Summer 2004:

The government of Latvia on 20th of July accepted the basic document for creating electricity market preconditions. One of the main points of the paper is the establishment of legally separated transmission system operator till 1st March 2005. The functions of distribution and public trader will be carried out by subsidiary of SJSC “Latvenergo” and till 1st July 2007 two new companies will be established to deal with distribution and trading. Also, the basic document declared the elaboration of Electricity market law.

From the year 1996 till 2004 the number of small (up to 1MW) hydro power plants increased to 150 (~ 2% of electricity produced in Latvia) due to very friendly purchase price policy. However, now the government has received complaints about the damaged environment in many rivers. Discussion has started in Latvia’s mass media about the impact of HPP on the population of salmon and other fish. On the other hand, a lot of arrangements have been done in the process of construction and operation.

The Public Utilities Commission issued first licenses for electricity traders which are going to look for best electricity prices outside Latvia and will be negotiators in a free electricity market.

Spring 2004: Higher gas prices to have little impact on inflation

The Public Utilities Commission of Latvia has estimated the impact of regulated prices on inflation in 2003. Although inflation in 2003 amounted to 3.6% (December-to-December) and was higher than in previous years, regulated prices are not to be blamed. The increase of natural gas prices on average by 12.5% from July 1, 2003 has lifted inflation by 0.11 percentage points. The indirect impact on inflation through heating prices has been more visible, however not exceeding 0.34 percentage points. Taking into account that heating prices are also affected by prices of other energy sources, the overall impact of gas price hike is around 5-10% of total inflation in 2003. Besides regulated prices, major determinants of inflation were tax changes (broader application of VAT to municipal services, higher excise tax rates), imported inflation due to appreciating euro and upsurge of domestic demand due to credit expansion.

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