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A crucial step towards Lithuania‘s energy independence? 10 May 2012
Text: Ray Vysniauskas

The Lithuanian government issued a press release on the signing of an energy agreement recently. This can best be seen as an attempt to quell any doubts among potential partners that may arise in the medium term future with general elections due in October, and polls showing that the current government has little chance of being re-elected.

Seimas
Photo: BFL/Tomas Lukšys

These passages show Lithuania’s great desire to free itself from the shackles of Russian energy, though there remain a number of questions glossed over in these paragraphs.

I remember writing about an electricity bridge linking Lithuania with Western Europe over six years ago, and the weak link in that chain has always been Poland. We were in the position of selling excess electricity into Western Europe while Ignalina was still operating, but that did not eventuate primarily because of the lack of Polish support for the project.

It has recently been announced that Poland is also looking to build a nuclear power plant, and to build more traditional generators to further exploit its coal resources, so their commitment to linking Lithuania with Western Europe is at best questionable.

And don’t forget that with Kaliningrad and Belarus also planning nuclear power stations and demand in the area might push prices well below budgeted levels with four nuclear power stations within a 400 kilometre mile radius.

And this is without even starting on the merits of nuclear at a time when other nations are ending or at least questioning their commitment to nuclear energy – including Japan.

The cost of electricity generated at the new nuclear plant is also not totally clear. The initial cost per KWh has been widely questioned by many, and inflationary, economic and demand levels in the decade before the plant is completed create further uncertainty.

With the LNG terminal we are effectively hedging our bets against a Russian monopoly of supply. That is one strategy, while another might be to work harder on breaking the need for a fence between us, instead of building one ever larger.

Here is the press release issued by the Lithuanian government. I usually go through and edit them so they are more easily read or even understandable, but for this one I’ll leave it as it emerged from the press office:

A crucial step towards Lithuania‘s energy independence

2012/05/09

Today, the Cabinet led by Prime Minister Andrius Kubilius has approved a huge legislative package regulating the implementation of strategic energy projects. This means that Lithuania is ready to implement the energy independence strategy, which ensures security, economic benefits and integration into Europe.

The Cabinet has approved a draft Visaginas Nuclear Power Plant (NPP) concession agreement, draft laws on liquefied natural gas terminal (LNG), and power grid synchronization with the continental European network.

“The Visaginas NPP, the LNG terminal and the power grid synchronization with European network serve as major steps made by the current Government towards securing Lithuania`s energy independence. These projects are economically beneficial for Lithuania and its people, and they also guarantee energy security and greater integration into Europe, “– said Prime Minister Andrius Kubilius.

The Government has endorsed the draft concession agreement and the related legislation, following a detailed assessment of the economic aspects of the project benefits for the country and the entire region. The new nuclear power plant will ensure generation of cheap electricity for domestic consumption as well as for export at competitive price, thus, as a result, benefiting all the people of Lithuania.

Minister of Economy Rimantas Žylius has noted that the Visaginas NPP project is a profitable investment decision, as it will generate substantial returns on investment and will significantly contribute to Lithuania`s gross domestic product. “The Visaginas NPP project is the biggest ever investment in Lithuania, amounting to LTL 17.3 billion, including LTL 10-14 billion in foreign direct investment,” – said the Minister of Economy.

According to the Minister of Economy, in the construction phase, the Visaginas NPP project may translate into contracts for local businesses worth LTL 5 billion, and it is also expected to generate six thousand new jobs. The Minister has added that the launch of the Visaginas NPP will annually add to the overall Lithuania`s economic pie at least LTL 700 million, which accounts for 0.7% GDP on annual basis. Lithuania`s own share of funds in the project will amount to LTL 2.6 billion. The project will yield about 10%, which means that the state can expect an average LTL 256 million in dividends each year.

“The project will undoubtedly have a positive impact on gross domestic product, employment and tax revenues”, – pointed out Rimantas Žylius. According to the Minister of Economy, the investment will contribute to Lithuania`s GDP with about LTL 27-35 billion, and bring LTL 5-6 billion worth revenues to the state budget. Over 60 years in operation, at current prices, the dividends paid to the State by the Visaginas NPP would amount to LTL 38 billion.

The funds required for the nuclear power plant will not be concentrated from the Lithuanian state budget, thus it will not turn into a public debt, instead, the financial resources will be borrowed and recruited by the company itself. The largest share of funds (60-70 per cent) is expected to be borrowed by the company from Japanese international banks, the rest will be covered from the profits earned by the company, as well as by way of internal redistribution of public service obligation (PSO) tax, without raising the final consumer price of electricity.

In her assessment of the Visaginas NPP project Minister of Finance Ingrida Šimonytė has noted that the success of the project depends on several circumstances which, at the time being, can be given only preliminary consideration. However, the complete implementation of the project will also depend on the political will to adhere to stringent fiscal discipline. In such case financial obligations related to the construction stage could be implemented without creating risks to tax payers.

“The Visaginas Nuclear Power Plant project will be the greatest investment since the restoration of the independence, which should provide us not only with energy independence but also a return in investment. To this end, the incumbent and the future governments should carry out a responsible fiscal policy to prevent risks to the level of the state debt”, – said Ingrida Šimonytė, Minister of Finance.

The Government has pointed out that the Visaginas NPP is an integral precondition necessary for the Baltic states to be connected to the European power grid and operate in a synchronised mode. Taking the above into consideration, the Government, has approved a draft law on power grid synchronization with the continental European network. As a result of synchronised power networks, our country will be able to manage its own power system and power flows, while the Lithuanian power energy infrastructure, power market and system management will be integrated into the power systems of Western Europe.

“The national energy independence can only be achieved through full integration into the European infrastructure and systems. In order to achieve that, it is vital to complete and develop the projects of electricity links with Poland and Sweden, become members of the electricity market of the Baltic states as well as of the common European electricity market, and to implement projects of alternative supply of gas and effectic gas market”, – stated Arvydas Sekmokas, Minister of Energy.

Today, a draft law on liquified natural gas (LNG) has also been approved. The terminal will ensure safe and reliable supply of natural gas to the country, and create possibilities for the competition in the natural gas market. Upon the implementation of the project in 2014, Lithuania will no longer be dependent on the sole external supplier of natural gas. Moreover, a competition stimulated by the compulsory requirement of 25 % of the obtained amount of liquified natural gas, applied to natural gas enterprises, will bring down prices of natural gas, while the price regulation established by law will prevent from the unreasonably high prices.

From this date, the complete package of laws regarding the Visaginas NPP, the draft concession agreement and the business plan are public documents.

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