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Update No: 256 - (23/04/02)

The Lithuanians are delighted at the way things are going for them, with EU and NATO membership decidedly on the cards. At first only Estonia and Latvia were to join the EU in the next wave, but now Lithuania is too, having secured some successful results recently. NATO entry is now just a matter of time.

Russian themes 
Russian objections are being lifted. Relations with Russia remain a top priority and Putin has been invited to Vilnius. Premier Kasyanov was in town recently to talk to his Lithuanian counterpart, the former president and veteran leader, Algirdas Brazauskas. Relations with Russia's enclave, Kaliningrad, were high on the agenda. The Lithuanians agreed to participate in environmental and other projects there.
What would really mollify the Russians and reconcile them to Lithuania's turning to the West, is if Yukos was allowed to have a role in oil privatisation and Gazprom in that of gas. The Lithuanians can see advantages in that so that they could close down all their nuclear power plants at Ignalina. The Russians comprise only 11% of the population, enabling Lithuania and Russia to have the most relaxed relationship of the three Baltic states.

Western pull
With good relations with Poland next door and EU and NATO entry looming, Lithuania is coming back into the Western fold. A long awaited and desired eventuality.

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DEFENCE INDUSTRY

Harris to supply Falcon radios to defence ministry

Harris has been awarded a US$13.2m contract by the Lithuanian Ministry of Defence to supply high frequency (HF) and very high frequency (VHF) radios from its Falcon II family of tactical radios. Harris will provide Lithuania's Army with RF-5800H and RF-5800V radio systems, which can be configured for vehicular, man-portable, and base stations, providing secure, reliable voice and data communications for a variety of mission situations. Deliveries are expected to be completed by June 2003. 
This order continues the modernisation of the Lithuanian Army's communications systems and significantly bolsters its interoperability with NATO. This project will include assembly and final test of the RF-5800V radio at Elsis in Kaunas, Lithuania. The Elsis facility already works with Harris to provide in-country Level-III maintenance for RF-5800V radios for the Lithuanian Army, and is key to the Lithuanian Army's operational readiness posture.

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ENERGY

Statoil takes over Shell's gas stations

International energy concern Statoil has entered an agreement with Shell Europe Oil products to take over all of Shell's filling stations in the Baltic countries, LETA News Agency quoted the Director of the marketing department at Latvija Statoil Ltd, Dace Lodzina, as saying. According to Latvija Statoil, the final agreement will be signed after receiving approval from governmental authorities. 
The deal concerns only the filling stations' network. Shell will continue the sale of motor oil and lubricants in three countries. The offer to buy the network will facilitate an essential increase in Statoil market share within the Baltic states, Latvija Statoil said in a statement. The cost of the deal is confidential. The acquisition covers a total of 61 stations, 26 in Estonia, 19 in Latvia and 16 in Lithuania. 
The Norwegian company has around 1,000 employees in the three countries. Statoil is the largest distributor of fuel in the Baltic market, and will operate a total of 150 stations after the acquisition from Shell, NRK reported. In Latvia Statoil has 32 full service stations, two automated filling stations and an oil terminal in Riga, LETA reported. Statoil employs about 400 people in Latvia, 350 of them at the filling stations. Last year Latvija Statoil was the third largest excise taxpayer in Latvia. Statoil investments in Latvia total US$55m.

Lithuanian, Russian companies sign electricity export contract

The Lithuanian electricity transmission company, Lietuvos Energija (Lithuanian Energy), on 29th March signed an agreement with the Russian energy giant, Inter RAO UES [United Energy Systems of Russia], on the long-term electricity exports, BNS News Agency has reported.
Under the agreement, the Russian company will export Lithuanian electricity to Russia's Kaliningrad Region and Belarus. It also envisages the possibility of exports to Poland and Ukraine.
"The agreement will provide scope for using the full capacity of the Ignalina nuclear power plant until late 2004," Lietuvos Energija said in a statement. Lithuania is planning to close Ignalina's first power unit by 2004.
Reportedly, Lietuvos Energija expects to raise the price of exported electricity by 10 per cent in the spring of this year and start electricity exports to Poland and Ukraine.
Inter RAO UES pays 4.4 Lithuanian centas per kWh for electricity exports to Belarus and 4 centas for exports to Kaliningrad Region. The agreements between Lietuvos Energija and Inter RAO UES on exports to Belarus and Kaliningrad region will expire on 1st June and 1st September respectively.
It is expected that the Russian company will purchase 5.7bn kWh of electricity this year and 6.9bn kWh in 2003.
Lithuanian electricity is currently exported to Latvia, Estonia, Kaliningrad Region and Belarus.

Williams and YUKOS Initial Agreements on Mazeikiu Nafta 

The international unit of Williams and YUKOS Oil Company initialled contracts and agreements concerning the participation of a wholly-owned YUKOS subsidiary in the equity of the Lithuanian company, Mazeikiu Nafta, and a long-term supply agreement pursuant to which Yukos will supply crude oil to the Mazeikiu Nafta refinery. These documents were presented to the Lithuanian government for review and ultimate approval. 
According to Randy Majors, managing director of the international unit of Williams, "Over the past three months, negotiators from Williams and YUKOS have spent considerable time and energy in resolving a number of issues regarding the closing of this transaction. Today, Williams is convinced that a mutually beneficial resolution has been reached, in keeping with the original principles of the Agreement of Cooperation signed by the companies in June of last year. Now that the contracts between YUKOS and Williams have been finalized and initialled, we hope the Lithuanian government will quickly review and approve them so we can close the transaction as soon as possible." "Representatives from YUKOS and Williams have worked diligently to reach agreement in the best interest of all the parties and Mazeikiu Nafta," said Bruce Misamore, Chief Financial Officer of YUKOS. "We look forward to beginning our work together in Lithuania as soon as the Lithuanian government has the opportunity to approve the final contracts, and resolve problems associated with a constitutional court ruling, which brought into uncertainty the Government's ability to honour its obligations to Mazeikiu Nafta under the 1999 agreements."

