• Natural Gas News

    Lithuania Seeks LNGT Care Input from Largest Gas Guzzler Through Court

Summary

The largest single Lithuania’s gas consumer Achema, a nitrogen fertilizer producer, will not evade contributing to the maintenance of the country‘s liquefied natural gas terminal in the seaport of Klaipeda.

by: Linas Jegelevicius

Posted in:

Liquified Natural Gas (LNG), Featured Articles, News By Country, Lithuania, Baltic Focus

Lithuania Seeks LNGT Care Input from Largest Gas Guzzler Through Court

Lithuania’s largest single gas consumer, Achema, a nitrogen fertilizer producer, will not evade contributing to the maintenance of the country‘s liquefied natural gas terminal in the seaport of Klaipeda. For now at least, as Vilnius County Administrative Court has turned down the producer’s complaint against the State Pricing and Energy Control regulator (VKEKK) as unfounded. Via lawsuit, Achema sought to walk away from paying €16 million in LNG terminal installation and exploitation fees. Another €40 million was added for this year in addition to undisclosed maintenance fees for 2013 and 2014 and is said to be nearing a nine-digit figure.

Court rules in favor of state's interests

“The marathon of court hearings have not yet been over as the last ruling affects only a single part of the same lawsuit. The company is resolute to defend its interests,” Janina Melnikoviene, Achema spokeswoman, told Natural Gas Europe.

In the complaint, Achema argued that VKEKK had exceeded its competence and failed to substantiate the LNG project costs with objective data.

The court, however, stood for the defender, saying the LNG terminal is compliant with the state’s strategic energy pursuits and is in the best interests of the population and natural gas consumers alike.

“The installation and exploitation of the terminal should be considered as supplying public interest satisfying services thence,” the court ruling stated.

It can be overturned by a higher-tier Lithuanian court within 14 days, but Achema lawyers were quoted by Lithuanian media as saying that it was too premature to say what the further actions will be until the legal team has reviewed the court documents.

“They are very important as we expect they will clarify whether the court considers the payment of €16 million to be a tax liability or payment for a service that nobody has received yet,” Rytis Budrius told Verslo zinios, a Lithuanian business newspaper.

Previously, Lithuania’s Constitutional Court ruled that by imposing the terminal installation and maintenance fee the authorities had not violated Lithuania's Constitution.

Achema leadership has hinted amid the lengthy judicial wrangling that it will seek justice of a European arbitration if adjudication in Lithuania turns up nil results.

The European Commission already weighed in once on the dispute between Achema and the state of Lithuania after the latter, beforehand, sought to contractually obligate Achema to buy 25 percent of its LNG from the to-be LNG terminal. The EC decision was terse: “It has to be a two-way communication, not a unilateral decision by the state.”

However, on the home turf, Achema has been dealing with one legal blow after another.

With an annual need for natural gas at 1.3 million cubic meters, Achema guzzles nearly half Lithuania’s yearly gas consumption and has been sending calls of distress, arguing the liability to buy the costlier natural gas from the Klaipeda LNG terminal is against international law of commerce, competition, also the interests of the state itself - Achema is the biggest single taxpayer in the country.

With the LNG terminal and FSRU in operation, the state has been requiring that all non-residential gas consumers, including Achema, preferred Norwegian gas from the Klaipeda terminal in the make-up of their energy supplies.

The terminal now contains the minimal quantity - 540 million cubic meters - of natural gas, though the maximum capacity is ca 3 billion cubic meters of gas annually. Daily re-gasification capacity is estimated to be around 11 million cubic meters of gas, but due to the higher current prices, a result of contractual obligations, Lithuania struggles to find gas buyers and run the facility in full swing.

In the light, Achema tries, on one hand, to court the idea of purchasing part of the necessary gas supply from the LNGT should the state come up with a good proposal and also wants to retain the relation with Gazprom.

CEO: LNG terminal fees will break us

Last week, Ramunas Miliauskas, CEO of Achema, along with other top company executives have reportedly met in Paris with Alexander Medvedev, one of the Gazprom chief executives. Among the key topics was the extension of Gazprom gas supply contract and a discount on the gas, which Achema has long sought.

Sides have not made any announcement on the results of talks, but leaks to Lithuanian media following the Paris meeting hint the partners failed to reach an accord.

Achema is reported to be paying about $330-350 per 1000 cubic meters of gas now, but the company seemingly favors Gazprom over the Klaipeda LNGT and wants a better bargain.

