Miller, Brazauskas to ask EU for electric grid funding

By Kamil Tchorek

Prime Minister Leszek Miller and Lithuanian Prime Minister Algirdas Brazauskas plan to ask the European Commission for €260 million (zł. 1.2 billion) to finance a proposed inter-connection of the Polish and Lithuanian electrical power grids.

In a letter obtained by the Business Journal, Brazauskas and Miller tell Romano Prodi, the president of the European Commission, that "the implementation of such a project would require approximately €434 million." The prime ministers go on to request a 60-percent grant to make the project commercially viable. The letter, which is also addressed to the president of the European Bank for Reconstruction and Development (EBRD), Jean Lemierre, does not indicate where the money is expected to come from.

Connecting the Polish and Lithuanian power grids was originally proposed in 1995. The economic windfall of an inter-connection between Poland and the three Baltic states has been estimated by a feasibility study at approximately €1.94 billion (zł. 8.7 billion) within a 20-year period.

The power grid operators of Poland and Lithuania, Polskie Sieci Elektroenergetyczne S.A. (PSE) and Lithuania's Lietuvoa Energija AB, have met to discuss the creation of a Project Development Company (PDC), whose business plan will depend heavily on the EU's as-yet-uncertain attitude toward providing the grant.

Some optimism about the anticipated response from the European Commission and the EBRD stems from the fact that the feasibility study for the project, completed in January, received the financial and organizational support of the EBRD. Energy consultants Ian Pope Associates (IPA) of Scotland were selected to lead the study. According to IPA, the project falls in line with the EU's general energy policy goals.

But the deputy director of PSE's international affairs department, Hanna Trojanowska, says that the inter-connection is a difficult undertaking for PSE because "it is not economically viable without the help of EU funds."

"The inter-connection does have commercial potential and should not receive too much public money," says the head of the Poland and Baltic states unit of the European Commission's Instruments for Structural Policies for Pre-Accession (ISPA) program, Friedemann Allgayer. "The money that the project will receive will come from EU structural funds, which are granted to individual countries rather than cross-border projects. To overcome this complication, both countries (Poland and Lithuania) need to work together. The development of the PDC will certainly assist that."

At this stage, PSE and Lietuvoa Energija are still forming a bilateral working group to discuss the nature of the PDC, and the positive and negative aspects of registering the company in either Poland or Lithuania.

"Given that Lithuania is a prospective member of the EU and is still not connected to the common electricity market, it has the most to gain from the partnership," says Waldemar Łagoda, chief expert at the energy security department in the Ministry of Economy, Labor and Social Policy. "Furthermore, the Ignalina nuclear power plant, which produces most of Lithuania's energy, is due to be closed by 2009 and Lithuania needs not to be isolated."

The link is expected to bring positive knock-on effects for Poland, especially in terms of energy re-export to western Europe. But before that happens, the EU will be compelled to help bolster Polish inter-connections with the existing EU grid. As Łagoda put it, "For the potential electricity importers of Western Europe to enable electricity flow from the Baltic States and Poland, an improvement to the connections on Poland's western and southern borders is required." This objective is obliquely referred to in the joint prime-ministerial letter as "necessary grid reinforcement."

"There is a political imperative," Trojanowska adds. "The European Union has a goal of completing a pan-European electrical grid. The inter-connection links the three Baltic states to Europe, and represents a part of a general EU cohesion phenomenon, including telecommunications and transport."

There are successful EU precedents, such as the inter-connection of the Italian and Greek power grids, which was initiated in 1996.