Russia gains control of Latvian gas

RIGA - The auction on Aug. 30 of a 3 percent stake in the Latvian gas monopoly Latvijas Gaze saw the 1.19 million shares go for the unexpectedly low price of 6.13 lats ($9.73) each. The acquisition of a large part of the stake by the Russian-owned gas company Itera Latvija followed its purchase the previous day of a 2.13 percent stake in the company from the oil transit company Ventspils Nafta.

Itera Latvija purchased nearly half of the shares put up at auction by the Latvian Privatization Agency, increasing its total holding in Latvijas Gaze to 24 percent and giving it three seats on its supervisory council. Together, the company's two Russian owners, Itera and Gazprom, with three seats each, have greater control than the German shareholders, E.ON Energie and Ruhrgas, with two and three seats respectively. Analysts predict a sharp drop in the price of shares in Latvijas Gaze as a result.

Under Latvian law the task of the supervisory council is to ensure that the interest of shareholders are observed in between shareholders' meetings. The council has extensive powers, for example, to check company's documents, call in outside help, or dismiss board members. Itera Latvija head Juris Savickis explained the Aug. 30 auction price - substantially lower than the 12.51 lats for which shares were sold at a July 19 auction - by the fact that fewer bidders were fighting for them. "The share price set at the previous auction was too high,"he said.

Savickis confirmed his company had also acquired a 2.01 percent stake in Latvijas Gaze from Finland's Fortum and had also bought shares in block deals on the Riga Stock Exchange.

Germany's Ruhrgas bought over 44 percent of the shares being sold on Aug. 30. The identity of the other buyers is not known.

The Latvian state's remaining 3 percent holding in Latvijas Gaze is to be auctioned off at the end of this month or at the beginning of October, with the state keeping only two token shares. Savickis said he expected the share price at that auction to be much lower still. Itera Latvija has not yet decided whether to bid for the shares, he said.

Latvian stock market experts were surprised by the low share price. But Guntars Vitols of Parex Bank said the state had still got a good deal. "I estimate the actual value of the company's shares, at least for small shareholders, at no more than 3 lats to 5 lats per share,"he said. "The 12.51 lats the shares went for at the previous auction had nothing to do with the company's business value. It reflected a battle to control the company at any cost."

The proceeds from the Aug. 30 sale totaled 7.33 million lats. The share capital of Latvijas Gaze is 39.9 million lats.