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RR RUEHAG RUEHAST RUEHDF RUEHHM RUEHIK RUEHLN RUEHLZ RUEHMA RUEHPB
RUEHPOD RUEHROV RUEHSR RUEHTM RUEHTRO
DE RUEHBS #0311/01 0641524
ZNR UUUUU ZZH
R 051524Z MAR 09
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHRA/AMEMBASSY RIGA
RUEHTL/AMEMBASSY TALLINN
RUEHVL/AMEMBASSY VILNIUS

UNCLAS SECTION 01 OF 03 BRUSSELS 000311 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EPET EUN
SUBJECT: MOVING FORWARD ON BALTIC ENERGY INTERCONNECTIONS 
 
Sensitive but Unclassified - not for Internet distribution. 
 
USEU would like to thank Embassies Riga, Tallinn and Vilnius 
for their assistance in preparing this cable. 
 
¶1. (SBU) Summary and Introduction.  With the closing of 
Lithuania,s Iganlina nuclear power plant scheduled for 
January 2009, and Russia,s increasing penchant for using 
energy resources as a political tool, the energy security of 
the Baltic States has become a concern on both sides of the 
Atlantic.  Latvia and Lithuania draw much of their 
electricity from Ignalina, and together with Estonia, rely on 
Russia for 100 percent of their gas supplies.  In addition, 
none of the three are interconnected with European 
electricity grids, but rather are still connected to the 
Russian grid.  Several energy projects, such as new nuclear 
power plant, electricity interconnectors, and an LNG plant 
have been proposed to promote regional energy security. 
However, while the three states realize they must cooperate 
to achieve this common goal, they have been unable to 
set-aside nationalistic impulses.  The EU Commission has 
established a high-level group to help Estonia, Latvia, 
Lithuania, and their Baltic Sea neighbors to develop an 
Interconnector Plan to improve energy security.  We should 
work to support this process.  End summary. 
 
REGIONAL DIFFERENCES 
¶2. (SBU) In October 2008, European Commission President 
Barroso and Energy Commissioner Piebalgs agreed with the 
leaders of Estonia, Latvia and Lithuania, and their Baltic 
neighbors Denmark, Finland, Poland, and Sweden ) to 
implement a Baltic Interconnection Plan in 2010.  The object 
of the plan is to promote regional energy security and create 
a common energy market by integrating the electricity grids 
of the seven states, diversifying gas supplies, and 
increasing electricity generation.  A high-level group, led 
by the EU's Director General for Transportation and Energy 
was tasked with developing the plan.  USEU Econoff traveled 
to Riga, Vilnius, and Tallinn in February to discuss the plan 
and the means to promote energy security in the region. 
 
¶3. (SBU) Differences amongst the three Baltic States, notably 
between Latvia and Lithuania, over the entry point of the 
Swedlink electricity interconnector, allocation of funds, and 
ownership interests in the Visaginas nuclear power project 
has hindered attempts to integrate the energy markets.  The 
intervention of the Commission is a welcomed approach to 
break through the inertia, as the three governments realize a 
common approach is necessary to ensure progress. 
Lithuania,s new energy minister, Arvydas Sekmokas, told 
Ambassador Cloud &we need to approach the EU as a region, 
not as individual Member States.8  Maija Manika of Lativa,s 
MFA said a common approach is necessary to &neutralize old 
Europe,s dominance of this issue,8 particularly insofar as 
Russia is concerned.  Mati Murd of Estonia,s MFA said the 
creation of a common energy market and development of energy 
infrastructure should be the highest priority for the Baltic 
States.  However, this may be difficult in the current 
economy, particularly for the Latvian government which must 
deal with significant budget shortfalls and rising 
unemployment. 
 
NUCLEAR PARTNERS 
¶4. (SBU) The Visaginas nuclear power project, intended to 
replace the Soviet-era Ignalina plant, exemplifies the 
discord.  The original proposal called for a joint venture 
with power to be distributed to Estonia, Latvia, and 
Lithuania.  Without consulting its northern neighbors, 
Lithuania offered to transmit power to Poland, which in-turn, 
demanded 1000 MW, approximately one-third of the prospective 
capacity.  Further, Lithuania,s Parliament mandated that 
Lithuania maintain a dominant share in the project.  Manika 
said Latvia wants &an equal partnership and not to be 
dominated by Lithuania8 which she added &is more concerned 
with its image than resolution8 of this issue.  Murd said 
Estonia is &disappointed8 by the lack of progress:  &the 
inertia is not good; we,ve been already waiting three 
years.8  He added that while Visaginaus remains a 
&priority,8 Estonia is investigating the prospects for its 
own small-scale reactor ) about 500 MW.  Manika noted that 
Poland is also looking to build its own nuclear power plants 
due in part to the Visaginas morass. 
 
¶5. (SBU) Sekmokas said resolving the impasse on Visaginas is 
one of his first priorities and outlined four issues to 
address.  (1) Secure participation in the project.  He said 
 
BRUSSELS 00000311  002 OF 003 
 
 
Estonia and Latvia should definitely participate, while 
Sweden and Poland are possibilities due to the proposed 
electricity links.  (2) Total capacity of the project.  The 
waffling over participation in the project has led to 
uncertainty of demand.  (3) Ensure that decisions are based 
on sound economic criteria and not political desires, and (4) 
determine when the plant will be operational.  Marius 
Grinevicius, director of the Visaginas project, said 
political discussions have overshadowed the technological and 
commercial process.  He believes that once the technological 
specifications are completed, possibly by year-end, progress 
will be made on an agreement.  Grinevicius said the potential 
capacity is up to 3400 MW, but the actual capacity will 
depend on participation.  He said the plant could be 
operational by 2018, and added that he is interested in 
&American know-how8 to help manage the operation. 
 
