Lawfulness of state aid to the LNG terminal: success story of Klaipėdos nafta

The Court of Justice of the European Union (CJEU) decided that European Commission was correct to conclude in 2013 that financing of Klaipėda liquefied natural gas (LNG) terminal Independence is fully in compliance with EU state aid rules. The CJEU dismissed an appeal of the Achema Group and its fertiliser production company Achema. This judgement is final and shall not be subject to appeal.

The judgement of the CJEU in case No. C-847/19 P puts an end to the 8 years dispute between the Republic of Lithuania and the Operator of the LNG terminal Klaipėdos nafta on the one hand and the country’s largest consumer of gas Achema on the other.

The operator of the terminal, Klaipėdos nafta was represented in all instances by a team of Ellex Valiunas’ lawyers: Dr. Karolis Kačerauskas, Edvinas Beikauskas, Dovilė Greblikienė, Aistė Mikočiūnienė and Gintarė Taluntytė. In 2013, the same team of lawyers helped the Republic of Lithuania and Klaipėdos nafta to coordinate a state aid scheme subject to dispute for EUR 448 million, which was the largest in the history of Lithuania at that time. 

The judgement of the CJEU can be called historic. This case was the first “Lithuanian” state aid case heard by the General Court of the European Union and the Court of Justice of the European Union. Irrespective of that, it was probably the most significant case for the operation of Lithuanian energy system. On 3 December 2014 LNG terminal started its operations as a symbol of a new era: Lithuania’s energy independence from Russian supplies, which were often used a leverage in political debates, and integration of the Lithuanian energy market into worldwide energy markets. 

Naturally, the existence and operations of the LNG terminal are dependent on its financing model. By initiating the dispute, Achema sought to avoid its obligation to contribute financially to the maintenance of the LNG terminal. If the Court had upheld Achema’s arguments, the fundamental question of continuity of operations of LNG terminal and the State’s ability to ensure its energy security would have arisen. Yet, following CJEU judgement, there remain no doubts that the financing model chosen by Lithuania and cleared by the Commission proved to be correct.  

Key insights from the decision taken by the litigation in European Courts: 

• The European Commission’s obligation to initiate a formal investigation. The fact that a complaint has been lodged with the Commission is not a sufficient reason to start a formal investigation.  
• Persons whose interests may be affected by granting state aid must be active already at an early stage of the European Commission’s investigation. 
• The Court agreed with the Commission’s assessment that the size of the LNG terminal was chosen appropriately. 
• State aid can also be granted if the market can, in principle, offer the service desired by the public but delays doing so. 
• The Court confirmed that the LNG terminal planned to be built by Achema did not meet the needs of the public, which are ensured by the LNG terminal operated by Klaipėdos nafta. 
• The Court explained that the legal obligation to develop an LNG terminal did not remove the incentive effect of state aid – without state aid, the terminal would not be built.
• The Court confirmed that Lithuania had the right to entrust the LNG terminal operation for 55 years, which corresponds to the financial depreciation period of one of the parts of the LNG terminal complex – the pipeline. 
• The Court confirmed that the state had the right to entrust the development of the LNG terminal project to a state-controlled company without a competitive tendering procedure – the absence of the competitive tendering procedure was justified by the exceptional position of the terminal in ensuring the security of the state.