Vilnius seeks €560m from France’s Veolia in arbitration court

Vilnius Municipality and the municipal heat supply company Vilniaus Šilumos Tinklai (VST) are seeking 560 million euros from France’s Veolia, a former operator of the Lithuanian capital’s heating sector.

Veolia (former Dalkia) operated Vilnius’ heating grid between 2002 and 2017 via its local subsidiary, Vilniaus Energija. Vilnius Municipality took over the assets in 2017 when the 15-year lease expired and now holds almost 100 percent of shares in VST. Read more:  Corporate arbitration ‘rulings can’t be implemented in EU member state’, says Lithuanian Energy Minister    According to Vilnius Vice Mayor Valdas Benkunskas, the contract with Veolia “was entwined with corruption schemes,” which served “the narrow interests of business entities”.

Benkunskas said Vilnius Energija failed to deliver on its promises to upgrade the city’s heating grid. For example, Vilniaus Energija returned Vilnius Power Plant-3 (PP-3) to the city “in a completely inoperative state,” he said.

The state-owned energy group Ignitis Group later purchased the plant from VST for 10 million euros.”Our claim amounts to 560 million euros for the benefit of VST and the city,” Vilnius Mayor Remigijus Šimašius said at a news conference on Tuesday, adding that the claim is backed “by serious arguments”.

According to the mayor, the main arbitration hearings will be held between August 17 and September 4.

Under an agreement signed by the municipality and VST, most of the legal costs in the arbitration dispute will be covered by Profile Investment, a Luxembourg-registered venture capital fund. Its success fee will depend on the amount awarded.

Vilnius claims that customers were overcharged around 31.8 million euros for heating in 2011–2016 and accuse the French company of corruption. Veolia’s investments in Lithuania were marred by controversy and mutual accusations of abuse and murky political influence.

Vilnius’ ruling politicians said in 2017 that their predecessors, led by Mayor Artūras Zuokas, made a mistake when they leased the heating grid to a privately-owned operator and failed to ensure proper oversight.

Zuokas, who served as the capital’s mayor in 2000–2007 and 2011–2015, has repeatedly dismissed the accusations, calling the deal “the best public-private partnership agreement not only in Lithuania, but also in Central and Eastern Europe”.

Zuokas’ links with Andrius Janukonis, CEO and shareholder at Icor and a former member of the management board at Vilniaus Energija – Veolia’s local subsidiary – came under scrutiny after both men were in 2008 convicted for attempting to bribe a former member of the Vilnius City Council.

In early 2016, Veolia-controlled companies brought a lawsuit against Lithuania at the International Center for Settlement of Investment Disputes (ICSID) in Washington, claiming around 120 million euros in compensation from the state for its allegedly unfair treatment and expropriation of their investment.

Last year, Lithuania asked the ICSID to cancel the proceedings, saying it wanted to file claims with Lithuanian courts.

In a counterclaim brought with the Stockholm arbitration court, Veolia claimed it that suffered damages as a result of the state’s alleged illegitimate actions and sought 22 million euros in compensation.

A criminal case against Janukoinis, Icor Shareholder Linas Samuolias, and Vilniaus Energija’s former CEO Jean Sacreste was sent to the court in 2014. However, it was later closed due to the expiry of the statutory limitation period.

According to Veolia, it committed to invest 167.7 million euros in Vilnius, but actually invested 177.2 million euros, including 8.6 million euros in EU support funds.

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