CONNECTING TO EUROPE 
¶6. (SBU) Progress on Visaginas could also spur progress on a 
Poland-Lithuania electricity link.  Sekmokas seeks to 
transmit 1000 MW from Visaginas to Poland.  This would 
require two synchronous power lines which could link the 
Baltics to Europe,s UCTE electricity grid.  (Note:  Estonia, 
Latvia, and Lithuania are currently connected to the Russia 
grid.  End note.)  Manika warned however that Poland,s 
diminishing interest in Visaginas puts the link in jeopardy. 
 
¶7. (SBU) Another objective for the Interconnector Plan is a 
connection to the Scandinavian Nordpol grid via a 1000 MW 
interconnector with Sweden.  The project, known as Swedlink, 
could connect the Baltic States to Scandinavia,s Nordpol 
grid, but like Visaginas, it is hampered by internal 
bickering.  (Note:  The Interconnector Plan seeks to link the 
Baltics with the UCTE and/or Nordpol grids, but they would 
not necessarily be removed from the Russian grid.  The 
intention is to keep a transfer station and have access to 
multiple power markets in order to secure cheap power.  End 
note.)  The dispute between Lithuania and Latvia is over the 
point of connection for the power cables.  Lithuania contends 
that it has the funds for the project; has conducted a 
feasibility study; and unlike Latvia, has high-voltage 
infrastructure in place at the proposed point of entry. 
Publicly, Latvia maintains that its proposed link is 40 km 
shorter and thus more cost effective and that it has already 
mapped the seabed for the proposed route.  In reality, it is 
more of a case of the &haves8 and &have nots8 with the 
major infrastructure projects being designated for Lithuania. 
 Sekmokas, for his part, recognizes this problem and the need 
to engage Latvia.  (Note: In addition to Swedlink, there is a 
proposal to add a second electricity connection between 
Finland and Estonia known as Estlink II.  End note.) 
 
DIVERSIFYING GAS SUPPLY 
¶8. (SBU) The Interconnector Plan also seeks to diversify the 
region,s gas supply by building an LNG terminal.  The 
ability to import LNG would lessen reliance on Russia, its 
sole supplier.  Like Visaginas and Swedlink, the project,s 
viability requires regional participation, and like Visaginas 
and Swedlink, the proposed site is in Lithuania.  (Note:  The 
U.S. Trade and Development Agency provided Lithuania a grant 
in 2008 for a feasibility study on an LNG terminal.  End 
note.)  Lithuanian officials concede that Lithuania has no 
inherent advantages over Latvia for an LNG terminal but said 
that they have private investors interested, whereas Latvia 
does not.  Both Lithuanian and Estonian officials noted that 
Gazprom, which is a major stakeholder in Latvijas Gaze, has 
no interest in promoting competition, and thus, Latvian 
support for an LNG terminal is lukewarm at best.  Even Manika 
acknowledged that Latvia is not the ideal location.  She said 
that Government of Latvia has requested a derogation of the 
unbundling requirements of the EU,s Third Energy Package. 
Thus, Latvijas Gaze (and for that matter Gazprom) will 
maintain a monopoly over gas transmissions until 2017. 
 
¶9. (SBU) An alternative to an LNG terminal is to bring 
compressed natural gas (CNG) to Estonia.  According to a 
representative of Lithuania,s Lietuvos Dujos gas company, 
CNG connectors would be less expensive than an LNG terminal, 
and could still benefit the region.  Allan Gromov of 
Estonia,s Environment Minstry said this proposal is being 
considered by Estonian investors. 
 
STUMBLING BLOCKS 
¶10. (SBU) Officials in all three countries voiced frustration 
over the lack of progress.  There is a consensus that success 
is proportional to cooperation, and Lithuanian and Estonian 
 
BRUSSELS 00000311  003 OF 003 
 
 
officials acknowledged that providing Latvia a greater share 
of the pie would likely yield results.  One proposal 
mentioned in both Vilnius and Estonia is a project to expand 
Latvia,s gas storage capacity.  This, coupled with expansion 
of Latvia,s transmission system would make Latvia the 
region,s gas hub, a role it is geographically and 
geologically designed for.  However, a Commission official, 
himself a Latvian, said such a project would be tantamount to 
giving Gazprom money.  He said additional storage is not 
needed.  The real problem is Latvia,s inability to plan 
strategically.  He said that when the Commission drew up a 
list of energy infrastructure projects for its recovery 
package, he proposed a project to upgrade Latvia,s energy 
grid in its coastal region.  He said this would provide 
Latvia with the capacity to interconnect with Sweden and/or 
could pave the way for development of offshore windfarms.  He 
also suggested biomass-fired plants which would keep money 
and jobs in Latvia (as opposed to Visaginas).  He said 
neither project stirred government interest. 
 
COMMENT 
¶11. (SBU) The high-level group is scheduled to present the 
Interconnection Plan in July for adoption by the member 
states.  Given the difficulties Estonia, Latvia, and 
Lithuania have encountered resolving these issues, it may be 
best to for them to continue discussions under the 
Commission,s mediation.  Thus, we should continue our 
support for this process and encourage Estonia, Latvia, and 
Lithuania to abide by and implement the high-level group,s 
recommendations. 
 
Murray 
.