Spiridonovs, Latvia’s Deputy State Secretary, On Unbundling of Latvijas Gāze

Natural Gas Europe recently had the opportunity to speak with Jurijs Spiridonovs, Deputy State Secretary of Latvia at the sidelines of a recent conference organised by Natural Gas Europe and Geopolitika. During that conversation, we discussed Latvia’s developments in the energy sector, with a focus on the unbundling of the country’s vertically integrated energy enterprise. 

“We propose to have a two-company concept," Minister Spiridonovs said. "One company responsible for storage and the transmission system, and the other for trade and the distribution system. We propose that the legal unbundling happens by April 2017. In December 2017 or January 2018, the full unbundling should be in place."  

We also spoke about the country’s gas storage capacity and Gazprom’s imminent visit to Latvia. Below is the complete interview with Minister Spiridonovs.

Natural Gas Europe (NGE): What are the major developments that we should keep in mind to understand the Baltic region and specifically Latvia concerning the gas sector?

Two things are important for what concerns the Latvian gas sector. First of all, Latvian gas consumption is decreasing, approximately 6% each year. Secondly, Latvia has a very unique geological structure--the Inčukalns Underground Gas Storage [facility]. We are in the process of unbundling the country’s vertically integrated energy enterprise.

NGE: When should we expect additional news about the unbundling of Latvijas Gāze?

The proposal is already in the Parliament for the second reading. It is approved by the Government. We propose to have a two-company concept: one company responsible for storage and the transmission system, and the other for trade and the distribution system. We propose that the legal unbundling happens by April 2017. In December 2017 or January 2018, the full unbundling should be in place. So the company’s shareholders would have approximately nine months to sell the shares if they start in April. If they start operations before, finding investors or possible partners, they would then have more time. 

NGE: So the political process is not a problem?

I think there is wide understanding among the parties that the problem should be solved, because we don’t have any derogation any more. We don’t want to find ourselves in the middle of an infringement procedure. The Parliament understands that we have to act. The question is just on the timing, not on the essence of the actions. 

NGE: Might there be delays in the unbundling process?

I guess not on the legal division of the company, but on the sale of the shares. 

NGE: Slightly changing topic, storage facilities in Latvia are really high, especially considering the gas consumption of the country. Gas from the facilities might be used in the wider regional context. Are those facilities part of the process of integration of the Baltic energy markets? If so, how?

It comes naturally as part of the market solution. If the facilities are in place and the parties have access to those facilities, they can rely on the possibility of using gas stored in Latvia. The particularity of the country’s gas system is that there is a big consumption in winter, which is so high that it is not possible to ensure it through pipelines. You have to use gas storage facilities in winter. That’s why the facilities play a crucial role not only for what concerns the market design and energy security, but also for normal operations and district heating. 

NGE: Do you expect any cap, any limitation, any quota for the storage facilities? Should there be a quota for domestic consumption?

Definitely, there will be a quota for domestic consumers. We expect that this fact will not determine the overall behaviour of the market. We have storage capacity standing at more than 2 bcm [billion cubic metres] annually, and Latvian consumption is about 1.2 bcm a year. That means that some of the capacity of gas storage cannot be utilised for Latvians and someone else is using this capacity. The other thing is that the company announced that they are putting 300 million cubic metres on the market over this season. So there will be for sure a certain quota, but I think it is quite fair. We have to ensure that vulnerable consumers reap the benefit of the existing facilities.

NGE: More generally, do you see any shortfall in the proposal of the European Commission? Do you also see any policies taken by neighbouring countries that might have affected Latvia’s ability to take decisions independently? In general, what’s your understanding of politics in the region and in Europe that might affect your country?

I suppose that we don’t have any problem with independent decisions. It is typical of the Latvian political system not to be very aggressive when it comes to international matters. In this, we are somehow different. 

NGE: Is Lithuania more aggressive?

Probably yes and for a good reason--the higher prices for gas they paid. It is understandable. In our specific case, we have to ensure that for the benefit of the consumer, we maintain the full storage in winter. Regarding the Commission’s proposal, we are quite supportive of the idea of the giving the Commission the power to look through the international commercial contracts. We also agree on joint purchases of gas. We would fully support this kind of non-obligatory cooperation.

NGE: In conclusion, you are in favour of the cheapest available gas. Do you think there might be divergent interests with respect to other countries in the region?

I don’t think so because we are not speaking about limitation of flow. We are simply in favour of market prices for gas. We are in favour of speaking about the prices and not the politics. 

NGE: What about Russia? How does Gazprom enter the equation?

Gazprom will be in Latvia in December. We invited them to speak about the unbundling. It will be the first meeting in many years. They will come to Riga and we will speak about these aspects in our Ministry.

NGE: In general do you expect a discount on Russian gas?

It is up to Gazprom to decide their price policy. We are not asking for anything in particular, but we have simply to ensure that we have competitive prices.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci