Cabinet clears policy on energy monopoly

Caught between the previous govenment's proposals and pressure to deregulate, Prime Minister Einars Repse last week presented an alternative restructuring plan for Latvenergo, the country's electricity monopoly.

According to Repse's concept, a new, wholly state-owned joint stock company for power transmission would be set up, with conditions imposed to ensure that the company, which would not be a subsidiary of Latvenergo, could not be privatized.

Such a move would keep the future Latvian electricity market in compliance with European Union directives, while at the same time avoiding loss of state control over the crucial segment of the energy sector.

Economy Minister Juris Lujans repeated his claim that the company would not be privatized and would remain in its present form under the present Cabinet.

In fact, if the government earlier gave mixed signals on the issue, privatization of Latvenergo appears to have been written off all official statements over the past week. Even the Latvian Privatization Agency declined to comment, saying that Latvenergo is not under its supervision, nor is it likely to be.

Ugis Sarma, director of the Economy Ministry's energy department, told Cabinet members that transmission and distribution networks are natural monopolies, while energy production and trade are not and therefore should be separated from the parent company and should be left to market forces.

Sarma added that EU directives requiring transmission companies to be independent legal entities were under preparation and could be extended to cover energy distribution as well.

The EU directives will also apply to energy market liberalization in all candidate countries, said Sarma.

A meeting of the Nordic and Baltic energy regulators held at the Economy Ministry in Riga Nov. 22 shed new light on developments to be expected on the Baltic electricity market.

Baltic energy regulators presented their methodologies and shared experience with delegates of Denmark, Finland, Norway and Sweden, all of which belong to Nordel, which coordinates transmission system operators in the Nordic countries.

Nordel's objective is to create an efficient and harmonized electricity market between member countries.Inna Steinbuka, chairman of Latvia's Public Utilities Commission, stressed the significance of the memorandum on common Baltic electricity market signed earlier this month in Vilnius. The memorandum, she said, is a step toward the creation of a common, competitive electricity market.

At the same time the idea of complete unification is ruled out for now. Economy Minister Juris Lujans told BNS that a merger between the Baltic energy companies was unlikely.

In August 2000 a planned merger between Latvenergo and Estonia's Eesti Energia was rejected by the Latvian Parliament pursuant a nation-wide petition, having garnered support from only 23 percent of the Latvian electorate.

To boost its position on the market, Latvenergo has recently taken out the largest syndicated loan ever underwritten in the country. The 15 million-lat facility was organized for the reconstruction of Riga's TEC 1 thermoelectric station, which needs to increase output capacity and environmental standards.

These improvements, according to company officials, will allow the company to produce electricity at a more competitive cost and reduce Latvia's demand for electricity imports.