibly try to negotiate anew and that it is not as scary as some think it is,” he said.


On the other hand, Sekmokas said that Gazprom itself is interested in negotiations, at least over the terms of gas transit to the Russian exclave of Kaliningrad.


“Gazprom is really interested in negotiations in order to define the terms of gas transit to Kaliningrad. The security of Kaliningrad is very important to Russia and it is being enhanced. Lithuania is also interested in resolving this issue so as to leave no room for manipulation,” he said.


The former energy minister said that in 2015, when the current gas supply contract with Gazprom expires and when Lithuania’s liquefied natural gas (LNG) terminal is expected to be operational, it will be important for the country to have two gas supply alternatives: by pipeline and via the LNG terminal.


“For these reasons, talks must take place, not to mention the fact that Lithuania has initiated an arbitration process for being overcharged and that the European Commission’s probe is underway,” he said.


Evelina Butkute-Lazdauskiene, the prime minister’s spokeswoman, told BNS that negotiations with Gazprom on lower gas prices continue at experts’ level.


There have been no official comments on talks with E.ON, but with Epso-G set to raise around 380 million litas (EUR 110 mln) in loans and dividends, market participants believe that the Energy Ministry-controlled holding company is preparing to buy out the shares in Amber Grid.


It is likely that the Finance Ministry-controlled Lietuvos Energija (Lithuanian Energy), which is set to receive nearly 240 million litas as dividends from its subsidiaries this year, is preparing for a similar deal in Lietuvos Dujos (Lithuanian Gas).


Reportedly, the government has proposed that Gazprom and E.ON sell or otherwise dispose of their stakes in Amber Grid, which was spun off from Lietuvos Dujos last summer. Unofficial sources have said that Gazprom agrees to stay in Amber Grid as a purely financial investor and that talks with E.ON are ongoing.


The ownership structure of Amber Grid has to change by Oct. 31, 2014 to bring it into line with the EU’s Third Energy Package.


Gazprom owns 37.1 percent of shares in each Amber Grid and Lietuvos Dujos, and E.ON holds 38.9 percent stakes.






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