Fight over unbundling of Latvian gas monopolist hots up

Fight over unbundling of Latvian gas monopolist hots up
By bne IntelliNews November 18, 2015

The fight to delay the unbundling of Latvijas Gaze started heating up on November 17, just ahead of parliamentary hearings on Latvia's energy law, as lobbyists called for liberalisation of the gas market to be delayed yet again, and a court ruled against the regulator's efforts to push elements of the plan through.

The fight over the monopolist - controlled by Gazprom - has been intensifying throughout the year, as the Baltic region strains to pull away from Russian dominance of its energy supply. It now appears Moscow and its powerful local lobbyists are ready to step up their effort, as the 2017 deadline to dismantle the company's control of Latvia's strategic infrastrucutre approaches.

Following its privatisation in 1997, Latvijas Gaze has a guaranteed monopoly on the local market until April 2017. In 2014, Riga delayed the unbundling of Latvijas Gaze by over two years to that date.  The move would split LG into a distribution/sales unit and a seperate operator of the country's pipelines, and most crucially, the Baltic region’s only gas storage facility at Incukalns.

Unbundling is required by the European Union’s legislation. The government in Riga insists it will take place as planned. However, as local energy analysts predicted to bne IntelliNews it would in the summer, Gazprom looks to be rallying its powerful local forces to try to derail the project yet again.

The Latvian Chamber of Commerce and Industry proposed on November 17 that the unbundling should be delayed to the end of 2019. The same day, a regional court struck down a move by the gas market regulator to start opening up the transmission system to third party suppliers.

The Latvian Chamber of Commerce and Industry claims that the two years now left before the unbundling must be completed is too short a window, The Baltic Course reports. It also claims the time is too short for investors to analyse their interest in the companies created after unbundling. The pressure comes just ahead of a second parliamentary hearing of the energy law amendments later this month.

Energy island

Those words almost exactly matched those of LG in a statement announcing the same day that the Administrative Regional Court has suspended action by the Public Utilities Commission to open Latvia's gas market.

"In its decision, the court finds that the regulator, without consulting with society and the company, has undertaken the duty of opening the natural gas market, although such decisions may only be taken by law," LG reported in the statement. "Under the current energy law, a free choice of trader will only take effect on April 3, 2017 unless, for instance, an interconnection with a country other than Lithuania, Estonia or Finland is built earlier."

Such a connection between the Baltics and another EU state would mean Latvia would be required under the EU's Third Energy Package to liberalise its gas market immediately. Analysts claim the stipulation should apply to interconnections amongst the Baltic states, but the gas lobby has rejected the suggestion because the Baltic gas grid is isolated from European networks. The GIPL gas interconnector is planned to break the Baltic region's status as an "energy island" by linking Lithuania to Poland by 2019, hence the Chamber of Commerce's suggested timeline.

"The second parliamentary hearing of the energy law amendments is due in November," the statement notes. "Latvijas Gaze does not object to the opening of the natural gas market on April 3 2017, but it does object to the time frames of unbundling of the company and divestiture of the unbundled company foreseen by the draft law."

The calls to delay the unbundling comes as little surprise. While some political figures  - in particular Minister of Economy Dana Reizniece-Ozola - have pushed throughout the summer to secure the move, there have been warning signs that the powerful gas lobby was gaining momentum to try to put a stop to it.

The appointment of former prime minister Aigars Kalvitis as Latvijas Gaze CEO in August raised no little concern over the progress of gas market liberalisation, for which splitting of the monopolist is key. Kalvitis is seen as close to Gazprom, which sees Latvia as the key market in the Baltic states.

While Lithuania and Estonia have wrestled their pipelines from Russian control, their efforts to develop alternative suppliers are an economic struggle. The opening of the Latvian market, and especially Incukalns, would do much to alleviate that pressure.