"NABUCCO PROJECT - IMPORTANT STEP TO ENERGY DIVERSIFICATION" -
Kestutis Kudzmanas, Ambassador Extraordinary and Plenipotentiary of the Republic of Lithuania to the Republic of Azerbaijan
Caspian Energy (CE): Mr Kudzmanas, how would you estimate the current level of Azerbaijani-Lithuanian relations? How did mutual visits of President of Azerbaijan Ilham Aliyev and President of Lithuania Valdas Adamkus influence our mutual relations?
Kestutis Kudzmanas, the Ambassador Extraordinary and Plenipotentiary of the Republic of Lithuania to Azerbaijan: In terms of trade relations between Azerbaijan and Lithuania, over the last two or three years the trade between our countries rose in 3-4 times and reached $10mln. Regardless of small economic commodity turnover, there are some technical issues linked to transportation; the commodity turnover is growing up and it is giving hopes as the cooperation potential is not depleted yet. The growth of trade relations is mostly boosted by mutual high official visits: visit of Lithuanian President Valdas Adamkus to Azerbaijan in June 2006 and the recent return visit of Azerbaijan's President Ilham Aliyev to Vilnius this September.
CE: What directions are Lithuania and Azerbaijan extending their economic ties to? Could you provide detail on the structure of export and import operations, trade between the countries and trends of its growth?
Kestutis Kudzmanas: Lithuania is interesting to Azerbaijan both as a strategic partner and a country that successfully and quickly learned how to access huge markets of the EU it has joined in 2004. With this purpose in a short time we successfully introduced new standards, eliminated tariff barriers and so on. Specialists in these fields mastered the work in major markets. Indeed, one can say Lithuania managed to redirect its economy to export over a few years. From this point of view, Lithuania's experience in regulatory reforms and adapting EU's standards and norms could be interesting for Azerbaijan.
Existing is a whole range of opportunities for mutual cooperation that is now being filled. Our experts and managers can implement new management systems at Azerbaijani enterprises. Our relations can include extension of development between customs, border guard and tax agencies.
Lithuania, having quickly entered the EU, successfully used its assistance in developing administrative capacities in both private and state sectors, and it is ready to share this experience with Azerbaijan; this, I think, can become one of the directions of further economic, political and technical relations. It is quite important to understand the quality of relations, so Lithuania for Azerbaijan is not just cooperation with one partner, but a niche for accessing the huge regional market with 300-million population. If you entered Lithuanian market, then you, with your production and interests entered the EU. Lithuania can be interesting for Azerbaijan as a country lobbying the latter's interests at EU level. Today our relations with Azerbaijan are growing rapidly and we understand each other.
On with economic cooperation, I would say Lithuania is interested in various investments in Azerbaijan, including those in tourism, realty, trade, financial services, process industry, light industry, food industry and so.
Over the last four years Lithuania quadrupled its export to Azerbaijan. Azerbaijan chiefly delivers plastic items, petrochemical products, fruits, vegetables, nuts and so, and Lithuania responds with ATMs, digital data processing devices, pharmacology products.
This year Lithuania launched export of digital systems to Azerbaijan (CCTV and recording), ATMs, and printed production. Regardless of low diversification of commodity turnover structure itself, the interest of businesspeople from both countries will, I believe, allow to pass to the higher level, in particular in industry and scientific and technical sphere.
Our scope of cooperation is very broad. The year 2007 is a year of qualitative and quantitative development of intergovernmental relations. And in this respect Lithuania is a platform to be used to sound Azerbaijan's interests within the EU, i.e. the niche Azerbaijan can use to lobby its interests in the EU, international organizations, specially in terms of energy.
Azerbaijan and Lithuania can actively cooperate in energy sector as well. Lithuania is one of initiators of the EU's uniform energy policy intended to eliminate the reliance on one supplier. The energy security means diversification of supplies to consumers, but on the other hand energy security for suppliers means diversification of energy resource supplies via different routes to different countries.
