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EC slaps Lithuanian railways with heavy fine, Lithuania weighs response options

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Linas Jegelevičius for the BNN

Lithuania’s reluctance to turn ear to the European Commission’s long demands has fired back – the European Union’s executive body imposed Monday, October 2, a 27.87 million euro fine for the state-run company Lietuvos Geležinkeliai (Lithuanian Railways) for restricting competition by dismantling a railway stretch between the town of Mažeikiai, where Poland’s oil refinery Orlen operates, and the Latvian border village of Renģe in 2008.

«It is unacceptable and unprecedented that a company dismantles a public rail infrastructure to protect itself from competition,» EU Competition Commissioner Margrethe Vestager said after the ruling.

The EC concluded that the absence of railways forced the Polish refinery to transport its freight to Latvia on a much longer route. The Commission states that Lithuania’s national railway company failed to prove that the railways had to be dismantled for objective reasons.

Inquired by BNN on further actions following the EC decision, Lietuvos geležinkeliai replied that the company will decide within two months whether to contest it.

«It is one of our options, however, whether we will resort to it will be clear only after we carefully scrutinise the EC arguments and all legal possibilities, striving for as little harm to Lietuvos geležinkeliai as possible,» Tadas Valančius, a representative of the company’s Communications department, said in a written reply.

He also accentuated that the rebuilding of the demolished railway stretch is also one of alternatives.

«We will analyse is it…It is worth noting that the Rengė stretch had not been used as the quantity of oil freights from Lithuania to Latvia fluctuated from 480,000 to 941,000 tons a year,» Valančius added.

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,» the company representative said.

Lithuania can appeal the EC decision with the Luxembourg-based Court of Justice of the European Union (EU).  Payment of the fine would not, however, eliminate the duty for Lithuania to restore the stretch.

Meanwhile, Lithuania’s officials continue to maintain that the railway line had been dismantled for security reasons. At the time, the government was headed by Gediminas Kirkilas, Algirdas Butkevičius served as transport and communications minister, while Stasys Dailydka was the CEO of Lietuvos Geležinkeliai.

A multi-million fine, expert agree, would 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.

He, however, admitted a possibility that Latvian companies that have suffered loss due to the dismantling can lodge with Latvian courts lawsuits demanding to pay them a compensation.

This is likely as, ahead of the EC decision, Latvia, which had filed the appeal against Lithuania, intensified pressure and handed Lithuania an official note with a demand to rebuild the railway stretch and restore the possibility of transporting freight on Latvian railways.

However, Latvia’s Prime Minister Maris Kučinskis said in an interview with LNT commercial TV channel 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 said 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.

«It is therefore a pity Lithuania did not heed these demands earlier and we could not resolve this in a normal, peaceful way,» PM said.

Asked about additional compensations Latvia might possibly claim from Lithuania based on the European Commission’s ruling, Kučinskis said that there have been no discussions on such a possibility yet.

«Of course, the European Commission’s decision means that we might claim our unearned profit, calculate the losses. But this has not been discussed as yet, and we have not seen the full text of the European Commission’s decision either,» Kučinskis said.

However, Latvia’s national railway company has already confirmed it was discussing a compensation claim over railway maintenance and unreceived income.

Poland’s Orlen concern, which besides oil refinery in Mažeikiai also operates the Būtingė terminal, has also reported Lithuania about the dismantled railway to Brussels.

Brussels has also urged Lithuania to separate Lietuvos geležinkeliai operations, however, Lithuania balked to do so, arguing it could lose the profitable freight haulage operations.

Approached by Lithuanian media, Lithuanian lawyers claimed that the Lithuanian government should give a serious thought to the possibility of filing an appeal against the European Commission’s (EC) fine against the state-run company Lietuvos Geležinkeliai (Lithuanian Railways, LG), however, admitted that the available information does not give reasons to strongly expect a successful outcome.

Daivis Svirinas, partner at Sorainen law office, told BNS, a Baltic news agency, that the state-run company should use «every possibility, if there are any and are visible, before giving up.»

«In my opinion, there are possibilities (to appeal) but to give a more detailed answer I would need to know all the material and the reasoning behind the commission’s ruling. The main dispute is about whether the railway stretch was dismantled to impede traffic on the track or whether there were other technical reasons,» Svirinas.

Andrius Ivanauskas, partner at Glimstedt law office, concurred, saying the commission’s argumentation should be checked in court.

«…In any case, the commission’s vision should be checked in court to see whether everything was done correctly and whether there were procedural breaches,» Ivanauskas said.

Nevertheless, Marius Juonys, partner at Ellex Valiūnas law office, cautions that that long duration of writing conclusions means that «the EC probably repeatedly weighed all pros and cons before making the decision.»

In his opinion, the statistical probability of rebutting the European Commission’s decision was slim.

Lithuania has 70 days to decide on an appeal.

The Lithuanian Parliament’s speaker Viktoras Pranckietis is so far the only Lithuanian official who has hinted that Lithuania may be forced to obey and rebuild the stretch.

«It seems like we will have to rebuild it,» Pranckietis told Žinių Radijas news radio on Wednesday, October 4.

The parliamentary speaker said he had noted back in spring that rebuilding the railway stretch could be cheaper than paying a fine, however, «the train had already left the station and we already knew that we might be imposed the fine.»

Pranckietis expressed doubt whether politicians could be made personally accountable for the decisions nearly a decade after the removal of the railway stretch.

EU Competition Commissioner Margrethe Vestager is expected to visit Vilnius next week. She will meet the Lithuanian leaders, including President Dalia Grybauskaitė, Prime Minister Saulius Skvernelis and Lithuanian lawmakers. She will also take part in a conference organised by the Lithuanian Competition Council.

Ref: 020/111.111.111.5056


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