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LG cozies up with idea of rebuilding railway tracks to Reņģe, Latvia

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Mantas Bartuška, CEO of Lietuvos Geležinkeliai

Linas Jegelevičius for the BNN

Lithuania‘s Lietuvos Geležinkeliai (Lithuanian Railways) has sent a mixed message as to what it intends to do next following an EC fine of nearly 28 million against it over the dismantling a 19-km railway stretch with the Latvian village of Rengė.

Brussels ruled in early October that Lithuania resorted to the drastic means to intentionally limit the capabilities of Latvian railways in transporting oil products from Orlen Lietuva, an oil refinery in the Lithuanian town of Mažeikiai, to Latvia. Besides, the absence of railway tracks forced the Polish refinery to transport its freight to Latvia on a much longer route.

«It is likely that we will soon start rebuilding the Rengė-stretch to settle the issue,» Mantas Bartuška, CEO of Lietuvos Geležinkeliai (LG), told a news conference on Wednesday, October 18.

He did not elaborate, however. Earlier calculations suggest the price-tag of the construction can be in the range of 20 million euros.

Margrethe Vestager, the European Commissioner for Competition, said while on her visit to Lithuania last week that rebuilding would solve the problem of the removed tracks.

She’s has resorted to harsh rhetoric against the Lithuanian railway company following the EC ruling.

«It is unacceptable and unprecedented that a company dismantles a public rail infrastructure to protect itself from competition,» the commissioner said right after the EC decision in early October.

Inquired then by BNN on further actions in the wake of the eight-digit EC pecuniary penalty, Lietuvos geležinkeliai replied that the company will decide within two months whether to contest it.

Lithuania’s officials have maintained throughout that the tracks were dismantled for purely safety reasons.

Speaking at the Wednesday conference, Bartuška maintained that LG will likely file an appeal against the EC‘s decision to impose it a fine of nearly 28 million euros for the 2008 removal of tracks.

In his words, this will be done to reduce the fine and defend the company’s reputation.

«We have thoroughly analysed the decision and there is no doubt that we will appeal against the European Commission’s decision. We have two months for preparations and drafting of the final strategy and the argumentation. What is important is that we have good relations with Orlen, we continue talking about settlement of the situation, as Orlen freight is very important for us,» Bartuška is quoted as saying.

«In terms of procedures, we have to pay the fine but we can also appeal it…We will seek to reduce it and defend the company’s reputation,» he added.

In the LG chief’s words, the sum of the fine is too large: «Hearing a case for nine years is an unparalleled and unprecedented case. There are clear possibilities to reduce or even annul the fine.»

He predicted that litigation with the European Commission could cost about 500,000 euros.

«Without doubt, we will need external experts in a case of such complexity. We currently have a contract of legal services with Linklaters law office (of Great Britain). The sums will depend on the scope of the case, the duration and the complexity. Our calculations today are that it will be around half a million of euros,» the LG head said.

Previously, he did not rule out additional claims from Latvian railways, however said that they would be without substantial grounds.

«We should understand that Latvians are our brothers and competitors. They can name various sums, we heard hypothetically high sums; however, if there are no grounds, they are useless. We intend to speak with Latvians shortly. Will it help to solve this, we’ll have to wait and see, what is important to us is that we have partnership and good relations with Orlen and our colleagues in Latvia,» the LG CEO emphasised.

After the EC ruling, Orlen Lietuva, Latvian railways and other affected parties were thought to file additional claims for compensation of damages. Bartuška has admitted his company was in talks with Poland’s Orlen in an effort to avoid legal wrangling.

Latvian railways and the Riga port are also said to be considering claims against Lietuvos Geležinkeliai.

Lithuania‘s President Dalia Grybauskaite also weighed in on the LG fine issue, confirming that the national railway company does not intend to deny the competition violation established by the European Commission, however, intends to go to court over the size of the fine.

«As far as I know about the wording that has been laid down as the Lithuanian position, they are not disputing the violation itself, as it is physically evident, and (the railway stretch to) Rengė will have to be rebuilt (…). The claim will be about the calculation formula, only the sum (of the fine),» Grybauskaitė told Vilnius journalists on Wednesday, October 18.

«When we manage to prove the size of the damaged caused, we will hold relevant talks with our partners (Poland’s Orlen and Latvian railways). The damage has been done, we are now only talking about the size and the country’s reputation,» the president added.

The EC finding can be appealed to the Court of Justice of the European Union in Luxembourg.

Last year, Lithuania transported 844,000 tons of oil products to Latvia. Meanwhile, in 2007, with the Rengė stretch in operation, the amount was 675,000 tons.

«The current connections with Latvia are used only at 20 percent of their capacity,» a LG representative said.

Payment of the fine does not eliminate the duty for Lithuania to restore the stretch.

A multi-million fine, expert agree, can become a real challenge for the new management of Lietuvos Geležinkeliai; however, Ričardas Degutis, the deputy minister of Lithuania’s Ministry of Transport and Communications, exhorts not to rush with far-reaching conclusions and predictions.

In fact, Lietuvos geležinkeliai announced this week of having earned 3,7 mn euro of net profit over the year’s first three quarters, a 6,6 per cent increase, year-on-year.

The result puts LG on top of the other Baltic railway companies.  The company boasts of having increased shipment transit through Lithuania by 19,8 per cent, year-on-year, and the export shipment volume by 19,8 per cent over the year’s nine months. The transit results were largely boosted by economically beneficial deals with the Russian enclave of Kaliningrad.

Latvia’s Prime Minister Maris Kučinskis has said in an interview that Latvia has not yet discussed the possibility of claiming compensation from Lithuania for the revenue Latvia has lost since 2008 as a result of the dismantling of the Mažeikiai-Rengė railway section.

The premier noted, however, that Latvia had raised the issue with Lithuania from time to time, noting that the decision to dismantle the railway section had been unfair and that it had crippled competition.

The reconstruction of the dismantled railway section would have cost Lithuania significantly less than the fine imposed by the European Commission, prime minister underscored in the beginning of the month.

Ref: 020/111.111.111.5102


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