The Stockholm Arbitration Court has ruled that the Latvian state will have to pay 6.9 million lats (10.4 million euros) to Latvijas Gaze, the coutnry's gas utility company, in a dispute over the right to regulate tariffs to industrial consumers.
The ruling, which is subject to appeal, has provoked a sharp response from the government over the terms of sale of the company several years ago as well as qualifications of the Latvian lawyers representing the state's interests in the court case.
Latvijas Gaze's council decided to arbitrate last year when the government rejected amendments to the energy law as proposed by Latvijas Gaze shareholders, who wanted to do away with regulation of tariffs to industrial consumers.
The claim by shareholders was based on the Latvijas Gaze purchase-sale agreement signed with strategic investors in the gas company which they believe allowed the state to regulate gas tariffs only for household consumers.
Justice Minister Aivars Aksenoks said the Stockholm court ruling should be seen as partly beneficial to the state because the court recognized that the state had had the right to regulate prices for industrial consumers.
But through such regulation the state had forced Latvijas Gaze to incur damages, and so the court has ordered Latvia to reimburse the gas company.
Also, the court did not accept the company's original estimate of incurred damages and awarded two-thirds of the initial claim.
Prime Minister Einars Repse said he did not rule out the Latvian officials may have acted malevolently by signing with strategic investors a contract for sale of Latvijas Gaze shares that can be subject to various interpretations.
The prime minister also did not conceal his suspicions that lawyers representing the Latvian party at court had not done their best to protect the interests of the state, since the arguments provided by Latvijas Gaze at court regarding reduction of profit due to the regulation of tariffs could actually be contested considering that the company's profit has been very high and had been growing with every year.
"In this situation I am myself most interested how strongly these indicators were used by lawyers to indeed substantiate that Latvijas Gaze's profit has been not only reasonable but even good," said Repse.
Latvijas Gaze shareholders believe the state under Latvijas Gaze share sale contract undertook to regulate gas tariffs only for households while actually regulated tariffs for industrial consumers as well which has prevented the company from making a "reasonable profit."
At the base of the dispute was the term "domestic end-users," which the state interpreted as all local consumers, whereas Latvijas Gaze claimed those were only households.
The Latvian Privatization Agency also claimed that the term "domestic consumers" used in the agreement meant all local consumers, not just household consumers, as argued by Latvijas Gaze.
Aksenoks said the judgment was "long and complicated" and a detailed analysis would be needed to determine whether any appellate claim could be filed.
He also could not answer the government's question about whether a more favorable outcome for Latvia could be achieved.
"It is impossible to say at the moment," said Aksenoks.
An appeal can be filed within three months.
Aksenoks would not speak in detail about the court ruling itself because the government has decided that the matter should be treated as confidential and should remain as such at least until Latvia decides on further course of action.
He said Latvia would now have to pay for businesses and households, which earlier had enjoyed lower gas rates.
Andris Berzins, who headed the government at the time the decision to bring the case to arbitration court was taken, said then that as long as Latvijas Gaze retained a monopoly on the gas market regulation of gas prices could not be stopped.
"Let's wait until the justice minister studies all the materials of the case and then consider whether we can level any objections to officials, to lawyers representing the Latvian party or not," said Repse.
"In any case, if we find such objections we will not keep silent."
Russia's Gazprom and Itera Latvija (a subsidiary of the Russian concern Itera) each hold 25 percent of Latvijas Gaze shares, while Germany's Ruhrgas has a 28.7 percent stake and E.ON Energie has 18 percent.
The remaining 3.3 percent of the company's stock is in public hands and traded on the Riga Stock Exchange.