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LITHUANIA


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 18,213 13,796 12,000 74
         
GNI per capita
 US $ 4,490 3,660 3,350 74
Ranking is given out of 208 nations - (data from the World Bank)

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Area (sq.km)
65,200 

Population 
3,607,899 

Principal 
ethnic groups 
Lithuanians 81.3%
Russians 8.4%
Poles 7.0%

Capital
Vilnius 

Currency 
Litas

President
Valdas Adamkus



Update No: 300 - (01/01/06)

Coming of age in Europe
The geographical centre of Europe, curiously enough, is near Vilnius, capital of Lithuania, which shows quite how vast European Russia is, not to speak of Russia proper. It joined the European Union in May 2004, expanding the union's borders to Russia and Belarus, a massively important geopolitical development.
Membership in Europe's elite club of nations has brought Lithuania prestige and economic benefit, as well as the burden of responsibility and, for its border guards, an unending struggle to intercept contraband vodka, gasoline and tobacco.

Smuggling galore ; Baltic - style 
As the Lithuanians have strengthened their border checkpoints, the smugglers have turned to more creative tactics. Cars have been retrofitted with secret compartments to hide contraband - hundreds of bottles or packs in side panels, in fenders, in gas tanks.
A year ago, officers discovered a pipeline pumping moonshine liquor from Belarus, presumably to be bottled and sold in Lithuania, where alcohol prices and taxes have risen steadily. The pipeline - a hose, really, buried shallowly - ran along several roads and a river before ending near a house in Lithuania. The pipeline was not the first one uncovered, but it was the longest: nearly 3.5 kilometres, or 2 miles, in all.
In the forests and lowlands along the Russian border, the Neman River creates a geographic barrier but, clearly, not an insurmountable one. "It would be better," one officer said, "if it were like the Nile or the Amazon."
Smugglers use speedboats, rowboats, rubber dinghies and anything else that floats to spirit across their goods, almost always at night. And then there are the swimmers, fitted with wetsuits and snorkels.
"Russians," one Lithuania officer remarked, "are good swimmers." 

The Kaliningrad problem 
It is all about Kaliningrad, a wedge of Russian territory nestled between Poland and Lithuania. It quickly became notorious as a smugglers' beachhead in Europe, a place where no law was made, not to get around.
But the smugglers have partners on the Lithuanian side, too, including lookouts and couriers who get the goods to the markets in Vilnius and other cities. The region around Pagegiai is largely rural and comparatively poor. The average wage in Lithuania is the equivalent of US$450 a month (compared with US$250 on the Russian side), making smuggling an attractive alternative.
Geidre Balcytyte, a spokesman for the country's Finance Ministry, said that the black market accounts for an estimated 18 per cent of Lithuania's gross domestic product. "Where can you make more money than that?" Major Antanas Albrektas, a district commander said. "The weekends are the most active since workers and students have time to make the attempt to cross," he added.
Even illicit activities adhere to market principles. A few years ago, a disparity in prices lead to a spike in sugar smuggling. Before that it was vodka. Now the contraband of choice is cigarettes.
To comply with European Union regulations, Lithuania has increased the excise tax on cigarettes by 15 per cent and plans yearly increases until the tax reaches the level of other union states by 2009.
The results might have been foreseen. In 2001, Lithuania seized 255,000 packs of contraband cigarettes. In 2004, when the new taxes went into force, seizures rose to 3,223,646, most of them from Kaliningrad. The board guard is expecting to seize at least as many again this year.
The Pagegiai troop has 500 officers to patrol a 210-kilometer stretch of the border, 112 of it along the Neman. With the European Union's help, the Lithuanians are installing sensors and other equipment along the river.
The smuggling of cigarettes, for all their ill effects, may not seem the gravest threat to Lithuania, but for these customs officers, their work is a matter of pride, of sovereignty and of a desire to be willing and law-abiding partners of a new Europe that faces potentially more serious imports from Russia.
"We are defending the external border of the European Union," the chief said. "And the problems at the border - smuggling, illegal immigration, arms - have to be stopped here in the first place, before they enter the rest of Europe." 

