Latvian gas utility to set up new transmission and storage firm

RIGA (Reuters) -- Shareholders in Latvian gas utility Latvijas Gaze voted on Thursday to set up a new company, Conexus Baltic Grid, to operate the Baltic state's main gas pipelines and the region's only underground gas storage.

The move is aimed at meeting European Union rules on separating gas sales from gas supplies and comes ahead of a market liberalization in April that will end the monopoly on supply in Latvia held by Russia's Gazprom for decades.

Gazprom, which is the biggest shareholder of Latvijas Gaze with 34%, will have a stake of the same size in Conexus but is expected to sell this by the end of 2017, Latvian officials said.

The Russian firm has already exited gas utilities in the other two Baltic states, Lithuania and Estonia, following a liberalization of gas markets there.

The EU is striving to reduce the reliance on Russian gas across its 28-member states to improve security of supply.

Germany's Uniper and Latvia's gas trader Itera Latvija are also expected to sell their 18.26% and 16% stakes in Conexus, respectively.

Latvia's Economy Minister Arvils Aseradens said on Dec. 8 a number of European gas grid operators and infrastructure investors had shown an interest in buying into Conexus.

He previously named Germany's Open Grid Europe (OGE), formerly the gas transportation arm of Germany's E.ON, as one potential buyer.

The Latvian government will decide in January whether it should use its right of first refusal to acquire shares itself, officials said.

European infrastructure fund Marguerite is expected to keep its 28.97% stake in Conexus.

The three Baltic states aim to create a joint gas market by around 2020, with new gas links to Finland and Poland.

Latvia's 2.3 Bcm underground gas storage, Incukalns, is seen as key for such a market to emerge as it can help balance cross-border flows.

Reporting by Gederts Gelzis; Writing by Nerijus Adomaitis; Editing by David Clarke and Mark Potter

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