Power company may drag Latvia to arbitration court

  • 2001-08-23
  • Jorgen Johansson
RIGA - The Windau power company has had enough of battling Latvian power utility Latvenergo and the government for turning their backs on agreements. Stefan Johnsson, Windau board member, said his company has a claim of 8.22 million lats ($13 million) against the state and that if no settlement is reached, they will be forced to turn to an international court of arbitration.

"When we built our power station in Bauska, we had all required licenses, and the legislation was in our favor. Then all of a sudden the laws were changed and Latvenergo changed its tariffs," Johnsson said.

In 1997, Windau and Latvenergo signed an agreement on the production and purchase of energy. Windau would produce and Latvenergo would buy at double tariff.

There are several different power tariffs in Latvia. The Energy Regulation Council sets the tariffs based on various factors including consumption and imports of electrical power. Double tariff means double the average tariff set by the Energy Regulation Council.

But, after Windau's power plant had been constructed in Bauska, the energy law on renewable energy was suddenly changed in 1999 from buying cogeneration produced power at double tariff to buying it at 75 percent of the average tariff.

"There have never been any purchasing agreements signed between Windau and Latvenergo on double tariffs," Andris Liepins, under-secretary of state at the Ministry of Economy, said. "Only a permit to build was signed."

Before the law was changed it read that any renewable energy producer in Latvia would be allowed to sell its energy to Latvenergo at double tariff for eight years.

Now, the government has decided to take up settlement negotiations with Windau on the purchase of power at a higher rate from the plant in Bauska. "This is a mistake of Parliament members, which now must be paid for. On the other hand, they can't be punished too harshly, because they have had to pass an enormous number of laws in a very short time," Latvian Privatization Agency's Director General Janis Naglis told the Baltic News Service. The Swedish company Nykomb Synergetics Technology, which owns Windau, has been fighting for its rights for over four years. Johnsson said they were forced to accept a new price setting with Latvenergo, but that they did so under protest and that the company now is trying to soften Latvenergo's price setting a little.

As a last resort, the Swedish company sent Latvia its compensation claim in May, 2001 with an attached word of warning. Should Latvia choose not to pay the compensation, it may yet again find itself engulfed in more international arbitration cases. Johnsson said the plant in Bauska is using only state of the art technology, that it's the first of its kind in Latvia and that the power plant turns natural gas into electricity, making it very environmentally friendly.

Most of Latvia's electricity is imported from Russia, Estonia and Lithuania. The power from those countries is rather cheap to produce and this is why Windau is asking for higher rates for their costly but environmentally friendly electricity production. "We had plans to build 10 more of these power plants, but the way things look now, we simply cannot build any more," Johnsson said. "Latvenergo has not laid down a bid to buy our power station, but I know there are rumors about such an offer." At Latvenergo nobody is willing to comment on this matter.

Windau is not the only company in Latvia dealing with renewable energy. There are companies which have turned to look at wind produced energy. One of them is the company Veja Parks. This company is divided into 11 different companies with the same name tagged by a number from 10 to 20. This arrangement comes from regulations saying that wind produced energy may be sold only to Latvenergo at double tariff as long as a company does not have the capacity of producing more than two megawatts per hour. Veja Parks managed to close a deal with Latvenergo earlier this year on selling energy at double tariff for eight years, but as of June 1 the energy law on wind produced power was also changed, giving the Energy Regulation Council a mandate to decide at what tariff Latvenergo will purchase wind produced power.

There are several different theories on why the Latvian government changes the energy law on renewable energy rather frequently. One of them is that the government is trying to appease the European Union by getting companies to produce renewable energy but not expecting any company to take them up on the offer.

So far, any company which would like to produce solar powered energy in Latvia may sell its energy to Latvenergo at double tariff. But given the history of sudden energy law alterations, this is most likely to change as soon as any company shows an interest in investing money in such a power plant.

Liepins left little hope for companies which might show an interest in this sort of power plants since: "Their business plans would probably be turned down before any construction could begin." He also said he simply could not see how a solar power plant could work in this country.

However, Liepins did not object to small hydroelectric plants and even conceded they would receive double tariff pay from Latvenergo.

"Whether it is economically justifiable for Latvenergo to buy energy at double tariff is another issue though," he said.

Last year Latvenergo posted a net profit of more than 20 million lats and the company expects this year to be another profitable one. In the first six months of this year Latvenergo had a net turnover of 92 million lats, which is 7 percent more than for the same period last year. So far, the power company has not released any figures on the profit for this year, but it looks as if it will be higher than the first half of the previous year.