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Sunday 23.10.2016 | Name days: Daina, Dainida, Dainis

Economic Diary of Latvia. «Russia, goodbye!»

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe main event of the week is undoubtedly the agreement signed between Baltic States and Poland regarding the construction of a European gas pipeline from Poland to Lithuania, which is meant to reduce reliance on supplies of gas from Russia. Construction is planned to be completed by December 2019.

The European Commission reported the signing of this deal on its website, adding that the deal will put an end to long-standing isolation of Baltic States. The total cost of the project is estimated at EUR 558 million. In 2014, the project received funding from the European Compliance Mechanism worth EUR 305 million. Latvia’s share in this project is estimated at EUR 14 million.

The total length of the planned gas pipeline will be 554 km. The pipeline’s power output will be 2.4 billion m3 of gas annually and 1 billion m3 of gas for reserve supplies. It is planned to continue developing the network of transport pipelines in Baltic States, as mentioned in the announcement of the European Commission.

Latvia and Estonia largely depend on Russia when it comes to gas supply. Juncker said energy isolation of Baltic States and their long-standing reliance on a single supplier has ended.

According to information from Gazprom, the company had supplied 2.5 billion m3 of gas to Lithuania, 1 billion m3 of gas to Latvia and 0.4 billion m3 of gas to Estonia in 2014.

Currently, Latvijas Gāze supplies Latvian consumers with gas imported from Russia. The desire to end energy dependence forces the government to look for alternatives to Russian gas. American allies encourage doing just that. During a meeting with Latvian President Raimonds Vejonis on 20 August 2015, American senators mentioned the need to work on diversifying energy supply sources as part of regional security measures. But all alternative solutions will inevitably lead to increased prices for consumers.

Latvian Economy Minister Dana Reizniece-Ozola had previously mentioned: importing gas from Klaipeda terminal would make the fuel more expensive than what is currently supplied by Latvijas Gāze. According to her, security components, fluctuating costs, transport costs and other potential expenses are part of the price for gas procured from Klaipeda terminal. As a result, gas from the Lithuanian terminal would increase price of gas for Latvian consumers by 5-6%.

Positive zero

While politicians are busy resolving matters related to energy independence, Latvian businessmen have found a way to adapt to the unstable situation in the world. This is the conclusion made by experts that will take part in Business Strategy for 2016 conference.

According to the head of Juris Rozkalns, a look at available data from different companies shows that there is currently a positive zero in terms of turnover and profitability in Latvia’s business environment in comparison with 2013. Nevertheless, results can be considered positive.

According to experts, there are multiple reasons for that: the sanction war between Russia and Europe, armed clashes in Ukraine and Syria, mass-murders committed by ISIS, the flow of refugees, Greece’s financial crisis, populism in European politics and UK’s possible exit from the EU.

But in spite of the horrors of war and general instability in the world, some Latvian companies have successfully overcome problems created by the Russian embargo and the drop in the population’s purchasing power. They have managed to adapt to the new business conditions and diversify exports, said Chief of Latvian office of Pohjola bank Elmars Priksans.

Where’s the crisis?

What is interesting is that the state of the real-estate market demonstrates that things are not as bad in Baltic States as some politicians would like everyone to believe.

According to Colliers International, the total volume of investments in corporate real-estate in Baltic States exceeded EUR 574 million in the first half of 2015.

Estonia is in the lead in terms of investments in corporate real estate (EUR 235 million), followed by Lithuania (EUR 226 million) and Latvia (EUR 114 million). In Latvia and Lithuania, most investments of the first half of 2015 included different retail trade objects (more than a half of all deals). In Estonia, on the other hand, the biggest investment activity was noted in office segment (38% of all investments).

There were changes in terms of the origin of investors in the first half of 2015. Aside from traditional investors from Baltic States, Scandinavia and Russia, new investors from Western Europe appeared and formed new groups of investors in all three Baltic States. Experts of Colliers predict the total volume of investments will exceed the record set in 2007 and will reach EUR 1 billion in 2015.


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