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Gas company sell-off causes split in ruling coalition

  • 2001-07-26
  • TBT staff
RIGA - The unexpectedly high price for 2 percent of the shares in the Latvian natural gas monopoly Latvijas Gaze, and the subsequent decision of the Latvian privatization officials to sell half of the remaining shares for privatization vouchers, caused a sharp reaction from the country's prime minister July 20.

Two percent of Latvijas Gaze shares were sold at a special auction on the Riga Stock Exchange on July 19 for 12.51 lats ($19.54) per share, more than three times higher than the stock's going price on the bourse and four times higher than the 3.58 lats minimum price set by the Latvian Privatization Agency.

The state raised 9.98 million lats from the sale, while the privatization agency earlier predicted the maximum revenue raised could be 3.08 million lats.

Such a result has shocked even the most experienced privatization officials. "It's obvious, but unbelievable," the agency's director general, Janis Naglis, told BNS.

"I can't explain why the price of one share was so high because the company does not have such a high capital return," he stressed.

Naglis said the 2 percent stake must have been decisive for some shareholder to back its interests in the company.

The largest portion, or more than 70 percent of the 2 percent stake in Latvijas Gaze, was bought by the gas company Itera Latvija, which increased its total stake in the company to 19.33 percent. Another large buyer was the oil transit company Ventspils Nafta, which purchased 200,000 shares, paying 2.50 million lats. Latvijas Gaze's largest shareholders are Russia's Gazprom, Germany's Ruhrgas, E.ON Energie AG and Itera Latvija. The gas company's share capital is 39.9 million lats.

The next day, when the privatization agency's council overturned its earlier decision to sell the remaining 6 percent of Latvijas Gaze for money and decided to auction 3 percent of the shares for cash and the remaining 3 percent through a public offering for privatization vouchers, a political storm began.

Prime Minister Andris Berzins ordered a blockade of that decision and requested the dismissal of the agency's council member and his Latvia's Way party colleague Juris Lorencs for supporting it. Berzins also requested other coalition parties, namely the People's Party and For Fatherland and Freedom, whose representatives supported the move, to recall them from the agency's council.

Berzins believes that it is better to get a maximum amount of money for the state budget by selling Latvijas Gaze shares for cash.

"The state is currently in need of funds for ensuring health care, pensions and social benefits, educational reforms, economic investments and compensations to the politically repressed," said Berzins.

"There is no reason to talk about vouchers," his spokesman Arnis Lapins told The Baltic Times.

He said that from about 20 percent of the remaining vouchers the 3 percent stake in Latvijas Gaze could erase only 3 percent to 5 percent, and that a significant stock in the company had already been sold for vouchers before, in accordance with privatization rules.

The voucher sell-off was supported by three representatives of the ruling coalition – Normunds Luste from the People's Party, Judite Oskalne from For Fatherland and Freedom, Juris Lorencs from Latvia's Way – and two from the opposition, Sergejs Dimanis from Human Rights in United Latvia and Anatolijs Jerumanis from the New Party.

"The prime minister is only asking for the dismissal of council members nominated by the ruling coalition, as it is a question of ethics," Lapins said.

In the meantime, the largest foreign shareholders of Latvijas Gaze are preparing to sue the Latvian state in the Stockholm Court of Arbitration to change the regulation on gas tariffs for large businesses. The Swedish law office Mannheimer Swartling has sent a letter to the Latvian Privatization Agency informing it about the preparation of a claim, the agency informed.

German shareholders of Latvijas Gaze, Ruhrgas and E.O.N. Energia, which together with Russia's Gazprom became the company's strategic investors in 1997, say that the shareholders agreement signed then provided for a halt in the practice of lower tariffs for industrial consumers. The Latvian side disagrees, calling this position an "interpretation" of the contract. Currently, the maximum gas prices are set by the state.

The main gas consumers of Latvijas Gaze are energy monopoly Latvenergo (51 percent), Riga's heating company Rigas Siltums (11 percent) and the metallurgy company Liepajas Metalurgs (10 percent).