Brazauskas at bay
There is a long-time bruiser at the helm of Lithuanian politics; but he is facing a serious problem.
For the first time in his political career, Prime Minister, Algirdas Brazuaskas, was forced to testify in the Prosecutor's Office as part of a probe into his family's business deals. The interrogation took place at the Vilnius Prosecutor's Office on Dec. 12, and afterward Brazauskas told journalists he felt humiliated. "I've gone through many things in my life, but I certainly never thought I would have to explain myself to prosecutors after 50 years of work in Lithuania - 15 in an independent state. I would have never thought it," said the prime minister.
Brazauskas refused to comment on what the prosecutors asked him, though it is widely believed that the crux of the investigation centres around the privatisation of a hotel, the Crown Plaza Hotel, currently owned by his wife.
"There were various questions. As you know, the Prosecutor's Office is the Prosecutor's Office. My business is to answer the questions, and I won't reveal anything. The Prosecutor's Office will disclose what it finds necessary," he said. 
When asked if the questioning was unpleasant, Brazauskas only shrugged saying "nothing horrible."
But the prime minister said he regarded the prosecutor's investigation as a turning point in the scandal.
The Brazauskas family business scandal first erupted two months ago when the prime minister was accused of having bonds with the acquisition of Crown Plaza Hotel, owned by Kristine Brazauskiene. The privatisation of this Soviet-era hotel, previously called the Draugyste, had been carried out under Brazauskas' presidency. 
At the time, Brazauskas had reportedly undertaken efforts to ensure that his future wife would become chief executive of the hotel.
Over the past two months, the governmental chief has been dodging politicians eager to get to the bottom of this case. At one point, Brazauskas insisted that officials hand over the investigation to law enforcement institutions. 
The Vilnius Prosecutor's Office launched a pre-trial investigation on Nov. 18th, after Parliament declined to form an ad hoc commission to investigate Brazauskas' family business. Before that, President Valdas Adamkus had also urged law enforcement institutions to look into the case.
Ramutis Jancevicius, head of Vilnius Prosecutor's Office, said the case's outlook would be clear before Christmas. 
"When we started the pre-trial investigation, I ordered prosecutors to form a conclusion before Dec. 22, whether there is enough evidence to indict anyone [or not]," Jancevicius was quoted as saying.
Prosecutors have already questioned a total of 19 witnesses, including former Prime Minister, Adolfas Slezevicius, former Economy Minister, Julius Veselka, and the prime minister's spouse.
Former Privatisation Commission Chief, Eduardas Vilkas, who also testified to prosecutors, was also reluctant to comment. "I told prosecutors that the privatisation has to be carried out in accordance with the law. It is unlikely that the law was violated when privatising the hotel," he told journalists.
Veselka had previously divulged that Brazauskas, while occupying the president's office, phoned him to inquire if it "would be a pity" to privatise the Draugyste, as it would open the hotel up to crooks. 
Veselka responded that "it was a pity" and removed the hotel from a list of objects to be privatised. 
Brazauskas refused to comment on whether the prosecutors' conclusion would affect his decision to stay on as prime minister, saying only that he would speak about this after reading the prosecutors' final resolution. 
The media had speculated that, based on comments by Social Democrats, Brazauskas was mulling his resignation after Parliament approved next year's budget. However, when the day arrived on Dec. 8, Brazauskas said he would not step down. 
"But please don't hurry, don't guess, and - I apologize - don't spread rumours. Let the government work," he said.

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ENERGY

Gas prices in Lithuania to rise 29% in 2006 


The State Price and Energy Control Commission approved new natural gas prices with effect from January 1, 2006. According to the commission's resolution, these prices will go up by 27 to 36 per cent for large users consuming between 800 and 15 million cubic metres of gas per year, New Europe reported.
For all other users, the prices will increase by 29 per cent on average. SMEs with annual natural gas demand of 800-20,000 cubic metres will pay 27 per cent more from next year. For residents who use gas cookers for heating and cooking the commission has kept the lowest price rise 14 to 17 per cent. The dispute has set off a war of words between the two companies over who has the lowest prices.

