Regulated sectors in the context of the national economy

The companies regulated by the Public Utilities Commission are included in electricity, gas and water supply sectors, as well as transport and communications sectors. These sectors in the GDP structure in 2004 constituted 18.7% (transport and communications – 15.7%, electricity, gas and water supply – 3%). Transport and communications sector in 2004 had one of the highest volume increases – 12.9% compared to 2003, while electricity, gas and water supply sector volumes grew by 4.9%. Compared to the GDP growth (8.5%), transport and communications sector volumes grew much faster in 2004.


Value added of electricity, gas and water supply sector (mln.LVL, const.prices)


Value added of transport and communications sector (mln.LVL, const.prices)

In 2003 the share of the employed of the above-mentioned sectors in the total employment structure was 11.6% (9.5% in the transport and communications sector and 2.3% in the energy sector respectively). Taking into account that the share of the value added in the total structure is higher compared to the share of the employed, the productivity of both sectors is higher than the average of national economy.

The commercial profitability (profit or loss before taxes against the net turnover) in the transport and communications sector in 2003 was much higher than the national economy average (8.98% and 3.46% respectively), but in the energy sector it was a little lower than in the national economy (3.18%).



Productivity (LVL)



Commercial profitability (%)

The average wages in the sectors were also higher than on average in the national economy – in 2003 the average monthly net wages in the transport and communications sector were 165LVL, in the energy sector – 212LVL, but on average in the national economy – 138 LVL.

Impact of regulated prices on inflation

According to the data of the Central Statistical Bureau 16% of the goods and services in consumer price index basket are services with regulated prices. These regulated services include services regulated by the Commission, services regulated by municipal regulators and other services with regulated prices. Services regulated by the Commission – electricity and gas supply, fixed network telephone services, general postal services and railway passenger transport – constitute 5.9% of the consumer price index basket. Services regulated by municipal regulators – heat supply, water supply, sewerage, waste management and local transport – constitute 8.5%. Other regulated services – apartment rent ceilings, parking services, passport issuance and some medical services – constitute the remaining 1.6%.

The regulated price increase in 2004 was 5.4% which is less than for the overall price level. The aggregate inflation in December 2004 was 7.3% compared to December 2003. Thus the regulated prices constituted 0.87 percentage points or one ninth of the aggregate inflation. In comparison, the regulated prices grew by 5.3% in 2003 which was more than the aggregate inflation (3.6%) and constituted one forth of the aggregate inflation.

In 2004 the regulated prices mainly changed because of more expensive fuel. As oil product prices increased around the world and as the prices of fuel increased in Latvia, prices for electricity, gas, heating and public transport were also increased. Changes in regulated prices associated with more expensive energy resources determined almost 90% of all changes in regulated prices. The remaining changes in regulated prices are associated with the increase of rent ceilings and changes of medical service prices.

From January 1 the electricity tariffs grew on average by 11.4% which constituted 0.37 percentage points or one twentieth of the annual inflation. Electricity tariff changes reflected higher fuel costs for generating electricity from natural gas, growing investments for network maintenance, as well as higher costs for purchasing energy from local independent energy generators. Moreover, the comparatively large change in electricity tariffs was determined by the fact that because of various reasons tariff correspondence to costs had not been reviewed for six years.

From July 1, 2004 the natural gas prices grew by an average of 2.5% which was the second step of gradual natural gas tariff increase over a three year period. Changes in natural gas tariffs reflect higher gas import prices, as well as growing investments in the maintenance of networks and storage. Moreover, liquefied gas (propane) prices grew significantly in 2004 which was determined by price changes initiated by external suppliers. The impact of natural gas and liquefied gas price increase on inflation was 0.27 percentage points.

For comparison, in 2003 the prevalent role in regulated price changes was played by services regulated at the municipal level – heat supply, water supply, sewerage and waste management. If heat supply tariffs reflected higher fuel costs, then water supply, sewerage and waste management tariffs increased because of changes in the application of the value added tax.

Household expenditures on regulated services^[1]

Total household consumption expenditures, as well as consumption expenditures on state regulated public services (hereinafter regulated services) increase in the household budget over the last years, however consumption volume of regulated services in monetary terms increases a little faster than household consumption expenditures on overall goods and services (in 2002 and 2003 12% and 10% respectively).

The increase of household consumption expenditures on regulated services calculated on one household member per month was 0.94 lats in 2002-2003. This increase was mainly the result of increase of consumption expenditures on telephone services (0.59 lats) and electricity (0.22 lats). For comparison, the respective indicator for other goods and services was: for food – 0.33 lats, for alcohol and tobacco – 0.48 lats, for health services – 0.71 lats.

Figure 1 shows consumption expenditure volumes for separate services in cities and rural areas. In 2003 the total consumption expenditures on regulated services in cities was 10.05 lats, but in rural areas 5.91 lats a month on average per household member. The total consumption expenditure volume is smaller in rural areas compared to cities (in 2003 – 1.6 times smaller), as well as service accessibility was different (for example, natural gas network is not available in several areas).



Consumption expenditures of separate service types in cities and rural areas in 2003 on average for one household member per month, lats

Of the examined public service types consumption expenditures on telephone^[2] services are the biggest both in absolute terms and by the growth rate since 1998 (see Figure 2). In 2003 in the households of the first quintile^[3] consumption expenditures on telephone services on average per month for one person were 2.40 lats, but for the fifth quintile – 11.70 lats. In 2003 the households of the first quintile spent 4.6% of household consumption expenditures on telephone services, but of the fifth quintile – 5.8%.



Household consumption expenditures in 1996-2003 on average for one household member per month, lats

The popularity of mobile communications is still growing. In 2001 there were 44 mobile phones on 100 households, in 2002 – 71, but in 2003 – 102 mobile phones.

The number of telephones in a household is directly connected with household income. For example, examining the year 2003 data by quintiles one can see that there are 88 mobile phones on 100 households in the first quintile, but in the fifth quintile – 148. Compared to the respective indicator of the previous year the number of mobile phones had increased by 25 telephones in the first quintile, but in the fifth quintile – by 41 telephones.

The number of fixed telephone connections is decreasing over the last years. In 2001 89% of households, which used and paid for telephone services, had a fixed telephone connection, in 2002 – 83%, but in 2003 – 76%.

Only every fifteenth household had registered consumption expenditures for Internet connection in 2003. There were 2.3% of such households^[4] in the first quintile, but in the fifth quintile – 18.1%.

Household expenditures on electricity

One person spent 0.22 lats (11%) more per month for electricity supply^[5] in 2003 compared to the previous year. The average household monthly bill for electricity in 2003 was 5.67 lats which corresponds to the consumption volume of 145 kWh a month (13 kWh more than in the previous year). Electricity consumption in separate quintile groups fluctuates from 107 to 201 kWh a month.

Household expenditures on gas

In connection with natural gas price increase from July 1, 2003 the annual average consumption expenditure^[6] volume for one person (calculated for households for which this service was available and who used it) increased from 1.24 lats to 1.29 lats a month in 2002-2003. In 2002 the average consumption expenditures^[7] on liquefied gas (propane) for one person were 2.34 lats a month, but in 2003 – 2.50 lats.

In 2003 the average monthly bill for a household which used natural gas was 3.33 lats, but for a household which used liquefied gas – 6.45 lats. Monthly bill increase in 2002-2003 for natural gas for one household was 0.12 lats, but for liquefied gas – 0.36 lats. Differences in liquefied gas consumption among quintile groups are comparatively small (not exceeding 0.75 lats). The respective indicator which characterizes differences in natural gas consumption is 1.61 lats.

Examining the regulated service tariffs it must be noted that natural gas sales end tariffs were increased in 2003 and their impact on household consumption expenditures is comparatively small. The share of consumption expenditures for natural gas in the household consumption expenditure structure has not changed in recent years. The observed increase of the total regulated service consumption in lats in 2003 is mainly associated with consumption growth in natural terms and not with the growth of regulated service prices.

[1] This section was prepared on the basis of the results of Household budget survey by the Central Statistical Bureau of Latvia (hereinafter CSB). Data published by CSB, as well as additional materials on household consumption expenditures in positions concerning state regulated public services (electricity, gas, postal services, domestic railway passenger transport) were used to prepare the material. CSB provides such data to the Public Utilities Commission on a regular basis and they have been summarized since 1996. Data on year 2004 were not yet available during the preparation of this report.

[2] According to CSB classification telephone (and fax) services from 2001 include household consumption expenditures when paying for telephone conversations and subscription fee, as well as telephone installation, public telephone call payments, payment for the telephone card, payment for telegraph, telex and fax services, rent of telephones, fax, answering machines and telephone loudspeakers, Internet connection, Internet services.

[3] Since 2001 quintiles are constructed on the basis of household income corresponding to Eurostat recommendations (till then – on the basis of consumption expenditures). Household division into quintiles is performed after distribution series is constructed where households are arranged in an ascending order by income on one household member. Such arranged households are divided into five equal parts. Thus, each quintile group comprises 1/5 of the covered households. The first quintile comprises 1/5 of households with the lowest income, the fifth quintile represents comparatively rich households. The average income and other indicators are calculated for each quintile group.

[4] Available data on 2002 allows comparing differences in Internet usage distributed by quintile groups grouping households by income and consumption expenditures. Grouping households by consumption expenditures the Internet connection has not been observed in the first quintile, but grouping by income the share of such households in the first quintile was 1.4%.

[5] Consumption expenditures on electricity supply include payment for the consumed electricity and other connected expenditures such as meter rent, regular payments, subscription fee for the electric oven and fines.

[6] Natural gas from the gas pipe and the connected expenditures such as subscription fee, meter installation, maintenance.

[7] Payment for the liquefied gas in portable and stationary cylinders, as well as from the installed tanks (group installations) in the courtyards of apartment houses.

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