Lithuania Gets Boost in Lower Gas Price Quest from European Commission

Lithuania’s talks with Russian Gazprom over a new gas supply contract just a couple weeks ago seemed to be hitting a snag as Lithuanian Prime Minister Algirdas Butkevicius admitted “a slowdown. “ But at the end of last week the negotiations received a boost from the European Commission (EC) that warned Gazprom it will take against take legal actions over anti-monopoly law breaches in Central and Eastern Europe which may cost the Russian company a staggering $20 billion.

Gazprom has announced it is willing to mull price concessions to the EU, with Alexander Medvedev, the deputy chairman of Gazprom Board of Director, telling Joaquin Almunia, the EC deputy chairman and a prominent EC member responsible for competition, Gazprom will submit a draft agreement in that regard “in the nearest days” and that it may take “ three or four months” to have the agreement signed.

Lithuanian PM Butkevicius called it “very good news for Lithuania.”

“Sure, it’s too early to rejoice, as we have to wait a bit and see how it evolves. On our behalf, we are ready to continue talks with Gazprom,” the Lithuanian Government head told Natural Gas Europe last Saturday.

Though just a couple weeks ago he had admitted the negotiations “were seeing a slowdown”, after a conversation last Thursday with a high-ranking Gazprom official, who is on Board of AB Lietuvos Dujos, Lithuania’s state gas company in which Gazprom holds a stake,  Butkevicius now feels the “talks have been renewed.”

“We agreed a cam-to-cam conversation between the Gazprom executives and me will be held this upcoming week, and we’ll certainly continue the talks. I believe Gazprom now is kind of uneasy over the EC intention to bring it to court over antitrust law infringements, and we all have to admit it. I hope the EC stance will help us Gazprom make a friendly stride towards us in setting a right price for us. It would be a sign that Gazprom is set to seek a compromise with the European Union,” the Lithuanian PM underscored.

He believes the gas price could go down by between 20 and 25 percent.

“I think this is realistic,” he said. “We all have to understand that Lithuania pays the highest price for gas in the entire Europe.”

Lithuanian now pays the EU record-high $500 for a cubic meter of Russian gas -13 percent more than Estonia, 20 percent higher than neighboring Latvia and $ 125 per 1 cubic meter of gas more than Germany.

Romas Svedas, former deputy Energy minister and a renowned energy expert, says the news from Brussels is “a good sign.”

However, he believes Gazprom fears an adverse ruling of the Stockholm Court of Arbitration most of all.

“It is very likely that the Court will rule in favor of Lithuania, setting judicial practice in the ensuing cases from other Eastern and Central European countries.  This is what Gazprom fears most,” Svedas told Natural Gas Europe.

Lithuania’s filed a 5-billion-litas ( $2 billion) suit against Gazprom relates to a massive overpayment equal to the amount for the gas supplied by Gazprom under the relevant agreements.

The dispute history dates back to the year of 2004, when under the state gas company AB Lietuvos Dujos (Lithuanian Gas) privatization agreement, Gazprom committed to supplying natural gas to Lithuania at fair prices and on the basis of the gas price formula that was provided for in the gas supply agreement concluded between AB Lietuvos Dujos and Gazprom at the time of the conclusion of the privatization agreement.

However, in what is seen as breach of the contract, Gazprom has unilaterally significantly increased the gas price for Lithuania.

Russia has said it wants Lithuania to withdraw its arbitration claim filed in Stockholm against the gas supplier, hinting that would help Lithuania secure cheaper Russian gas. However, the Baltic country has refused to do so. Gazprom also asks Lithuania to ensure gas transit to the Russian exclave of Kaliningrad and sign a long-term gas supply contract until 2020.

Moreover, the Russian company demands Lithuania to mitigate it stance in implementing the European Union’s (EU) Third Energy Package, under which Gazprom is bind to a set of unfavorable conditions, like unbundling gas supply and gas mains management.

Because of the latter, Amber Grid, a spinoff company of Lietuvos Dujos, has taken over from Gazprom control of gas mains in Lithuania.