The amendments stipulate removing the state energy monopolist Latvenergo from the privatization list and retaining it as a single, vertically integrated energy company. They also forbid the company from using its assets as a collateral for loans or any other financial obligations.
Changes to the energy law have been on Parliament's agenda since privatization plans for Latvenergo were first drawn up in 1996. The Social Democrats brought up the question twice before to no avail.
But in July the party began the signature collection for a referendum on the changes, getting more than twice as much as the required 10 percent of voters to sign against Latvenergo privatization.
"Many people signing the project fell victim to aggressive slogans about selling 'Mother Daugava' and about how much electricity tariffs will rise [should Latvenergo be privatized]," said Latvian Privatization Agency chairman Janis Naglis.
His view was supported by Prime Minister Andris Berzins, who said that the Social Democrats successfully exploited the symbolic value of Latvenergo and the Daugava dam cascade in particular.
The original energy law did not stipulate privatizing the Daugava hydroelectric power stations, referring to them as "strategically important energy supply objects."
Amendments offered by the Social Democrats came under severe criticism from the Latvian Privatization Agency and the ruling coalition as strengthening the monopolistic position of Latvenergo, stifling competition in the energy market, potentially hazardous to the company's development, and expensive to the state and the electricity consumers.
Naglis emphasized that without the ability to pledge its assets, Latvenergo will find fewer available credit sources, which is bound to have a negative effect on its development. To meet its demands for development funds, which Naglis estimated at about $80 million, the company will have to significantly raise tariffs, or to draw money from the state budget.
Berzins said that while previously, according to international agreements, the company could raise $100 million in loans, this figure will now shrink to $10 to $15 million.
"It means it will go to the government and ask to provide sovereign guarantees, which means there will be less money in the budget for other things, less money for social needs," Berzins said.
The government prepared alternative amendments to the energy law, which it unanimously approved on Aug. 2, the day before the extraordinary session of Parliament. The amendments proposed removing Latvenergo from the privatization list, but allowing pledging assets for loans needed for the company development with the government permission, and stipulating Latvenergo restructuring.
According to the government project, the company was to be split up into three parts: hydroelectric power plants and transmission networks, thermo-electric power stations and telecommunication networks and social infrastructure.
Egils Baldzens, chairman of the Social Democrats, said he found it surprising that the government was so insistent on including the clause allowing pledging Latvenergo property.
"If all company shares are state-owned, as our project stipulates, any credits taken by Latvenergo are taken by the state, and the state doesn't need any collateral," Baldzens said.
He added that Latvenergo regularly borrows money without collateral or state guarantees, as its credit rating is very high due to its large turnover.
"Nobody doubts that Latvenergo can pay back what it borrows," he said.
The government's fears that the company's credit sources will dry up without the pledging option, according to Baldzens, are unfounded.
The Social Democrats also objected to restructuring on the grounds that separating hydro- and thermoelectric power stations is technically undesirable. Because the two types of energy production are complimentary, separating them will reduce the company's efficiency, the Social Democrats argued.
The amendments to the law proposed by the Social Democrats were adopted by Parliament in both readings 50-22, with 22 abstentions. For Fatherland and Freedom/LNNK, a junior member of the ruling coalition long opposed to the privatization, voted with the Social Democrats. While Latvia's Way, Berzins' party, abstained.
Berzins said this split in the ruling coalition does not threaten the parties' cooperation and ability to work together.
"Yesterday we made the common decision about the future of Latvenergo, we just used different tactics," Berzins said.
The original government plan was to bring up its amendments to the Social Democrats' proposal in the second reading, meanwhile informing the public about the issue in view of the referendum.
"Public opinion is currently formed by the lack of information," said Guntars Krasts, TB/LNNK. "During the signature collection both the economics minister and finance minister were completely silent."
With the new energy law finally adopted in the second reading, this option is no longer available.
"Pragmatically speaking, I am satisfied that we don't have to spend money on referendum," said Berzins. "Politically it is a good opportunity to take lessons, for government and the right-wing parties."
Berzins predicted the new energy law will be amended in the future, when the passions around Latvenergo cool down, an option which would not have been available to the current Parliament if the Social Democrats' proposals were approved by referendum. In its current shape the law is incompatible with EU regulations on electricity markets, which stipulates energy transmission to be managed separately from generation and distribution.
Krasts said that all aspects except generation should also be eventually privatized, for private capital will make them more efficient. He forecast an increase in electricity tariffs, suggesting that insiders' efforts in Latvenergo artificially prevented their increase before and during the signature collection to ensure the success of the referendum.
"As soon as the tariffs rise, public opinion [on privatization] will also start to change," Krasts said.
Edvins Inkens from Latvia's Way suggested that if the Latvenergo monopoly is shaken and the energy market is liberalized, tariffs will decrease.
"You don't even think that a different price for electricity is possible - this is the hypnotic power of the monopolist," Inkens said.
According to Berzins, Latvenergo's current management will continue preparation for the company restructuring, and efforts will be made to liberalize the market.
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