Speaking on Latvian Radio, Vladimirs Loginovs of the Privatization Agency said plans submitted by KVV Liepajas Metalurgs were not feasible as they amounted to a call for state aid that would fall foul of European Union competition law.
He explained that the owners want to get tax breaks, special reduced electricity prices, as well as other types of state aid that would be unacceptable to Brussels.
Loginov acknowledged that it is not known whether the company will ever resume work. It depends both on the market situation, which had improved slightly, and on the existing owners, he said.
"The view [that Liepajas metalurgs will not re-open] could have a basis - but we hope that there is a chance metallurgy can remain present in Latvia," Loginovs said.
If nothing is done, bankruptcy is inevitable, he said, with creditors unlikely to wait much longer before filing bankruptcy claims against the company.
The chance that someone else might want to buy the company is small, and in the case of bankruptcy the state would most likely lose a good deal of the money it has already spent on propping up the business in recent years, he admitted.
Currently KVV Liepajas Metalurgs owes the state around €60 million.
Prime Minister Maris Kucinskis has previously said no more public money will be pumped into keeping the steelworks alive and the matter is due to be discussed again at a cabinet meeting Tuesday.
Though the Liepaja steelworks - a major local employer in Latvia's third-largest city - has been in financial trouble for years, in 2014 the government of Laimdota Straujuma approved the sale of the company to KVV, a firm of Ukrainian scrap metal dealers from Crimea.
At the time many predicted the deal would end badly and so indeed it has proved with promises of a turnaround amounting to nothing and the owners threatening to sue the state despite the generous incentives they were granted to complete the deal.
Though not economically viable for several years, preserving the steelworks has been politically expedient with no government until now willing to be the one at the helm when the company goes bust. But now the political will to keep the plant on life support seems to have evaporated too.
Meanwhile Ukrainian media reports one of the KVV Group owners, Yevgeny Kazmin, has been arrested in Ukraine on various charges including allegations he was helping to fund Russia-backed rebels in the east of the country.
Representatives of KVV have confirmed Kazmin's arrest but deny the allegations of helping to fund the rebels and say the charges against him are part of a business dispute.
However, if accurate it would prove particularly ironic given that part of the reason KVV was chosen to buy Liepajas Metalurgs was a desire that the company should not fall into Russian hands.