Latvia is still producing cheap electricity thanks to the cascade of Daugava hydroelectric power plants, but despite this, people's electricity bills are rising faster than fuel prices. They have risen to the price level of green electricity generated from solar and wind. Even though green energy has become competitive, we are still paying for the mandatory procurement component (OIK). Here is a conversation with Raimonds Lazdiņš, former advisor to Prime Minister Aigars Kalvītis, Director of the Security Department at Riga Airport and now Head of the Gas Supply Security Department at JCS Gaso, about this and other nonsense in our country and what it can lead to.
Why is this the right moment to talk about energy, including OIK?
I watched in amazement as, before the New Year, several government meetings were devoted to the issue of whether to open pubs. Now, government meetings are devoted to wondering how we managed to reach three thousand Covid-19 infections a day. At the same time, scant attention is being paid to the energy crisis, to the soaring prices of gas, fuel, heat and electricity. This crisis is affecting a huge number of entrepreneurs and individuals, especially the low-income. It does not look as if anyone in the government is very actively discussing how to ensure that small and medium-sized businesses are not wiped out by this crisis. We are being told by prominent spokesmen on many sides that reducing value added tax on energy will do nothing for legal persons. If that is the case, then let these people take off their smart expensive suits, white shirts and expensive shoes, let them put on their jeans and trainers, let them go out on the streets and open a small shop, let them try to pay their electricity and other bills with the money that they might be able to make. The problem is in the mass of money coming in, because we have a problem with the number of people in our country. There are not enough people. There are no tourists. There is nobody to go to these shops. Electricity, gas and fuel prices are now at their highest in history. Alternative forms of energy production - water, wind and solar - have now become competitive. This is the moment to make a radical and drastic decision to abolish the OIK. Instead, we produce price-competitive electricity in cascades of hydroelectric power stations in Latvia and sell it at a profit on the stock exchange, then force people to buy this electricity at high stock exchange prices and, on top of all this, levy a hidden tax - OIK - on top of this, which is included in the price of electricity. Is this not absurd? Where is the logic here?
Perhaps that is where the logic lies, namely that intolerable conditions are being created for the local population so that those who are still here will leave Latvia more quickly, thus freeing up living space for the refugees who are pouring in?
I would not say that it is aimed at bringing in refugees, but I would draw parallels with something else. I have lived through what was called the Russian times. During the Russian times, people from South Ukraine and Moldova came to Latvia. We called them hutsuls. They worked here - hoeing beetroots, sawing forests. We had a shortage of labor then, too. Even now, we have a shortage of skilled workers - welders, locksmiths, assemblers. The current public policy has successfully driven skilled labor out of the country and out of the ranks of the taxpayers of this country. I am very worried about whether I will be able to receive a pension in twenty years' time. Returning to the subject of energy and energy prices, all I can say is that, in order to reduce inflation, there is no other way than to reduce VAT on energy resources, namely electricity, gas and fuel, and to do away with OIK. There is no other option.
Sounds very simple. But why doesn't the government do that?
Lack of willpower. Fear has gripped all political forces because elections are coming. If the President of the Bank of Latvia can afford to tell the people that cutting VAT on energy will benefit everyone, including the richest energy users, then I consider this to be complete nonsense. It is unacceptable to start dividing people into rich and poor at a time of energy crisis. The scourge of Covid does not distinguish between rich and poor. The Maxima tragedy did not distinguish between rich and poor either. Crises do not divide their victims into rich and poor. The rich must create jobs and give people the opportunity to earn. What matters is the mass of money that is in everyone's pocket. A good friend of mine, who has a family with two children, called me the other day and said: "Can you imagine, I got an electricity bill for a 70 m2 family house that is heated by electricity in winter - a bill of €680." Thank goodness they will make it because they have a well-paid job. But these prices are absurd. And then there are those who teach that if I don't pay these bills, then I will be a bad businessman and I must learn how to do business better. But this is nonsense! It is better to look for a solution so we can become more competitive! Let us look at what is happening in our neighboring countries - Estonia, Lithuania, Sweden, Finland, Poland.
This government does not seem to be able to take any bold decisions on abolishing OIK or reducing VAT on energy. This means that not only will the burden on the population become heavier, but many production facilities in Latvia will cease to exist, and energy-intensive industries in particular will relocate their production facilities to other countries. Will the government's indecision turn our economy into a desert?
I am sorry to see what is happening. I am worried about February, when people will receive their bills for January. Those who watch the stock market indices for energy prices will have noticed that the stock market indices in January have become several orders of magnitude higher than in December and even higher than in November. This means that bills will become even higher in February.
Does this mean that energy prices will not only double, but triple and even quadruple?
If the electricity tariff has increased 2.6 times compared to last year, the price of gas will increase almost three, possibly even four times. This is inevitable. Only people who have no heart for other people, for small and medium-sized businesses in their country, can do this. Let us look at our neighbors, the Estonians. They did not differentiate between types of energy and they gave state support by setting specific price ceilings for gas, electricity and heating. If these ceilings are exceeded, the state compensates for the difference. In our case, we are planning to have the State compensate 50% of the service charges of Sadales tīkls. The question is, why will the State compensate for part of the electricity distribution network service? The Latvian State bought the transmission system operator and the Inčukalns gas storage facility with a story about efforts to increase energy security in the Baltic States. That is good. There is security. But if we have already bought a gas company, why are we not doing anything about gas prices? On top of all this, there are now plans to ban the use of gas boilers and, in the longer term, wood-burning stoves. There is no logic there. This is a nightmare.
Can we say that the Latvian State really owns its own gas storage?
We can say that for sure, and it is a safe storage facility.
How, if it were managed properly, could the sharp rise in gas prices be amortized, and is that even possible?
The storage facility itself can only increase the security of supply. It is an infrastructure in which we need to invest to secure gas supplies. At the same time, the state can find a hundred and one ways to reduce prices. One way is to abolish VAT, postpone its payment for a certain period, or reduce it to a rate of 5%. Let us remember when heating started to be taxed and who introduced it. In 2009, gas was subject to excise duty, and in 2010, energy was subject to VAT at 10%. In 2012, VAT had already risen to 12%. At that time, the prices of all energy sources rose sharply. Ilmārs Rimšēvičs, the President of the Bank of Latvia, publicly stated: VAT on energy must be reduced, otherwise we will not be able to meet the Maastricht criteria, which will jeopardize our entry into the euro area. In 2012, the final recipient of the energy resource had to pay VAT of 12%. Now it is 21%.
The Lithuanians did it even more simply. They froze tariffs for five years and spread the payments evenly over five years. Such steps are also a huge boost, especially for small and medium-sized businesses. At least they can plan their energy spending.
Estonia compensates for price increases above 12 cents per megawatt-hour for electricity, 47 cents per megawatt-hour for gas and 79 cents per megawatt-hour for heating. If prices exceed these ceilings, the Estonian government compensates the difference for a family with at least two children and a monthly income of less than €2,500. What did we do? If you are sick, old, bedridden or disabled and cannot go to get the Covid jab, you do not get the €20 allowance. They cannot go anywhere without the Covidpass anyway, because they will not be allowed in. But those who have to stay at home will have a higher electricity, gas and heating bill than those who can run around.
Is the only hope now to survive until the first Saturday in October, go to the ballot box, make the right choice or take the more radical decision to vote on foot and leave this country?
People can vote on foot, and even more radical changes can happen. The Covid crisis has opened up a vast labor market across Europe. This could be beneficial for certain local political groups.
Which ones?
For those currently in power, it is beneficial if the dissatisfied do not go to the polls. Their satisfied electorate will go and vote for them, but those who believe that elections cannot change anything do not go and many of them leave the country. The dissatisfied are the electorate that the various political forces are now trying to win. In this situation, the whip of encouragement must hit the ZZS. The opposition cannot remain silent at a time when the energy crisis is deepening in the country.
Why are they silent?
I have no answer. Maybe they will start to do something later. In this situation, not only the opposition, but all of us need to become more civically active and more active in defending our position. I hope that the people's quiet watchfulness will end in February, March, when they receive their new heating, gas and electricity bills. I fear that this will end in protests.
Like in Kazakhstan?
No. Latvians are peaceful. The last protests took place on January 13, 2009, when stones were thrown, including at the windows of the Saeima. It is significant that those who were close to this stone-throwing are themselves now close to power and are organizing the power of the moment. Let us look at the people of the so-called Umbrella Revolution. It is interesting to note that the situation in the country was not as difficult then as it is now. At that time, these people were in favor of throwing stones, but now they are silent and do not want to make decisions that stabilize the situation. Where is our President in this situation? If he wanted to be the President of the whole nation, then he had an excellent opportunity in this difficult situation to show that he really is a leader. But that is not happening. He prefers to keep quiet and to cower in the corner. I can see and feel that there are going to be big problems.
How will they manifest themselves?
Mass protests. People will not care whether there is a state of emergency or not, whether they are allowed to gather or not. What right have the authorities to punish people who gather together in excess of the permitted number, when the authorities spent five and a half hours before New Year's Eve debating in the Cabinet how to allow people to party on New Year's Eve? With one mouth the authorities say: "Dear people, go out on New Year's Eve and gather, the doors are wide open for you everywhere!" With the other mouth, it says: "Observe the restrictions - no gathering." Where is this balance and justice? The pendulum of equality and balance has disappeared.
Everything seems to be happening very logically: energy prices are rising, bills are rising, discontent is rising, restrictions on assembly are not being lifted, and so the government is protecting itself from the trouble of protests and demonstrations. The government is in a comfortable position under the cover of Covid, and can't it, in spite of rising bills, also safely raise taxes?
You are right. It is no coincidence that the law was amended to raise the bar for the number of signatures needed for a referendum. Latvians are resilient, but only up to a point. This brings us to the issue of national security. If there is more widespread unrest, the experts in our watchful neighboring country will be able to direct it towards a more concrete goal.
This is something that must not be allowed to happen. I remember how, after school in January 1991, we used to go to Zaķusala to stand in front of the television tower, guard the barricades and eat soup from the field kitchen. I wonder why we are now so eagerly wasting our own country. We must not allow this. There are a whole series of problems that need to be tackled. The energy crisis shows that there is no normal decision-making system in the country. The government is incapable of taking a set of decisions that would help to resolve the situation of a large number of people.
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To be continued.