November 20, 2013 / 1:26 PM / 6 years ago

UPDATE 1-Lithuania gets EU approval for state aid to LNG project

* State aid covers loan guarantees, special fee

* LNG terminal expected to come online in Dec 2014

* Will be able to supply 2-4 bcm of natural gas

* LNG imports will end Gazprom’s monopoly (Adds details, quotes, background)

BRUSSELS/VILNIUS, Nov 20 (Reuters) - Lithuania won approval from the European Commission to provide 448 million euros ($606 million) in loan guarantees and other aid to finance a liquefied natural gas terminal, which will reduce its dependence on Russian gas.

The project, developed by Klaipedos Nafta, a majority state-owned oil importer, could become the first LNG import terminal on the eastern coast of the Baltic Sea if it comes online as planned in December 2014.

“The aid will reduce Lithuania’s dependence on a single source of gas supplies and enhance its security of supply,” Joaquin Almunia, commission vice-president in charge of competition, said in a statement on Wednesday.

“By diversifying the gas supply sources, the terminal will also stimulate competition between gas suppliers, which in turn will benefit consumers,” he added.

The aid includes government loan guarantees for the project and payment to Klaipedos Nafta of a fee that Lithuania imposes on all users of its gas transmission system, the so-called “LNG supplement”.

The government introduced the fee in 2013, and it amounts to about 17 million euros per year. Lithuania’s top gas consumer Achema, which produces fertilisers, has challenged the fee, saying it undermines competitiveness.

The EC approval was needed to release a 87 million euro loan agreed by the European Investment Bank (EIB) in July after Klaipedos Nafta failed to attract funding for the project from commercial banks.

The operator will be obliged to provide regasification services to any third party on regulated tariffs and under non-discriminatory conditions, the Commission said.

An LNG terminal project in neighbouring Poland was delayed due to financial problems plaguing its builders and is now expected to be completed by the end of 2014.

Klaipedos Nafta has signed an agreement to lease a floating storage and regasification unit (FSRU) from Norway’s Hoegh LNG for 10 years, with an option to buy it later.

The vessel, which will serve as a floating import terminal at Klaipeda port, will be able to import 2-4 billion cubic metres of natural gas per year from 2015, though imports are expected to be minimal in the first year.

Lithuania launched a tender to buy LNG a year ago, but no contracts have been signed yet.

Klaipedos Nafta has said the terminal needs to import at least 0.54 bcm of gas per year to remain operational, which amounts to six to seven standard LNG cargoes.

The Baltic state, which bought 3.3 bcm of gas from Russia’s Gazprom last year, paid one of the highest natural gas prices in the EU, the Commission said.

Gazprom’s long-term supply contract with Lithuanian gas utility Lietuvos Dujos expires in 2015. (Reporting by Barbara Lewis, Andrius Sytas and Nerijus Adomaitis; editing by Jane Baird)

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