Dark days at the centre of Europe

The Baltic state of Lithuania – sandwiched
between Latvia and the Russian exclave Kalingrad – faces an economic
contraction of 18 percent for 2009.

To that the government has said it will add
a 30 percent increase in household power prices in 2010, as it fulfils a
condition of EU membership and shuts Ignalina, the Chernobyl-style
nuclear power plant that provides 70 percent of Lithuania’s power.

EU officials in Brussels pressed for the
closure at the start of the century, when the bloc was embarking on its eastern
enlargement. Their goal was to lower the risk of a repeat of the Chernobyl
nuclear explosion of 1986.

Neither recession nor energy security were factors when the
sculpture was symbolically unveiled on May 1, 2004 as Lithuania, once occupied
by the Soviet Union, joined the EU. It is described by the country’s tourism
website as marking “the poignant return of Lithuania to the family of
European nations”.

But from December 31 – when temperatures can drop to minus 30
degrees Celsius (minus 22 Fahrenheit) and rivers freeze – the closure will
make Lithuania more dependent on an increasingly irregular supply of power from
its former occupier.

“It’s the worst crisis ever,” said Jan
Glushachenkov, a 44-year old former excavator driver who lives next to the
sculpture above a compass mosaic.

Speaking to reporters in the still hush around the column near
the village 26km northeast of Vilnius, Glushachenkov said he has
already been out of work for almost a year.

He pointed out the more pressing risks Brussels now faces in
closing the reactor with the country’s 3.5 million people locked in recession:
“People will have to emigrate or to go to steal.”

Population losses due to net emigration since 1990 already
amounted to about 10 percent, according to a 2008 report from the OECD.

Edgy relations

For those who stay, things will be tough. Glushachenkov’s
neighbour Ludwik Trypucki, an 86-year-old farmer, said the shutdown will lift
his monthly power bill to about 18 percent of his 800 Lithuanian litas ($333.5)
pension. He already pays 120 litas per month.

“I understand they had to close it if it was unsafe to
operate, but they had to agree in advance to get cheaper electricity. Now it’s
unclear where that will come from,” he said.

Lithuania plans to import electricity from Estonia, Russia
and Ukraine, via neighbouring Belarus. A small amount will be imported via
cable from Finland and Latvia.

The increasing energy dependence on Russia, which will also
supply gas for a fossil fuel-powered electricity plant, comes as relations
between the countries remain edgy.

Lithuania objected to Russia building a gas pipeline to
Germany under the Baltic Sea and attempted to block the start of EU-Russia
talks on a strategic partnership.

Some in the Baltic region fear a planned pipeline under the
Baltic Sea from Russia to Germany, Nord Stream, could offer Moscow a direct
energy lever with Europe, enabling it to cut off countries’ gas to wield diplomatic
pressure.

Russia has in the past been a reliable gas supplier to
Lithuania, although it has cut oil supplies to a Lithuanian refiner, Mazeikiu
Nafta, now owned by Polish oil group PKN Orlen.

Inflation

Prime Minister Andrius Kubilius is hopeful countries in the
region will be happy to sell Lithuania electricity surpluses the downturn has
created in their countries, and pointed to long-term power contracts Lithuania
has signed.

“Lithuania will become more dependent on imports of
energy resources after Ignalina’s closure. That will reduce our energy
security, but we feel assured about the next year,” he told reporters.

The EU has allocated so far about 820m euros ($1.17bn) in aid to decommission the plant, deal with the nuclear waste and
upgrade a fossil fuel plant, but the central bank points to the shutdown’s
broader impact.

“A 30 percent hike in electricity prices will slash
gross domestic product by one percentage point and will increase inflation by
almost one percentage point,” said Raimondas Kuodis, the central bank’s
chief economist.

“It does not look a lot in the context of the global
crisis, but for Lithuania’s economy it’s a painful hit.”

Besides jobs lost at the reactor in the town of Visaginas in
Lithuania’s easternmost corner, businesses straining to maintain working
capital will be squeezed.

Arturas Zaremba, head of major cement producer Akmenes
Cementas, said his power prices would more than double to 15 Lithuanian cents
per kilowatt-hour from six, raising costs for the company with revenues of 125
million litas by six or seven million litas.

“The electricity price increase will be a serious shock
not only for our company, but for the whole economy,” he said.

In Visaginas, unemployment at about nine percent – less than
the national average of 11.7 percent – is forecast to reach about 11.5 percent
in 2010.

“I have been working at the plant for 27 years, my whole
life was connected to it,” said Andrei Grigoriev, walking past a memorial
stone from 1975 marking where the town was begun.

“Of course, it is painful to see it being shut, and that
it was a politically motivated decision,” he said.

Lithuania’s opposition made a last unsuccessful attempt in
December to force the government to restart negotiations with Brussels with a
view to extending Ignalina’s lifespan, a project supported by former Prime
Minister Gediminas Kirkilas.

“The European Commission does not fully apprehend the
situation of the Baltic states, and think that electricity imports from Russia
is not a problem,” he said. “They don’t share the same historical
experience.”

Better opportunity in Africa

In an office hooked up by closed-circuit TV to a direct view
of the gleaming, cavernous interior of the reactor hall, Viktor Shevaldin,
Ignalina’s veteran head, says he is resigned to the closure of the plant’s
remaining reactor at 11pm on New Year’s Eve.

Full decommissioning at an estimated cost of 8.6bn
litas will take about 25 years.

“We face a different future, but we have come to terms with
it already,” said the grey haired 60-year-old.

But let him talk more, and his tone changes. The chance of a
major accident is one per one million years of reactor work, he said:
“It’s like being hit by a meteorite while walking on the street.”

Back at Purnuskes, Algirdas Kauspedas, an architect who
became a celebrity rock musician with a band he formed in the last days of the
Soviet Union, is pragmatic.

“Market perspectives are bleak here. It’s better to look
for possibilities in Africa,” he said.