Regulation and Competition in the Lithuanian District Heating Sector

Abstract

Practice shows that long experience in the development and management of district heating in Denmark and Finland cannot be directly transferred to Eastern European countries. Unfortunately, strict regulation in post Soviet countries is not very effective and results are not as good as in Western countries, who have a long tradition of public regulation. State or municipally owned vertical monopolies are inflexible to consumers' needs. Given today's tendency to attract private capital for the modernization and management of district heating systems a new problem arises because a private vertical monopoly is much more difficult to regulate effectively than the state owned monopoly (as demonstrated by Lithuanian practice). Stimulating competitive activities, wherever possible and regulating monopolistic behaviour, could be an attractive way of seeking to solve fundamental problems in the district heating sector of Lithuania and other Central and East European countries. A scheme for a liberalized district heating sector with harmonized competitive and monopolistic activities is presented in the article.