LITHUANIA HOPING TO MOVE AHEAD ON ENERGY ISSUES

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000811

SIPDIS

SIPDIS

COMMERCE FOR ITA:LMARKOWITZ

E.O. 12958: DECL: 11/13/2017
TAGS: ENRG ECON EPET LH
SUBJECT: LITHUANIA HOPING TO MOVE AHEAD ON ENERGY ISSUES

REF: VILNIUS 796

Classified By: Ambassador Cloud for reasons 1.4 (b) and (d).


1. (C) Summary. DCM met November 7 with Darius Degutis,
MFA, Ambassador at Large, Economic Security Policy
Department. Degutis's direct responsibilities include
international energy projects such as the proposed Polish &
Swedish power bridges and the new Ignalina Nuclear Power
Plant (INPP). He told us the planned power link with Sweden
is moving forward following the recent signing of the first
stage of the feasibility study. Although the Polish power
bridge is temporarily in limbo due to recent Polish demands
to link signing of a bridge agreement with a guarantee of
power from the new INPP, Degutis was optimistic an agreement
could be reached in the near term with the new Polish
government. He said President Adamkus will visit Poland
November 11 and Sweden November 13-14 and will try to
expedite these projects. End summary.

Polish Power Bridge
--------------


2. (C) The first segment of the Polish power bridge could be
ready by 2012 if a project company of equal Polish and
Lithuanian ownership is established by January 1, 2008,
according to Degutis. The first segment of the bridge would
connect the Kruonis hydro power station with Alytus,
Lithuania and Elk, Poland. According to Degutis, the Poles
see the business logic in connecting the Kruonis power
station to the bridge. (in contrast, the Economy Minister
told the Ambassador October 25 Poland did not accept the
offer of Kruonis generated power in lieu of a guarantee of
power from the new INPP (reftel)).


3. (C) Polish demands to link the construction of the power
bridge to a guarantee of at least 1,200 MW from the new INPP
derailed a September plan to sign an agreement between Polska
Grupa Energetyczna and Lietuvos Energija, the two companies
involved in the power bridge project. Degutis echoed what
the Minister of the Economy told us October 25th (reftel):
Lithuania cannot guarantee for any partner in the new INPP
project, including itself, a specified amount of electricity
because no one yet knows the generating capacity of the new
INPP. Degutis added that Lithuania remains ready to sign an
agreement for the power bridge with Poland (delinked from
INPP issues) and hopes that the agreement will be signed
soon. Degutis remarked that the feasibility study for the
Polish power bridge stated that the project was economically
viable without a power guarantee from the new Ignalina plant.
He said the Poles will be able to upgrade their power
infrastructure in Northeastern Poland, in preparation for the
power bridge, using EU funds.


4. (C) Degutis stressed that linking Lithuania with the
Western European power grid is not indicative of a pan Baltic
desire to cease electricity trading with Russia. Transfer
stations will be established on the eastern borders of the
Baltic countries so electricity can be traded between the two
grids. Lithuania's goal, however, is a synchronous
connection for Lithuania with the Western European power grid
(UCTE).

Swedish Power Bridge
--------------


5. (C) Degutis said that the GOL hopes this project will
also be completed by 2012. He explained that November 5
Lietuvos Energija and Svenska Kraftnat signed the first stage
of the feasibility study and an environmental study will be
done as well. President Adamkus will visit Stockholm the
week of November 12 and will try to expedite the process.
(The local Swedish embassy told us the same day that it was
not happy Lithuania is trying to treat the power link as a
bilateral governmental issue, rather than a private sector
project).

Ignalina NPP
--------------


6. (C) Degutis said the GOL hopes the proposed INPP will be
a 2 unit, 3,200 MW plant. The GOL's minimum requirement is
1,100 MW. Degutis stressed, however, that they will not know
how large a plant can be built until after the project is
fully scoped and the environmental impact study determines if
the adjacent Druksiai lake has enough cooling capacity for a
large NPP, or whether other technology exists to cool the new
INPP in other ways. Degutis said the GOL hopes the INPP
would be completed by 2015 but that might slip 1 or 2 years.
Degutis cautioned that the construction of the new INPP must

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be taken step by step. The task at hand for the GOL is
establishing a national investor company in Lithuania for the
new INPP, which he presumed will be done in December 2007 or
January 2008, after asset valuation of the three Lithuanian
firms that will make up the national investor is complete.


7. (C) Degutis said he did not expect EU permission to keep
the old INPP open past the accession treaty requirement of

2009. Lithuania is now adding power generating capacity to
make up for the loss from the closure of the old INPP.
However, this capacity will rely upon fuel (natural gas) from
one, not recently reliable source: Russia. Degutis expressed
the hope that the EU would intervene, if necessary, with
Poland and Sweden to ensure that Lithuania's power links with
Western Europe were built in a reasonable amount of time.

Liquefied Natural Gas (LNG)
--------------


8. (C) Degutis said that LNG is a priority for the GOL, and
noted that the Ministry of the Economy is reviewing a pan
Baltic LNG option. (NOTE. This comment differs from the
Minister of the Economy's statement that Estonia and Latvia
expressed little interest in Lithuanian overtures to discuss
an LNG terminal. Thus, Lithuania would consider a terminal
of its own in Klaipeda).
CLOUD