Observer "Lietuva"

Lithuania Business News: Archive 2003-

WEEK 51.2008

Saturday, 20th of December

Achema buys a company in Georgia
Achema Grupe (Achema Group), one of the largest Lithuania's business conglomerates controlled by industrialist Bronislovas Lubys, has purchased Georgia's distribution grid operator Kakheti Energy Distribution Company for USD 9.15 million. "We took part in the auction on Thursday and we were declared the winner. Energy is one of the key focuses of the concern, thus this acquisition is in line with our strategy," Achemos Grupe spokeswoman Virginija Dunauskiene said. The Georgian company supplying electricity to the eastern part of the country was active in one of the richest and well-developed farming region, she added. Achemos Grupe was the sole bidder in the auction, the news agency Reuters reported. A month ago Czech company Energo-Pro acquired Kakheti Energy Distribution Company for USD 6.1 million yet later the results of the tender were annulled.

Will sell the shares of Mazeikiai Oil
Poland's oil group PKN Orlen, the majority shareholder of Mazeikiu Nafta (Mazeikiai Oil), is determined to buy the government's remaining 10 percent stake in the Lithuanian oil refinery without delay. PKN Orlen Chairman Jacek Dariusz Krawiec confirmed this to Lithuanian Prime Minister Andrius Kubilius during their meeting in Vilnius on Friday. Kubilius told reporters after the meeting that the government would submit its offer to sell the shares to the Polish company as soon as possible -- most probably after the Christmas holiday.
Respublika, Lietuvos Zinios, Lietuvos Rytas

flyLAL gives up
A group of Lithuanian business people have offered to sell a 51 percent stake in FlyLAL-Lithuanian Airlines to the Lithuanian state for one litas and are asking for a state-guaranteed loan of LTL 30 million to LTL 35 million. The offer was put forward to the Transport Ministry on Friday, FlyLAL confirmed. "The situation has become critical due to a shortage of funds," Gediminas Ziemelis, an indirect shareholder of FlyLAL, said at a news conference. FlyLAL's shareholders have also proposed a package of measures to help put the financially-troubled airline back on track. The shareholders said that FlyLAL's debts not backed by assets were running at LTL 89 million, including around LTL 47.5 million owed by the airline to its owners. It is estimated that FlyLAL's bankruptcy would slice a billion litas off the country's gross domestic product annually and would cost the state around LTL 30 million in lost tax revenue.
Kauno Diena, Lietuvos Zinios, Lietuvos Rytas, Respublika

Friday, 19th of December

FlyLAL is in trouble
Lithuania's flagship carrier FlyLAL-Lithuanian Airlines is in financial trouble, Transport Minister Eligijus Masiulis has admitted. The company might go bankrupt if its situation remained unchanged, he said. "If the things remain unchanged and no strong measures are taken, anything may happen," Masiulis told the reporters on Thursday. However, he also saw some positive aspects in the potential failure of the carrier. "Naturally, the aviation business would not be the only one to be hit hard by the failure of FlyLAL, since the company is also related with tourism, with banks, with the hotels business. Yet that niche will never remain empty. The market would regulate the links after some time. I think that competition among air carriers could bring about various options," Masiulis said. On the other hand, "everybody is interested" in the survival of FlyLAL. Thus, the authorities will evaluate the standing of the carrier and assess potential solutions. The extent of financial injection that could rescue the carrier has not been mentioned.  
Kauno Diena, Respublika, Lietuvos Zinios, Lietuvos Rytas, Verslo Zinios

New prices for electricity
The Lithuanian National Commission for Prices and Energy on Thursday approved new prices for the purchase of electricity generated by combined heat and power plans. This decision means that the average electricity production price will rise to 14.3 centas per kilowatt-hour (kWh) -- 3 centas higher than the current price. However, the new price is 0.7 centas lower than that set by the regulator in October. Virgilijus Poderys, the chairman of the price regulatory authority, said that the price for natural gas had fallen significantly since October. "It (the gas price) has been radically declining for a couple of months: we now forecast that it will reach LTL 967 per 1,000 cubic meters, including transportation. This brings down the production price too," he said. However, producers are not happy with the decision, as they doubt if the commission's forecasts as to the gas price are correct.
Respublika, Lietuvos Zinios, Verslo Zinios

New budget for SODRA
Lithuania's parliament has adopted the 2009 budget of the social insurance fund (Sodra), which will receive contributions from sportsmen, farmers and those working under copyright agreements for the first time. The bill was passed with 66 votes for, two votes against and three abstentions. The budget of the fund is balanced with the revenues and expenditures totaling LTL 14.05 billion each. Authors, farmers and sportsmen will start paying contributions to the fund in 2009. Moreover, the portion of the social insurance contribution that is transferred to second-pillar pension funds will be reduced to 3 percent, from current 5.5 percent.
Lietuvos Zinios, Kauno Diena, Respublika, Lietuvos Rytas

