Category: Latvia

Former Associate Partners Andris Lazdins, Sarmis Spilbergs, and Martins Gailis have become Equity Partners at Ellex Latvia.

Lazdins has been with Ellex since 2013, joining as a Senior Associate and having been promoted to Associate Partner in 2019. Since September 2019, he has been the Co-Head of the firm’s Dispute Resolution practice.

Spilbergs joined the firm in 2005 and has been the Head of the Communications, Media, and Technology practice at Ellex since 2018. Prior to joining Ellex as a Senior Associate, Spilbergs spent over a year with Law offices B2B as a Lawyer.

Specializing in intellectual property rights and competition law, Gailis has been with the firm for 17 years and has been the Head of the Intellectual Property practice since 2018.

“We are truly delighted to watch the growth of each and every colleague at our law firm; our greatest ambition is to ensure a working environment where it is possible to reach ever new heights in a career,” commented Ellex in Latvia Managing Partner Liga Merwin. “Andris, Sarmis, and Martins have long established themselves as excellent legal experts and colleagues – both in their communications with clients and with employees of our law firm. We wish them an abundance of success and all the best!‘‘

In March 2022, the European Commission announced that the blending proportion of biofuels, as applied by member states, may be reduced so that less agricultural land is used for the production of biofuel feedstocks. It was clear by then that Russia’s unprovoked war in Ukraine would put pressure on the food and feed commodities markets.

The Latvian government was quick to seize this opportunity to make the blending of biofuels voluntary. However, the optional character of this obligation is an illusion and the intended short-term gains from this shift in regulation could eventually lead to long-term problems.

First of all, the government’s proposal has nothing to do with easing pressure on food markets. Instead, the move is intended to reduce fuel prices at the pump. Indeed, blended fuel is more expensive. However, the current hike in fuel prices is due to high oil prices, and abandoning blending obligations will not fix this – biofuel makes up just 6% of the fuel price, compared to the approximately 40% related to fossil fuels and 53% related to taxes and duties. Actually, the latter would be an obvious tool for the government in adjusting fuel prices swiftly. However, the government has already stated that taxes and duties should remain intact.

Secondly, agricultural land use is mostly linked to first-generation biofuels. The advanced biofuels specifically promoted by the Renewable Energy Directive have significantly less effect on the food and feed commodities markets. Accordingly, a better-tailored approach could have been considered by the government, e.g., a reduction of the blending proportion at the cost of first-generation biofuels only. This would not only exclude unproportionate restrictions with respect to advanced biofuels having no impact on land use but would also allow maintaining at least partial greenhouse gas emission reductions under the Fuel Quality Directive.

Ignoring those considerations can potentially lead to an increase in fuel price at the pump, distorted competition, and even greater backwardness in reaching the binding targets set for Latvia by the Renewable Energy Directive and the Fuel Quality Directive.

The mandatory blending obligations have been seasonal for many years already. In reliance on this well-established order, the necessary volumes of fuel, biofuel, or a blend have been contracted and significant volumes of blended fuel are already in stock, ready to be delivered to gas stations. The respective volumes could differ from one retailer to another. Thus, some retailers may be in a position to switch to an unblended (cheaper) fuel sooner than others, and the latter would have to choose between losing clients due to uncompetitive prices or incurring immediate losses by selling blended fuel at a discount.

In addition, the government’s proposal would increase the demand for fossil fuels in the regional market. Sanctions on Russia have already disrupted many supply chains, contributing to the recent price increase. The sudden increase in demand would drive fossil fuel prices even higher, and fuel could become more expensive at the fuel pump. Such a turn of events would leave the government with only one option – to reduce (at least, temporarily) fuel taxes and duties. But then the question is – why not do it now to avoid unnecessary turmoil?

The suspension of mandatory blending obligations could also increase fuel prices in the long run. The uncertainty created by the current decisions will likely force fuel traders to opt for short-term supply contracts, and that means more expensive fuel in comparison to that purchased under long-term agreements.

In 2020, Latvia was already well behind the 10% target for renewable energy in transport fuel consumption. The plan was to adopt the new Transport Energy Law, facilitating advanced biofuels and introducing a mass balancing system as a means to achieve biofuel targets. However, adoption of the law is significantly delayed, and the currently proposed suspension of the mandatory blending obligation will be yet another setback for environmental targets in transport. Moreover, at the end of the suspension, the respective targets will have to be reached in a shorter period, resulting in a noticeable fuel price hike.

