Lithuania Freight Transport Report 2007

In mid-2006 the Russians reported a leak and closed down the ageing Druzhba pipeline that supplies crude oil to Lithuania's Mazeikiu Nafta (MN) or Mazeikiai Oil refinery and export terminal. The move was seen as designed to pressure the Vilnius government into re-thinking its decision to sell a controlling stake in Mazeikiu for US$2.6bn to Poland's PKN Orlen, rather than to a Russian bidder. The sale, however was finalised in December. Moscow now says it is unlikely to pump oil to Lithuania during Q107, and the interruption may drag on longer, leaving PKN to bring in crude supplies more expensively by sea. In view of the uncertainty, in our newly-released Lithuania Freight Transport Report, BMI concludes that the country's pipeline throughput will fall by 0.7% in 2007, although it will still achieve an annual average growth rate of only 5.8% in the five year 2007-2011 forecast period.

Our projection for pipeline freight is based on a number of considerations. Although Lithuania's economy will continue to grow at breakneck speed by European standards (for the 2007-2011 forecast period we now expect annual average GDP growth of 6.2%) tense relations with Russia are likely to hold back overland pipeline supply as a way of meeting the economy's energy demand. Apart from the short-term issue, big projects such as the proposed Russian-German gas pipeline across the Baltic will bypass Lithuania and reduce its role as transit country. Lithuania will be able to secure alternative crude supply routes, but these will principally be by sea.

Overall, despite the pipeline issue, our vision is that the Lithuanian freight transport industry will continue performing dynamically, as the country exploits its role in both East-West and regional European Union trade. We expect rail freight to grow strongly by an annual average of 6.7.% over the forecast period as inter-modal links at Klaipeda are improved. Road freight will remain the fastest-growing land-based transport mode, with annual growth of 8.8%, boosted by growing motorway links, improved logistics and the general trend towards door-to-door delivery capabilities. Airfreight will increase by 9.0% per annum reflecting the combined effects of privatisation, the budget airline boom and the opening up of new routes. We are projecting maritime freight growth at an average 7.2% per annum across the forecast period, with crude oil imports set to meet the pipeline gap. We are now forecasting average annual growth of freight carried across all modes, measured in million tonne-km (mntkm) of 7.1% in 2007-2011. BMI's composite score for Lithuania's freight transport business environment is 40 out of a theoretical maximum of 70, which places the country at a mid-point in the European region, ahead of Ukraine and Russia but behind Poland, Latvia and the Czech Republic.

For the 2006-2010 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole. It will achieve average annual growth of 6.4%, versus 6.2% for overall GDP. The total value of transport and communications GDP will rise to US$5.82bn in nominal terms by 2011, representing 13.5% of Lithuania's GDP.