Thursday, 18th of December

Help for banks
Lithuania's authorities are planning to establish a special fund that would ensure the stability of the banking system if banks ran into liquidity problems. "That would be a certain fund for maintaining the liquidity. We'd think that the size of the fund should be around LTL 3 billion. It would be formed, if needed, from banks' resources, and those resources would be backed with a government guarantee," Audrius Misevicius, a member of the Bank of Lithuania's board, told reporters on Wednesday. Speaking after a meeting with Prime Minister Andrius Kubilius, the Bank of Lithuania official said that the central bank and the Finance Ministry are currently drawing up a draft law that would allow setting up such a fund.  Another important issue discussed during the meeting between Kubilius and bankers was how Lithuania could shed its image of a risky country to invest in, Kropas said.
Verslo Zinios, Kauno Diena, Lietuvos Rytas, Respublika

Negotiations about Mazeikiu Nafta
Lithuanian Economy Minister Dainius Kreivys on Thursday is opening talks with the Polish oil group PKN Orlen to sell it the government's remaining 10 percent stake in Mazeikiu Nafta (Mazeikiai Oil), the sole Baltic oil refinery. Kreivys is to meet with Mazeikiu Nafta CEO Marek Mroczkowski on Thursday morning. PKN Orlen officials are planning to come to Vilnius on Thursday for talks on the purchase of the government's remaining 9.98 percent stake in the oil refinery, in which the Polish oil group now holds a 90.02 percent stake. The Lithuanian government decided on Monday to exercise its option to sell the remaining shares in Mazeikiu Nafta. It is believed that a deal could be concluded as soon as next month.
Lietuvos Rytas

No routes to Brussels
Air carriers move to end direct flights on Vilnius-Brussels route. Latvia's airline Airbaltic will suspend the direct service from Vilnius to Brussels from January 9 as a result of decline in passenger traffic. Lithuania's flagship carrier FlyLAL-Lithuanian Airlines closed the route in the beginning of its winter season. However, Airbaltic vows to resume direct flights on the route from early March, i.e. in the beginning of the summer season. Gediminas Ziemelis, one of indirect shareholders of Lithuania's aviation group FlyLAL, said that direct flights to Brussels would be stopped for the winter season. He would not confirm, however, that the route would be reopened in summer.
Lietuvos Rytas, Verslo Zinios

Wednesday, 17th of December

IMF praises
A visiting mission of the International Monetary Fund (IMF) has given positive marks to the crisis management plan worked out by the new government. According to the mission, the measures envisaged in the plan are appropriate and advisable. Moreover, the Fund also praised the authorities for strong belt-tightening policy. The Fund had no reproaches for the measures, Prime Minister Andrius Kubilius said. Catriona Purfield, the mission head, said on Tuesday that she supported the government's plans to boost the rates of VAT, excise duties and profit tax, which, in her opinion, was necessary. "Lithuania's economy is facing challenges. Bold early political actions and the anti-crisis plan will enable Lithuania to overcome these challenges," she said during a news conference on Tuesday. Although the performance figures in the banking sector were adequate now, the Fund advised the authorities to impose precautionary measures designed to improve the defences of banks against economic slowdown, Purfield said.
Lietuvos RytasRespublika, Verslo Zinios, Kauno Diena, Lietuvos Zinios

SODRA’s budget
Despite higher-than-projected revenue, the Lithuanian state social insurance fund Sodra recorded a budget deficit of LTL 1.23 billion for January through November this year. Sodra's budget deficit for November alone reached LTL 162 million. Revenue for the 11 months totaled nearly LTL 10 billion – LTL 253.6 million, or 2.6 percent, higher than planned and LTL 1.502 billion, or 17.6 percent, higher than in the same period last year, based on preliminary data. The fund's expenditure for the 11-month period amounted to LTL 11.229 billion, which was LTL 984.3 million, or 9.6 percent, above the projected level and LTL 2.863 billion, or 34.2 percent, higher than a year ago. Revenue for November came in at LTL 913 million -- a million litas, or 0.1 percent, above the target.
Respublika, Verslo Zinios

SEB’ s forecasts
SEB Bankas forecasts that Lithuania's economy will post 5.5 percent growth this year but will contract by an annual rate of 2 percent in 2009 and 2010. In its latest Lithuanian economic outlook report published on Tuesday, the bank predicts that the country's average annual inflation rate will reach 11.5 percent this year before decelerating to 6 percent next year and easing further to 5 percent in 2010. The current account deficit is expected to narrow to 8 percent of GDP next year from 12 percent this year and stay at 8 percent in 2010. The country's unemployment rate should increase to 8 percent in 2009 from 5 percent in 2008 and rise further to 9.5 percent in 2010, according to the report. The Finance Ministry forecasts that Lithuania's GDP will plunge by 4.8 percent next year and contract by another 0.2 percent in 2010.
Respublika, Lietuvos Zinios

