Latvijas Gaze agrees to set up spin-off company to operate gas grid and storage

By bne IntelliNews December 23, 2016

A shareholders' meeting at Latvijas Gaze (LG) decided on December 22 to set up a company that will be used to spin off the country's gas pipelines and storage facilities.

The creation of Conexus Baltic Grid is an important step towards unbundling the Latvian monopolist, which is controlled by Russia. 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 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 continues a fight that has lasted years to delay the unbundling. The company claims that Riga's amendment to the energy law to force the split is harmful to shareholders, but Latvia has stood firm thus far.

The powerful gas lobby managed to have a deadline to force LG to split its assets in 2014 scrapped. However, Riga now appears determined, and has said it will seek to buy control of the pipelines.

The decision to set up Conexus Baltic Grid is expected to result in considerable reshuffling of shareholders in the company. LG’s main shareholders - Gazprom, Germany’s Uniper and Russia-controlled trader Itera are all expected to exit the new entity. 

The Latvian government is yet to decide whether it will buy the shares or offer them to investors, several of which are reportedly interested, including Germany company 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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