The cabinet ruled LASCO should drop its claim to the $37.35 million that Latvenergo owes it and should formally drop its case, currently in the Riga District Court, within the month.
The cabinet also ruled that LASCO may not renew its claim against either Latvenergo or the Latvian state.
"We can only welcome the government's decision," said Ieva Miluna, head of Latvenergo's legal department. "It should have been done a long time ago."
The ruling puts to rest a long and drawn-out disagreement between the two state-owned companies, though LASCO was hoping for a different outcome.
"We are not satisfied with that decision, but if the owner made it we can only fulfill it," said Linda Pukite, LASCO public relations manager.
According to Pukite, LASCO was planning to invest the regained money into renewing the company's fleet.
"We could have acquired five new ships with the help of banking loans, but now we have to give up on this," Pukite said.
Although LASCO will have to write off this debt, it would not influence the company's financial indicators or cause unexpected losses, Pukite said.
The state has been trying to cancel the liabilities between LASCO and Latvenergo since 1993.
In 1992, the Russian government paid off its debts to LASCO with natural gas and oil products. Since LASCO has no need for natural gas, the Latvian government transferred the gas to the state gas utility Latvijas Gaze. The latter never paid LASCO for the received gas.
Latvijas Gaze subsequently transferred the gas to Latvenergo, and in February 1993, the Latvian cabinet, intending to hit two birds with one stone, ruled Latvenergo should pay $37.35 million to LASCO for the gas.
Miluna said the Industry and Electricity Ministry together with the Finance Ministry was supposed to prepare a contract that would define the three companies liabilities and stipulate the terms of payment, but it was never done.
Nevertheless, in July 1993, the cabinet ruled Latvenergo should pay its debt to LASCO and defined penalty for each late day at 0.3 percent of the total amount of the debt.
The debt together with penalties mounted to 52 million lats ($86.6 million), and LASCO was trying to regain this money from Latvenergo through the Riga District Court.
Latvenergo never accepted it owed $37.35 million to LASCO.
"The liabilities between our enterprise and LASCO were created by an administrative act. We've never had direct relations with that company, and we received gas from Latvijas Gaze," Miluna said.
According to Miluna, if the liabilities were created by the government, it should be the one who puts an end to the whole problem.
In 1995, the cabinet repeatedly reviewed the problem and decided both companies should write off the debt. This resolution revoked all previous cabinet decisions.
Latvenergo wrote off the debt in 1995, so now it's LASCO's turn. LASCO announced it would fulfill the cabinet's decision, but noted that the solution is the least favorable for the company.
Both companies admit the decision can lead to progress in their privatization.
"Investors were very cautious because they knew about LASCO's claim in court. Although this debt is not included in our balance, they were afraid the court might rule in LASCO's favor," Miluna said. "So now there is no uncertainty."
Pukite said it was hard to predict how privatization will continue, but she expressed hope that the main stumbling block had been lifted.