Latvijas Gaze claims third party access to gas grid undermines relations with Gazprom

By bne IntelliNews May 3, 2016

Gas monopoly Latvijas Gaze (LG) has asked Latvian utilities regulator SPRK to suspend third parties to access the country's gas grid claiming the issue is causing difficulties in meeting contractual obligations to key supplier Gazprom, local media reported on May 3.

LG claims it was already facing problems meeting the "take or pay" terms included in its contract with the Russian gas giant, aside from the issue of third party access. The mild winter and falling demand on the part of large industrial consumers has seen demand drop significantly, it says. The Latvian utility is controlled by Moscow, with Gazprom holding 34% and Latvijas Itera - a unit of Rosneft - owning 16%.

In its statement to SPRK, LG noted “temporary derogation would not leave a negative impact on safety of gas supplies and public utilities services. As a result, LG will be able to meet its long-term liabilities and continue to ensure safe and stable gas supply system in Latvia,” Leta reports.

LG's contract with Gazprom, which runs until 2030, stipulates it must pay for a certain volume of gas each year, regardless of whether or not it uses the fuel. "Take or pay" is one of the most contentious elements in Gazprom's standard contracting behaviour, and is objected to by both customers and the EU. The company claims to SPRK that third party access to the Latvian grid will further deteriorate its position.

Riga changed its energy law earlier this year to open up third party access as part of legislative work ahead of next year’s unbundling of LG, when its monopoly status - granted on privatisation in 1997 - will expire. The company has been fighting a split up of its supply and transmission assets for years. Gazprom has faced its first competitior in the Baltic region since the start of last year, when Lithuania launched an LNG terminal.

The Latvian monopolist has tried several routes to challenge Riga's enforcement of third party access to grid before 2017; it insists it is in violation of the privatisation agreement and damages its shareholders’ interests. Having staved off unbundling in 2014 already, LG and Latvia's powerful gas lobby have been pushing to delay the split up to 2019, claiming the government is rushing the issue.

LG said earlier this year it has begun preparations, but also threatened legal action against government if it forces the 2017 date. This time around, however, with the EU pushing it, Latvia's stance has been firm too. Riga warned LG again in late April against hindering access to the grid.

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