Latvenergo deregulation put on hold

Latvia's past and present governments clashed last week over the privatization of Latvenergo, the country's energy monopoly, with Prime Minister Einars Repse having been forced to step in on a heated argument between opposing camps on the issue.

Aigars Kalvitis, former minister of economy, and Juris Lujans, who occupies the seat in the new Cabinet, wrangled over the future statute and structure of the electricity utility company.

Kalvitis, now a Saeima (Latvia's Parliament) deputy representing the People's Party, criticized the new Cabinet's intention to repeal a decision made by the previous government, of which he was a member, on the separation of the different functions of the state-owned utility company.

Kalvitis insisted that Latvenergo's restructuring plan was in line with European Union directives and therefore necessary for electricity market liberalization and development.

Upholding the current government's decision, Repse said in a radio interview that Latvenergo's current status as an integrated company does not mean its continued monopoly in the distant future.

"Once (the government) has secured a fair and transparent privatization process, (the government) can think about splitting off separate production capacities," Repse said. "But now such action would be premature."

On Nov. 6, during Kalvitis' last days at the Economy Ministry, an emergency Latvenergo shareholders' general meeting was held. In accordance with the meeting, Latvenergo board members had their powers extended until 2005, and all but one of the company's council members were re-appointed.

Leonids Ribickis was confirmed as chairman of Latvenergo council, and the board remained unchanged with company president Kârlis Miíelsons and board members Ivars Liuziniks and Aigars Meïko.

By all accounts Latvenergo management is in favor of the company's restructuring plan advocated by Kalvitis.

Latvenergo currently comprises four divisions: production, transfer, distribution and utilities. In accordance with the restructuring plan, the company will set up several subsidiaries to deal with power production, transmission, and distribution.

A step toward this organization was taken when Augstsprieguma Tikls, an independent transmission system operator owned by Latvenergo, was created last year.

The restructuring, however, has not gone unchallenged.

In August 2000 the Latvian Parliament adopted amendments to the energy law retaining state ownership over the company after a petition objecting to its privatization was signed by 22.9 percent of the electorate.

A group of 20 opposition MPs from the previous Parliament have asked the Constitutional Court to assess if the decision to restructure Latvenergo is in line with the energy law stipulating that Latvenergo is an integrated power supply company.

The MPs, many of whom are in today's ruling coalition party Latvia's First Party, claimed Latvenergo would not be an integrated company anymore and that further reorganization of Latvenergo actually implied disguised preparations for the privatization of the company.

Their moves have further complicated an already delicate issue for the new government.

Repse said last week his government would draft a response to the Constitutional Court and report on its position on the contested company's restructuring plan.

During his radio address the prime minister added that Latvenergo will have to maintain its accounting books in compliance with EU standards "so that they would reflect clearly various cross-subsidies existing between different branches in this company."

Latvenergo's accounts show results for the first nine nonths of 2002 are up 3.3 percent year-on-year with turnover of 131 million lats (218 million euros).

The company's net income for 2001 was 31 million lats on turnover of 150 million lats.