Latvia Makes Strides Towards Freer Gas Market but Gazprom Interests Set to Keep it Tight

Latvia’s gas distributor AS Latvijas Gāze is weighing legal options against the country’s Public Utility Commission (PUC) after the latter passed legislative acts enabling Latvian consumers to pick any natural gas supplier.

Until now, Gazprom-co-owned Latvijas Gāze had exercised exclusive gas supply, transmission and distribution rights in the Baltic State. Insisting the Latvian gas legislation guarantees them until 2017, when the country, as required by the EU, will start gas sector ownership unbundling, Latvijas Gāze demands to scrap the new regulation and insists on keeping the monopoly until 2017.

 “The PUC regulation has gone into effect, but we disagree with it and are intending to dispute it, in court, too, if necessary,” Vinsents Makaris, Latvijas Gāze Communications chief, told Natural Gas Europe.

“The approval of this regulation has lasted for a year, but its announcement has been out of the blue,” says the Latvian gas distributor’s representative.

On September 10, the Council of the Public Utilities Commission (the Regulator) approved the "Rules on the Use of Natural Gas Transmission System” and the "Rules on Use of Inčukalns Underground Gas Storage Facility”, which lay down the procedure how users are provided with system services including the specification of entry and exit points of the transmission system in the territory of Latvia and towards cross-border connections.

In other words, this means that Latvian consumers can choose from now on their natural gas supplier and third parties can get access to the gas transmission and storage network, now controlled by Latvijas Gāze.

“None has asked our opinion in the preparation of the document, which is contradicting the Latvian gas legislature, specifically, the Law on Energy, which gives us exclusive rights on gas sale, transmission and distribution until 2017.  As we are a sole owner of the existing gas infrastructure in the country, it’s out of question for us that any other subject could use it until then,” the Latvijas Gāze official explained.

What exact measures will be employed will be clear within the coming days, he says, after the board of company and shareholders weigh in on the issue.

“With the new regulation, now the situation is unclear in terms of applicability of the legislative acts and obviously needs clarification. By the Government or Court, if it comes up to it,” Makaris said.

Although the ruling by the Public Utility Commission is, effectively, a gamer changer, the Latvijas Gāze spokesman did not speculate on the ramifications of the new regulation.

Asked if the company might ever consider purchases from the nearby Klaipeda LNG terminal, for example, he said it was “impossible.”

“Not just because of our contractual obligations with the supplier (Gazprom), but also the price – the Klaipeda gas is more expensive,” he told.

Lithuania has long tried to get access to the Latvian gas market, but Latvijas Gāze has been blocking the entry, explaining it with the exclusive gas supply rights until 2017.

Asked was prompted the new PUC regulation, Inese Krūmiņa, Head of Communications Division at the Council of Public Utility Commission, told Natural Gas Europe “public interest” has been behind the decision.

However, Latvian consumers may still be miles away from receiving gas from any other supplier than Latvijas Gāze.

“Until now, third party access to the transmission system and gas storage was based on bilateral agreements with JSC Latvijas Gāze . Now with the new regulations coming into force, the third party access will be based on regulated procedure for bilateral agreements as defined by the relevant EU directives. Hence, the timing depends on the ability of the involved parties to reach the necessary agreements,” the PUC official told.

With litigation over the new regulation looming, it may take a while.

She added she was not aware of any legal procedure initiated by Latvijas Gāze concerning the new regulations.

“As far as we were notified, there is only their public announcement of disagreement. As the regulations are issued in accordance with the existing Latvian legal framework, anyone can exercise their rights to challenge Regulator’s approval in the relevant court,” Krūmiņa said.

Arvydas Sekmokas, the former Lithuanian Energy minister, says he is “cautious” with the development in Latvia.

“First of all, I want to see what kind of model Latvia will draw up, as far as the unbundling of gas supply, transmission and distribution ownership is concerned. I am not certain Latvia is following into the footsteps of Lithuania or Estonia, which have radically unbundled the ownership,” the expert told Natural Gas Europe.

The clout of pro-Russian forces and Gazprom itself, he says, remains “still strong” in Latvia, and the legislation was there for Gazprom, too.

“I’d rather wait and see what Latvians come up with. That the move is there towards liberalization of the market is a good sign, though,” Sekmokas said.