Riga, December 19, 2017
The Latvian Cabinet of Ministers has taken a decision to acquire shares in the Inčukalns natural gas underground storage operator. The Latvian electricity transmission system operator, JSC Augstsprieguma tīkls (AST) and the Germany-based energy company “Uniper Ruhrgas International GmbH” (Uniper) have reached an agreement on the purchase of Uniper’s 18.31% of shares in the Latvian natural gas transmission and storage system operator, JSC “Conexus Baltic Grid” (Conexus) The transaction was closed on 15th December, 2017. The information about the price and conditions of the transaction between AST and Uniper is confidential.
After thorough analysis of advice and reports from responsible institutions and independent consultants, the government concluded that acquisition of shares in Conexus is important for energy independence and security of supply of Latvia. At the same time by acquisition of the shares in the Inčukalns underground natural gas storage system operator, the State aims to continue moving towards establishing regional Baltic – Finnish natural gas market by 2020. This aim will be fully achievable by further development of the relevant regional infrastructure (Estonian – Finnish interconnection “Balticconnector” and Polish-Lithuanian interconnection GIPL), achieving high market efficiency, equal competition and level out prices of natural gas in the local market with Central European market. At the same time, acquisition of shares in Conexus is an economically feasible transaction for the Latvian state, according to evaluation, which was carried out according to internationally recognised methods.
The government’s decision to entrust the acquisition of 18.31% of shares in Conexus to the AST was taken because AST as an electricity transmission system operator has specific and valuable experience in operations and development of the energy transmission infrastructure. Acquisition of shares in Conexus will also provide AST with additional advantages in guaranteeing electricity supply security, because natural gas is the fuel for large Riga thermal power plants – nationally and regionally important source of heat and electricity, which guarantees stable electricity supplies in the periods with unfavourable hydrological conditions in Latvian hydro power plants on river Daugava, cold weather, and high electricity and heat energy demand.
As reported earlier, in 2016 the Latvian parliament Saeima adopted amendents to the Law on Energy, envisaging the opening of the natural gas market for competition as of April 3, 2017 and reorganisation of the vertically integrated natural gas company JSC “Latvijas Gāze”. The law obliged JSC “Latvijas Gāze” to establish two legally independent companies, one of them undertaking all activities related to natural gas transmission and storage and the second- distribution and trading activities. Thus in the process of reorganisation from early 2017 all assets related with the transmission and storage of the natural gas (transmission networks and the underground gas storage) from JSC “Latvijas Gāze” were transferred to JSC “Conexus Baltic Grid”.
The Energy Law of Latvia also envisages that shareholders of the natural gas transmission system and storage operator, which are involved in the natural gas production or trading activities, are obliged to sell their shares in Conexus until 31st December 2017 (PAS “Gazprom”, SIA “Itera Latvija” un Uniper). The aim of this provision is to secure complete independence of the transmission system and storage operator, neutrality towards all market participants and to avoid any risk that shareholders of JSC Conexus Baltic Grid may face conflict on interest.
The Energy Law of Latvia also grants the State the right of first refusal for the acquisition of shares of transmission system operator, the natural gas transmission and storage system or any parts of the system. Under considerations of State interests and forthcoming change of shareholders in Conexus, in 2016 the Latvian Government decided to evaluate possible future scenarios. On basis of the preliminary study, the Government supported negotiations with shareholders of the natural gas transmission system operator about potential acquisition of shares in Conexus, and o a consultancy agreement was concluded with a consortium led by one of the leading international advisors Rothschild. The consortium also includes Porta Finance, Deloitte and TGS Baltic.
*AST is an independent electricity transmission system operator, which is wholly owned and governed by the Ministry of Finance of Latvia. The company started operations in 1939 and, according to the Law on Energy, the company and the electricity transmission system assets cannot be privatised.
Evita Urpena
Ministry of Economics
Republic of Latvia
Head of Public Relations Division
Phone 371 67013193
E-mail: prese@em.gov.lv
Aija Ikstena
AS “Augstsprieguma tīkls”
Head of Public Relations Division
Phone 371 29174571
E-mail: aija.ikstena@ast.lv