Energy, EU – Baltic States, Gas, Latvia, Legislation

The Public Utilities Commission has prepared a draft resolution which will be sent to the European Commission for approval.

The regulator says that Russian gas company Gazprom, which is a shareholder of both Latvijas Gaze gas utility and Conexus, might potentially exercise direct or indirect control over Conexus. Gazprom still retains significant influence in the Latvian natural gas market and remains a Latvijas Gaze shareholder. Consequently, the Russian gas giant's holdings in the two Latvian companies can influence Conexus operations.

The Public Utilities Commission notes that the Latvian Energy Law forbids an entity controlling the energy supplying enterprise from wielding direct or indirect influence over the transmission system operator.

On assessing Conexus' compliance with the certification requirements, the regulator also found that Conexus shareholder Marguerite Gas I is linked to Latvijas Gaze shareholder Marguerite Gas II through parent company Marguerite Holdings, which in the regulator's view creates a conflict of interest.

The Public Utilities Commission recognizes, however, that Conexus meets all other certification requirements, namely, the operator performs its functions as required by the Energy Law and EU regulations.

Conexus spokeswoman Dace Baltabola said that the findings of the Public Utilities Commission demonstrated that the company was able to perform its main functions, namely, to ensure that the gas transmission and storage system operator took the decisions independently and in a manner that was transparent and non-discriminatory against the users of the transmission system and the market players.

"As regards the reservations about the shareholder structure, this is up to shareholders themselves, and the Conexus management cannot influence those processes," she said.

The Public Utilities Commission will decide on the gas transmission and storage system operator's compliance with the certification requirements after receiving the European Commission's findings this fall. The European Commission's findings are binding to the regulator.

If the European Commission's findings are positive, Conexus might be certified as an independent transmission system operator in two months' time. The company, however, would have to deal with the conflict of interest stemming from the participation of Marguerite Gas I and Marguerite Gas II in Conexus and Latvijas Gaze, and to prevent Gazprom from exercising direct or indirect control over Conexus.

Although Russian gas giant Gazprom still features among Conexus shareholders, Conexus submitted a certification application to the Public Utilities Commission on January 10. Rolands Irklis, the head of the Public Utilities Commission, said in January that the fact that Gazprom still remains a Conexus shareholder might be an impediment to the operator’s certification.

Conexus Baltic Grid, which has taken over natural gas storage and transmission functions from Latvijas Gaze, was established on December 22, 2016. Its largest shareholders were Russian Gazprom (34.1 percent), Marguerite Fund (29.1 percent), Germany's Uniper Ruhrgas International GmbH (18.3 percent) and Itera Latvija (16 percent) or the same as Latvijas Gaze shareholders. But the shareholders, with the exception of financial investor Marguerite Fund, had to dispose of their shares in Conexus Baltic Grid by the end of 2017 so that the new shareholders would not be related to Latvijas Gaze.

On December 15 Augstsprieguma Tikls and the Germany-based energy company Uniper Ruhrgas International GmbH (Uniper) reached an agreement on the purchase of Uniper’s 18.31 percent of shares in Conexus Baltic Grid. On December 27 Augstsprieguma Tikls acquired 16.05 percent of shares in Conexus Baltic Grid from Itera Latvija.

Thus, Gazprom now owns 34.1 percent, Marguerite Gas owns 29.06 percent, Augstsprieguma Tikls owns 34.36 percent, and other shareholders hold 2.48 percent in Conexus.

Latvian Economics Minister Arvils Aseradens (Unity) told the press earlier that if shareholders who had to dispose of their shares in Conexus fail to do it by the end of 2017, they will lose their voting rights in the company.

As reported earlier, in 2016 the Latvian parliament adopted amendments to the Law on Energy, envisaging the opening of the natural gas market for competition as of April 3, 2017 and reorganization of the vertically integrated natural gas company Latvijas Gaze. The law obliged Latvijas Gaze 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 reorganization from early 2017 all assets related with the transmission and storage of the natural gas (transmission networks and the underground gas storage) from Latvijas Gaze were transferred to Conexus Baltic Grid.