CE: What are the tasks to be solved during the Energy Summit in Vilnius?
Kestutis Kudzmanas: The Summit in Krakow with participation of Lithuania, Poland, Ukraine, Georgia, Azerbaijan and Kazakhstan is a new qualitative turn of energy dialog among producing, transiting and consuming countries.
The primary objective of Vilnius Summit is a joint search for mutually beneficial interests of producers and suppliers of electric energy, on one hand, and their consumers on the other.
Cooperation in the energy field has become an inseparable part of the European and international political agenda. Europe faces new challenges and opportunities in shaping the global and European energy landscape of the 21st century. It is clear that global problems need global solutions.
Therefore, Lithuania in co-operation with Poland has taken an initiative to organize a high level energy summit in Vilnius on 10-11 October 2007. The summit will address the issues of the EU external energy policy, with particular attention to its Eastern dimension, and the search for new ways of mutually beneficial cooperation among main energy producers, consumers and transit countries. Lithuania will provide for the platform to major actors in the energy field for an open debate on a broad range of global and regional energy issues.
Leaders of the EU countries, Russia, the United States, Central Asia, Caspian and Black Sea regions as well as President of European Commission are invited to participate in this important event.
Within Vilnius Energy Summit, several events shall take place. The energy dialog will be continued with participation of Krakow Summit attendants. The meeting of EU energy security correspondent network established in 2006 will take place; the purpose of this network is to monitor energy supplies to the EU countries and use this monitoring as an energy-related problems preventing tool. Ukraine initiated one more meeting of energy experts with consultations under Odessa-Brodi-Plock-Gdansk project. The fourth meeting includes consultations with a consulting company. It concerns future events for representatives of energy companies of EU countries and companies of energy supplying countries.
The Summit suggests solving tasks concerning diversification of energy resource supplies and mutual cooperation between producing, consuming and transiting countries; developing the future strategy and transparency.
As I said already, the discussion on implementation of energy projects will go on in Vilnius with main attention to Odessa-Brodi-Plock oil pipeline with possible extension to Baltic countries. In case the pipeline is extended to Gdansk, crude can be carrier in tankers to Lithuania as well. For this purpose we have a necessary infrastructure, a 12MTa capacity terminal in Butinga (a facility of Mazeikiai Nafta refinery), which can both receive and deliver crude. Following the acquisition of control stock in Mazeikiu Nafta refinery by PKN Orlen of Poland, we and Poland are sharing interest in supply of energy resources to our countries. The coordination of interests between Lithuania and Caspian oil supplying countries enabled to work out the unified position on energy issues.
Another 15MTa of Russian crude was transshipped via another port of Lithuania, Klaipeda. I would say we are going to use this port's capacities to get it engaged in TRACECA project in order to link Caspian and Black Sea to Baltic ports with a uniform transportation corridor.
CE: How is Lithuania, as a EU member, going to solve its energy security issues?
Kestutis Kudzmanas: The EU is the biggest energy importer and the second biggest consumer in the world. We should not forget that Europe is an economic giant, but a dwarf in terms of energy resources. Europe's energy resources are depleting, and its dependence on energy imports is growing dramatically fast, as you can see from this slide. It is projected that in just 20 years' time, Europe will have to import 90 per cent of its oil and 80 percent of its natural gas. In my view, the European Energy Policy is facing four major challenges:
1. To create a flexible single EU energy market;
2. To ensure diversification;
3. To ensure solidarity;
4. To tackle the climate change problem.
The Caspian Sea and Central Asia regions, rich in oil and natural gas, are waiting for Europe. But competition for energy resources in the region is growing, and Europe is still not an obvious winner here. New oil pipelines that have been mentioned (Baku-Tbilisi-Ceyhan, etc) and the already famous but still virtual gas pipeline from the Caspian Sea Region into Central Europe, the so-called Nabucco project, are all important steps to energy diversification.
