Risking wrath of litigation, Cabinet opts not to privatize Riga utility

  • 2006-01-11
  • By TBT staff
RIGA - The Cabinet of Ministers, minus its chief Aigars Kalvitis, decided on Jan. 10 against privatizing Rigas Siltums (Riga Heat), the major heating company in the Latvian capital that is highly sought after by two foreign investors.
The decision was a complete reversal from the stance the government took in September, when it decided to sell its 49 percent stake in the company. Riga City Council owns an equal amount.

Led by Economy Minister Krisjanis Karins, the government based its change-of-heart on the need to retain control in order to organize heat supply in the capital.

There were also reports that politicians feared a loss of control over the strategic enterprise and heating tariffs.

While the decision was not unexpected, there was a great deal of intrigue following the Jan. 10 Cabinet meeting, given the rash of criticism that preceeded it. France's ambassador to Latvia, the Latvian president and two potential investors in Riga Heat had questioned the government's reasoning, claiming that a decision to keep the company in state hands would send the wrong signal to foreign investors.

In fact, the conspicuous absence of PM Kalvitis at such an important Cabinet meeting (he was in Kazakhstan on an official visit) led many to believe that he would try to fault New Era, which Karins belongs to, for the outcome.

Kalvitis' People's Party supported the sell-off of Riga Heat, while New Era has said it wanted to retain control over the asset, if not transfer the state's interest to Riga city officials. Relations between the two parties, which have never seen eye-to-eye, have worsened in recent weeks over a recent gambling law shoved through Parliament by the People's Party (see story on Page 7) and a probe into New Era leader Einars Repse's investments (which led to Repse's resignation at the end of December).

Indeed, Foreign Minister Atis Pabriks, a member of the People's Party, argued during the meeting that the government was being inconsistent and would violate trust in Latvia as a place for investments. What's more, he said, the government could face legal action.

The two investors were Finland's Fortum and Dalkia City Heat, a subsidiary of France's Dalkia International. Both companies had submitted investment proposals to the government 's Dalkia, which owns 2 percent in Riga Heat, had promised to invest some 170 million euros over the next 15 years 's once the green-light to privatize was given in September.

Both in anticipation of the government decision and in response to media reports, Dalkia took a full-page ad out in Diena, Latvia's leading paper, explaining its position and what it had to offer Riga Heat and city residents.

Meanwhile, French Ambassador to Latvia Michael Foucher openly questioned the Cabinet in a recent letter to the daily.

"Why should the government deny Riga residents a heating network management solution that has already proved itself elsewhere?" the French ambassador wrote. "If the French proposal is rejected, it would be a strange message sent by the Latvian government to France and European investors."

Dalkia International owns heating networks throughout the world, including Estonia and Lithuania.

Though there were hints that the company might sue the government for its sudden reversal, when The Baltic Times went to press no information was available as to how the potential investor might respond.

The government's decision can be appealed in the Administrative Court within one month from its going into effect.