By Aivars Jurcans

In one of our previous notes we already reported about the choices the Latvian Government has been confronted with after E.ON Ruhrgas decided to leave the region and sell its shares in Latvijas Gaze. To summarise, in April media reported that E.ON had retained Swedbank to assist with the disposal process and that the Government had been approached with an offer to buy the 47.23% of shares for EUR 220 million. The Government was requested to respond by May 2.

The public discussion in anticipation of the decision was long on different speculations and short on arguments and facts, to say the least. The discussion on value ranges suggested by different sources alone would probably call for a separate note offering an interval starting from EUR 100-110 million at the low end and reaching as high as EUR 600 million.

The deadline of May 2 passed without even a preliminary general discussion at the Cabinet level. Instead, media suggested that Latvenergo, the state-owned electricity generation and distribution company, might be the possible buyer and that it might take it as much as six to eight months to complete the due diligence, to fully assess this opportunity and to arrive at a decision. While major transactions do not happen overnight, this suggestion looks kind of excessive. Even the most comprehensive due diligence would not take that long. Furthermore, the sellers usually are not willing to wait without even a vague indication of an acceptable price level.

Only last week Ms Laimdota Straujuma, the Prime Minister, again reiterated that there would be no deal at the price of EUR 220 million, which, in her opinion, is „an inadequate amount”. For the usually soft-spoken and careful PM this was a surprisingly strong statement. But, sadly, again it was missing any arguments about the reasons that make her so sure about this.

With the parliamentary elections coming up in October, the likelihood of the Government arriving at a decision on an important issue like this decreases day by day. The six to eight months to make up its mind very conveniently pushes the Government’s decision-making beyond the election date. So far, E.ON has not been commenting on the matter, but any signs of its willingness to play along would suggest that no credible alternatives are in sight.

Or, this could have been an eloquent (tongue in cheek!) way for the Government to say that they are not interested and that E.ON is free to proceed with the disposal process as it sees fit. If this proves to be the case, there has been much ado about... nothing once again!


Aivars Jurcans


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