Gas in Latvia and the Balance of Trade

City supplied central heating in Latvia is as good as compulsory and mostly generated by expensive gas. One reason for this is that decision makers are given monetary incentive to keep the gas connected and not use low cost inexpensive wood chips or pellets.

Latvia exports 95% of the wood chips and pellets created in Latvia so there is an abundance of it making gas imports not necessary. Considering the lack of regulation with the forrestry industry one can easily see that tighter regulation would facilitate the sourcing of pellets within Latvia that would not decrease exports of pellets and ensure tax income from the bulk of the forrestry industry is collected by government.

in 2009 the EU is allocating funds so that 30 to 50% of the conversion costs can be obtained to move boilers from gas to bio mass. Latvian councils just need to apply for the funds.

As an example saw-dust pellets cost around 1/2 as much as gas for a Mega Watt Hour (mwh).
gas costs 34 euro mw plus carbon tax of 20 euro tonne. This money goes out of Latvia and is as good as burning hard earn't money coming in to Latvia from exports.

Many arguments as to why the Lat can not be depreciated are based on the supposed increase in the cost of heating. Whereas, in reality already people are refusing to pay their heating bill because they can not afford it. In one of my businesses the heating costs have gone up 300% within 5 years which is the equivalent of 3 staff salaries. I have fired 5 staff as of the start of 2009 the other 2 staff can be contributed to fewer tourists travelling to Latvia.

The gas price Latvia pays is linked to the oil price and can be paid from the IMF euros. Therefore, a depreciation in the lat would have no impact on the cost to Latvia for the gas in the short run. With a conversion to bio mass pellets that have no carbon tax the cash flow for Latvia would not be exported and can be partially used to repay the IMF loan as Latvia would not be sending hard currency outside of Latvia to pay for gas.

Latvia has acccepted an IMF loan because the leaders of Latvia did not make sensible and obvious decisions in previous years. Now further poor decisions will just delay the inevitable devaluation of the lat.