Lithuanian Government Votes to Liquidate LEO LT

At the shareholder meeting of the Lithuanian energy holding Leo LT, held on Friday (4 September), it was decided that the company would be liquidated. As much as this decision was anticipated, following the vow of the current Lithuanian government to persist with this course of action, it is unlikely that it will mark the end of the saga over Leo’s future, as the two shareholders in the company—the government and privately-owned NDX Energija—have so far proved unable to resolve their differences.

The decision to liquidate Leo LT was reached only through the clout of votes cast on behalf of the Lithuanian government, which holds 61.7% in the company. NDX Energija, which controls the remaining 38.3%, refused to support the proposal for liquidation, despite having noted on a number of occasions that it in principle supports the idea of breaking up Leo, but disapproves of the government’s envisaged liquidation scenario. The government believes that liquidation of Leo LT and the bringing of all of its subsidiary energy companies under the state’s control would pave the way for energy sector liberalisation and the opening up of the sector to competition. However, NED Energija has stated that it is opposed to such a scenario as, according to its head, Ignas Staskevicius, it represents a purely political decision. Speaking in front of Lithuanian media after the shareholder meeting, Staskevicius elaborated that NDX Energija would demand that the assets of Leo are divided in a way that would be fair to all shareholders, and supported the idea of restitution of Leo’s assets, as this method would not involve expensive and time-consuming valuation of the holding’s assets. However, Staskevicius further stressed that if such an option is not possible, his company will insist on valuation and equitable distribution of assets.

Troubled History

The restitution process would probably require that NDS Energija receive back the power distribution company, VST, along with some 600 million litas (US$249 million), which the company committed to Leo in May 2008 when the energy holding was set up. The government transferred its shareholdings in the power distribution company, RST, in which it held 71.34%, and in the power grid operator and energy producer Lietuvos Energija, in which it held 96.4%. The holding was established by the previous Social Democrat government as a financial vehicle for the construction of a new nuclear power plant (NPP) in Lithuania that will replace the country’s single operational NPP Ignalina (see Related Articles), which is due to be shut down at the end of 2009, and for the realisation of a project that will integrate the power markets of the Baltic sea basin states through the construction of an interconnector between Lithuania and Sweden. However, from its very onset the company became the target of criticism, as its creation was perceived as contrary to the European Union (EU)-backed policy of market liberalisation and unbundling. The formation of Leo triggered an investigation on behalf of the European Commission (EC), which is still ongoing. The situation regarding Leo is complicated even further as last month VST filed a lawsuit against NDX Energija, which privatised VST in 2003 before subsequently transferring the company to Leo. According to VST, upon privatisation NDX Energija transferred loans received from banks to the VST, meaning that VST itself paid its own privatisation cost, a violation of European Union (EU) and Lithuanian law.

Outlook and Implications

The ongoing legal dispute between VST and NDX Energija, along with the overarching disagreements between the private company and the government do not set up the stage for a fast resolution of the conflict of interest over Leo’s liquidation. According to Staskevicius, aside from being unfair, the government plan is also ineffective as no liquidator has been appointed yet, and according to NDX Energija’s own estimates, it may take up to a year until the government draws up the plans for the unbundling process. The head of NDX Energija is hopeful that this timeframe will provide sufficient opportunity for the government to change its position and to reach an agreement with NDX. Nevertheless, this delay will cast further doubt over the feasibility of the large-scale projects that Leo was meant to undertake, and which may have to be postponed—an undesirable prospect for Lithuania, which is facing a difficult energy situation as it will be forced to import electricity from Russia increase its dependence on other Russian energy resources even further.

To complicate matters even further, the liquidation scenario is likely to be a substantial burden on Lithuania’s already battered state budget. A recent report by the Baltic Business News, citing British lawyer Michael Polonsky, suggests that based on the shareholder agreement established between NDX and the government, the private company may not only be able to enforce the restitution of Leo’s assets, but also demand compensation equalling approximately 1 billion litas. Thus, the prospect of another legal battle over Leo LT’s legacy could pose even more financial and credibility risks to the Baltic country and its energy sector.

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