It is obvious that the war in Ukraine has raised a number of issues for the Latvian government. The ever-increasing fuel and food prices must be addressed. However, attacking biofuels might not bring the expected relief and could create even more problems. Hopefully, the government will realize that it has more effective instruments to tackle those issues.

By Gatis Flinters, Partner, and Martins Tarlaps, Senior Associate, Cobalt

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Sorainen has advised PrivatBank on transferring its client portfolio and part of its assets and liabilities to Industra Bank.

According to Sorainen, “the total of the loans included in the transaction was approximately EUR 25 million, and the amount of deposits exceeded EUR 50 million. The transaction received the permission of the Financial and Capital Market Commission and was completed on August 20, 2022.”

The Sorainen team included Partners Rudolfs Engelis and Jorens Jaunozols, Counsels Santa Rubina, Janis Bite, and Andis Burkevics, and Senior Associates Edvins Draba and Maris Simulis.

Sorainen did not respond to our inquiry on the matter.

The energy crisis has a pivotal role in Latvia’s political agenda, with the government focusing on investments in onshore and offshore energy projects and legislative packages to mitigate the crisis-related outcomes, according to Ellex Managing Partner Liga Merwin.

“Summer is always an exceptional time – even with the geopolitical situation and its influence on the region, the past few months have been rather slow,” Merwin begins. “Still, the absolute highlight of our situation is the energy crisis. In Latvia, there are huge efforts to reach energy efficiency by supporting the launching of solar parks and alternative energy sources.” According to Merwin, there is a huge interest in energy from potential investors, including funds from the US and all over Europe.

Merwin says that, traditionally, Latvia has always had a high number of hydropower plants. “In good years, these plants could satisfy all internal consumption needs, therefore the government was reluctant to push towards other types of renewables. In light of the current challenges, this attitude has changed – now the government aims to focus on potential investments in onshore and offshore wind and solar parks so that we have energy independence even during subpar years, or when facing acute challenges,” she notes. “The government recently established a company to undertake onshore wind park projects. This is a joint venture between the state-owned electricity utility Latvenergo and the Latvian state forest management company. We’re also developing an offshore wind park in the Baltic sea, together with Estonia, and the government is looking to support the building of an LNG terminal near the coast.”

Merwin points out that – despite the general developments at the EU level such as the digital market and platforms regulations – from the local perspective, the major legislative activities are related to mitigating the energy crisis-related consequences for businesses and individuals. “The government is to adopt initiatives targeting businesses, making sure that they have easier access to funds and investing towards energy independence,” she adds.

“Additionally, this is an election year in Latvia and there are concerns about geopolitics,” Merwin says. “Similar to other countries, we have concerns about populist political parties, which already got a large share of seats in the Saeima four years ago. There is also the issue of potential election fraud, including disinformation on major social media platforms. Major institutions are focused on ensuring the fairness of elections and making sure that, given the geopolitical pressure, no other powers undermine the country’s sovereignty. Unfortunately, we have a small share of conspiracy theorists and other extremists who are looking to cast doubt on the validity of the elections and the democratic system as a whole, just wanting to ‘tear it all down’.” Moreover, Merwin notes, the current government is not necessarily business sector-oriented, having a primarily technical or bureaucratic background. “We need more efficient measures to boost the economy, especially considering the damage done by the pandemic and war,” she says.

“In other news, inflation is definitely a concern for our firm. We renegotiated most of our contracts, even before the war in Ukraine, because we saw the market changing. We’re now looking at ways to support our staff through what looks like a difficult winter ahead,” Merwin says. “And inflation has been very difficult for the construction sector, where we expect a large number of disputes. Many projects are on hold – everything seems almost to be stagnating because it is hard to renegotiate contracts and price increases. Hopefully, this will all be resolved in the coming months,” she concludes.

Sorainen has provided pro bono legal assistance to the Papardes Zieds association on launching its new website.

Papardes Zieds is a Latvian non-profit organization that aims to protect and improve young people’s sexual and reproductive health.

According to Sorainen, “the association develops sexual and reproductive health education programs and conducts classes for young people, including young people with intellectual disabilities, parents, and professionals, as well as initiating and engaging in advocacy for this issue at a national and international level.”

The Sorainen team included Partner Ieva Andersone, Senior Associate Marika Grunte, Associate Julija Terjuhana, and Assistant Lawyers Julija Triscuka and Krisjanis Knodze.

Sorainen has provided pro bono legal assistance to Aswell on setting up the terms and conditions for the corporate application users.

Aswell is a mobile application aiming to reduce food waste in the Baltic region.

