LITHUANIA'S ECONOMY MINISTER SEEKS TO ATTRACT U.S.

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000065

SIPDIS

STATE FOR EUR/NB AND INR/B

E.O. 12958: DECL: 01/19/2014
TAGS: PGOV PREL ECON EINV ENRG ECIN LH
SUBJECT: LITHUANIA'S ECONOMY MINISTER SEEKS TO ATTRACT U.S.
INVESTMENT, DIVERSIFY OIL SUPPLY

REF: A. VILNIUS 57


B. 2004 VILNIUS 1099

Classified By: POL/ECON OFFICER TREVOR BOYD
FOR REASONS 1.4 (B) AND (D)


1. (C) Summary. Economy Minister and Labor Party Chairman
Viktor Uspaskich, meeting with Ambassador Mull on January 18,
stressed his commitment to attracting U.S. investment,
improve the competitiveness of Lithuanian companies, and to
work with the EU to help Lithuania diversify its oil supply
and achieve a greater degree of energy independence from
Russia. The Ambassador offered his assistance to attract
more U.S. foreign direct investment to Lithuania. Uspaskich
confirmed his participation at the March 4 Baltic Trade and
Investment Conference in Washington. His interest in
attracting foreign investment matches USG and U.S. business
interests, and we will work closely with the Minister to
improve Lithuania's commercial and investment climate. End
Summary.


2. (C) Ambassador Mull met with Viktor Uspaskich, recently
confirmed Economy Minister, January 18 as part of his
get-acquainted tour of Lithuania's new Cabinet (ref a).
Uspaskich discussed the electoral success of, and discipline
within, his Labor Party, efforts to attract U.S. investment,
and Lithuania's energy sector.

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Labor Party: Down to the Business of Governing
-------------- -


3. (C) Uspaskich outlined for the Ambassador the Labor
Party's initial foray into the business of governing,
remarking that "despite all the stereotypes," the Labor Party
is committed to delivering on its campaign promises.
Uspaskich emphasized the importance of party discipline to
enable the Labor Party to realize its strategic vision for
Lithuania. He added that he had learned the lesson of party
discipline during a 1998 visit to Republican Party
headquarters in Washington. In response to the Ambassador's
observations of the celerity of the Labor Party's rise to
power, Uspaskich claimed that his party continues to grow,
noting the influx of technical specialists to the already
broad base of support for his party.

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Attracting Investment to Lithuania
--------------


4. (C) Ambassador Mull underscored his commitment to
attracting U.S. investment to Lithuania. He mentioned the
Baltic Trade and Investment Mission held last month in
London, attracting over 180 U.S. companies. Uspaskich
confirmed his intention to participate in a March 4 follow-up
conference in Washington, and accepted the Ambassador's
suggestion to meet with senior USG trade officials.
Uspaskich said he is dedicated to attracting investment to
Lithuania.


5. (C) Ambassador Mull discussed several barriers to U.S.
investment in Lithuania, raising in particular the need to
reform the tax code and expedite residency permits.
Recognizing that these matters do not fall under the purview
of the MOE, he asked Uspaskich, in his role as both Economy
Minister and Chairman of the Labor Party, to engage with his
colleagues in government on these barriers to economic
growth. The Ambassador also highlighted bilateral
cooperation in innovation policy, science and technology, and
training assistance. Uspaskich welcomed the Ambassador's
offer of assistance, particularly in competition law, noting
that one of his highest priorities is to improve Lithuania's
competitiveness in both the European and U.S. markets. He
noted, however, that it would take more than improving the
laws and educating the technocrats to accomplish his goals
for the economy. One of the challenges, he said, is to
educate Lithuania's populace about the benefits of a free
market economy.


6. (C) Noting the relationship between education and
business, Uspaskich outlined plans to invest some of his
personal fortune in developing a business school in Kedainai.
The Ambassador pointed out the importance of also being able
to offer educational opportunities to the families of foreign
investors, and called upon Uspaskich to help resolve the
Lithuanian's Social Security Agency's tax claims against the
American International School in Vilnius.

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Energy Policy: Seeking Independence from Russia
-------------- ---


7. (C) The Ambassador acknowledged that ensuring energy
supplies would be one of the Minister's most difficult
challenges. He asked Uspaskich to outline Lithuania's energy
policy. Uspaskich said he "cannot be very diplomatic on this
issue," and that he would act in the best interests of the
Lithuanian people when dealing with Russian oil suppliers.
"I have no positive sentiments for Yukos or the government of
Russia," Uspaskich said. His priority, he said, is to ensure
that Lithuania acquires controlling interest in the Mazeikiu
Nafta refinery, since the company is an important strategic
asset that contributes substantial tax revenues to the
national budget. He added that Lithuanian control of the
refinery would most efficiently be executed through a private
company. Uspaskich foresees no long-term supply difficulties
should Yukos eventually stop the flow of crude to Mazeikiu
Nafta. Though it would likely cost more, Uspaskich said that
Lithuania could refine oil from other suppliers in Europe or
Venezuela.

8. (C) Uspaskich said that Lithuania's long-term energy
stability is tied to Europe, appreciating the irony that
Lithuania is now more dependent on Russia because of the EU's
insistence that the GOL close the Ignalina nuclear power
plant. He outlined the EU's plans to develop electricity
bridges between Tallinn and Helsinki, Lithuania and Sweden,
and Poland and Lithuania. Uspaskich said that though
Lithuania will strive for cooperative relations with all its
neighbors, it will increasingly become engaged with the EU on
energy issues.


9. (C) Comment. Uspaskich's expansive discourse on the
political situation indicates that, despite his new job, he
remains focused on consolidating his party's position of
strength within the governing coalition. As we have noted in
previous meetings (ref b),he is also trying very hard to
tell us what he thinks we want to hear. His enthusiastic
acceptance of the invitation to travel to Washington, his
recounting of his earlier foray to Republican headquarters,
and his hiring last week of the Embassy's excellent economic
FSN, who accompanied him to the meeting, suggest to us that
he wants us to think well of him. If he follows through on
his promises to make Lithuania a better place for U.S.
businesses to invest, we will.
MULL