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Management of critical infrastructure vs. vulnerability of public sector enterprises - the Latvian experience

Edvins Karnitis
University of Latvia
Andris Virtmanis
Open Panel

Abstract

Business in network industries is a contradictory one, therefore ownership and business models are critical. In network industries the public ownership of basic infrastructure (e.g., electricity grid, railway infrastructure, etc.) in general is preferable to guarantee security and sustainability of services. Private owners of infrastructure are not very interested to invest in network capacity reserve. In emergency cases shareholders of public sector companies can more efficiently organize cooperation with local and governmental institutions. Local public service companies (e.g., water supply) can be subsidised by shareholder (municipality) in interests of the local community. At the same time we have examples when strongly regulated private companies can be and are efficient ones even in the non-competitive environment. E.g., gas company Latvijas gaze shows radical increase of efficiency of company, reliable and sustainable gas supply and the lowest gas prices throughout EU. Government has to develop sector policy as well long term strategy for public infrastructure operators taking into account macroeconomic goals. First of all it relates to selection of the target – high profit to have income in national budget or low tariffs to provide cheaper services for citizens and business and to increase competitiveness of national economy. Power company Latvenergo is not a good example – government wants to achieve both at the same time. Very destructive existing tendency in ministries has to be cancelled – to develop policy and even to perform some regulatory functions and simultaneously to be the shareholder of public sector companies. Political management additionally has become a real problem and threat for public companies. Logical result of this situation is an infringement proceeding against Latvia concerning structural separation in electronic communications. The similar risk of potential conflict of interests is developing in the energy sector.