Latvia’s most valuable state-owned enterprises – Latvenergo and Latvijas valsts meži (LVM) – are once again under the shadow of potential partial privatization. While the law currently forbids privatization of these companies, it seems this restriction may not last much longer. The Ministry of Finance believes that the existing regulatory framework should be changed.
What could such a move mean for Latvia? BNN asked Filips Rajevskis, political analyst and co-owner of Mediju tilts.
“There are two issues here: one is the weak capital market, and the other is the idea of listing these companies on the stock exchange,” says Rajevskis. “It’s something to consider, but with ‘Latvenergo’ you have two parts. The electricity trading business – that could be listed without much problem. But the part that includes ‘Sadales tīkls’ (Distribution Network) – this is a monopoly and a key part of national infrastructure. Then there’s the Daugava hydropower plants – these are truly national assets.”
He continues: “So, the question is – can you list Latvenergo in its current form, and what does the country gain from it? Even if the state, as the main shareholder, sells off a portion and gets some money, we have to ask: what’s the broader benefit? What is the long-term strategic goal?”
Rajevskis points to Estonia as a cautionary example: the government did not list Eesti Energia, the main energy company, but rather listed its subsidiary Enefit Green, focused on renewable energy. “Now they’re pulling it off the stock exchange.
Have we analysed why Estonia, after going through that cycle, is now delisting Enefit Green?”
Latvia, he notes, already has an active government bond market. “Maybe instead of selling shares in a strategic company, we issue state-backed bonds that the public can buy – essentially lending money to Latvenergo. That’s how Kegums hydropower station was built in the first Republic of Latvia,” he recalls.
When BNN noted that Latvenergo is a highly profitable enterprise that pays significant dividends into the national budget, Rajevskis replied: “Looking at it simply – the state seems to want to convert a steady stream of dividends into a one-time cash gain, and then share the future dividends with private investors.”
On the idea of listing shares in Latvijas valsts meži (LVM), Rajevskis expressed a similar concern: “This is very much like the Daugava HPPs – a unique, highly valuable forest resource owned by the people and managed by LVM. The company is doing a good job and pays large dividends to the state budget.”
“Again, the same question –
what’s the long-term strategic objective behind listing part of a company that manages a strategic national asset?”
Asked what that strategic goal might be, and whether other solutions are possible, Rajevskis replied: “Honestly, I don’t see the problem right now. There are plenty of other ways to solve such an issue. For example, if capital is lacking, you can spin off a subsidiary and list that. There are lots of strategic maneuvers possible.”
“As I was once taught – the last thing you do is sell your own shares. Not if you want to retain control and keep milking the cow yourself.”
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