LFMI’s proposals on the heating sector in Lithuania

On 7 June 2006 LFMI staged a seminar “Solving the Problems in the Heating Sector: Market and Administration” to discuss economic problems in the heating market related with the heating price, relations with suppliers and consumers, models of cooperation between the government and the business, and opportunities of competition and the impact of regulation in the heating market. At the event LFMI presented formulated proposals on how to solve problems in the heating sector as well as regulation and prospects of cogeneration in Lithuania.

LFMI thinks that to amend the situation in the heating sector it is indispensable to open the door to competition and to relinquish price regulation, ex ante regulation and cross subsidizing. It is also necessary to continue privatization of the energy sector and the heating market, to separate social support from the heating market and abolish a VAT exemption for heating services, to remove legal obstacles to production of renewable energy sources and at the same time reduce ineffective support for this type of energy, etc.

In LFMI’s opinion, cogeneration (joint production of heating and electricity) can be competitive on the market in certain cases and would be quite effective in Lithuania. However, the Institute points out that extra support for, or protectionism of, cogeneration is unjustified and inexpedient and proposes not to grant any support or fix quotas, only where EU law requires so.

LFMI concludes that in general not deregulation, but re-regulation is talking place in the Lithuanian energy and heating sectors. However, to dovetail short- and long-term goals and achieve effectiveness in these markets, genuine deregulation of prices, standards, licensing and permits, zoning, etc. is needed. Deregulation would detach this economic sector from political decisions and instability. LFMI believes that the Lithuanian energy sector – competing on the market, with minimal government regulation and driven by economic rather than political logic – would be considerably safer, more flexible and credible than under the existing conditions.