According to European Commission press release on December 1, 2022, the European Commission has opened an in-depth investigation to assess whether the compensation granted by Lithuania to Litgas UAB (‘Litgas') for supplying a mandatory quantity of liquefied natural gas (‘LNG') to the LNG terminal in Klaipėda between 2016 and 2018 is in line with EU State aid rules. The in-depth investigation follows the General Court's partial annulment of a previous Commission decision approving the compensation to Litgas for the period in question.
The Commission's investigation
In November 2013, the Commission approved a Lithuanian measure to support the construction and operation of an LNG terminal in the Klaipėda Seaport. In October 2018, the Commission approved two amendments to the measure notified by the Lithuanian authorities:
- the 2016 amendments covering the period from 2016 to 2018, entrusting Litgas with a service of general economic interest (“SGEI”) for the provision of a mandatory quantity of LNG to the Klaipèda LNG terminal and introducing a compensation to the benefit of Litgas; and
- the 2019 amendments covering the period from 2019 to 2024, abolishing the obligation on heat and electricity generators to purchase a certain quantity of LNG from Litgas and introducing a new methodology for calculating the compensation of the SGEI entrusted to Litgas.
The Commission found both amendments to be compatible with EU State aid rules, and in particular with the 2012 Service of General Economic Interest (‘SGEI') Framework.
On September 2021, the General Court partially annulled on procedural grounds the 2018 Commission decision as regards the 2016 amendments but uphold it as regards the 2019 amendments. The General Court concluded that the Commission should have opened an in-depth investigation to assess the compatibility of the 2016 amendments with the internal market, in particular regarding the compensation between 2016 and 2018 for the entirety of the boil-off and balancing costs incurred by Litgas.
Following the General Court's judgment, the Commission has re-examined the compatibility of the 2016 amendments and has decided to open an in-depth investigation under EU State aid rules. In particular, the Commission has doubts on whether it was necessary to compensate the full boil-off and balancing costs under the 2016 amendments for the period in question, while the former were only partially compensated and the latter were no longer compensated under the 2019 amendments.
The Commission will now investigate further to determine whether the amount of compensation received by Litgas for the period 2016-2018, in particular regarding the boil-off and balancing costs, is in line with the SGEI Framework.
The opening of the in-depth investigation gives Lithuania and other interested parties the opportunity to submit their comments. It does not prejudge the outcome of the investigation.
Background
The measure approved by Commission in 2013 aimed to support the construction and operation of the LNG Terminal in the Klaipėda Seaport. As part of the support scheme, Lithuania introduced a Purchase Obligation, whereby heat and electricity generators were obliged to purchase the technical minimum LNG volume necessary for the LNG Terminal to remain operational at all times. Obligated Purchasers had to purchase all this mandatory quantity of LNG from a designated supplier.
In February 2014, following a call for tender, the Lithuanian Ministry of Energy appointed the public company Litgas as the designated supplier. In 2016, the Lithuanian authorities decided to amend the scheme approved by the 2013 Decision by entrusting Litgas with a SGEI for the provision of the mandatory quantity of LNG and by introducing a LNG Supplement to the benefit of Litgas to be financed by all gas customers.
Boil-off costs result from the natural loss of LNG, which occurs in the period from injection of LNG into tanks until its release to the natural gas system. As a general rule, the less time LNG is kept in a tank, the less natural loss of LNG is incurred by the specific user of the LNG Terminal.
Balancing costs are costs incurred in order to respond to imbalances between supply and demand. These include for instance costs incurred under swap contracts.
Under the EU State aid rules on public service compensation, adopted in 2011, companies can be compensated for the extra cost of providing a public service, subject to certain criteria. This enables Member States to grant State aid for the provision of public services whilst, at the same time, making sure that companies entrusted with such services are not overcompensated. This minimises distortions of competition and guarantees an efficient use of public resources.
In addition, under EU State aid rules, public interventions in favour of companies can be considered free of State aid when they are made on terms that a private operator would have accepted under market conditions (the market economy operator principle - MEOP). If this principle is not respected, the public interventions involve State aid within the meaning of Article 107 of the Treaty on the Functioning of the European Union, because they confer an economic advantage on the beneficiary that its competitors do not have.
The non-confidential version of the decision will be made available under the case number SA.44678 in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.
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