75792 July 2012 PPIAF Assistance in Latvia A high-income country with a population of 2.24 million, Latvia had a gross national income per capita of 1 $11,620 in 2010 (GNI, Atlas method). Since regaining its independence in 1991 following the collapse of the Soviet Union, Latvia has experienced a remarkable political, social, and economic transition. Achievements include Latvia’s European Union (EU) accession in May 2004 just weeks after joining NATO. EU integration has had a very strong and positive effect on the country’s performance and growth. Latvia joined the World Bank in August 1992. Since then, the Bank has played an important role in supporting Latvia’s transition through lending, policy dialogue, and analytical and advisory assistance. The last active Bank-financed investment project closed in June 2007. Following graduation from the Bank in 2007, Latvia continued to benefit from the Bank’s analytical and advisory services, including in public finance management, establishing a framework for Latvia’s participation in international emissions trading, assistance with public-private partnerships, and technical assistance on the regional development of lagging rural areas. The World Bank’s mission in Latvia is to make the most of its EU membership, help its economy grow, create jobs, strengthen government institutions, and improve the lives of all citizens, particularly the poor. After a period of overheating, the Latvian economy started to slide into a recession in 2008. Liquidity pressures related to the global financial turmoil increased the risks to financial sector stability. In late December 2008, a stabilization package totaling €7.5 billion to stabilize Latvia’s economy was announced, led by the European Commission and the IMF, with support from the European Bank for Reconstruction and Development, the World Bank, Nordic countries, and other European donors. The World Bank committed €400 million in loans to this package. As of 2010, conditions remained difficult, but there were signs that economic decline was bottoming out with prospects for modest recovery early the following year. Once the thrust of the crisis is over, the primary goal will be to ensure Lat via’s sustainable convergence with the EU, supported with further structural reforms to improve competitiveness and innovation. PPIAF has funded one activity in Latvia: a grant approved in 2000 to help establish a multi-sector regulatory commission. This activity built on and completed work initiated by other donors, especially the EU and World Bank, which had been active in providing assistance towards consensus building for creating a multi-sector regulator. Latvia became an EU country in 2004 and is no longer eligible to receive PPIAF funding. Establishment of a Multi-Sector Regulatory Commission Latvia requested PPIAF assistance in 2000 to plan and coordinate the implementation of its action plan to prepare a regulatory commission following the passage of a law establishing a multi-sector regulator funded out of the World Bank’s Institutional Development Fund and a Policy and Human Resources 2 Development grant. The Public Service Regulatory Commission will regulate energy (electricity, gas, and heating), telecommunications, transportation (railway freight and passenger traffic and buses), and post. PPIAF focused its support on implementing the action plan as this related to electricity, gas, telecommunications, and railways. The action plan included intensive co-ordination to activate the Commission from identifying appointments, preparing corollary laws and regulations and administrative requirements, as well as building capacity by preparing a training program for the staff and finalizing manuals on systems and 1 Doing Business 2012 (http://doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/LVA.pdf) 2 The law establishing a multi-sector regulator had been prepared and submitted to parliament with the assistance of a World Bank International Development Fund grant; the action plan to establish the regulator was prepared by a Working Group supported by a consultant team financed from a Policy and Human Resources Development grant. 1 procedures for the Commission to use. A study was completed in 2004 to assess the effectiveness of the regulatory system and suggest improvements if necessary. The Public Services Regulatory Commission—now renamed Public Utilities Commission—was established in October 2001 and operates in compliance with the law ― On Regulators of Public Utilities‖ (adopted by the Saeima in October 2000 and signed by the President in November 2000), Regulator’s statutes, sectoral acts, and other normative acts. Several amendments to the law have occurred, starting in May 2001 and with the most recent amendments added in December 2009. The activity also funded a series of studies for the infant national and municipal regulatory agencies on the prospects for competition and the need for regulation in the gas, telecommunications, water, and waste sectors. The report on the gas industry was helpful in staving off pressure from influential