January 2000

Lithuania Update Memo

The following report outlines new developments in the past three months and the state of on-going developments.

In October 1999 Prime Minister Rolandas Paksas together with the Ministers of Finance and the Economy resigned. Mr. Andrius Kubilius, vice-chairman of Lithuania Seimas, was appointed as the third Prime Minister in 1999. Mr. Valentinas Milaknis, president of the leading IT company Alna (more details in Q2 report) was appointed as the Minister of Economy. Mr. Vytautas Dudenas, an American Lithuanian was appointed as the Minister of Finance. The new Prime Minister’s office announced the Program for 1999-2000, as a Program of reforms and the prevention of a crisis.

The main principles of Program are:

• to delay compensation for lost roubles (2 years);
• to reduce investments from state loans;
• to sign agreements with World Bank and Currency Fund;
• urgent measures to improve the budget for the social security and pension system;
• business promotion and better administration;
• realisation of state agriculture policy.

Other urgent solutions:

• Realisation of anticorruption principle ("Transparency International").
• Continuation of principal agreements and obligations of former Governments.
• Restructuring of the economy, modernisation, privatisation and integration into European markets:
  • restructuring of AB Lietuvos Energija (Lithuania Power) and partial privatisation;
  • restructuring of AB Lietuvos Dujos (Lithuania Gas) and partial privatisation;
  • realisation of Power Bridge to West, power supply line project;
  • restructuring in transport sector (railways, airlines, shipping) and partial privatisation;
  • privatisation of state Commercial bank;
  • selling of 35% of the state’s shares in AB Lithuania Telekomas.

• Destroying bureaucratic barriers to business investment and development.
• Realisation of further legal reform in compliance with Europe Union norms.
• In science and education areas:
  • realisation of credit system for studies;
  • financial reform in science and education areas;
  • establishment of an infrastructure for Information Society and computerisation of Lithuania schools.

More details can be found at http://www.lrvk.lt

1. Public telecommunications

Lithuania Telekomas (LT) in 1999 was one of the major investors in Lithuania. 500 mln. Lt (125 MEURO) were invested in the construction of new lines, digitalisation and a billing system. LT plans to build an optical fibre network around the country. Digitalisation of the telephone network will serve as a base for better developed services, e.g. ISDN. LT has plans for the implementation of IP telephony. LT announced 213,5 mln. Lt (53 MEURO) profit for the first 9 months of 1999. It is 16.6% higher than in 1998 for the same period. The Lithuanian Government plans to sell 35% of its share of Lithuania Telekomas in 1^st July 2000.

The Communication Department (Ministry of Transport) prepared rules for the sale by Telekomas of its network infrastructure, created in homes or small areas by private persons or organisations. LT will estimate the price and status of network.

In cases of disagreement investigation by the courts is possible.

2. Mobile communications

A new mobile communications operator Levi & Kuto, with Tele-2 Network, started operating on the 14th December 1999 in the Vilnius area. The owner of this network is NetCom, Sweden. Levi & Kuto has a licence for the DSC 1800 network and has plans to obtain a licence for GSM 900, owned before by Lithuania Telekomas. Tele-2 network according to the requirements of its licence in 1999 must establish a DSC 1800 network in Vilnius and in the other main cities until 1^st January 2001. Tele-2 has plans to take up at least 10% of the mobile communication market.

The persistent competition between two other GSM operators Omnitel and Bite GSM took place in Lithuania in 1999. The prices of services of both operators are quite similar. Both operators presented new services types in the fourth quarter of 1999.

Omnitel offers an integrated mobile, internet and computer service, named Mozaika. More information can be found at http://www.omnitel.lt . Bite GSM offers two new services named Namu zona (Home area) and GSM-Pro. The Namu zona service allows cheap calls for users in a registered small area (home), which is normally few square km in area. GSM-Pro is the new service, only realised in a few countries (e.g. West Hungary and the Republic of South Africa) with the possibility of creating mobile networks for private companies.

3. Tariffs policy

Lithuania Telekomas has a monopoly for wired voice telephony. Tariffs for local calls and fees for subscribers increased 10-15% during 1999. Continued growth in prices is planned to continue in 2000. The prices for wireless services, using former Comliet NMT structure (more details see in Q2 reports) become equal to wired service prices in December.

As result of competition between mobile communications operators, the prices for mobile calls and subscribers fees reduced by 50% during 1999. The new operator Tele-2 started operating in December 1999 and mobile communication users expect lower prices in 2000.

4. Protection of users rights and information

Two new Law projects in the fields of Information Technology and Computers were presented to Lithuania Seimas. One project was prepared by the Ministry of Justice, the second by a special group.

The special chapter 33 "Crimes in Informatics", articles 349, 350 describes responsibilities and penalties for crimes. The destruction of information, changes, depending to the damage rendered, will cause possible imprisonment for up to 3 years or fines. In case of public disclosure up to 4 years in prison can be allotted by the court. In cases where information systems have been destroyed without hope of repair sentences of up to 5 years in prison are foreseen. The court can also allot fines depending on the extent of the damage:

• for private persons 10-1000 times daily earnings,
• for organisations up to 100000 times daily earnings.

5. Freedom development

Seimas adopted new wording of Public Information Law in December. The main change is the exclusion of an upper fine limit for damages to a person’s morality. Mass media representatives saw in this law revenge for disclosures about a few cases of corruption between top politicians. Most of the newspapers in Lithuania are financially weak and unlimited fines can cause bankruptcy. There are no current methods, or rules for the calculation of fines or court practice for assessing moral damage. The law can enter in force after being signed by the President. Public questionnaires show that more then 85% of respondents are opposite to this Law.