Latvenergo AS has applied for a one-off compensation for a partial opt-out of the receipt of the Riga CHPPs electrical capacity payments. The compensation will be financed by applying the rights of the state as the Shareholder to carry out a capital release of Latvenergo ASby EUR 454 million.
On 22 September this year, the Cabinet of Ministers of the Republic of Latvia adopted the order on the conceptual report “Complex Measures for the Development of the Electricity Market”, which provides for an effective and sustainable reduction of the mandatory procurement public service obligation fee for electricity users. The report envisages the establishment of a mechanism under which the state would reduce its future commitmentsin cogeneration power plants with installed electrical capacity above 100 MW. Such producers are therefore offered to apply for a one-off payment, agreeing to a partial reduction of the support intensity in the future. On 14 October 2017, amendments to Regulations No. 221 of the Cabinet of Ministers “Regulations Regarding Electricity Production and Price Determination upon Production of Electricity in Cogeneration” entered into force laying down the procedure for submission and evaluation of the merchant’s application, adoption of the decision, as well as calculation and execution of the one-off payment.
Latvenergo AS has applied for receiving a one-off compensation from the state, at the same time opting-out of the receipt of 75percentof the annual electrical capacity payments for cogeneration power plants Riga TEC-1 and Riga TEC-2. As a result, the long-term commitments of the statewill decrease by EUR 262 million. In the report, the one-off compensation to Latvenergo AS is estimated at EUR 454 million. The compensation will be financed by applying the rights of the state as the Shareholder to carry out a capital release of Latvenergo AS.
In recent years, financial results of Latvenergo Group have improved substantially, as of 30 June 2017 the Group’s assets exceeded EUR 3.8 billion and equity – EUR 2.4 billion. According to the researches carried out by independent international third parties, the capital structure ratios of Latvenergo Group are better than those of many industry benchmark companies: net debt to equity was 23% and net debt to EBITDA was 1.5 as of 30 June 2017.
The impact from the aforementioned measures on the financial stability of Latvenergo Group has also been evaluated by the credit rating agency Moody’s, that has published an Issuer comment, but has not revised the credit rating of Latvenergo AS or its future outlook. In accordance with Moody’s comment, Latvenergo will be able to maintain adequate financial flexibility and key financial metrics in line with guidance for the current ratingBaa2with stable future outlook.