Commission Report (2002): Latvia

Subsections

• Progress since the last Regular Report
• Overall assessment
• Conclusions

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Chapter 14: Energy

Progress since the last Regular Report

Latvia continued the alignment with the energy acquis and progress has been achieved, in particular as regards security of supply and the creation of the internal energy market. Steps have been taken to further improve the administrative capacity and to reinforce the legal base for the functioning of the Public Utilities Commission and the State Energy Inspectorate.

Concerning security of supply, in March 2002 a Regulation aiming at compliance with EC legislation on maintaining oil stocks was approved. Oil stocks will be held by the companies holding licenses for business operation with oil products and by the State itself. Oil stocks will be increased gradually to the required level, while the burden will be shared among the licence holding companies and the State.

Legislation concerning the energy information system was adopted in May 2002. It requires the Ministry of Economy to establish an energy database in order to ensure balanced energy consumption and demand, and to prepare for energy crisis management.

The Ministry of Finance and the Ministry of Economy have been nominated as the institutions responsible for the control of the formation and maintenance of oil stocks. In July 2002, the Ministry of Economy established the first monthly report on the level of oil stocks.

Regarding oil supply crisis management measures, progress has continued with the adoption of implementing legislation in March 2002 defining restrictions on energy consumption. A State Energy Crisis Centre has been established, which includes representatives of ministries and the largest enterprises. The Energy Department of the Ministry of Economy is the Secretariat of the Crisis Centre.

In the area of competitiveness and the internal energy market, a policy document on Energy Policy in the Electricity Sector, aiming at ensuring the reliability and quality of electricity supply and at creating competition in the electricity market, was approved in September 2001. In line with this document, implementing legislation was adopted in January 2002, concerning production of electricity from renewable sources and the purchase price for surplus electricity generated thereby.

Regarding the electricity market, the market is being opened gradually. In November 2001, instructions and criteria on electricity consumption for the status of eligible customer were approved. In 2001, there were 10 eligible customers representing together 13.8 % of the total consumption of electricity in Latvia. As the threshold was not changed for 2002, the number of qualified customers remains approximately the same. Currently the threshold is set at an annual consumption of 40 GWh. This threshold will be lowered to 20 GWh from January 2003, corresponding to a market opening of approximately 20 %. Full market opening is scheduled for 2006.

In the framework of the implementation of the Plan for restructuring the state-owned energy utility, Latvenergo Joint Stock Company (JSC), the Transmission System Operator was established and registered in December 2001. The new Transmission System Operator is a separate legal entity fully owned by Latvenergo JSC.

Further progress has been made for the creation of legal preconditions for the liberalisation of the gas market. In October 2001, the Concept on the Liberalisation of the Gas Market was adopted. The concept aims at introducing elements such as third party access, designation of eligible customers, regulation of transmission, distribution and storage tariffs, and abolition of regulated natural gas selling prices. In October 2001, an Action Plan for implementation of the Concept was adopted.

The privatisation of Latvijas Gze was completed in February 2002. The last 3% of the state-owned shares were sold through a public offering accepting privatisation vouchers.

The regulatory body for energy issues (responsible also for telecommunications, postal and railway transportation), the Public Utilities Commission (PUC), is financed through state-collected fees from regulated enterprises. The approved annual budget for the PUC in 2002 is LVL 1 million (EUR 1.8 million). As of April 2002, the PUC had 66 employees. Staff of the Public Utilities Commission benefited during the reporting period from extensive training.

Concerning energy efficiency and renewable energy, in accordance with the Energy Efficiency Strategy approved in November 2001, implementing legislation was adopted in January 2002 to promote the use of renewable energy sources and domestic production of heat and electricity in combined heat and power plants.

The State Energy Inspectorate, the institution responsible for energy efficiency control and supervision, has been operational since November 2001; its statute was approved in May 2002. In 2002, LVL 52 700 (EUR 94 100) were allocated for the Inspectorate, which had contracted 7 employees by the end of April 2002.

