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Minister: no indications of Latvenergo’s capital reduction having an impact on credit rating

Arvils Aseradens/flickr.com.
There are currently no indications to suggest that the reduction of Latvenergo’s capital for the repurchase of mandatory procurement component liabilities would force a decline of the company’s credit rating, says Latvian Economy Minister Arvils Aseradens.

«This is a very brave idea – repurchase part of the government’s liabilities to secure cogeneration capacity from five large stations. The total size of the deals could reach EUR 427 million. In exchange for that, we would get MPC decline of 30%, which would be a significant change to reduce the annual tariff in 2019,» added Aseradens.

He adds that the big question is whether or not Eurostat would apply that to budget deficit – the government would not be able to afford it in this case.

«It is expected that no sooner than September will the government view this matter. As for businessmen, because there is no clarity as to whether or not the European Commission would agree to that, we have yet to sit down and have a discussion,» said the minister, adding that one solution for finding the necessary funding would be reducing Latvenergo’s capital.

At the same time, he believes there are currently no indications to suggest such a step could reduce Latvenergo’s credit rating.

«Latvenergo is a state-owned company. It seems to me that it is a very suitable capitalization solution with release of bonds, which would help determine the credit rating. We have no indications that the way we have chosen to move forward could potentially reduce the credit rating. Over the course of time the company has gathered what is called undivided profits. The company has completed its dividend liabilities before the state budget. Still, the company has a sufficient amount of capital for us to reduce and speak of capital return indexes, and their improvement. It is a complex matter. Neither consultants nor anyone else see any problem,» adds Aseradens.

As it is known, Economy Ministry could offer five producers to refuse the support of 75% for established power output of electric stations. In exchange for that, they would be provided with a single-time compensation.

According to the ministry’s estimate, the total size of the offered compensations could reach EUR 503.01 million, whereas future liabilities would reduce by EUR 285.74 million when compared with a situation if a single-time compensation is not paid. State budget funds would not be necessary in this case.


EM’s proposed solution still needs to be viewed in the government.

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