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    Lithuania seen lacking tools to manage energy crisis

    September 19, 2022 - BBC International Reports (Europe)


      The Lithuanian government has only financial instruments to tackle the energy crisis, which is insufficient to manage the situation, an analyst has written. He said that very few strategic energy projects have ever been implemented in Lithuania and currently the biggest problem is the shortage of local electricity generation. The following is the text of a commentary by Mantas Martisius, entitled "There is a plan but no results" and published on the Lithuanian version of the pan-Baltic news website Delfi on 30 August; subheadings have been inserted editorially.

      The time of economic challenges has come sooner than the government expected. Rising electricity and gas prices, high inflation, stagnating investment in the economy and falling standard of living are problems that need to be tackled here and now.

      The government seems to understand the seriousness of the problem. As usual, a financial package to deal with the tsunami of economic problems is being prepared. Prime Minister Ingrida Simonyte has said that the government will prepare and present its vision of anti-inflation measures in the autumn.

      Finance Minister Gintare Skaiste said that residents can only expect new energy reimbursements from 2023 onwards, after the adoption of the new state budget. The zero tariff for heat and other additional measures to offset energy prices can also only be introduced once macroeconomic forecasts are updated.

      The main problem is that the government has only one tool at its disposal - finance, which is imperfect and limited. The government can cut taxes, raise taxes, hand out compensations and subsidies, and that is it. The instruments of influence are exhausted.

      The size of the Lithuanian economy and the available resources are not such that the emerging economic crisis can be extinguished by a single action - a huge infusion of money into the country's market. At the beginning of the pandemic, businesses could have been shut down, people quarantined, and all this could have been cushioned with cheap money from the EU. Now there is none.

      In addition, the "free" money of 2020 and 2021 has come back as increased inflation. According to Eurostat, the annual harmonised inflation rate in Lithuania reached 20.9% in July, the third highest in the EU. Only Estonia, at 23.2%, and Latvia, at 21.3%, had higher inflation rates. 'Not enough money'

      The tools available to national economies and governments could be compared to aircraft. Modern, wealthy countries that set the economic tone for development, like transatlantic aircraft, have several economic engines. In the event of problems with one engine, these economies can continue to fly quite successfully powered by other engines.

      Lithuania is like an An-2 plane, and has only one engine. There are no other options when it malfunctions while in the air.

      Due to increased energy prices, [the producer of chemical products] Achema is temporarily suspending the plant's operations from 1 September. Other manufacturing businesses are also facing rising electricity and gas prices. Whereas the energy component used to be 20% of the final product price, it has now risen to 50% or more.

      The product becomes too expensive to compete in the market, so there is no point in continuing production. This means that redundancies are imminent due to production cuts. Finally, an economic recession is to come. And all this will fall on the shoulders of the state social security system.

      The state will not be able to stop this blazing fire with money alone, because there is simply not enough money to go around. It seems that Simonyte understands this. According to her, there is no point in negotiating with the opposition on anti-inflation measures for the time being, because the opposition hardly has any other meaningful proposals.

      Having said that, the prime minister should take a closer look at herself and answer the question: why do we have only one financial instrument at our disposal? Why do we not have other tools to deal with the emerging economic and energy problems?

      Finally, who should take the lead to put more effective instruments in Lithuania's hands? Isn't it the prerogative of the government? Energy projects

      For too long, the executive branch has been preoccupied with minor problems, while serious, strategic projects are not being implemented. The current coalition of Conservatives and Liberals has ruled the country for almost two years. What serious projects has the government started to implement during this time?

      Two projects come to mind: a fence on the Lithuanian-Belarusian border is nearing completion, and the 508 km Lithuanian-Polish gas pipeline link GIPL, which opened in May.

      The gas connection was built on Lithuanian initiative and this is largely the work of previous governments, not this one. The gas pipeline project started back in 2014 and was only completed this year.

      The fence was built as a response to [Belarusian President Alyaksandr Lukashenka] Alexander Lukashenko's hybrid attack using migrants in 2021. Unlike Donald Trump, who promised to build a "nice big wall" on the US-Mexico border, the current government's programme did not include a big Lithuanian wire wall.

      So, what are the strategic projects of this government? Probably the Covid passport proposed by the Economy Ministry.

      In the country's energy sector, only five strategic projects have been implemented in the entire period of restored independence. In addition to the gas pipeline linking Lithuania and Poland mentioned above, the Butinge oil terminal was built at the very beginning of independence.

      In 2014, the liquefied natural gas storage vessel Independence arrived in Klaipeda. In 2016, the 450-kilometre-long NordBalt electricity link across the Baltic Sea was put into operation. In the same year, LitPol Link was built and put into operation, connecting Lithuania with neighbouring Poland, thus connecting the Baltic states to the electricity infrastructure of Western Europe.

      That is it. And that is just the infrastructure that opens up the Lithuanian market more. No new electricity-generating projects have been implemented. And it is not necessarily about building a new nuclear power plant, which is expensive to build and takes a long time. Other projects are possible. 'Different results'

      At best, the energy generated from renewable sources today only meets 30% of the country's energy needs. The percentage could and should be higher. Unfortunately, this is not the case.

      The Netherlands is building 1.5 gigawatts of offshore wind power. Some are already in operation and others will start in 2023. By 2030, the plan is to have a combined capacity of 20 gigawatts of wind farms, enough to power 20 million households. But this is the Netherlands, not Lithuania, with a different government and different results.

      The world's first battery power plant, which can store green energy for several months, opened in Finland this summer. Using solar cells, sand is heated up to 500 degrees Celsius and the heat stored will then be used to heat homes in winter, when energy is more expensive.

      Again, the project was implemented in Finland, not Lithuania. This means that the Finns will not only have the usual financial instrument for governments to deal with heating this winter, but they will also have at their disposal this battery plant.

      President Gitanas Nauseda's stated goal is to create a welfare state in Lithuania. A beautiful and just goal but it will not be achieved if Lithuania continues to be a single-engine plane in the economy, energy and other areas of public life. That is to say, it will have a single financial instrument with limited power. Insufficient production

      Just as it is impossible to build a modern house with a folding Swiss Army knife, so it is impossible to tackle serious economic problems with limited financial resources.

      Unfortunately, the country will once again enter the crisis only partially prepared. We may have the financial sector in better shape than in 2008, when the global financial crisis hit, but what happened more than a decade ago will not happen again now.

      There is now an energy crisis that threatens to become an economic crisis. We have interconnections, we have alternative options for importing energy resources, but there is not enough local generation capacity.

      Various plans can be devised to fight inflation, to reduce rising gas and electricity prices, but with only one instrument the impact will be limited.

      There is no time left to rebuild your An-2 aircraft into a more modern aircraft. However, life does not end today. We need to start changing our perception and start making sure that there is more than one instrument at the government's disposal.

      Source: Delfi website, Vilnius, 30 Aug 22


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