As regards nuclear energy, Latvia operates no nuclear power plant. In the field of nuclear safety, the decommissioning of the Salaspils nuclear reactor, a pool-type research reactor closed in 1998, is continuing. Tender procedures on the right to prepare tender documentation and to organise the tender procedures for decommissioning and dismantling of the reactor were completed in May 2002. Latvia has continued to make progress in finding solutions for managing spent fuel from the research reactor and radioactive waste. Implementing legislation dealing with the requirements for practices involving radioactive waste and related materials and with the criteria and principles for determining equivalence between low, intermediate and high level radioactive wastes, has been adopted in March and April 2002. To ensure operation of the Radiation Safety Centre, responsible for the supervision and control of radiation safety, LVL 184 439 (EUR 329 355) were allocated in the state budget for 2002. The Centre completed 179 working days of educational and training activities in 2001.

Overall assessment

Concerning security of supplies, implementing legislation now has to be adopted to achieve alignment with the energy acquis. A continuous effort will be required to ensure the financing and build-up of the mandatory oil stocks. On the administrative side, the services in the Ministries of Economy and Finance responsible for the control of oil stocks should be strengthened.

On competitiveness and the internal energy market, the issue of energy price distortion remains to be addressed. The Public Utilities Commission has to be further strengthened and assure its full independence in order to be able to carry out the functions defined in the Electricity and Gas Directives.

Latvia is well advanced in implementing the internal energy market, but harmonisation with the Electricity and Gas Directives has not yet been fully accomplished. Concerning electricity, the market was opened, albeit to a limited extent, ahead of accession; the gradual opening of the market should continue in order to achieve at least the minimum requirements of the Electricity Directive upon accession. Reorganisation of the state electricity utility, Latvenergo, has to be completed with the establishment of separate and independent distribution, administration and power generation companies. Regarding gas, alignment with the Gas Directive should be completed, while the sector needs further restructuring. The Energy Law should be amended to provide the legal basis for third-party access and the establishment of eligible customers.

Concerning energy efficiency, harmonisation with the acquis on labelling appliances and minimum efficiency standards has to be completed. Additional efforts are required to improve further energy efficiency and to enhance the use of renewable energy. The State Energy Inspectorate should be strengthened.

In June 2001, the Council of the European Union took note of a Report on Nuclear Safety in the Context of Enlargement. Whereas Latvia does not operate commercial nuclear power stations, the Report contains recommendations of relevance to Latvia with regard to other nuclear installations, including the safe management of radioactive waste. During the first half of 2002, a special Peer Review on nuclear safety assessed the progress made by candidate countries in implementing all recommendations. This exercise under the auspices of the Council resulted in a Status Report published in June 2002, which concludes that Latvia has accepted and adequately addressed all the recommendations contained in the June 2001 Report on Nuclear Safety in the Context of Enlargement.

Longer-term solutions for spent fuel and nuclear waste will continue to need attention. On the administrative side, the capacity of the Radiation Safety Centre should be strengthened.

Latvia will need to ensure compliance with Euratom requirements and procedures. In this respect, due attention will need to be given to preparing the implementation of Euratom Safeguards procedures, in particular, direct reporting of nuclear material flows and inventories by the persons or undertakings operating nuclear installations, or storing nuclear material. This includes small holders like universities, hospitals and medical practices. It should be noted that Latvia has concluded a Full-Scope Safeguards Agreement with the IAEA.

Conclusions

In its 1997 Opinion, the Commission concluded that provided that Latvia`s efforts were intensified, no major problems were foreseen to approximate progressively to the then existing acquis in the medium term, adding that aspects such as the adjustment of monopolies, access to networks, energy pricing, emergency preparedness, including the building up of mandatory oil stocks, energy efficiency remained of specific importance. The Commission added that, while no major difficulties were foreseen for compliance with Euratom provisions, Latvia should become rapidly party to certain international nuclear regimes.

Since the Opinion, Latvia has made progress in aligning with the acquis in all areas, especially over the last two years. The implementation of the internal energy market is under way. The formation of oil product reserves has begun. Steps have been taken to improve the administrative capacity and the functioning of the Public Utilities Commission and of the State Energy Inspectorate. An overall reasonable level of legislative and administrative alignment with the EC requirements has been achieved.

Negotiations on this chapter have been provisionally closed. Latvia has been granted a transitional arrangement concerning the building up of oil stocks until 31 December 2009. Latvia is generally meeting the commitments it has made in the accession negotiations in this field.

In order to complete preparations for membership, Latvia`s efforts should now focus on ensuring full and timely implementation of legislation in this area, in particular with regard to implementing legislation on oil stocks, the internal energy market (gas and electricity), on ensuring finance to progressively build up oil stocks and on reinforcing the administrative capacity of the various bodies (independence of the energy regulator).

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