“Every year, 88 million tons of food waste are generated in the EU, worth an estimated EUR 143 billion,” Sorainen informed. “At the same time, 36.2 million people in the world cannot afford a quality meal every other day. Food waste is both an ethical and an economic problem while having a negative impact on the environment as well.”

“With the Aswell mobile app, anyone can help to fight food waste,” the firm reported. “Aswell will serve as a platform where traders and green-minded customers can find each other and collectively reduce food waste. The mobile app is expected to be made available to the public this summer.”

The Sorainen team included Senior Associates Linda Reneslace, Liva Aleksejeva, and Dace Everte, and Assistant Lawyer Lucija Strauta.

Cobalt has advised Coffee Address Holding on its EUR 5 million unsecured bond issuance. Eversheds Sutherland Bitans advised on collateral agent matters and undertook collateral agent functions for the term of the bonds. Signet Bank was the arranger of the issuance.

“The bonds were offered to investors through a private placement, and are scheduled to be included in the Nasdaq First North alternative market within 12 months,” Cobalt informed.

According to Eversheds Sutherland, “investor demand exceeded the issue offer, involving the participation of both private and institutional investors.”

Established in 1993, BaltCap portfolio company Coffee Address is a coffee company specializing in office and on-the-go coffee in the Baltics.

Cobalt previously advised Coffee Address on the acquisition of Kafe Serviss (as reported by CEE Legal Matters on January 15, 2020).

The Cobalt team included Partner Edgars Lodzins and Specialist Counsel Andrejs Lielkalns.

The Eversheds Sutherland team was led by Senior Partner Maris Vainovskis and Associate Justine Ignatavicute.

The first half of 2022 has not (yet) yielded such high profile deals as seen in 2021 (like Printful becoming the first Latvian “unicorn”) but there has been a steady trickle of transactions following the larger wave of 2021.

A very dynamic start of the year fuelled by 2021 optimism and “post-Covid-19” sentiment was followed by a complete but short standstill triggered by Russia’s invasion into Ukraine on 24^th February, and although most of the transactions continued after a while, a number of deals fell apart and the overall pace of many projects significantly slowed down as both local businesses and investors tried to grasp rapidly changing global and regional implications of Ukraine war and to assess the impact of massive sanctions imposed on Russia and Belorussia on local businesses. 

The shift in energy markets has opened new opportunities and a fresh perspective on renewables projects , resulting in a steep rise in investment activity for both wind and solar energy projects in Latvia and across the Baltics. Investors such as Ignitis Group, Taaleri Energia and Utilitas have been very active in consolidating wind energy projects in Latvia while incumbent energy company Latvenergo has launched large scale joint venture with state forest company aimed to develop wind energy projects.

The deals so far published this year show activity across various sectors and industries. Predictably, IT and TMT sectors continue to be among the most active, same as B2B services (BaltCap’s sale of Vendon to Azkoyen, sale of TVG to Pax8, Tet’s acquisition of Telia Latvia, BaltCap’s sale of Uprent to Renta Group, acquisition of Nordigen by GoCardless). Energy and real estate transactions are plentiful (BaltCap Infrastructure Fund’s sale of Energia Verde to Gren, acquisition of Stockmann trade centres in Riga and Tallinn by Viru Keemia Group, acquisition by Hili Properties of trade centre in Riga, acquisition by Baltic Green Fund of significant forest portfolio etc.). The recent merger of Signet Bank with Expobank shows some further consolidation in the financial services sector in Latvia and there is also continuous interest in healthcare businesses (as shown by the acquisition by Syneos Health of local clinical research service provider AmberCRO).  

Activity on public markets has been sluggish, this year so far has produced only one new IPO on Riga Stock Exchange, a local pension management company INDEXO, but some more might be on the way. Meanwhile, VC investments into Latvian start-ups are on the wave, particular activity visible in the field of foreign VC players (both funds and angel investors) investing in Latvian targets.

The resilience of the transactions market and trust of investors in our region has proved remarkable, despite the Ukraine war and mounting global challenges the deal flow, although at a much calmer pace, continues and remains promising for the second half of the year. The extensive liquidity of private equity and venture capital players and highly competitive environment with relatively scarce targets still is one of the key factors contributing to overall deal activity and business valuations.

You can read about the transaction market trends in Estonia here.

By Guntars Zile, Partner, COBALT

Green Public Procurement (GPP) is a process whereby public authorities seek to procure goods, services, and works with a reduced environmental impact throughout their life cycle, to achieve environmental policy goals relating to climate change, sustainable consumption, etc., ensuring that tenderers abide with a minimum level of compliance with environmental legislation.

