RIGA - The Public Utility Services Regulatory Commission has given permission to Latvijas Gaze (Latvian Gas) to increase tariffs beginning May 1 this year. Latvenergo, the national electricity provider, responded by saying that the hike would significantly increase its prices and thus force it to request a price hike for its tariffs.
Commenting the commission's decision, Chairwoman Valentina Andrejeva said, "The only reason why the regulator revised the natural gas sales tariff is the growth of the natural gas purchase price. No tariffs have been changed for any of the services provided by [Latvijas Gaze]."
She explained that specific gas tariffs would depend on the amount consumed by a given client and the fuel oil price on the exchange. If fuel oil prices went down, so would natural gas tariffs.
According to an adjusted tariff proposal submitted by Latvijas Gaze to the regulator at the beginning of the year, the natural gas price in Latvia will grow 16.9 's 27.3 percent starting May 1 if the price of fuel oil remained at the present level of about $280 per ton.
At $280 per ton of fuel oil, natural gas sales tariffs would grow by 0.019 lat (0.027 euro). Monthly household bills, where gas is used only for cooking, will increase by 0.17 's 0.74 lat, while those households using natural gas also for heating will pay some 1.84 's 5.52 lats more every month.
Latvenergo spokesman Andris Siksnis said that the utility company was likely to apply for a tariff hike soon in time for the next heating season in October. He could not say yet how big a tariff increase the company will seek.
He said that Latvenergo information put world prices for fuel oil at USD 350 's 370 per ton, which means that the company will have to pay 106.94 lats per 1,000 cubic meter of gas; this will increase the price for heat generated at the Latvenergo thermal power stations by 22 percent.
The Riga city public utilities regulator and Latvenergo had called on the regulator to approve the new tariffs from October 1, since by that time Latvenergo's thermal power plants and the Rigas Siltums municipal heating utility in the capital would also have new rates in place.
In terms of the inflationary effect of the hike, the Public Utility Services Regulatory Commission said that the Bank of Latvia, and the Finance and Economy ministries have estimated that the direct influence of the natural gas tariff hike on inflation at 0.2 percentage points and an overall influence at 0.3-0.4 percentage points.
For their part, analysts said that the new natural gas tariffs won't have a serious direct influence on inflation; however, the likely increase of heating tariffs in the fall will.
Hansabanka analyst Liene Kule said that the direct effect of the gas price hike on inflation will be minor because natural gas made up only 1.4 percent of consumers' monthly costs. She said that inflation in May could grow 0.2 percentage points because of higher gas prices. "Changes in heating tariffs that will follow the gas price will be more substantial, and we will get the 'full taste' of this in fall," said Kule. For now Hansabanka is sticking to its 6.1 percent average inflation forecast for 2006.
Parex Asset Management analyst Zigurds Vaikulis told the Baltic News Service that direct effects from the tariff rise for gas and, subsequently, heat energy will push up consumer prices by 0.8-0.9 percent. "We also have to reckon with the second wave when the new gas, heat (and, possibly, electricity) prices will become reflected in the end prices by producers. We will have to see, but it is quite likely that the current average annual inflation forecasts (5.5-6 percent) might have to be revised," said Vaikulis.
Andrejeva said that Latvijas Gaze was obliged to keep clients informed about fuel oil price fluctuations and applicable gas tariffs. The gas company will have to provide this information to households every six months and to large consumers once a month.
The regulator has also called on Latvijas Gaze to use part of its profit for support to the poorest natural gas consumers in order to lessen the effects of the natural gas tariffs on costs by low-income groups of population as is practiced in several European countries.
