Latvia is continuing the reform of state-owned enterprises (state-owned capital companies) by approving a methodology for optimising the capital and management structures of such entities.

This approach was developed in consultation with international partners, resulting in a new notification tool (mechanism) known as a letter of expectations. Going forward, this will require state-owned enterprises to disclose specific indicative indicators regarding their capital structure, projected profits, and dividend payout ratios. It will also establish both the set of financial instruments to be utilised over a five-year period and the standards for corporate governance.

The goal is to ensure that Latvia’s state-owned enterprises meet standards capable of attracting investment and fulfilling requirements for openness and transparency to gain access to capital markets. “The methodology provides the opportunity to ensure an appropriate return on state-invested capital and implement a balanced dividend policy for each state-owned enterprise,” said Pēteris Vilks, Head of the Cross-Sectoral Coordination Centre (PKC) of Latvia.

Currently, there are 170 state-owned enterprises in Latvia, which make up a significant portion of the economy with almost 15% of total assets and 9.7% of total profits, and they play a decisive role in various sectors, such as energy.

Mario Nava, Director-General of the European Commission's Structural Reform Support Service, said: “Access to finance is crucial for any business, and I believe it is very important that state-owned enterprises can also benefit from what the capital market has to offer.”

Jim Turnbull, Deputy Director for Capital Markets Development at the EBRD, added: “State-owned enterprises can benefit from and contribute to a thriving local capital market, which offers companies diversified access to finance, improved corporate governance, and new investment opportunities for institutional investors.”

The corporate reform project was funded by the European Union (EU) and implemented by the European Bank for Reconstruction and Development (EBRD) in cooperation with the European Commission and with the support of PricewaterhouseCoopers Latvia (PwC).

The conclusion of Līga Kļaviņa, Deputy State Secretary of the Latvian Ministry of Finance: “The findings of this working group encourage companies to consider moving beyond traditional financing instruments, such as bank loans or the use of public funds, and indicate that capital markets have the potential to provide better financing terms for businesses. Market financing can improve the long-term competitiveness of companies and reduce reliance on the state budget to fund investment needs. On a more general level, active capital markets promote investment and growth.”