PMs consider merging national utilities

  • 2005-02-09
  • Staff and wire reports
RIGA - Reports surfaced last week that Estonia and Latvia's prime ministers had discussed a possible unification of the two countries' energy markets in order to balance economy-of-scale and competitive interests as Europe's markets become deregulated.

Estonian Prime Minister Juhan Parts was quoted as saying that he didn't exclude a merger of Eesti Energia and Latvenergo. The prime minister "does not oppose merger talks' but at the same time he doesn't want to open them in a rush," Erki Peegel, Parts' spokesman, said.

Parts met with Latvian Prime Minister Aigars Kalvitis on Jan. 29 in Riga, and the latter reportedly said that Latvia's laws would be amended by summer so that a possible merger could proceed. Ambassador to Estonia Edgars Skuja confirmed the news, saying that the idea of bilateral talks on the merger was gaining popularity among Latvian politicians. He added that Eesti Energia and Latvenergo should also deepen cooperation with Nordic power companies so that a wider, Pan-Nordic electricity market would be possible.

Gunnar Okk, CEO of Eesti Energia, said he supported the idea of such a merger. Once the European energy market is deregulated, he said, the two Baltic giants would become midgets. In the EU only the Cypriot and Maltese energy systems are smaller, he added.

Latvenergo and Eesti Energia already cooperate on a number of projects. Both firms are partners in the Estlink undersea cable project, in which the Latvian side possesses a 25 percent stake. (See story on Page 7.)

Latvian Economy Minister Krisjanis Karins told the Baltic News Service that the issues of Baltic energy independence and increasing electricity output were urgent for the country. He said there were two alternatives to achieving this goal: either building new power stations or intensifying cooperation with Estonia and Lithuania.

"Closer cooperation is possible, but we have to follow carefully whether this is agreed cooperation or something else," Karins said, adding that he had already spoken about this with Juhan Parts when the previous government of Einars Repse was in office. He added that he was scheduled to meet with his Lithuanian counterpart to discuss the issues of energy and oil-deposit exploration in the Baltic Sea.

Meanwhile, Latvenergo's top officials are sounding alarms over the need to boost the company's energy capacity. President Karlis Mikelsons told the Baltic News Service that one possible project would be the construction of a coal-fired power plant in western Latvia. A joint study on the project by Latvenergo and E.ON Energy Projects, a subsidiary of the German energy company E.ON Energie, could be completed this year.

"I think this year we will complete the study that we could submit to the government, and then the ministers will decide about how this could be done and on what terms," said Mikelsons. He stressed that no investor would take interest in a 400 million lat (569 million euro) coal-fired power plant unless it was profitable.

Coal-based power production would significantly decrease Latvia's dependency on Russian natural gas, which now prevails among the country's sources of raw material. But coal has drawbacks too, including higher construction costs, more environmental concerns and steeper fuel costs. Kilowatts generated by a coal-fired power station will be 1.3 times higher than the price for power made by a gas-fired power station.

Currently Latvia is self-sufficient in meeting its energy needs only four to six weeks a year during the spring, when floods allow hydropower plants on the Daugava River to work at full capacity. The rest of the year the country has to import electricity. In recent years Latvia has been buying about 30 percent of its required kilowatt needs from neighboring countries.

Mikelsons said that the closure of Ignalina Nuclear Power Plant's first unit has not affected Latvenergo's operations. "It is rather a problem for Lithuania and may also be for Russia, but in this situation it will have no effect on us - neither financially nor in terms of any additional difficulties in operation," he said.

Closure of the second unit, however, scheduled for 2009, does pose a problem. Mikelsons said that Latvia had to think of ways to expand power production capacity to meet demands and avoid importing from neighbors. "I want to say once and again that we have to think about energy independence ourselves instead of looking at what neighbors could do for us," he said.