NEW MINISTER OF ECONOMY EMPHASIZES FOREIGN

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000859

SIPDIS

DEPT FOR EUR/NB, EB/TPP/IPE (JURBAN),EB/CBA, AND INR/B
COMMERCE FOR TAC JBOGER

E.O. 12958: DECL: 08/16/2015
TAGS: PGOV ECON EINV ENRG ECIN PREL LH
SUBJECT: NEW MINISTER OF ECONOMY EMPHASIZES FOREIGN
INVESTMENT, BUSINESS, AND ENERGY

REF: A. VILNIUS 781


B. VILNIUS 838

Classified By: Economic Officer Scott Woodard for reasons 1.4 (b) and (
d)


1. (C) SUMMARY: Minister of Economy Kestutis Dauksys,
meeting with Ambassador on August 16, emphasized the need to
attract foreign investment, to improve the capacity of
Lithuanian companies, and to develop a sound energy policy
that will guarantee fuel supplies and promote Lithuania's
energy independence. The Ambassador offered the Embassy's
assistance in attracting U.S. direct investment to Lithuania.
We will continue to work closely with his ministry to
improve Lithuania's commercial and investment climate and
further USG and U.S. business interests. END SUMMARY.

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COURTESY CALL ON THE NEW ECON MIN
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2. (C) Kestutis Dauksys, who replaced Viktor Uspaskich as
Minister of Economy on June 29, is a successful businessman
with limited government experience. He served as chair of
the Labor Party's Trakai regional branch and became a member
of the Seimas in 2004 as part of the party's electoral list.
Ambassador Mull called on the new minister, August 16, to
discuss learn of Dauksys's priorities for the Ministry and to
discuss our common agenda of economic issues, which includes
foreign investment, Lithuania's business environment, and
energy issues.

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INVESTMENT: A TOP PRIORITY
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3. (C) Dausksys told the Ambassador that development of
commerce and investment is among the highest priorities of
the Ministry of Economy (MinEcon). He said that Lithuania
needs to improve its investment climate in order to compete
successfully with other emerging markets for FDI. Recounting
recent joint efforts to promote investment in the Baltics,
the Ambassador highlighted the successful December 2004 U.S.
Ambassadors to the Baltics Trade and Investment Conference in
London and the follow up conference in the Washington, which
have led to new U.S. investment in Lithuania. He said
Lithuania could do more to attract further investment by
taking several measures to remove impediments and
disincentives to foreign investment, including:

--addressing Lithuania's high rates of piracy and IPR
infringements;

--enhancing educational opportunities for the children of
foreigners engaged in business in Lithuania;

--taking a strong stand against public and private
corruption; and

--establishing a "one-stop shop" that would assist foreign
investors in fulfilling the legal and bureaucratic
requirements of setting up a business in Lithuania.

Dauksys especially endorsed the Ambassador's suggestion for
"one-stop-shopping" and said his ministry is already at work
on a plan to institute the idea. Dauksys noted that he has
commissioned an overview of his ministry's strategic planning
processes and said he would welcome U.S. input to that
overview.


5. (C) Dauksys squarely acknowledged that respecting and
protecting IPR protections is a problem in Lithuania, noting
for example that he recently examined his own music
collection and was shocked to discover that 40 percent of it
was possibly from pirated sources. He said that in Soviet
times, music belonged to "the people" and many Lithuanians
still maintained this attitude towards recorded music and
other forms of IPR. He said that he expects, however, that
these attitudes will continue to shift towards recognizing
the importance of honoring IPR.

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HELPING LITHUANIAN BUSINESSES DO BETTER
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6. (C) Dauksys said in response to the Ambassador's prompt
that supporting the development of the country's strong small
and medium enterprises is an important priority. He said
that his ministry had established several business
information centers to address a lack of expertise in the
small business community, but that they were not functioning
well. He mentioned that he would welcome U.S. assistance in
improving the effectiveness of these centers and would like
to learn more about micro-credit programs. The Minister also
expressed concern about the flight of skilled labor from
Lithuania. Ambassador Mull suggested consultations with the
U.S. Small Business Administration and other USG resources,
and offered to explore possibilities for Ministry of Economy
personnel to travel to Washington for further research.

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ENERGY DEPENDENCE
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7. (C) Dauksys said that Lithuania would continue to depend
on Russia for much of its energy supply, especially for oil
and natural gas. He said that he was disappointed at the
recent Russian-German agreement to build a gas pipeline under
the Baltic Sea because the GOL had hoped that a new pipeline
would transit Lithuania on its way to Western Europe, thereby
reducing the likelihood of interrupted gas flows to
Lithuania.


8. (C) The Minister jokingly lamented the fact that the
Soviet Union had built the Russian-supplied Mazeiku Nafta oil
refinery (MN) in Lithuania. "Without it, we could buy
petroleum products from wherever we wanted, but now we have
to buy everything from there," he said. Dauksys soberly
acknowledged that the GOL recognized that any buyer of
Yukos's majority share in the refinery (ref A) would need to
have "a connection to Moscow" to be able to insure supply.
He noted, however, that the GOL hopes the company that does
win the bid for MN has "international experience" and is not
a "Russian federal monster."


9. (C) Dauksys was more optimistic about Lithuania's ability
to insure its supply of electricity, even after it fully
decommissions the Ignalina nuclear power plant. He said that
the GOL plans to construct links to both Sweden and Finland
that could supply electricity to Lithuania. The GOL would
also like a bridge to Poland, he said, but faces serious
resistance from the Poles.


10. (C) Ambassador Mull said that he hoped that sale of
Yukos's shares would be a transparent process. He said that
if the GOL decided to replace Ignalina with another nuclear
power plant, Westinghouse could build one or more of its IRIS
units in Lithuania at a very competitive cost.

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BERYLLIUM AD NAUSEUM
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11. (C) Dauksys brought up the subject of the recent transfer
of non-radioactive beryllium from a Lithuanian bank vault to
a Russian company (ref B),noting that the media was trying
to make "a big deal out of it." The Ambassador said that,
while he would have preferred that the GOL had given the
Embassy advance notice of the transfer, he said that he fully
recognized Lithuania's authority to transfer the beryllium as
it wished, and was pleased that the GOL had resolved the
problem of ownership and disposition of the material in
accordance with established export control procedures.

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AN INVITATION
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12. (C) The Ambassador said that he hoped Dauksys would visit
the United States in the near future, and offered his
assistance in helping to arrange meetings with business
leaders and policy makers. Dauksys expressed interest in
such a visit as his schedule permits.

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COMMENT
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13. (C) Dauksys, although new to the job, is already
thoroughly engaged in addressing the key challenges that face
the Ministry of Economy, notably energy security, increasing
investment, and retention of labor. We look forward to a
constructive and active relationship with the Ministry under
his leadership. We will pursue opportunities to advance our
IPR agenda and otherwise improve the climate for U.S.
investment, and we will look to assistance from Washington
agencies to provide some of the technical support he seeks.
Mull