Juggling between the state of Lithuania and Gazprom, Achema has conjured up an image of itself as an unjustly oppressed manufacturer.

Responding to the Natural Gas Europe query in April, Miliauskas, the CEO, lashed out at the Lithuanian authorities, blaming them for “extortion.”

By that he meant the state’s imposed accountability for the annual maintenance of the LNG terminal and FSRU, for which, estimated, ca $80 million is needed annually.

Agreeing to chip in with nearly half the amount, Miliauskas said the company will “inevitably” end up filing for bankruptcy.

Especially, with the tepid performance lately, he emphasized -the company posted a lackadaisical $1.62 million in profit in 2013 and reported loss last year.

“In the situation, a single company cannot cover half the LNG terminal costs, especially that we are not getting a single cubic meter of gas from it,” Miliauskas underscored in the April story. He added: “If we are compelled to pay the facility maintenance fee, we would have to do it from our current assets which would be exhausted very soon and the company will need to stop it operations.”

The Lithuanian Government’s “fairness” was called on and demanded to not meddle into commercial relations and support large industrialists.

Energy Ministry: “It is issue of one company”

The Achema CEO also said he wanted to “bring up a public discussion” about the operators of the LNG facility, who called it “profit-making” yet at the outset of the construction, but who now, according to the director general, “try to extort” money for the facility’s maintenance.

Upon hearing the complaints, Mantas Dubauskas, advisor of Lithuanian Energy Minister Rokas Masiulis, told Natural Gas Europe he wants to make a couple clarifications regarding the Achema director general claims.

According Dubauskas, Lithuania “does not require” all gas consumers to switch from natural gas supplied from the Russian Federation to gas supplied from Klaipeda LNG terminal.”

“The state has obliged only regulated electricity and heat producers to diversify their natural gas portfolio i.e. producers of electricity and/or heat, to whom the supported electricity generation capacities are being assigned under the terms and conditions established by legal acts and/or the price of whose generated energy is regulated by the state. If these regulated energy producers do not consume gas at all – the diversification requirement do not apply to them. Other energy producers and gas consumers have no legal obligations to diversify their natural gas portfolio - they are completely free to choose their gas supplier,” Dubauskas pointed out in a written statement.

He also referred to a study by the European Commission which found no violations while carrying out the LNG terminal project in Lithuania.

“It should be noted that Achema was the only gas consumer from more than 500,000 gas consumers in Lithuania which has refused to pay legitimate duty set by the Lithuanian Parliament and calculated by the national energy regulatory authority, i.e. so called “security of supply charge” as an additive in the gas transmission tariff. Unfortunately, this is not the first time Achema refuses to pay the duties to the state. Decisions by the national courts prove that it is the issue of one particular company, which duty of paying should be considered as an issue of the company’s lawless duty avoidance policy, not the issue of the legal system itself,” the advisor underlined.

Achema chief might be insincere

Furthermore, the Achema chief seems to be insincere with the claims over the company’s poor condition - Lithuanian media scrutiny has turned up that the enterprise is hiding a €100 million deposit Gazprom had given in meeting contractual obligations.

According to the investigation, the fertilizer manufacturer has taken the amount off the balance sheets, which lets it juggle with the financial results - be it profit or loss - at the end of the day.

The company has neither denied nor confirmed the existence of such a Gazprom payment.

Some of the sources in the Lithuanian Government speculate Achema has deliberately stuck up with the PR campaign, portraying itself as a company desperately needing state’s help.

The Board of Achema directors has been embroiled in heated squabbles over the take on the Gazprom and LNGT issues, with some of the top officials, reportedly, inclining to purchase up to 20 percent of the necessary gas from the Klaipeda terminal.

Achema does not comment on that kind of media reports, saying it does not publicly discuss what it considers to be “interior affairs.”

Meanwhile, Vidmantas Jankauskas, a Lithuanian scholar and energy expert, albeit insisting that Lithuanian authorities have mis-communicated the message on the LNG terminal expectations and a predicted fall in gas prices following the launch, believes the better times for the Klaipeda LNG facility can be around the corner.

“Generally, only in Lithuania and the Baltics many of use tend to see the LNG terminal project quite in a murky light. Many of the foreign gas sector experts, whom I met last week in an international energy sector event, meanwile, insist the opposite: with the oil and gas prices rising, the prospects of the Lithuanian terminal are going up, too,” Jankauskas told Natural Gas Europe.

 PS With the story going online, the Board of Achema has announced it will start paying LNG terminal supply security fee.