On 29 August 2017 the Cabinet of Ministers of the Republic of Latvia has supported a partial repurchase of future state commitments from Latvenergo AS regarding its cogeneration power plants Riga TEC-1 and Riga TEC-2 (Riga CHPPs). The solution adopted was one of four options within the conceptual report of the Ministry of Economics “Complex Measures for the Development of the Electricity Market” aimed at reducing the mandatory procurement public service obligation fee.
The solution envisages an option to give up 75% of the currently received support in return receiving a one-off compensation in the amount of EUR 454 million, which corresponds to the asset value of Riga CHPPs. Meanwhile cogeneration power plants would continue receiving 25% of the current capacity payments annually, which would provide a sufficient basis for continuation of power plant commercial operation. Funding for such repurchase would be obtained through capital release of Latvenergo AS.
The decision passed by the Cabinet of Ministers provides that the Ministry of Economics shall create a draft of the Regulation of the Cabinet of Ministers determining the application procedure for repurchase of commitments. Latvenergo AS will assess the impact on the company's operations and its development prospects from the solution supported by the Cabinet of Ministers and will decide on the application for the repurchase of the state future obligations. Mutual payments could be carried out by offsetting, thus having no effect on the level of borrowings.
In recent years, financial results of Latvenergo Group have improved substantially, the Group's assets exceed EUR 3.8 billion and equity – EUR 2.4 billion. According to the research carried out by independent international third parties the capital structure ratios of Latvenergo Group are better than those of many benchmark companies – as of 30 June 2017: net debt to equity - 23%; net debt to EBITDA - 1.5. The financial position of the Group is sufficiently stable for implementation of the activities supported by the Cabinet of Ministers and even after capital release the capital structure would be in line with average benchmark ratios, financial covenants set in the loan agreements would not be breached neither in short nor long-term.
Latvenergo AS will ensure proper communication with creditors throughout the course of the solution implementation, in case of a capital release carrying out the respective activities set in regulatory enactments and other binding documents.