BALTIC STATES AGREE ON A NEW NUCLEAR POWER PLANT IN

UNCLAS SECTION 01 OF 02 VILNIUS 000228

SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON EINV BEXP LH EN LG
SUBJECT: BALTIC STATES AGREE ON A NEW NUCLEAR POWER PLANT IN
LITHUANIA



1. (U) SUMMARY: The prime ministers of Latvia, Estonia and
Lithuania declared their support February 27 for a common Baltic and
EU energy policy and elaborated objectives for long-term Baltic
energy cooperation. The common energy policy the PMs endorsed
anticipates construction of a new nuclear energy reactor in
Lithuania. The PMs did not discuss technical specifications for the
reactor or establish a time frame for construction. The
nuclear-focused strategy is a central element of Lithuania's plan to
reduce the country's dependence on Russian energy. U.S.-based
Westinghouse is a potential beneficiary of this development, but it
faces tough competition from a Franco-German consortium that may
have the inside track. END SUMMARY.

A COMMON ENERGY POLICY
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2. (U) Estonian PM Andrus Ansip, Latvian PM Aigars Kalvitis, and
Lithuanian PM Algirdas Brazauskas met February 27 in Trakai, a
popular tourist destination outside of Vilnius to discuss a joint
energy strategy for the three Baltic countries. Immediately
following the meeting, the ministers issued a joint declaration and
joint communique. (We shall report the text of the declaration and
communique septel.) In the communique, the PMs expressed support
for a new nuclear reactor in Lithuania. The announcement
constitutes an about-face for GOL energy policy. During its
negotiations to join the EU, Lithuania pledged to decommission the
two Soviet-built nuclear reactors at Ignalina nuclear power plant.
The GOL took the first offline in December 2004. The second will
close by or before the end of 2009.

WHY NOW?
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3. (SBU) Dr. Anicetas Ignotas, a Ministry of Economy Undersecretary
responsible for energy security policy, told us March 2 that the GOL
initiated this meeting because "the time was right." A
constellation of events, Ignotas said, compel Baltic cooperation.
These include:

-- the EU's drafting of a new energy policy that describes the Balts
as an "energy island" with no direct connection to the EU and its
energy supplies;
-- the recent disruptions of Russian-supplied gas to Ukraine and the
Caucasus;
-- high oil and gas prices; and
-- the German-Russian agreement to build a Baltic Sea pipeline that
bypasses Estonian, Latvian, and Lithuanian territory.

Ignotas also claimed that all three Baltic countries anticipate
receiving payments from carbon-credit trading from Kyoto Treaty
members who will exceed their carbon-emissions quotas -- especially
EU-15 countries. He said that the Balts agreed that spending this
windfall on carbon-free nuclear power generation capacity made
sense.


4. (SBU) Ignotas maintained that the GOL has spent more than a year
laying the groundwork within the EU for this announcement, and
opined that the PMs' statements should have taken no one in Brussels
by surprise. He claimed that this preparatory work will pre-empt
negative reactions from other EU members.

FEW DETAILS SETTLED
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5. (SBU) The Trakai meeting set a broad political framework without
spelling out specifics. The participants did not detail technical
specifications, financing mechanisms, or the construction timetable
for the nuclear reactor they will build. Vaclovas Miskinis, an
influential advisor to the GOL on energy issues and the Head of the
Laboratory of Energy Systems Research at the Lithuanian Energy
Institute, told us that the PMs "are very far away from real
discussions regarding the type of reactor" that the three countries
might agree to build. Undersecretary Ignotas, who attended the
Trakai meeting, emphasized that the process of choosing the type of
reactor would be open and competitive. Both Miskinis and Ignotas
dismissed press reports that suggested that the PMs had agreed to a
definite construction date or reactor type.

GOL PLANS NATIONAL ENERGY STRATEGY
--------------


6. (U) Minister of Economy Kestutis Dauksys, in an interview
published in a leading daily on March 1, said that his ministry is
preparing a new national energy strategy. Only after the GOL
approves that strategy, he said, will the GOL decide whether and how
to involve itself in the construction of a new nuclear power plant.
The article did not suggest a timeframe for this decision.


7. (SBU) Ignotas, however, suggested that the GOL might take a
slightly different approach. When we asked when the Ministry of
Economy might submit this plan for GOL consideration, he said
cryptically that the government needed to make some "big decisions"
before drafting such a plan. He refused to elaborate, but the clear
implication was that construction of the reactor would be a central
element of the national energy strategy.

THE COMPETITION TO BUILD THE NEW PLANT
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8. (SBU) Miskinis told us that several Western energy companies have
already declared interest in investing in and/or building a new
nuclear power plant in Lithuania. He said that French AREVA Group
is a leading contender and that many experts believed that an EPR
(European Pressurized Reactor) to be the best choice for Lithuania.
The French-German consortium Framatome ANP, a subsidiary of AREVA,
and Siemens, he noted, are currently building this type of reactor
in Finland.


9. (SBU) Ignotas said that he thought the best approach for
Lithuania would be to build two 700-900 megawatt reactors
simultaneously to create a plant that would generate approximately
1600 megawatts. (NOTE: This would be the same electricity
production capacity of the AREVA-Siemens reactor under construction
in Finland.) Ignotas also said that the GOL was sending a team to
Finland on March 13 to inspect the nuclear power plant under
construction there.


10. (SBU) There is an American contender in the competition as
well. This Mission has been working with Pittsburgh-based
Westinghouse, which seeks to sell the GOL on the merits of its
IRIS-type reactor. Westinghouse is working with a multinational
consortium that includes Bechtel, Curtiss-Wright, Massachussetts
Institute of Technology, and several other U.S. and foreign
entities. The company is aware of the latest developments, and we
are encouraging them to move quickly before Framatone runs away with
the competition.

COMMENT
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11. (SBU) The GOL is intensely concerned about energy security, and
sees a new reactor as a way to reduce dependence on Russian energy.
This vision's realization faces many obstacles, including lingering
internecine rivalries and differing priorities among the three
Baltic republics; the high cost of new reactors (carbon-trading
"windfall" notwithstanding); and the GOL's accession agreement with
the EU, which in the view of many Europeans commits Lithuania to a
nuclear-free future. For our part, we will work to ensure that
Westinghouse, as well as any other U.S. companies that join the
bidding process, receive fair consideration as this prospective
billion-dollar deal develops.

KELLY