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Latvenergo's privatization back on track

  • 1999-04-01
  • Anastasia Styopina
RIGA - With a stamp of approval from the Parliament, the Latvian Privatization Agency has announced its new plan for transferring at least part of the state power company into private hands.

After getting the green light from the Parliament's legal office, LPA Director General Janis Naglis unveiled March 22 a new privatization plan for Latvenergo that will turn the company into an energy concern and offer shares to investors and residents. However, the state will remain a major shareholder.

"The new privatization model will ensure stable development of the energy sector, will give the state a real opportunity to regulate electricity tariffs and will protect consumers from the creation of a new monopoly," Naglis said.

According to the LPA plan, Latvenergo will comprise a 100 percent state-owned mother company and a number of smaller companies in which at least 51 percent of shares will be held by the state.

But until recently, it was unclear whether privatization could go forward since the previous Parliament placed a moratorium on Latvenergo's privatization.

Last year, MPs banned the state power company's privatization because of its involvement in the so called 3 million lat scandal. Latvenergo participated in a cession deal with the failed Banka Baltija and an offshore company in Liechtenstein in which 3 million lats ($5.17 million) disappeared.

The previous Parliament ruled that all activities connected with the power company's privatization should be stopped until a special parliamentary commission finishes the investigation of the dubious deal.

At the beginning of March, the Cabinet of Ministers re-opened Latvenergo's privatization, ordering the Economics Ministry to work out the company's privatization terms by April 5, but it had to wait for approval from the Parliament before it could go forward.

That approval came March 15, when the Parliament's legal office ruled the ban ceased to exist when the previous Parliament's term ended late last year and the special investigative commission was dissolved.

Under the new plan, Latvenergo will have four subsidiaries that will have the status of joint stock companies: thermal power stations, the Daugava hydroelectric station, a distribution network and a transmission network.

The new model calls for the transmission subsidiary, which includes the high voltage network, to be left entirely in state hands.

"This system enables energy transportation through Latvia, and it should be 100 percent under state control," Naglis said.

Investors and residents will be offered shares in the thermal power stations and distribution network. Residents may count on 20 percent of shares in the thermal power subsidiary and on 25 percent in the distribution subsidiary which includes regional power networks.

Investors will be able to acquire 29 percent in the thermal power stations and 24 percent in the distribution network.

Up to 25 percent of the Daugava hydroelectric station will be sold to residents for privatization vouchers, but no foreign investors will be able to participate in the power station's privatization. The state will control the remaining 75 percent.

Naglis stressed that he favors this model and called other privatization models "extreme."

Earlier this year, the Economics Ministry proposed to sell 25 percent of Latvenergo to Latvian residents to give them a chance to use their privatization vouchers before they expire on Jan. 1, 2000.

LPA Legal Director Vladimirs Sadinovs, however, called this scheme unprofitable because it does not foresee restructuring and makes further privatization more difficult.

"Once the company has private investors, it will be very difficult to restructure it," he said.

Another extreme model stems out of the current law on energy. It calls for leaving strategic objects, in this case the high voltage network and the Daugava hydroelectric station, in state hands.

Sadinovs explained that it basically means the "nationalization" of the high voltage network and the power station because they should be taken out of Latvenergo's structure. It also does not allow to privatize the Daugava power station's shares in exchange for privatization vouchers.

This model is unprofitable for Latvenergo because hydroelectricity generates additional revenue for the company that enables it to continue the renovation of its systems.

The company's management had stated earlier that it would support Latvenergo's privatization if it left the hydroelectric station within the company's structure.

In order to implement the integrated concern model, Parliament will have to amend the existing law on energy. These changes should also calm Latvians' fears of a possible new monopoly.

"The only guarantee to avoid the creation of a new monopoly is to include the proposed changes in the law. Amendments should state that 100 percent of shares in the transmission network and 75 percent of shares in the Daugava power station should stay in state hands," Sadinovs said.

The Economics Ministry is expected to hand the new proposal to the Cabinet April 5.

At least one party in the new Parliament is not accepting the plan, though. Even before reviewing the new model, the Latvian Social Democratic Alliance said Latvenergo's privatization should go to a public referendum instead of being left in the hands of the government or the Parliament.

"This question is neither the Saeima's nor the Cabinet of Ministers' competence. It's all the nation's question," said Egils Baldzens, head of the Social Democrats.

So far, the party's proposal has not caught on with other factions.

Naglis seemed very optimistic about the future of Latvenergo's privatization.

"To my mind, the Saeima voted for Latvenergo's privatization when it voted for the 1999 budget," Naglis said, noting that the Social Democrats, who oppose Latvenergo's privatization, also voted for the budget. Latvia expects to collect over 40 million lats in privatization revenue this year.