Latvia issues permits to new gas infrastructure holding

By bne IntelliNews January 5, 2017

The Latvian Public Utilities Commission (SPRK) announced on January 5 that it has issued licences to Conexus Baltic Grid for the transmission and storage of gas.

Conexus Baltic Grid will control the gas infrastructure assets spun off by gas monopoly Latvijas Gaze (LG) in late December. The move is part of the process of unbundling the Russian-controlled company in order to transform the Latvian gas market in line with European Union rules, which enforce separation of gas transmission and storage from sales.

Leveraging EU law, Riga has instituted legislation that demands LG split its transmission and storage assets from supply and sales by April, when a 20-year monopoly granted to LG upon privatisation in 1997 expires. The licences were issued for 20 years and will expire on January 4, 2037, the regulator noted.

The release of Latvia's gas infrastructure is viewed as key to the development of a unified gas market in the Baltic region. Controlled by Gazprom and Rosneft-owned Itera, LG has claimed the split is harmful to shareholders, but Latvia has stood firm thus far.

Riga has said it will seek to direct control of the pipelines and the strategic storage facility at Incukalns. LG’s main shareholders, which also include Germany’s Uniper, are all expected to exit the new entity. 

However, the Latvian government is yet to confirm whether it will buy the shares itself or offer them to investors. Suitors reportedly include Germany's Open Grid Europe, a former gas transit branch of E.ON.

LG is Russia’s last stronghold in the Baltic region. Lithuania and Estonia both wrestled control of their gas networks from Gazprom in recent years. Vilnius has also managed to get an LNG platform up and running, undercutting Gazprom’s role as the region's only supplier.

Latvia has additional strategic import. The country hosts the region’s sole gas storage facility at Incukalns, which is also used to supply north-western Russia and the enclave of Kaliningrad. The facility is key to Lithuania's bid to sell its gas across the region and thus for creation of a regional Baltic gas market, but LG has refused to open it up to third party access.

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