As the heating season begins, heating costs have become one of the most discussed issues, and Riga is in a particular focus. On November 28, an extraordinary meeting of shareholders of Rigas Siltums heating facility is scheduled to decide on the work of the company's Supervisory Board at the suggestion of the Economics Ministry. Although the Supervisory Board has already replaced the management of Rigas Siltums, in the ministry's assessment the Supervisory Board was not ambitious enough and did not show the initiative to be actively involved in ensuring that the heating tariff was not increased. Meanwhile, the Saeima has supported the establishment of a parliamentary inquiry commission to analyze the reasons for the tariff increase in Riga and the associated energy security risks. Rigas Siltums heating tariff with a contingency component of EUR 2.05 per megawatt-hour (MWh) initially submitted to the regulator foresaw a 21.5 percent increase to EUR 90.15 per MWh. However, following a tariff revaluation, the heating tariff increased by 11.9 percent to EUR 83.01 per MWh as of October 1 this year. In an interview with LETA, Kalvis Kalnins, Chairman of the Management Board of Rigas Siltums, who replaced Ilvars Petersons, sacked in September, explained why the tariff is at this level and what possibilities there are to reduce it further.

You have only recently taken up the position of Chairman of the Rigas Siltums Management Board. What are your main plans and do you want to change anything in the company?

At the moment, my aim is not to make rapid or formal changes, for example in the structure of the company, but to strengthen teamwork and efficiency. First of all, it is important to continue to re-evaluate existing processes. We have a very strong professional team and I want to involve these professionals even more in decision-making and thus contribute to improving internal efficiency.

The energy sector is currently in a period of transformation and there are many different challenges. It is also very challenging for me to be in this position at this time, because there are a lot of changes going on, both in Latvia and globally. There is the shift towards renewable energy, but also a little bit in reverse, where the advantages of fossil resources are also being assessed in order to strike a balance. If changes are needed in Rigas Siltums, they will be based on data analysis and long-term strategy, not on some assumptions.

My first task is to bring stability to the team, given the turbulent conditions that have occurred in the management of the company. The second challenge is security of energy supply in the face of changing market conditions and climate targets.

Rigas Siltums has also just finished its financial year. What were the results?

We will see the results in two to three months, but we can already say that the financial year ended on a positive note with a solid operational performance, despite the fact that the last winter was one of the warmest in the last decade. In the 2024/2025 heating season, the average temperature was 4.7 degrees C. In the 2023/2024 heating season, it was 2.6 degrees C. This means that we delivered 2.7 million megawatt hours (MWh) of heating to consumers in the last heating season, 4.2 percent less than the year before. Our revenues are linked to the volume of heating produced, but we have met the challenge of a warm winter, our results are solid and also in line with our plans and our preliminary profit will be in line with our budget.

To achieve this, we have carried out a number of actions, including optimization of staff management and structure, streamlining of resource management, adjustments to the market model, with the launch last year for the first time of a pilot project for a daily heat purchase market, review and prioritization of investment projects.

What do you expect for this heating season and financial year?

This is a very good question, because there are many external factors that can influence it. We cannot influence the weather and we cannot influence the fluctuations in energy prices on the market, which have a significant impact on both our tariff and our production costs. Given the trends over the past three years, we do not see winters becoming particularly cold; on the contrary, they are getting slightly longer and warmer.

Within the company, we have clear objectives. The words 'efficiency' and 'optimization' have become cliches, but this is the basis on which we can influence our processes and this is where we are heading. We will seek a balance between factors that are beyond our control and factors that we can influence, in order to provide the best possible heating service to our customers.

What is the percentage of buildings in Riga currently connected to municipal heating?

As of October, we have more than 8,300 customers connected to municipal heating.

In total, around 72-76 percent of buildings in Riga have access to municipal heating, but our own goal is to expand the network to above 90 percent. For example, if we look towards the airport, there used to be meadows, but now there is both commercial and residential development. We used to make it possible to build heating networks in such places before the development starts, so that it is not the case that a house is built and then the utilities are connected. But, of course, there is also a certain risk involved in this, because the construction of the heating pipeline is a very large investment and it all has to be economically viable.

When do you plan to reach 90 percent or more?

We are moving forward, and provisionally it could be 2035.

Have you already estimated the investments that would be required?

We have an approved medium-term strategy and we plan to invest at least EUR 25-30 million every year in both network reconstruction and expansion.

Is it also outside Riga?

Yes, we are evaluating new locations outside Riga. We have established cooperation with both Kekava and Marupe municipalities. We already have a very good cooperation project, and this year we are completing this project - a residential development in Ropazi municipality. This is an example of successful cooperation with both the municipality and the real estate developer. This project has also given us a direction for further development, so we are looking beyond Ropazi, in principle to all the nearest available areas in the Pieriga region.

