Energy poverty in Lithuania: diagnosis (part 2)

In her second blog post, Nora Mzavanadze provides a critical analysis of the current status of residential energy efficiency renovation programmes in Lithuania and presents her views on the existing barriers to such investments.

Barriers to building renovation

Under the circumstances described in the previous post – Energy poverty in Lithuania: symptoms (part1) – we would expect that building renovation and energy efficiency programmes could impact positively many people’s lives in Lithuania and would contribute to poverty reduction, and energy security. Although governments change and building renovation remains among priority rhetoric since 2004, modernization of multi-storey apartment buildings is slow. There are significant non-cost barriers to energy efficiency goals in the buildings’ sector.

A few different models of renovation financing have been changed during this time, but renovation speed remains slower than anticipated. In 2012 the situation has reached a scandal when the government offered to buy military-emergency helicopters from the unused funds of building renovation programme. Otherwise the European Union budget funds had to be returned.

What makes the programme so unattractive to Lithuanians?

Financing model and lack of trust in the government. Although the financial mechanism of renovation has changed a few times, people remain to be sceptical about the benefits of renovation. Some are concerned about the costs and returns, and some want to avoid any kind of debt and involvement of with private banks. Lack of trust in the government and private financial institutions is a serious obstacle for advancement and acceleration of renovation programme.

The current model foresees, that the government subsidizes 40% of renovation costs, and the private banks lend 60% with 3% fixed interested rate over a maximum of 20 years.

Real estate prices in some cases have, on the contrary, decreased in places where a building has been signed off for renovation in the expectation of long lasting financial obligations as a result of renovation works.

Poor supervision and quality of work. The renovation works have often been reported to be of poor quality. The quality control and supervision processes are often reported to be corrupt. Recently supervision has been increased, but the situation is far from satisfactory. As a consequence, often the financial returns are not as big as expected. In some cases there are serious health consequences for people living in renovated buildings because of the materials used or ventilation processes ignored (cases of asthma, allergies, fungi).

Poverty and social subsidies. Poverty, lack of private saving funds for building renovation is another obstacle. State subsidies for heating services further enhance this vicious circle of poverty and subsidies. Those that are subsidized are not interested in change and prefer status quo. As of recently the situation has changed and the state now subsidized 100% of renovation works cost to those with social subsidies. Nowadays those on social subsidies loose them in case, if they are documented to vote against the renovation of their multi-storey building.

Values, individualism and priorities. Even though people may have the funds and the understanding of the benefits of the renovation, they may not be willing to join the programme for other competing goals – say health care expenses. Very often senior citizens do not see a point in joining this programme foreseeing that the benefits would hardly be reaped off in their lifetime. Building renovation should become a necessity, the first thing to do when owning real estate, something unquestionable and equal to that of brushing one’s teeth in the morning. A growth of individualism after the independence with the rise of the market economy has disabled many collective initiatives. To this day, they are very difficult to conceive, either we speak of professional unions, or multi-storey apartment based community organizations. It is difficult to mobilize people sharing the same walls, ceilings and floors.

Macro level issues. In addition to that we should not forget the battles in the international arena. Actions of Gazprom are inhibiting further the liberalization and demonopolization of energy markets in Lithuania and prevents Lithuania and other CEE countries to implement the EU 3rd Energy Package recommendations, where the consumers should gain more rights and freedoms to choose and allow competition in the sectors so far held by monopolies. Furthermore, it is in the interest of Russia to keep Lithuania on a tight rope of energy poverty and manipulate the political and economic situation in this way.

Stuck in a limbo

The situation remains to be in a limbo as the change is slow and the government virtually has little influence over energy resource prices that are decided in the politically unfriendly realm.

The new renovation model seems to be mobilizing more and more communities, but still with that speed the programme would reach its full impact no later than in a few decades only if all communities go for a full renovation, not partial. In comparison with other CEE countries, Lithuania lags behind with its renovation programme. Different figures can be found on the progress of renovation. Some claim, there are around 1500 multi-storey apartment buildings are renovated out of 38000 till now. Many buildings sign off only for partial renovation diminishing the price, but also decreasing the possibility of returns.

I would also question if the labour force is sufficient, because with a high emigration rate, there maybe not enough people to actually do the job. The issue boils down to the state of affairs in the construction sector, which is dwindling since 2008 and is probably one of the most corrupt sectors. An increase in salaries could attract some people back, who now work overseas, but that would also increase the price of renovation and its affordability for the local population. For now, Lithuania is the most migrating (or mobile) country/nation in Europe according to the figures of two decades of independence.

The current news confirms the existence of poverty/labour force availability barrier. Town of Alytus (population of 50 000 people) recently announced a public procurement for a few multi-storey appt buildings to be renovated and … nobody participated! There are no companies to bid, because according to the journalist’s report there is not enough labour force. If the renovation price is increased (presumably increasing profitability and remuneration of labour in the sector), then the people themselves object renovation, because they can not afford it!

Another side of the coin maybe hidden in the business practices of the construction sector, which according to the first baseline study of Corporate Social Responsibility practices in Lithuania in 2007 was distinguished as one of the most corrupt business sectors. This, of course, goes hand in hand with the corruption in the government sector. Due to the involvement of public funding, state regulation in this sector is unavoidable and presents opportunities for corruption. Researching further these links would add new insights to energy poverty debate.

In March 2012, the Prime Minister was asked in the parliament by the opposition party member on what is being done to alleviate the burden of heating costs. The Prime Minister Andrius Kubilius responded with irony: “The perspectives for heating services are not bad. The weather is getting warmer, spring is coming”. For those few months (heating season usually starts in the first half of October and usually ends in April) the issue is temporarily forgotten and everyone enjoys spring and summer. Some have to pay off the heating debts accumulated during the winter in summer. Then the autumn comes and a multi-level (starting from politics to neighbourhood) hysteria begins again.

BlogEnergy independence – Lithuanian way. Photo by Valdas Jasaitis.

It all actually sounds extremely similar to the main idea of the epic piece of Lithuanian literature – “Metai” (“The Seasons”) by Kristojonas Donelaitis written in late XVIII century– which plays a significant role in the Lithuanian identity formation. It is a piece that describes the troubles, works, qualities, routines of Lithuanian peasants and countryside in general throughout the seasons of the year awaiting for a short and joyous spring, and busy but warm summer. All it takes, is surviving the winter. Somehow.

I would like to finish with a joke. It is relevant for all three Baltic States.

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