Azerbaijan, Turkmenistan and Kazakhstan could supply a significant amount of gas. But this route will not be a competitive alternative without Iran, the country holding the second-largest gas reserves after Russia.
In the gas sector, I would like to stress the importance of the Nabucco gas pipeline, which was also mentioned by the previous speaker. It will go through Turkey, Bulgaria, Romania, Hungary and Austria. The Nabucco pipeline is crucial for Europe in the long term. Moreover, there are discussions about the Nabucco pipeline's future extension to other countries (Scandinavia, Poland). In this case, further extension from Poland to the Baltic may come true. But Europe needs real diversification. We need new suppliers in Europe; a new supply route is not enough. Another stream in southern Europe is not a good solution for Europe. The so-called Blue Stream, a project envisioned by Gazprom in parallel with the European Nabucco project to deliver Russian and Central Asian gas to Central Europe bypassing Ukraine, would not increase the energy security of Europe. I think we have to understand that. In this regard, I would like to raise a rhetorical question: would Russia be able to meet the growing European demand in the future by investing only in new pipelines but not in the development of new gas fields? If not, who will pay for that? Local Russian consumers, or neighbouring countries, by cutting gas supplies? Or all the consumers, by increased gas prices? This is a rhetorical question.
In the oil sector, I would like to mention the Odessa-Brody pipeline. The recently resumed Polish-Ukrainian dialogue about the pipeline extension is good news. We also need the deep engagement of the Kazakhstan and Azerbaijan authorities and oil companies to shift part of their oil exports to the newly extended Odessa-Brody pipeline. It's our hope that the agreement Ukraine and Russia reached recently to expand the volume of oil transit through the Odessa-Brody pipeline substantially, from five million tonnes to nine million tonnes in 2007, will not change Ukraine's primary goal, and in a few years Europe will get Caspian oil via Ukraine.
Transit security is an inseparable part of energy security. In this respect, Turkey occupies a unique position as it is a centerlink for Caspian energy carriers. Because Europe's energy security relies on Turkey to a great extent, Europe can reach the Caspian through Turkey. I believe that the EU and Turkey should stand together and jointly implement strategic energy projects in this region, which has a great potential for the future. God has blessed Russia with huge energy resources. Besides, Russia is an important energy transit country. We need to convince our Russian friends to ratify the Energy Charter and sign the Transit Protocol. In my view, Russia's opening up to free access and transit of Caspian oil and gas to the European market is crucial.
The Baltic States are energy islands. They have no energy interconnections with the rest of the EU. A single European energy market will be created only when all the energy islands are integrated into the European Energy Network. And it is not only a commercial issue. It is also a security issue. What we need in this matter is European solidarity helping us to solve this difficult problem. We need relevant financial mechanisms, which would implement projects which lack commercial attraction but are of vital importance to our energy security and the creation of a single EU energy market. Speaking of energy security and diversification of supplies, I should note that when oil&gas were supplied from Russia we were performing as a transit country, but yet that time we were saying we did not want to depend on one energy supplier. And when Russian crude pipeline supply to Lithuania stopped, terminal in Butinga that once had shipped crude was switched to receiving crude for Mazeikiai Nafta refinery.
Today, Lithuania receives 100% of its oil, gas and nuclear fuel from Russia. We are producing some 1MTa ourselves, and use alternative resources like hydroelectric power plants and biofuel.
We are seeking the opportunity to diversify supplies of energy resources to our country. This interest is shared by Lithuania and EU countries. An alternative shall always exist. It is not aimed against Russia as the latter is also seeking diversification of its supplies and considering China and the USA as alternative sales areas. Lithuania views diversification of energy supplies in a diversity of routes and suppliers.
CE: What long-term economic programmes is Lithuania implementing now?