Poland talks with Lithuania on new nuclear reactor 

A state-owned Polish energy company confirmed it was in talks with Lithuania on the possible joint construction of a new nuclear reactor at Lithuania's Soviet-era Ignalina plant, Deutsche-Presse-Agentur (dpa) reported.
Polski Sieci Elektroenergetyczne SA (PSE SA), which manages Poland's power grid, said the reactor was raised in talks with Lithuania's Lietuvos Energia AB on the construction of a cross-border electricity grid linking Elk in north-east Poland with the Lithuanian town of Alytus.
"In the documents of the European Commission on trans-European grids, this (grid) is a priority project," a PSE SA statement said. According to PSE SA, the current electricity generation capacity of the Ignalina reactor would not justify such a link. Also, Lithuania promised the European Union it would shut down a second reactor by 2009. "This is why PSE SA has proposed to the Lithuanian side the possibility of the construction of the 400 Kv Elk-Alytus line within the framework of an increased project which could be, among others, the joint-construction of an atomic bloc at the Ignalina electric plant," the PSE SA statement said. If the project went ahead, it would be the first time nuclear- free Poland engaged in an atomic energy project. "The (PSE SA) proposal is interesting as one of the possible variants," Arturas Dainius of Lithuania's economy ministry said, Poland's PAP News Agency reported. 
Dainius pointed out that Lithuania had not yet decided whether to build a new reactor at Ignalina after the closure of its second Soviet-era reactor in 2009, but that such a decision might be taken as early as January 2006. 
Built by the Soviet Union in 1983, the Ignalina reactor is similar in type to Ukraine's infamous Chernobyl reactor which spewed radioactive material into the atmosphere across Europe in a catastrophic 1986 meltdown. In a deal with the European Union prior to its May 2004 accession, Lithuania agreed to shut down one Ignalina reactor in December 2004, and a second in 2009. 
Construction of a third reactor at the plant was cut short in the wake of the Chernobyl disaster. Environmentalists have criticised the existing Ignalina plant as a "Chernobyl waiting to happen," but the 3.7 million-strong Baltic republic is heavily reliant on the plant for electricity. Poland, for its part, depends heavily on coal-burning electricity plants and is anxious to explore new sources of energy. The European Union newcomer is especially keen to reduce its dependence on natural gas from the Russian far east.

Premier says KazMunaiGaz among bidders for oil refinery 

Kazak national oil corporation KazMunaiGaz is among the four bidders for Lithuania's major oil refinery, Mazeikiu Nafta. The Lithuanian prime minister's press service said Prime Minister Algirdas Brazauskas has given assurances to President Nursultan Nazarbayev and that Nazarbayev said KazMunaiGaz "could be a good and reliable owner of the refinery." Nazarbayev reportedly told Brazauskas that KazMunaiGaz was a good bidder for the stake, since it has its own resources of crude oil and expansive commercial experience. Prime-Tass said Dias Suleimenov, the CEO of KazMunaiGaz Trade House, told Brazauskas at a meeting that the corporation might offer US$ one billion for the controlling stake in Mazeikiu Nafta belonging to Yukos. He also promised to invest the same amount of money in modernisation of the refinery and to load it to full capacity with crude. Nazarbayev asked if the company could obtain the controlling stake of 53.7 per cent in the refinery that belonged, until recently, to the Russian oil corporation YUKOS. He asked if the Lithuanian government might sell a part of its own stake in Mazeikiu Nafta, currently standing at 40.66 per cent. TNK-BP has also expressed its interest in buying both YUKOS' stake in Mazeikiu Nafta and additional shares in the oil complex that might be offered for sale by the government and the total stake could reach some 74 per cent. According to BNS news service, Lithuania will begin talks in the near future with Russian-British joint venture TNK-BP on the sale of Mazeikiu Nafta. TNK-BP will invest around US$260 million in modernisation of the Mazeikiu Nafta refinery. The government might negotiate the sale with Poland's oil concern PKN Orlen.