The field of public procurement (PP) is one of the most important sectors of the single market, as government expenditure is around 15% of the Latvian GDP and PP opens public markets and increases competition between private parties. As a result, PP is highly linked to competition law.

GPP differs from ordinary procurement with a needs assessment, resulting in reduced sizes of procurements and savings for the budget, with a life-cycle cost analysis. That is why one fundamental principle of GPP is the creation of reasonable requirements to obtain not only a mandatory result but also an additional determined desired result by choosing the most economically advantageous tender. Therefore, there is an urgent need to create rational criteria of green requirements, based on specific circumstances and/or priorities of the institutions developing them, as the strict introduction of broad green requirements beyond institutions’ possibilities can distort the competitiveness of the market.

EU legislation provides mandatory requirements for the procurement of specific goods and services, hence the GPP action plans of EU member states also include changes reflecting the specific circumstances or priorities of the institutions developing them. Still, Latvia has taken over only seven mandatory GPP standards, although the EU proposes way more. As a result, the use of GPP in the country is very low – in only 15% of instances.

The reasons why procurement specialists in Latvia rarely include environmentally friendly criteria in PPs are their lack of knowledge and experience to establish specific requirements and identify problems. Besides, in Latvia, the culture is dominated by a conservative predisposition and there is low awareness of the benefits of environmentally friendly products and services. As a result, the government must work carefully and gradually on the implementation of criteria for action plans drawn up for a particular product, as it may distort equivalent competition of companies in GPP. Therefore, there is a need for safeguards.

Firstly, it is necessary to ensure that the technical specifications relate to the requirements of the work, supply, or service being purchased instead of the general capacities or qualities of the operator, to prohibit unjustified obstacles to competition. The procurement directives do not allow for insistence upon a production process that is only available to one supplier – or to suppliers in one country or region.

Secondly, it is necessary to ensure that a functional specification describes the desired result and outputs expected. The tenderer is free to propose the most appropriate solution which meets the certain minimum requirements identified.

Thirdly, it is necessary to ensure that predetermined award criteria allow deciding which tender is the best – and must never confer an unrestricted freedom of choice on contracting authorities – to provide an objective basis for distinguishing between tenders and be specific to ensure effective competition.

In 2020, Latvia registered a failure of tenderers to meet 45% of requirements, which significantly reduces the competition and increases the purchase price. Consequently, so that the introduction of extensive green requirements does not distort the competitiveness of the market, it is useful to have knowledge of that market. But, in Latvia, wide-ranging market research has not been carried out.

The objective of competition law rules is to protect competition in the market and to assess anti-competitive effects and benefits made within this market. In the preparation phase, the Latvian government needs to analyze the demand and conduct a preliminary market consultation to avoid restricting competition and have more tenderers in the procedures to be conducted because of progressive greening.

GPP, viewed from a competition point of view, is legitimate until the general principles of non-discrimination, proportionality of requirements, equal treatment, and transparency have been violated. Consequently, to achieve a successful GPP, the Latvian government must ensure equal access to the tender by operators from all EU countries and from countries with equivalent rights; tender opportunities must ensure competition; and the procurement decision-making process must be transparent. At the same time, the government must speak publicly about the positive contribution of GPP, promote a new culture of work that would encourage innovative thinking, and organize wide-ranging market research to establish appropriate and proportionate requirements for tenderers prior to the GPP – so that the introduction of green criteria would happen gradually and would not distort a market that is not yet ready for the introduction of.

Liene Cakare, Partner, EY Law

This Article was originally published in Issue 9.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Cobalt has advised plywood producer Latvijas Finieris on the investment project for the expansion of its RSEZ SIA Verems production facility in the Rezekne district.

According to Cobalt, “the expected amount of investment exceeds EUR 67 million and is considered to be the largest private capital investment in the Latgale region in recent years. The project will be implemented by the end of 2024, and it includes a significant expansion of the production premises to ​​16,500 square meters.”

Latvijas Finieris is a plywood producer with production facilities in Latvia, Lithuania, Estonia, and Finland.

“Evaluating the sustainability of the project, it is also supported by the Latvian state,” the firm informed. “On July 12, Latvijas Finieris received approval for the granting of EUR 10 million in financing from the loan program Investment Loans for Large and Medium-sized Companies with a Capital Discount for the Promotion of Competitiveness implemented by the Latvian Investment and Development Agency and Development Finance Institution Altum.”

The Cobalt team included Partner Gatis Flinters and Senior Associate Toms Krumins.