Latvian Finance and Capital Market Commission (FKTK) does not issue special permits for payments to companies – only to financial institutions whose clients request the right to perform payments to persons under sanctions, but only cases of exception, as reported by FKTK representatives, commenting on the request from JSC Latvijas gāze for a special permit for changes in the way payments are processed with Russian Gazprom.
Moreover, the issue of such a permit is not possible if the request is made to process payments with a Russian credit institution, which is outside of FKTK’s supervised area, FKTK representatives explain.
In addition to the aforementioned, FKTK representatives explain that the general position of the European Commission is that receiving Russian gas is still possible, as long as it is done within active contracts and regulations. Other scenarios are either not considered or are not possible, as they could be considered as attempts to circumvent sanctions.
At the same time, FKTK representatives stress that compliance of sanctions is not just the responsibility of supervisory institutions, but also the responsibility of each individual company.
Circumvention of sanctions can have a negative impact on such a company’s future operations and reputation. The Criminal Law also provides liability for violation of sanctions imposed by the European Union.
As previously reported, LG turned to FKTK with a request to be provided with a special permit for changes to the payment processing order with Russian Gazprom, according to the statement from LG board chairman Aigars Kalvītis to Nasdaq Riga.
The company’s chairman notes that LG has a long-term gas supply contract signed with Gazprom. The contract cover the period between 2000 and 2030. In accordance with this contract, all payments for gas were performed only in euros until now.
On 31 March 2022 President of Russia Vladimir Putin signed a decree under which western countries are to pay for gas only in Russian roubles starting with 1 April.
The new payment scheme imposed by the Kremlin provides for western countries to open payment accounts in Russian Gazprombank. The bank will then convert foreign currency received as payments for gas into roubles at the Moscow exchange. Roubles will then be transferred to the accounts of western countries that paid for gas in foreign currency.
Since the implementation of the change, LG has not performed any procurement of gas from Gazprom. This is because of both political and commercial reasons. Kalvītis stresses that there sis still no clear position from the European Commission and Latvia on the topic of changes to the established system for transactions for gas. On top of that, the gas market price is economically non-competitive and excessively high.
LG has also asked the Ministry of Economics as the state institution responsible for supervising the energy sector and sector policy to provide an explanation if payments in euros can be considered compatible with the sanction regime in relation to Russia, so that LG is able to plan its operations and continue fulfilling their duties before more than 350 000 households.
On 28 February the Saeima passed amendments and banned imports of Russian natural gas. However, there is still no clarity as to this restriction. Latvia’s government is working on making it official from 2023. This topic will be discussed further during the last reading of amendments.
Gazprom has shut down all supplies of gas to Poland and Bulgaria because both countries refused to pay for gas in roubles. Hungary has announced that it will pay for Russian gas in roubles.
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LG’s biggest shareholders are Gazprom (34%), Marguerite Gas II.S.a.r.l. (28,97%), Uniper Ruhrgas International GmbH (18,26%) and LLC Itera Latvija (16%).
In 2021 LG’s turnover was EUR 583.342 million, according to provisional data. This is three times more when compared to 2020. The company’s profits dropped 3.4 times – to EUR 3.2 million.