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The Latvian parliament has decided to postpone full liberalisation of the national gas market for three years

Amendments to the energy bill adopted in final reading, on 13 March in Riga, schedule the unbundling of Latvijas Gaze, the company with a monopoly on the purchase, storage, transport, distribution and sale of gas in Lithuania for no later than 3 April 2017.

The amendments state that the process can be speeded up if one of the following conditions is fulfilled in the meantime: the direct hook-up of Latvia's gas distribution system to that of an EU member state other than Estonia, Lithuania or Finland; a reduction in the market share held by Latvia's principal gas suppliera - Russia's Gazprom - to less than 75%.

However, there is little chance of either happening, said representatives of Latvia's Economy Ministry and of Latvijas Gaze during the debate in parliament (Saeima). The Latvian network is currently connected only to those of neighbouring Estonia and Lithuania, and all three are 100% dependent on sourcing from Russia.

Due to this special situation, the European Commission authorised the three Baltic states to make use of a derogation from transposition of the third energy package into national laws. Lithuania was the first of the trio to emerge from this transition period, followed by Estonia (see box). Latvia was given a derogation until April 2014, which it has just decided to prolong.

"We are encouraged that the Saeima has taken a firm political commitment to approve April 2017 as the final date for market opening," reacted a European Commission spokesman in Brussels. He added that the national parliament's adoption of "measures to end its emerging market status" is "encouraging".

Although gas transport activities do not have to be separated until 3 April 2017, separation of the operator's accounts by type of activity must start this year, according to the legislative amendments. Likewise, the gas transport system must be made accessible no later than January 2015 to market players prepared to provide gas transport, distribution and storage services, including for liquefied natural gas (LNG).

Russian obstacles

The unbundling of Baltic gas operators, required by the EU, is complicated by the presence of the same major shareholder in each of the three companies, namely Russia's Gazprom, which is trying to push back the deadline. The Russian group owns 34% of Latvijas Gaze and can rely on the support of the Latvian subsidiary of another Russian firm, Itera (16%). In Estonia, it owns 37% of Eesti Gaas (and Itera 10%). In Lithuania, it has a 37.1% holding in Lietuvos Dujos. In all three cases, Germany's E.ON is the other major shareholder.

When Lithuania made a move to transfer gas transport activities from Lietuvos Dujos to another company (Amber Grid) by November 2014, Gazprom brought the matter before an international court of arbitration. In February, though, it seemed to have accepted this inevitability (seeEuropolitics of 12 February 2014).

In Estonia, since parliament's June 2012 vote in favour of the principle of unbundling by 1 January 2015, the Russian group has been working in the wings to have Eesti Gas put obstacles in its way.

In Latvia, Gazprom has tried to influence the legislative process. Now that parliament has voted, its future tactic is not yet clear. In today's political context, there is a good chance that it will not tend to be very accommodating.
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Publication:European Report
Geographic Code:4EXES
Date:Mar 20, 2014

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