Nov. 20 (Bloomberg) -- In a cavernous hall in northeast Lithuania, workers tear apart the first of the Ignalina Nuclear Power Plant’s four two-story turbines. The growing piles of steel parts, tubes and cowlings will soon fill nearby storage buildings the size of aircraft hangars.

Lithuania agreed to close the Soviet-built Ignalina complex by Jan. 1 as a condition for entry into European Union in 2004. EU officials were concerned because the reactor’s design is similar to that of the Chernobyl reactor that exploded in Ukraine in 1986.

Ignalina’s shutdown may shave as much as 1.3 percentage points from gross domestic product as the nation is enduring the EU’s third-deepest recession, Danske Bank AS economist Violeta Klyviene said. It will also more than double the cost of power generation and force Lithuania to import electricity after the government failed to secure long-term production alternatives.

“It’s a bad idea” to close now, said plant General Director Viktor Shevaldin, 60, his office filled with photos and awards accumulated during 26 years of operation. “A lot of companies are very sorry about the situation.”

EU and Lithuanian officials and the European Bank for Reconstruction and Development meet in Vilnius on Nov. 25 to discuss integrating the former Soviet republics of Lithuania, Latvia and Estonia into the EU’s main power grids for the first time through the Baltic Energy Market Interconnection Plan, signed in June.

Power Exports

Ignalina provides about 80 percent of Lithuania’s electricity consumption and in 2008 sent 23 percent of total power exports to neighboring Latvia and 45 percent to Estonia further north, according to the Energy Ministry.

Electricity imports from such countries as Russia and the use of less efficient gas-fired domestic plants will push the average cost of power on the electricity exchange to 15 centai (7 U.S. cents) per kilowatt-hour from 6 centai. The final price to consumers will probably rise to 44.9 centai from 35.8 centai now, the ministry said.

GDP shrank 14.3 percent in the third quarter, behind only Latvia and Estonia. The economy risks a further contraction because of higher energy prices and lost power-export revenue, said Morten Hansen, head of the economics department of the Stockholm School of Economics’ campus in Riga, Latvia.

“It’s quite substantial and quite dramatic and it’s the worst time for it to happen,” Hansen said.

Baltic Grid

The Ignalina plant was the heart of the former Soviet Union’s plan to create its own Baltic grid when it went on line in 1983, connecting the region to Belarus, the Russian enclave of Kaliningrad and the Leningrad region that includes St. Petersburg, Shevaldin said.

The original plan to build four reactors was reduced to two after the Reactor 4 explosion at the Chernobyl Nuclear Power Plant. The disaster killed 56 people in April 1986 and will claim as many as 4,000 lives from related cancers, said a report by a group led by the International Atomic Energy Association.

While Chernobyl used RBMK 1000 model reactors. Ignalina’s reactors, model RBMK 1500, are newer and safer, Shevaldin said. They have more up-to-date backup systems as well as upgrades Chernobyl lacked.

That didn’t stop EU officials from pressuring Lithuania to close the plant once the country left the crumbling Soviet Union and flagged its intention to join the free-trade bloc.

‘Reasonable Cost’

The design of the so-called RBMK reactors, used by Chernobyl and Ignalina, didn’t meet international safety standards. The G-7 Summit of June 1992 declared that VVER 440- 230 and RBMK reactors were “not upgradable to adequate safety level at reasonable costs,” said Matthias Ruete, who chaired the decommissioning fund committee in the late 1990’s and coordinated talks with Lithuania.

The first reactor was deactivated on Dec. 31, 2004, seven months after the country joined the EU.

Next year, the state-owned plant will reduce the utility’s 2,700 workers to about 1,900. Some will be kept on over the next two decades in order to make the area safe, said Shevaldin.

Prime Minister Andrius Kubilius, who took office in November 2008, said past administrations delayed work on new sources. His cabinet is the first to have a formal energy ministry.

The current government “inherited close to nothing in terms of preparation,” Kubilius said in Parliament on Nov. 12. “This is why we’ll have to pay more” for electricity, he said.

‘Energy Island’

The Baltic region remains largely an “energy island,” said EU Commission spokesman for energy Ferran Tarradellas Espuny. The only cable bringing power there from the EU is Estlink, laid two years ago between Helsinki and Tallinn, the Estonian capital.

Future connections include a 440-kilometer (273 mile) undersea cable from Sweden to Lithuania by 2016 and the LitPol link with Poland to begin in 2015. They would double the capacity of the EstLink Finnish-Estonian connection, according to the Lithuanian Energy Ministry.

While utilities such as Germany’s E.ON AG, which owns Sweden’s Oskarshamn nuclear plant, Fortum Oyj of Finland and Vattenfall AB, the biggest Nordic utility, will eventually benefit from EU integration of the Baltics into the Nordic region and Poland, projects are still years from completion.

“They are interconnected in the EU with potatoes and with cars, but not with energy,” said Tarradellas. “We are just not there yet.”

To contact the reporters on this story: James M. Gomez in Prague at jagomez@bloomberg.net To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

Last Updated: November 19, 2009 18:00 EST