RIGA - Recent proposals sent to the Latvian Public Utilities Regulatory Commission by Latvia's energy monopolies could lead to a phenomenal rise in natural gas and electricity rates next year. The proposed hikes have natural gas prices rising by 25.7-37.1 percent, and electricity rates rising at 10.4 percent for households and 22 percent for businesses.
"Until I see all documents confirming the need for a more than 30 percent price hike, there is no reason to [raise prices]. I would like to see a Gazprom signed agreement with figures. We cannot accept the document in the form that has been submitted to us by Latvijas Gaze," the head of the commission, Valentina Andrejeva, told the Latvian daily Dienas Bizness on
Latvijas Gaze recently submitted a proposal to the regulating body that seeks approval for increasing gas prices by 25.7-37.1 percent as of Jan. 1, 2007.
Latvijas Gaze spokesman Vinsents Makaris earlier said that the hike was due to a gas purchase price increase that begins on Jan. 1, 2007. Gas purchase prices are climbing as energy resources become more expensive in Europe and the world.
However, Andrejeva said that the gas price hike would most likely take effect in May of 2007.
Latvia's major electricity provider, Latvenergo, is also planning a 10.4 percent rise for households starting in January 2007. Electricity prices for corporate customers would be 22 percent.
In regard to electricity prices, the regulator said the commission would try to negotiate a postponement of the electricity hike with Latvia's electricity utility Latvenergo, enabling the new rates to take effect not on Jan. 1, 2007, but possibly on March 1 next year.
The proposed rises could exacerbate Latvia's already high inflation rates, and complicate any desire the country may have in meeting inflation requirements for the euro.
According to SEB Unibanka's market and sector analyst Andris Vilks, the proposed hikes have caused analysts to describe euro adoption between 2010 and 2012 as "mere speculation."
"We forecasted average annual inflation to be around 5.5 percent next year, based on more moderate growth of those prices. If the demands announced currently are accepted, inflation will grow to 6.2-6.5 percent," he said.
Zigurds Vaikulis, a market analyst at Parex Asset Management, told the Baltic News Service that the hike in electricity prices would have a small influence on inflation but the increase of natural gas prices would cause yet another "inflation tsunami."
The inevitable increase of heat energy tariffs would add another 0.8-0.9 percentage point to inflation, said Vaikulis.
On Oct. 13, the commission approved public heating utility Rigas Siltums request for an 11.9 percent price hike on Nov. 15. The company provides 76 percent of Riga's heating.
But the price hikes are not limited to Latvia. Heating prices in Lithuania are also expected to rise by 10-12 percent in 2007.
Lithuanian Prime Minister Gediminas Kirkilas said the price of Russian gas would rise by some 30 percent in 2007, which is less than the rise in 2006, bringing Lithuania's price for gas up to European levels.
Latvijas Gaze purchases, transports, stores and distributes natural gas in Latvia. The largest shareholders in the company are Germany's E.ON Ruhrgas (47.15 percent), Russia's Gazprom (25 percent) and Itera Latvija (25 percent), a Latvian subsidiary of the Russian concern Itera, and others (2.85 percent).
Latvenergo is fully owned by the Latvian state.