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Lithuanian state railway company Lietuvos Geležinekliai faces unbundling

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Linas Jegelevičius for the BNN

A state in the state – that is how Lithuania’s state enterprise Lietuvos Geležinkeliai is dubbed – has bumped into a major hurdle along the road. The European Commission, which is about to end the investigation into the dismantling by Lietuvos Geležinkeliai the railway stretch to Renge, Latvia, threatens to impose the Lithuanian railway company a huge fine and obligate it to rebuilt the stretch.

The other option Lietuvos Geležinkeliai has is to unbundle the company into two separate companies: one would be responsible for infrastructure and the other would be in charge of cargo and passengers.

EC Transport Commissioner is tough

«One is a fineand a commitment to rebuild the Renge stretch. And the second option is separating the activities into infrastructure and haulage,» Lithuanian Transport and Communications minister  Rimantas Sinkevičius said after meeting last week with Violeta Bulc, the EC Transport Commissioner.

In Sinkevičius’ words, Lithuania has a month to decide which of the two options suit Lithuania’s interests best.

Although the size of the fine is withheld, but the leaks in Lithuanian internet media hint it can amount to some 43 million euros.

The minister said he did not know yet which of the options the government will go for: «I don’t know it yet, we still have a month to decide.»

Will Lithuania sue EC?

According to Sinkevičius, if the state opts for a decision to separate  Lietuvos Geležinkeliai’s operations, the company ought to be given additional time as the ensuing unbundling process will be «complicated», especially that the company has a number of cases pending in courts, as well as a slew of financial obligations. The minister did not rule out to go to court should the EC impose the fine.

The EU probe into the company’s operations was opened by the EC in March of 2013 after the Polish oil concern Orlen filed a lawsuit against Lithuania over the railway stretch dismantling in 2008. The removal has interrupted traffic between Lithuania and Latvia. The rails are yet to be restored.

In its lawsuit, the European Commissioned argued that, as a monopolist, Lietuvos Geležinkeliaihad abused fair EU competition policies.

With the railway stretch off, Orlen’s Lithuanian offshoot, Orlen Lietuva, was forced to either employ Lietuvos Geležinkeliai railway services for the haulage of oil products to Latvian seaports or redirect the cargo traffic to the Lithuanian seaport of Klaipėda.

Orlen has claimed since the beginning it violated fair competition and asked the EC to step in.

Unwilling to litigate with the EC, Lietuvos Geležinkeliai sought a peaceful solution, but the Commission turned down the company’s proposal and, in 2015, filed charges against it.

If the Commission imposes the fine of 43 million euros, it would amount to nearly one-tenth of the Lietuvos Geležinkeliai’s annual turnover, according to Lithuanian media.

Big bills might lie ahead

Besides, rebuilding the Renge railway stretch would cost the company another 20 million euros. As Orlen is expected to lodge in a lawsuit against Lietuvos Geležinkeliai demanding it to remunerate all the pecuniary damages the Poles have incurred following the dismantling, Lietuvos Geležinkeliai’s legal bills are likely to be huge.

Facing the grim reality, Sinkevičius, the Transport minister, met this Wednesday Lithuanian President Dalia Grybauskaitė and discussed the situation.

«Unfortunately, state enterprise Lietuvos Geležinkeliai acts as if being a state within the state. It is intolerable that its interests have been put higher the state’s interests. The Government’s inactivity addressing the issue can cost the state dozen million euros, which will be paid by our taxpayers,» the head-of-state underscored after the meeting.

Government must talk to EC immediately

According to the President, the Government has to swiftly make up its mind (what to do next) and inform the European Commission about decisions that may prevent the sanctions against the railways company.

«After possible economic and financial aftermaths are assessed, the Government has to immediately pass decisions that would effectively reorganize state company Lietuvos Geležinkeliai,» Grybauskaitė is quoted as saying in the statement.

Lietuvos Geležinkeliai has long been known as the ruling Social Democrats’ stronghold and one of the chief donors for the party’s political campaigns.

The President had met the minister yet last summer and urged him to find solution in the row with the European Commission, but neither he nor the railway company has come up with it.

In the head-of-state’s opinion, the only possible solution in the situation now is to unbundle the company into two separate companies. One of them would be responsible for the maintenance and management of the railway infrastructure and the other would be entrusted with the haulage of cargo and passengers.

A hard case to crack

Grybauskaitė told the Transport Ministry, which is the single shareholder of Lietuvos Geležinkeliai, to draw up a plan of actions that would help the problem.

Commenting the meeting, Sinkevičius was excusing himself that he had inherited the problem from his predecessor.

«All has started back in 2010 and the case is far from being simple. If it were such, the litigation would have not lasted entire six years,» the minister said.

He believes that Lietuvos Geležinkeliai, not the state should be held accountable for it.

«Government should be seeking maximally rational and beneficial solutions on all the possible levels. I believe that the most rational solution would be adhering to all the legal norms and laws that are passed in the European Union. I have in mind the so-called fourth EU railway package,» the minister pointed out.

Earnings plummeted

The package envisions establishing a Single European Railway Area (SERA) and sets out the Commission’s approach to ensuring the competitiveness of EU transport in the long term, while dealing with expected growth, fuel security and decarbonisation.

«We will be suggesting to make the activity of Lietuvos Geležinkeliai more transparent and retain the vertically integrated structure,» Sinkevičius suggested.

The company’s net earnings last year slumped more than seven times, year-on-year, and amounted to 2,776 million euros.

Disagreeing with the President, who insists the company does not cooperate with the EC, Lietuvos Geležinkeliai claims it has been communicating with the Commission «intensely».

«Sometimes we exchange several letters every week and then meet once or twice per month. And then a quieter period follows, when the Commission prepares queries for us and reconciles a drafted document in the Commission. But even in this case, we do keep ourhand on the pulse and inquire  periodically, once or twice per month, when we can expect a decision and whether we can assist the Commission with the preparation of one or another document,» a company official is cited in Lithuania media.

Neither Lietuvos Geležinkeliai, nor the Ministry of Transport and Communications commented the situation to BNN.

Ref: 020/

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