companies to deregulate gas prices without adequate competition. In addition, the activity funded a workshop and overseas training for senior officials of the national regulatory agency, and an outreach program to municipal officials about their new regulatory responsibilities. In June 2001 a series of seminars were held in Latvia’s four major cities—Riga, Valmiera, Rezekne, and Kuldiga—to engage local governments in dialogues highlighting the role of the regulatory commission, particularly in locally administered infrastructure sectors. Of the 576 local governments invited to take part, 175 (30%) did so. Media representatives (print, radio, and television) also attended the seminars. This was the first awareness campaign on regulatory oversight in infrastructure that focused on local governments. The municipal outreach program revealed that the cities had little understanding and few resources to build effective regulatory agencies. As a result, the national government started encouraging the municipalities to band together and establish cooperative regional regulatory agencies. A reform announced in 2009 planned for municipal regulators to be eliminated and 3 four regional units to be established instead. The latest structure of the Public Utilities Commission approved in October 2009, and the 2010 annual report show the existence of three regional divisions 4 reporting to the Executive Director. The government had initiated privatization in the gas and telecommunications industry prior to the establishment of the Public Utilities Commission, but it was expected that improved regulation would facilitate further restructuring and privatization. A number of infrastructure projects with private sector participation occurred once the Public Utilities Commission was in place: two telecommunications greenfield projects closed: one in 2003 with a total investment commitment in physical assets of $68.2 million from 2003–2009, the other in 2005 with $60.7 million in investment commitments in physical assets from 2005–2009 (Lattelekom, the former national telecommunications provider lost its monopoly privileges in 2003). Three greenfield projects in energy closed in 2011 for a total investment commitment in physical assets of $126.35 million. In addition, projects with private sector investment which had closed prior to the establishment of the Public Utilities Commission continued to receive private investment in years that followed. Results of PPIAF activity Establishment of a Multi-Sector Regulatory Commission Category Outputs Enabling environment reform  Studies for the infant national and municipal regulatory agencies on Analyses/assessments the prospects for competition and the need for regulation in the gas, prepared telecommunications, water, and waste sectors, 2001 3 http://www.raplm.gov.lv/uploads/filedir/2009.05.14._LI_FS_Nr.36.pdf 4 Structure of the Public Utilities Commission approved 22/10/2009: http://www.sprk.gov.lv/index.php?id=601&sadala=133; Structure of the Commission, from the 2010 Annual Report: http://www.sprk.gov.lv/index.php?id=14196&sadala=742 2 Policies prepared or legal or regulatory changes  Recommendations for regulatory changes, 2004 recommended Capacity and awareness building  Two-day workshop with four foreign consultants to build support for the new agency, 2001  Training for utility regulators at the University of Florida that was well-regarded and attended by a commissioner and senior staff who gained a better understanding of the commission’s independent role, January 2002  Four local government awareness-raising seminars on Workshops/seminars implementing public service regulation at the local government level were held in June 2001, covering all local governments of Latvia, interested institutions at the governmental, local government, and non-governmental levels, and the national and regional media; the seminars were held in Riga (June 11), Vidzeme–Valmiera (June 13), Latgale–Rezekne (June 15), and Kurzeme–Kuldiga (June 19) and attended by 175 local government representatives (almost ⅓ of all the local governments in Latvia) Category Outcomes Enabling environment reform Policies adopted, legislation  The existing law ―On Regulators of Public Utilities‖ was amended passed/amended, or several times since its issuance: twice in 2001 and at least once a regulations issued/revised year between 2004 and 2009  Public Services Regulatory Commission (now renamed Public Utilities Commission) established, October 2001  Simplified and streamlined regulatory process: a reform announced by the national government in 2009 planned for municipal Institutions created or regulators to be eliminated and four regional units to be established strengthened instead  The infant national and municipal regulatory agencies strengthened: the report on the gas industry was helpful in staving off pressure from influential companies to deregulate gas prices without adequate competition, 2004 Capacity and awareness building  The two-day workshop was helpful in building support for the new Consensus achieved agency, 2001 3