Lithuania's Klaipeda oil terminal completes reconstruction

Lithuania's Klaipedos Nafta (Klaipeda Oil), operator of the Klaipeda-based oil product terminal, has finished the terminal's reconstruction, which lasted for seven years, BNS News Agency has reported.
Investments into the reconstruction reached 519.8m litas (150.666m euros). The Klaipeda terminal has an annual capacity of 7.1m tonnes of oil and is one of the most modern terminals in Europe, Ramune Visockyte, a spokeswoman for Klaipedos Nafta, told BNS.
The terminal handled about 1.8m tons of oil products this year. In March alone, the terminal handled a total of 790,000 tons of oil products, the largest amount in its history.
Visockyte attributed record high volumes of handling operations to good oil product prices and a great demand for fuel oil. Last year, Klaipedos Nafta handled 5.1m tonnes of oil products and posted an audited loss of 16.4m litas.

German consortium wins tender in Lithuanian gas utility selloff

A consortium formed by the German energy giants E.ON Energie and Ruhrgas has been named the winner in a tender for the privatisation of a 34 per cent stake in the natural gas utility Lietuvos Dujos (Lithuanian Gas), BNS News Agency has reported.
The tender commission made this decision on 3rd April after analysing the final bid submitted by the consortium, the State Property Fund said.
An agreement on the sale of the 34 per cent stake in Lietuvos Dujos as well as a shareholder agreement will be signed as soon as the government approves the draft agreements. Nerijus Eidukevicius, deputy economics minister and chairman of the tender commission, told BNS that if the government makes a decision in April, the agreements may be signed in early May... 
Eidukevicius said the price of the stake in Lietuvos Dujos will be announced only after the signing of the agreements...
Once the strategic stake is sold, a second tender is to be announced to sell another 34 per cent of shares to a Russian natural gas supplier... 
The government, which currently owns 92.36 per cent of Lietuvos Dujos, will retain a 24 per cent stake, which may be sold through the stock exchange later.

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FINANCIAL NEWS

Foreign investment in Lithuania up 14 per cent in 2001

Foreign direct investments (FDI) in Lithuania grew by 14.2 per cent over 2001 and totalled 10.662bn litas as of 1 January 2002, BNS News Agency has reported.
FDI per capita amounted to 3,062 litas, the Statistics Department announced on 29th March. As of early 2001, total FDI in Lithuania came to 9.337bn litas.
According to the statement, the largest amount of investments last year came from Denmark (1.983bn litas or 18.6 per cent of the total amount), Sweden (1.721bn litas or 16.1 per cent), Estonia (1.072bn litas or 10 per cent), Germany (984.5m litas or 9.2 per cent) and the United States (882.6m litas or 8.3 per cent).
FDI from Estonia and Germany saw the greatest growth (80 and 43 per cent respectively) over 2001.
The largest portion of investments were channelled into the manufacturing industry (25.6 per cent), trade (20.4 per cent), financial intermediaries (19.9 per cent) and communications services (14.7 per cent).

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FOREIGN LOANS

EBRD issues new strategy for Lithuania

As part of a new strategy published on 19th March on its website, www.ebrd.com, the EBRD will concentrate its future activities in Lithuania in sectors such as energy, rail, municipal infrastructure and financial services that can best promote growth and help the country's accession into the European Union said a press release from EBRD.
The strategy acknowledges that Lithuania has made substantial reforms in its continuing embrace of a market economy, including price and trade liberalisation, enterprise privatisation and financial sector reform.
The EBRD will help Lithuania prepare for EU accession by investing in more infrastructure and environmental projects, supporting large-scale enterprises, continuing to support the development of the financial escort, and continuing to help develop small and medium sized businesses. The bank aims to attract additional foreign investment, which is critical to ensure future dynamic growth.
In particular, the EBRD will try to attract more private-sector investment to support the restructuring of the country's infrastructure including the energy sector. To this end the Bank is presently working with the Ministry of Economy to help reform Lithuania's concession law to bring it into line with best international practice and EC requirements. The Bank will continue to support the rail sector, where late last year it provided US$54m to Lieetuvos Gelezinkeliai, the state rail company, to help finance the rehabilitation of 155 kilometres of track.
The EBRD will also work to develop municipalities across Lithuania. In mid-2001, a second €14.7m loan to the city of Kaunas helped support a water and waste-water programme, bringing clean drinking water to the local people. The Bank will invest in other municipal projects across the country - such as urban transport and district heating - wherever possible without requiring sovereign guarantees, so as to avoid constraining the central budget. At the same time, the Bank will look at new ways to finance municipalities through local banks.
In the financial sector, the EBRD will focus on non-bank financial institutions, including those handling pensions, insurance and mortgage finance. The EBRD will continue to work with local banks and other institutions to strengthen the country's small and medium-sized enterprises, important for both economic stability and regional development.
The strategy also highlights the Bank's commitment to the agribusiness sector. A €2m loan from the Bank through its Grain Receipts Programme to Siauliu Bankas is helping the sixth-largest bank in Lithuania extend loans to the agricultural sector. The Bank wil aim to extend similar loans to farmers across Lithuania through local banks under this Programme.
The EBRD is aware of the challenges of the region, and by working with the local authorities, the Bank revises its country strategies every two years with the aim of making the fullest impact on the countries as they develop towards a market economy. To date the EBRD has invested €419m in 30 projects in Lithuania.

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