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Lithuania, Poland sign power deal, spurring nuclear plan UPDATE
02.12.08, 2:49 PM ET

(Adds further details)

WARSAW (Thomson Financial) - Poland and Lithuania Tuesday signed a deal paving the way to hook up their electricity grids, helping offset Russia's energy clout in the region and clearing a hurdle to related plans to build a new nuclear power plant.

In a ceremony with Polish President Lech Kaczynski and his Lithuanian opposite number Valdas Adamkus, the bosses of the two countries' state-owned electricity grid firms inked the accord.

The link is seen as a crucial element in beefing up regional energy security by plugging Lithuania and its Baltic neighbours into the electricity systems of the rest of the EU via Poland.

Adamkus called the agreement a 'corner stone' for energy security in the region and a significant development for the entire EU.

Kaczynski said it was crucial for EU members to 'mutually guarantee their energy security.'

Lithuania and its fellow Baltic states Estonia and Latvia were part of the Soviet Union until 1991, and remain tied into Russia's power grid, raising the spectre of their former master flexing its energy muscles against them.

Under the deal, Poland's PSE, or Polskie Sieci Elektroenergetyczne, and Lithuania's Lietuvos Energija have formed a joint company in which each holds a 50 pct stake.

The new company is due to start operations in April, launching a technical and environmental study for the 154-kilometre high-voltage link from Elk in northeast Poland to Alytus in southern Lithuania.

The link is expected to be completed by 2012-2015.

It is seen as a crucial way for Lithuania to deal with electricity shortfalls that could be caused by the planned closure of its Soviet-era Ignalina nuclear power plant, which operates Chernobyl-style reactors.

Lithuania pledged to close the 1980s facility by 2010 during its membership talks with the EU, which it joined in 2004.

Lithuania and its fellow 2004 EU entrants Poland, Latvia and Estonia are together planning to build a new plant at the site.

The facility is meant to come on stream by 2015, although some experts have suggested that 2017-2020 is a more realistic target. In the meantime, the Lithuanian authorities have been pushing the EU to allow a temporary extension of Ignalina's lifespan.

There have been fears of power shortages if Ignalina, which provides around three-quarters of Lithuania's electricity, is closed too soon, making the country temporarily reliant on Russia for the bulk of its energy.

Negotiations on the nuclear project were hampered last year by Poland's demands for the largest share of the new facility's output.

An initial feasibility study said the new plant could have a capacity of 800-1,600 megawatts but experts have claimed that output may be pushed up to 3,200-3,400 megawatts.

Poland's former conservative-nationalist government had warned that it could put the power grid project on the back burner unless it got its required share of not less than 1,200 megawatts.

Warsaw's demands scuppered plans to sign a formal deal on both the nuclear plant and the power grid link up in Vilnius last October.

But the government lost office in a snap election just weeks later and the country's new liberal administration decided not to make the power link contingent on a guaranteed slice of output from the new power plant.

It is not clear, however, how much, if any ground Warsaw may give on the nuclear issue.

After talks earlier this month among all four countries involved in the project, Lithuania said that Poland had dropped its demand for not less than 1,200 megawatts but Warsaw cautioned that no final decision had been made.

Lithuania is also planning an electricity grid link via Latvia and Estonia with Sweden.

The three Baltic states' energy grids, while enjoying strong, cross-border interconnections, had not been linked to other EU countries' networks.

Estonia, the northernmost of the Baltic states, launched the region's hook up in December 2006, inaugurating an undersea link to with Finland's grid.




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