Gas monopoly split will see tariffs rise

The costs of splitting up the Latvijas Gaze natural gas utility in order to separate sales and distribution operations from storage operations are likely to make up 1-2 percent of the company's current tariff, Economics Minister Dana Reizniece-Ozola told the BNS newswire Friday.

"Energy is one of the Economics Ministry's principal areas of responsibility. The main task is to continue the opening of the gas market. An informative report to the government has been drawn up already and the government is expected to review it soon. 

"The proposal is to split Latvijas Gaze up into two companies without changing the ownership structure. One of the companies would be involved in sales and distribution, while the other would be in charge of transmission and storage," the minister said.

"This is the first step towards meeting the requirements of the EU's Third Energy Package already by 2017 when the Latvijas Gaze privatization agreement expires," the economics minister added.

Reizniece-Ozola indicated that this is also important to neighbor countries if Latvia considers possible business with Lithuania, which has a liquefied natural gas (LNG) terminal, or if Finland and Estonia go ahead with their own planned LNG terminal project.

"It is essential then to ensure access to our infrastructure so that other suppliers could sell their gas in Latvia as well. Latvijas Gaze has exclusive rights to sell gas until 2017, but what matters to us is a variety of gas supply sources," the minister said.

The Economics Ministry is planning to split Latvijas Gaze into two enterprises already by April 4, 2017 when the monopoly of Latvijas Gaze ends.

Reizniece-Ozola admitted that the company's split-up will involve additional costs.

On the one hand, there will be costs of course. We do not expect them to exceed 1-2 percent of the current tariff.

"On the other hand, there is the Lithuanian example. When the terminal in Klaipeda was being built in order to ensure alternative gas supplies, they received a 50 percent discount from Russia, as I was told by [the Lithuanian energy] minister. So I believe that we will not lose out on this. In the short term there will be estimates showing a price hike, because administrative costs will rise as a result of the split-up of course, but in the medium term this will pay off for our consumers," Reizniece-Ozola said.

Latvijas Gaze is quoted on the Secondary List of the NASDAQ OMX Riga stock exchange. The company's key shareholders are Germany's E.ON Ruhrgas, Russia's Gazprom and Itera Latvija, though E.ON Ruhrgas is seeking buyers for its stake.

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