Tuesday, 16th of December

Lower price for electricity
The Lithuanian government will seek that the price of electricity increase by LTL 0.03 per kilowatt-hour (kWh) next year instead of the planned hike of LTL 0.07, Prime Minister Andrius Kubilius said on Monday. Speaking after the Cabinet's meeting, Kubilius said that the government would discuss alternative sources for raising funds for key energy projects, including power links and a new nuclear power plant, with the management and shareholders of the national energy company Leo LT. The new ruling coalition in late November asked the National Commission for Prices and Energy to put off approving electricity prices for 2009 until the new government had been sworn in. Most households now pay LTL 0.33 per kWh of electricity.
Kauno Diena, LIetuvos Zinios, Respublika, Verslo Zinios

Planning to sell comapnies
The planned sale of the Lithuanian state's remaining 9.98 percent stake in Mazeikiu Nafta (Mazeikiai Oil), the sole Baltic oil refinery, to Poland's PKN Orlen could take place as soon as next month. "In real terms, we could send an option notice to the Polish concern in January at the earliest and a deal would have to take place within ten days," Neringa Pazusiene, the director of the Law and Public Procurement Department at the Economy Ministry, said on Monday. The Cabinet earlier in the day endorsed an amendment to a law on the purchase and disposal of shares in Mazeikiu Nafta aimed at repealing a clause in the law that required that the state retain 10 percent of the company's stock capital, or 70.750 million shares. The amendment to the law, which was passed in 2005, is yet to be approved by the parliament. "This opens the way for sending a notice to PKN Orlen under the option agreement. But before this can be done, the amendment must take effect and the government must delegate certain powers to the economy minister," she said. Lithuania in late 2006 sold PKN Orlen a 30.66 percent stake in Mazeikiu Nafta and has an option to sell the rest of the shares. Under the terms of the put option agreement, the deal has to be concluded in Vilnius on the tenth day after the notice is given, or the next work day if this date falls on a weekend or holiday.
Respublika, Verslo Zinios, Lietuvos Rytas

Inflation has been cut
The forecast for this year's average annual HICP inflation has been cut to 11.2 percent from 11.4 percent. The inflation projections for the next two years remain unchanged at 5.4 percent in 2009 and 3.6 percent in 2010. The current account deficit is expected to reach 12.5 of GDP this year before narrowing to 5.3 percent next year. The latest forecasts anticipate a 20 percent rise in the average salary this year. Growth in salaries should slow to 4.3 percent in 2009 (down from an earlier estimate of 9.8 percent growth) and decelerate further to 2.3 percent in 2010 (down from 2.4 percent). The growth forecast for 2011 has been raised somewhat to 3.4 percent from 3.2 percent. The average monthly gross salary in 2011 is projected to be LTL 2,386.5. The ministry has also revised up its unemployment forecasts: to 5.6 percent from 4.9 percent for this year, to 7.8 percent from 6 percent for 2009, to 8.5 percent from 6.2 percent for 2010 and to 8.6 percent from 6.1 percent for 2011.
Respublika, Lietuvos Rytas

Monday, 15th of December

Increasing taxes
Lithuania's government, which began debating the 2009 budget bill on Saturday, is mulling a possibility to cut the income tax by 3 points, i.e. to 21 percent, from 24 percent, instead of 4 points, as set forth in the government program approved by the parliament and the crisis management plan. "That figure will be recorded in the budget bill instead of the 20 percent rate," Transport Minister Eligijus Masiulis said. The income tax will include the health insurance tax, which will amount to 6 percent, instead of previously planned 5 percent rate. "There are no sources of funds to balance the health budget. Next year's projections for the economy, the social insurance fund (Sodra) are getting worse and worse every day. Hence we have to look for money needed for hospitals and other health establishments," Health Minister Algis Caplikas said. On Monday, December 15, the government will decide on the budget bill and submit the draft to the parliament, which plans to pass the budget on December 23.
Lietuvos Zinios, Verslo Zinios

Verslo Zinios reorganizes
Lithuania's Verslo Zinios group, part of Sweden's Bonnier media group, has launched reorganization of units and reduced the staff amid worsening media market. "We launched the first reforms early this year since we anticipated possible market meltdown. We worked out an action plan, the key constituent parts of which include the cutting of costs and transfer of some processes to the electronic space," Rolandas Barysas, Verslo Zinios CEO and editor-in-chief, said. First the group reorganized its sales unit via the movement of some of its functions to the Internet and installation of new software. The reorganization of the unit would entail the dismissal of 9 employees, effective from Monday, December 15, the news portal reported. After the New Year, the group would merge the news desks of the Verslo Zinios business daily and the Internet portal and would roll out an online version of Verslo Zinios. As a result of reorganization, the staff of Verslo Zinios was reduced to 136. Verslo Zinios

Current deficit goes down
Lithuania's current account deficit stood at LTL 726.4 million in October, down by 13.4 percent from September and down by 30.8 percent compared with a year ago, the central bank of Lithuania reported on Friday. It attributed the narrowing of the current account deficit to a decline in the foreign trade deficit. The country’s export and import surged by 23.9 percent and 8.8 percent respectively, the central bank of Lithuania stated.  It is said that the current account deficit stood at LTL 1.049,5 in October of 2007.
Verslo Zinio)

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