This year's sore point is Rigas Siltums heating tariff. Can you explain why it was initially set so high and how you have reduced it?

The most important aspect here is energy prices. It is no secret that they have risen compared to last year. The significant increase is precisely in the price of natural gas and CO2 quotas. Now, there were these comparisons in public that in 2018, compared to this year, the Rigas Siltums tariff was low. But then you have to take into account that in 2018 and even as late as the beginning of 2020, natural gas was supplied via a direct pipeline from the aggressor country Russia. The conditions were very good to be able to produce cheaper heating from natural gas, which is a fossil resource. Nowadays, when gas is delivered by sea and the price of this resource is fixed on the TTF exchange, the price is much higher. It is important to mention that the price of CO2 quotas has tripled. The price of the quotas has a significant impact on the final result and also on the tariff. Inflation is another fundamental issue. As of 2018, inflation has risen 42 percent.

These three external factors have had a significant impact on the tariff increase. Why is it important to mention the price of natural gas? Riga currently generates about 70 percent of its heating from this fossil fuel. The only way to control the tariff increase is to diversify fuel sources. It is thanks to this that we have been able to keep the Rigas Siltums tariff within reasonable limits. The heating tariff has increased by 84 percent since 2018, but we can see that the price of natural gas has increased by around 150 percent on the stock exchange in that time, and the price of CO2 quotas has increased by almost 200 percent on the stock exchange. Looking back, I conclude that Rigas Siltums has managed to balance the tariff increase effectively and to ensure that the increase is proportionate.

How was the increase in Rigas Siltums tariff reduced? Initially, the increase was forecast at just over 20 percent. In the end, a reduction was achieved, resulting in an increase of 11.9 percent this year. This was achieved thanks to proactive and successful cooperation of all stakeholders, including the Economics Ministry, the Riga City Council, the Competition Council, the Public Utilities Commission, Latvenergo, Rigas Siltums Supervisory Board and Board of Directors, as well as independent heating producers. Many say that we could have resolved this efficiently and quickly on our own, but it is difficult to agree with that, because it required the rapid involvement and cooperation of all these parties.

It may seem that a tariff was submitted that was unjustified and not based on calculations, which was then easily reduced. Not at all! It was hard work and a lot of parties involved. The result is the best possible outcome for this heating season.

Can you explain why Riga currently has higher heating tariffs than the rest of Latvia, as well as higher than Vilnius and Tallinn?

The information published on our website shows that the Rigas Siltums tariff is currently around EUR 83 per MWh. This is the average level among Latvian cities.

And here we come back to what we were talking about at the beginning of the interview, that it all depends on the raw materials. In most Latvian cities, where the tariff is lower, the main raw material is biofuel, which is local and the cheapest energy source. This is a fundamental difference. In Riga, we are trying to diversify the components, and so a tariff that is at the national average is acceptable. We are continuing to improve the heating market and to find the best solutions to achieve the best possible result and the lowest possible tariff. I will not say that we are trying to achieve the lowest tariff, because that would not be professional. The tariff has to be sustainable.

It is a good question about Tallinn and Vilnius. It is often said about Vilnius that heating is cheaper there, but this is a myth and a debatable point. In Vilnius, there is a different methodology, where the tariff is calculated for each month. At the moment, it has been said publicly that the tariff in Vilnius in October is much lower than in Riga, and this is true. However, if we look at last year's data, during the four coldest months of the winter, when there is highest heating consumption, the tariff in Vilnius was at least 10 percent higher than in Riga. Since we do not know the exact MWh produced, it is difficult to make a completely accurate comparison, but we estimate that last year the tariffs in Riga and Vilnius were quite similar and competitive.

As in Latvia, the main factor influencing the tariff is raw materials. In Vilnius and Tallinn, there is one additional resource, which is waste incineration or waste recovery facilities. As is well known, waste is currently the cheapest form of fuel. In the summer months, when consumption is lowest, they work to a large extent on recovering this waste and supplementing it slightly with biofuels. The total volume provided by these plants is around 80 percent. Nevertheless, during the cold winter months, when consumption was highest, the tariff was cheaper in Riga.

It is therefore important to stress that we must not take one small section out of context; we must look at the whole.

As far as Tallinn is concerned, the tariff there is currently around EUR 77 per MWh. There, too, they have a slightly different structure, with both incineration or recovery plants and more biomass.

