RIGA - An attempt to mandate a restructuring of the state-owned utility Latvenergo flopped last week when a Cabinet vote ended in a draw after a debate that took up a large part of the March 2 meeting.
Four ministers voted for the proposal to transform Latvenergo into a concern, while four voted against and four abstained.
"No decision was passed," said outgoing Prime Minister Einars Repse.
Latvenergo Board Chairman Karlis Mikelsons told reporters he did not know what would happen next, but he was worried about possible court proceedings if Latvia failed to comply with EU demands.
Latvenergo Council Chairman Vilis Vitols said the government should have listened to the experts, who had worked on implementing EU requirements for years and had advised to reorganize the company into a concern.
Public Utilities Regulatory Commission council chairwoman Inna Steinbuka spoke against the concern option, saying it was important to have competition on the energy market, and that this could be achieved by splitting Latvenergo into separate companies.
Work on a restructuring of the utility will proceed, however as the Economy Ministry and Latvener-go have to keep working on a draft bill that will allow Latvia to comply with the EU requirement about the legal separation of electricity production, transmission and distribution.
The government had been debating for two weeks whether it would be better to reorganize Latvenergo by creating a concern of affiliated companies or splitting the existing company into several completely independent businesses.
Ministers agreed that creating a concern seemed to be the best option, but the subsequent vote failed to gain a majority of Cabinet members.
Some ministers were apparently worried that should a concern be formed, shares of assets of subsidiaries - no longer owned by the state directly - could be sold off without the government's knowledge.
Experts who spoke at the meeting admitted that the Latvenergo reorganization proposal was not perfect, but progress had to be made in order to meet EU requirements and have something to show the European Commission.
Latvia is required by law to separate production and distribution by July 1, 2005.
Should the government fail to liberalize the energy market, it will leave itself open to lawsuits from both companies and consumers, experts said.
The past the government once tried to put Latvenergo up for sale, but the parliamentary opposition objected to the idea and even went so far as to organize a campaign to collect signatures from voters in order to hold a referendum on the subject. The ruling coalition gave up its efforts and passed a law dictating that Latvenergo could not be privatized.
