Latvia heads off Russian gas mischief with legislation on strategic companies

By bne IntelliNews March 23, 2017

The Latvian parliament passed amendments to national security and commercial laws on March 23, handing the state the power to block the sale of companies considered strategic.

The legislation will mean the state’s agreement will be needed before strategic companies - including such as gas monopolist Latvijas Gaze – can change ownership. Riga says this will prevent changes in shareholder structures that would be against the interests of Latvia, the European Union and Nato, the Latvian parliament said on its website. The companies will also be required to submit information to the state concerning shareholders and indirect owners.

The law is clearly aimed at ensuring the state remains in control of the situation over the country's gas pipelines. Shareholders of newly created gas infrastructure company Conexus Baltic Grid (CBG) – spun off from monopolist Latvijas Gaze (LG) under pressure from Riga, wielding EU rules - will be forced to sell their stakes after unbundling next month.

The split of the company is the result of years of fighting the Russian companies that control LG. A stake of 50.1% is held by Gazprom and Rosneft unit Itera. The remainder sits with German company Uniper, EU-backed investment fund Marguerite, and minority shareholders. Freeing the Latvian gas system is key to developing greater regional independence from Russian supply.

The amendments confirm that "the distribution system operator of Latvijas Gaze is included in the list of commercial companies critical to the national security," the Russian-controlled company said in a statement. "These requirements will not apply to the current structure of shareholders, and the approval of the cabinet of ministers will only be required in the event of changes."

The shareholders – save for Marguerite – must sell their stakes this year, and Latvia has said it intends to buy them out. However, recent reports suggested Gazprom, Itera, and Uniper may be plotting to sell before Riga can execute its right of first refusal, which it gains in April, when LG’s 20-year monopoly, granted upon privatization in 1997, expires.

The new legislation will likely allow Latvia to wade into a recent deal by Swedish media company MTG to sell its Baltic broadcasting business to a private equity fund. The deal was announced in March, but closing remains subject to regulatory approval.

Latvia has grown tense over foreign leverage since Moscow seized Crimea from Ukraine in 2014. Alongside neighbours Estonia and Lithuania, the country considers itself on the frontline for Russia's renewed imperial ambition. All three Baltic states have been increasing defence spending, as well as calling for increased presence of Nato troops.



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