Kestutis Kudzmanas: Already now Lithuania complies with the criteria on Euro introduction in the country. Lithuania's Litas are pegged to Euro and, thus, we are sure this is a technical procedure that will change nothing. Sure there are psychological factors. Euro is stronger than Lita (EUR 1= Lt 3.4528). Any currency aggregation process results in a price jump like it was in the EU countries when Euro was set as a common currency. Then prices increased almost twice. However, the inflation level in Lithuania is low and makes 1%-2% a year, while GDP growth is nearby 8%. This is a very good indicator throughout the European Union member states.
The investment climate in Lithuania upon our accession to the EU got much improved, though even before we had created quite attractive triggers, three free economic zones incorporating Klaipeda (with sea access), Kaunas (crossroad of railways and highways), and Siaulai (airport).
Lithuania signed investment protection agreements with many countries. Thus, the stable climate and the possibility to enter the EU through Lithuania attract companies from around the world. For Azerbaijan companies Lithuania might be interesting as a country for investing.
We have approved a special development strategy with the energy format as its component. We want to reduce the share of hydrocarbons consumption, to preserve nuclear power, to expand the share of generated renewables (hydro and wind power stations, biofuel).
We are going to use high-tech products. The essence of the strategy is to redirect the country's economy to export production.
CE: What is Lithuania's position regarding construction of the North Stream Gas Pipeline? How will Lithuania built up its relations with Russia in this regard?
Kestutis Kudzmanas: We support the efforts of the EU to talk to energy suppliers in one voice. In this area, the EU-Russia partnership is very important. Lithuania maintains that such a partnership should be based on principles of reciprocity, fair competition and non-discrimination. The preparation of a new Partnership and Cooperation Agreement between the EU and Russia opens up the possibility to talk about common energy problems. We think that the ratification of the Energy Charter and the Transit Protocol in Russia is one of the cornerstones of EU-Russian cooperation.
Just like the other Baltic States, Lithuania seeks integration into the European energy markets, especially that of electricity. Let me mention some positive changes, such as the projects for power links to Poland and Sweden, that are under preparation. We are approaching the construction of a new reactor at the Ignalina Nuclear Power Plant, where all three Baltic States and, possibly, other European partners are expected to cooperate. In the field of gas supplies, we are seeking alternatives to Russian sources in Western and northern Europe, as well as on the global markets.
Some persistent problems in the field of energy exports remain a matter of concern both to us and to the EU. For example, the cutoff of the oil supply to the Mazeikiai refinery via the pipeline from Russia has lasted for several months, and has clearly demonstrated that we cannot completely rely on long-established oil supply systems due to political reasons. The North Stream gas pipeline between Russia and Germany, laid along the Baltic Sea bed to bypass Lithuania, Latvia and Estonia, undermines political and environmental security. Lithuania does not consider the possibility of joining this pipeline: this would resolve neither the need for gas import diversification, nor the related environmental and political problems.
A recent crisis in electricity, gas and oil supplies in Europe demands greater attention in order to minimize the risk of supply interruptions. At the moment, Lithuania faces the problem of such a disruption in a pipeline with a symbolic name, "Friendship", with Russia. The Maieikiai oil refinery was forced to change its usual supply source. They have explained that this is only a technical disruption, and we want to believe that it is not a politically motivated decision. Unfortunately, I must admit that transparency and predictability have not prevailed in this particular case. Undoubtedly, we all are interested in seeing Russia as a reliable and predictable energy partner. It is also in the interests of Russia itself. I think that we have to continue addressing this view within the framework of the EU-Russia relationship.
Only by standing unified will we be able to resist the temptation of a third country to use energy as political leverage against the EU, which is one of the world's largest consumers of energy resources, and therefore capable of controlling demand.
In response to your question I would say that, being a transit country, we are interested in and supported the gas pipeline's expansion through Lithuania to the Kaliningrad Region. We extend no support to the North Stream Gas Pipeline rather because of environmental reasons than being kept aside from the game of the RF and Germany. There are toxic substances buried in the Baltic Sea in containers and barges after the World War II. The gas pipeline crosses the places of burials. In case of an accident at the gas pipeline, the sea will get poisoned that might lead to an environmental accident.
Thank you for the interview