Baltic states count cost of ending Soviet electricity link

The country, 25 years ago, was the first of the Baltic states to declare independence from the Soviet Union.

In the energy sector, it suffered a setback when it was forced, as part of its conditions of EU entry, to decommission a Soviet-era nuclear plant, Ignalina. It went from being the main electricity producer in the region, to being almost entirely Russia-dependent.

Then it opened a liquefied natural gas (LNG) terminal.

Russian gas had, prior to the opening, become so expensive, that Lithuanian demand had shrunk. This made the LNG project less interesting. But its political meaning, of decoupling from Russia, also remains potent.

When the interconnectors become fully operational, consumer electricity prices in Lithuania, and Latvia, are projected to fall by 5 to 7 percent. Estonian consumers already had a link to the Finnish market.

Rokas Masiulis, Lithuania’s energy minister, says Litpol and NordBalt will increase security of supply and impact the future decision on whether to build a new atomic reactor.

Romas Svedas, an energy expert at Vilnius University and a former energy vice-minister, told EUobserver: “For the electricity market, the end of this year is a breakthrough.”

But despite the new links, the Baltic states remain integrated with the old “IPS/UPS synchronous area” - the power ring of Belarus, Russia, Estonia, Latvia, and Lithuania (Brell).

It means Russia still controls operational parameters.

The frequency of the current, for instance, is regulated by a Central Dispatching Unit in Moscow. The planning of operational reserves is done by reference to hydroelectric plants on Russia’s Volga river.

Ending the situation would increase Lithuania’s energy security rating to 60-65 percent (currently 50 percent), Masiulis estimates.

But it would also come at a cost, both financial, and in terms of relations with Russia.

€800mn

The European Commission estimates withdrawal from Brell would cost €800 million. The costs would likely be passed on, and for business consumers competitiveness is as important as security.

Arturas Zaremba, the CEO of Akmenes Cementas, recently lowered his costs by buying power from Latvia. He wants more import options. But his firm, one of Lithuania’s top five electricity consumers, is wary of the Brell move.

“From the technical standpoint, I am not sure it is possible to disconnect from Brell, but from the commercial point of view: Why do it? If we can stay in both systems, we should stay in both. If we have to choose, I don’t know,” he told this website.

“I would say energy independence and price are equally important,” he added.

“There is a direct link between the two. If you just have one provider, you will always pay maximum. If you have alternatives, you can always expect better prices.”

Vidmantas Jankauskas, the deputy chief of the Confederation of Lithuanian Industrialists, said the Baltic states and Poland would have to invest in new electricity infrastructure to put aside Brell.

Gintaras Balciunas, the deputy chairman of Achema group, another major Lithuanian firm, said the government should consult more with business chiefs.

“Energy security is a very important factor ensuring independence. But all strategic objects and plans to expand energy infrastructure should have a purpose - they should be measurable economically, with maintenance possibilities, and macroeconomic trends in mind,” he said.

“If economic potential decreases, if there’s no industry, naturally there would not be a need to ensure energy security anymore.”

Albinanas Zananavicius, Lithuania’s ambassador-at-large to the EU, has also publicly voiced concern the Brell move will be hard to justify to price-wary consumers.

Masiulis, the energy minister, says the EU should help pay for Brell-related costs.

“If the Baltic countries have to pay all the costs, yes, the burden for our consumers would be too big. So we expect financial support from appropriate European funds,” he told EUobserver.

Putin factor

For his part, Russian leader Vladimir Putin has all but threatened to seek financial compensation from the Baltic countries if they go ahead.

He says, for one, that the Brell move would force him to overhaul the electricity network in Kaliningrad, a Russian exclave in the EU, which neighbours Lithuania and Poland.

The Brell treaty says each country is free to change its energy systems on condition the others don’t suffer financial losses.

There are disputes on the precise meaning of the text.

But Lithuania’s energy ministry says even if it synchronises with the EU, it won’t necessarily disconnect from Brell’s IPS/UPS network.

Current interconnectors with Russia and Belarus would not be dismantled, so power could still flow through the old system, he says.

But a few technical adjustments would leave Moscow’s Central Dispatching Unit with no more influence on electricity supplies in these former Soviet states.

Transformation

For Vilnius University’s Svedas, neither financial obstacles nor Russian objections should stand in the way.

“You are asking about money and I will ask you this: How much did the lives that we lost in the years 1990 and 1991 in the clashes with the Soviet army cost? What was their price?,” he said, referring to the violence that took place in the Baltic States when they declared independence from the Soviet Union.

“I see synchronisation as an integral part of transforming the political regime. After political change, then changing from a centrally planned to a market economy, we also have to finish reforms in the energy market,” he added.

“We have to govern our electricity system and be connected synchronically to the system [the EU] in which we operate, live, and create our economic well-being.”