Overall, we believe that Riga heating supply and tariff should not be underestimated. We are clearly competitive and there are new challenges ahead that motivate us to become even better and more efficient. I take up these challenges with great interest and determination and we are ready to compete with the Baltic capitals.

Is Rigas Siltums not thinking about incinerators?

There is a lot of competition from private investors in this field at the moment. There are two projects for the installation of waste recovery plants with the aim of transferring the heating produced to the municipal heating system. So we are not interfering in this competition at the moment because there are already enough players in the market and it would not be useful.

We are, of course, following how these two private operators will develop their waste recovery facilities. But clearly, if new heating capacities emerge that encourage competition, we are willing to accept this cheaper energy and integrate it into Riga municipal heating network. This would definitely be a significant benefit for the end consumer.

What is the current situation with customer debts and are there any concerns that they could increase due to rising heating costs?

We are constantly monitoring and analyzing customer debts. At the moment, the situation is that about 2.3-2.5 percent of all invoices are not paid on time, they are debtors. This proportion has remained fairly stable for a long time.

The commission we have set up assesses each case individually. Some cases are really objective, where someone suffers because of others, but there are also cases of dishonesty, where people deliberately do not pay for the services they receive. We will certainly continue to work to resolve such cases of dishonesty and to recover the money at the end of the day for the heat supplied.

How much is the total amount of debt now?

The amount is around EUR 5 million.

Is there any concern that the number of debtors could increase this heating season?

With the new rules, we hope not. We are constantly analyzing the situation. Of course, there are always risks, you cannot completely rule them out, but that is why we have a system in place to control these risks. At the moment, we can see that the dynamics are stable. I certainly want to thank all the customers who pay their bills on time. We very much appreciate it. And for those who have individual problems, I strongly encourage you to contact us.

Regarding the company's ten-year strategy, mentioned by the previous CEO in 2023. How is the plan to connect the heating networks on the right and left banks of the Daugava?

It is a big and challenging plan. We are working on it and it consists of several stages. We are moving forward in stages because each stage has its own payback period and economic benefit.

At the moment, the first phase has already been implemented and we are looking beyond that. We are continuing work towards Kojusala and Krasta Street. New customers have already been connected there and will continue to be connected. We are moving forward in phases, but we are also assessing the technical and economic feasibility.

This is a very challenging project, and it is no wonder that it has taken so long. Physics is physics, and the hydraulic systems on both banks of the Daugava were designed as two independent systems and it is very challenging to connect them so that they work efficiently and make an economic contribution to both the company and the customers.

How would you assess the state of Rigas Siltums infrastructure in general?

On average, Rigas Siltums is modernizing and building about 10 kilometers of heating networks every year. This is a very important indicator, as it allows to ensure the security and continuity of heat supply. In total, there are 845 kilometers of heating networks in Riga, and currently about 65 percent of them have been renovated. But this does not mean that the 35 percent are in bad condition, most of them are still in good condition.

We are also developing new technologies. We are currently exploring a polymer piping solution for district heating. The main advantage of polymer pipes is their very high resistance to corrosion and chemical attack, which allows them to be operated safely even in aggressive environments. This year, we plan to carry out a pilot project to integrate these pipes into our system. This will allow faster and more efficient replacement of heating networks and reduce heating losses.

When it comes to listing municipal companies on the stock exchange, could Rigas Siltums do it too?

This is one of the strategic issues and tasks we are working on. In order to issue bonds and go on the stock exchange, there are some prerequisites, such as the need to move to international accounting standards. This is in the process and we are evaluating it.

If it makes economic sense, then we are evaluating and making preparations so that we are ready for the capital markets within a certain timeframe - three to five years. It is important for us that the company is ready for it if the shareholders decide to go public.

We already have long-term borrowings from European banks and the interest rates on these borrowings are now quite attractive and competitive. Of course, capital markets are a very important issue and we are assessing this carefully and preparing preemptively to be ready to raise funds on the stock exchange if it is economically feasible and necessary.

Negotiations are currently underway on dissolution of Rigas Siltums Supervisory Board, and the opposition in Riga City Council has also called for the Management Board to be dissolved. How do you feel about this situation?

We feel safe as a team on the Management Board, each of us is a professional in our field, and I can say that with confidence. It is a pleasure to work with such competent colleagues.

We are all doing our best to make the company more efficient and competitive. We also look at processes globally, at efficiency, at market models, at how the company can develop in the coming years. I think the Management Board is doing a good job and we have nothing to worry about. I personally feel confident, of course there are plenty of challenges, but I see even more opportunities to improve and develop processes. I believe that Rigas Siltums has all the conditions to achieve great things and to have a positive impact on the Latvian and Baltic energy sector.