Lithuania may join Russian and EU energy systems 

In a meeting in Brussels, Lithuania participated in a discussion over the possibility of joining Russian and EU energy systems, New Europe reported.
Secretary of the Economic Ministry, Anicetas Ignotas, said, "Unification of the Russian and European energy systems will establish the common energy market that would have unified standards for quality and the environment protection. For Lithuania, this project is important, because the Lithuanian energy system could be included with the European Union energy system and maintain ties with the Russian energy system."

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FOOD & DRINK

Royal Unibrew in Lithuania share offer 

Royal Unibrew, Denmark's number two brewer, has made an offer to the remaining investors in Lithuanian beer maker Kalnapilis, New Europe reported.
Royal Unibrew already holds a 98.46 per cent interest in the brewer and has offered to pay LTL17 a share to buy the remaining stake. The offer values Kalnapilis, one of two Lithuanian breweries owned by Royal Unibrew, at LTL175.2million (US$59.4million). 

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FOREIGN AID

Lithuania may have to give up 600m Euro in EU aid 

Lithuania may lose assistance of at least 600 million Euro because of the European Union budget cuts in 2007-2013 proposed by Great Britain. EC Commissioner for budget and financial programming, Dalia Grybauskaite, said, "I would rate this as a politically short-sighted decision." The commissioner said, "First of all, this proposal is completely different from the Brits' declarations about the necessity of reform. This may pose a threat of setting the new EU countries against the old member states. This would be a small step forward conflicting with Britain's earlier rhetoric." She said that the agreement on the EU 2007-2013 financial outlook is due in mid-December, which will depend on the countries' political will and readiness for compromise. Prime Minister, Algirdas Brazauskas, of Lithuania has expressed great doubt about the success in reaching an agreement on the EU budget guidelines. In his opinion, Britain's proposal is unacceptable to Lithuania, which will continue to adhere to the principle when EU assistance must not exceed 4 per cent of GDP, New Europe reported.

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FOREIGN RELATIONS

Lithuania, Poland, Russia sign border deal 

Officials of Lithuania, Poland and Russia recently signed an intergovernmental agreement on the establishment of the junction point of the three countries' state borders. Foreign Ministry's Ambassador at Large, Alexei Obukhov, signed the document on behalf of Russia, Itar-TASS News Agency reported.
The point of junction of the state borders established by the sides is named "Vistitis" on the map and is located three kilometres from the lake with the same name on the Polish state border line.
Obukhov said at the signing ceremony, "This intergovernmental agreement is an important practical step legally formalising the delimitation of borders and a simultaneous beginning of the state border demarcation between Russia and Lithuania." 

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TELECOMMUNICATIONS

Lithuania to award 3G licences 

Lithuania's Communications Regulatory Authority (RRT) has announced a public tender for granting 3G licences. The licence has a fee of US$1.2 million. Lithuania's Omnitel owned by TeliaSonera; Sweden's Tele 2 and Bite Lietuva, owned by Denmark's TDC - are expected to participate in the tender. Three winners of the tender will be granted the right to use radio frequencies (channels) within the radio frequency bands of 1920 - 1980 MHz and 2110 - 2170 MHz. According to the approved tender conditions, RRT will issue one permit for each of the three winners to use radio frequencies (channels) indicated in the third generation mobile radio communication (UMTS/IMT-2000) development plan within the radio frequency band 1920 - 1980 MHz and 2110 - 2170 MHz, New Europe reported.

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TRANSPORT

Autoverslas to open new logistics centre by 2006 

Transportation and forwarding business Autoverslas will open a new complex of A class warehouses and offices in the capital of Lithuania in Vilnius by the end of this year. The total cost will come to six million litas at the area of 7,200 square metres. Real Estate Company Colliers International (CI) will act as Autoverslas' agent in leasing this new space. Located at the crossroads of Traku Road and Kirtimu Street it will ensure excellent access to major road and railway connections. According to Valdemaras Zakarauskas, CEO of Autoverslas, the well-developed infrastructure and additional services for the tenants at the new facility will give a significant boost to the company's opportunities. According to Market research demand for modern logistics centres exceeds supply in Lithuania, New Europe reported.

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