The Lithuanian government plans to extend a corporate tax break and other subsidies to Orlen Lietuva, which is modernising its oil refinery in Mažeikiai at the cost of over one billion euros. While an environmental organisation argues against subsidising the fossil fuel industry, the economy minister says the upgrades are necessary for the plant to stay in business.
The Polish company started the upgrades to its Lithuanian refinery in 2021.
“The project is, in our view, unique. It is the only one of its kind in the history of Lithuanian industry. It is a billion-euro project,” says Tomas Digaitis, communications director of Orlen Lietuva.
In 2023, the scale of the project was witnessed by many when a giant reactor had to be transported from the Port of Klaipėda to Mažeikiai, some 100 kilometres inland. Roads had to be reinforced and bridges remodelled in order to accommodate the colossal cargo. It drew crowds of onlookers.
The cost of the refinery upgrade has increased by around 400 million euros since 2021.
The modernisation is meant to improve efficiency, says Digaitis: the same amount of petroleum products will be produced with less input and less waste.
“The plant in Lithuania will first of all ensure a stable supply of fuel to the region, and secondly, since it is located here, a shorter supply chain to Lithuanian customers will also ensure a good price,” the Orlen Lietuva spokesman says.
To offset some of the cost increases, the company asked the previous government for tax breaks.
“It is about corporate tax breaks for investment projects and other measures provided for in the law,” Digaitis says.
The previous government promised the support but did not deliver it, says Economy Minister Lukas Savickas.
“The last government did not implement the commitments it made, and the investor, well, it is facing an unconventional situation where letters of intent have been exchanged, but these commitments are not being honoured,” he says.
“Everything was delivered regarding the transportation, but when it comes to the corporate income tax break, Orlen started the project before the law was passed under which it could apply for that particular tax break,” explains former energy minister Dainius Kreivys.
According to European requirements, a project that is already in motion cannot receive the tax break, Kreivys adds. Amendments were sought to support the plant in a different way – amendments were needed, tabled, but adopted by the new parliament.
“So it’s not like the new government is doing the work that the previous one failed to do – it’s simply a continuation of the work,” Kreivys argues.
This week, the government plans to designate the Mažeikiai plant reconstruction as a project of national strategic importance. In addition to the corporate tax relief, the company can expect to be compensated for the indirect costs of the pollution permits.
Since Orlen is requesting support for part of the project and not for the whole project, the ministry says that such state aid does not need to be coordinated with the European Commission.
But the total support cannot exceed 80 million euros.
The NGO Circular Economy argues that investments by polluting businesses should not be subsidised by the state. Instead, pollution taxes should be used to invest elsewhere.
However, Economy Minister Savickas argues that without modernisation, the refinery, which is a major employer in the region, may go out of business. The Mažeikiai plant employs 1,500 people.
Orlen Lietuva plans to complete the upgrades by next year.
Newsletter
Every Friday morning.
