Energy, Latvia, Taxation

The prime minister would not give a date for scrapping the MPC, but said Economics Minister Ralfs Nemiro (KPV LV) has been given two months to come up with proposals for scrapping the MPC.

Earlier, Saeima ordered the Economics Ministry to analyze possibilities of abolishing the MPC system as of March 31, but based on the ministry’s information, a rapid abolition of the MPC system might leave a negative impact on the economy, so the government decided not to ask Saeima to vote on scrapping the MPC by the March 31 deadline.

Possible legal action is one of the risks named by the Economics Ministry. “Investment protection lawsuits, appeals to the Constitutional Court. These risks could be reduced considerably by providing compensation mechanisms, introducing a longer transition period,” the ministry said. The ministry also noted that the risk of losing these court proceedings is high.

By liquidating the MPC system as of March 31, Latvia will fail to reach its renewable energy goal in 2020. Latvia will not be able to ensure that after 2020, the share of energy produced from renewable resources is not lower than 40 % of gross energy consumption. In that case, the European Commission could turn to the Court of Justice of the EU and impose sanctions on Latvia.

The Economics Ministry said that after liquidation of MPC as of March 31, the majority of MPC support recipients would become insolvent and at least 1,500 residents would lose their jobs. Tax payments from these companies that would not be paid into the state budget amount to EUR 36.5 mln in 2019.

The ministry also has estimated that after phasing out MPC, intermediate consumer costs would drop by 0.4%, profits of businesses would rise by 0.44%, and producer prices would decline 0.19%. Also, electricity bills to households would decrease by 15% and households would have additional EUR 40.1 mln in their disposal that could be spent on other needs.