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LEGAL ACTS OF THE REPUBLIC OF LATVIA
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The translation of this document is outdated.
Translation validity: 19.10.2013.–15.08.2018.
Amendments not included: 13.08.2018.

Decision No. 1/28 of the Board of the Public Utilities Commission
Adopted 11 October 2013

Methodology for the Calculation of the Universal Postal Service Tariffs

Issued pursuant to
Section 27.1, Paragraph two, Section 32, Paragraph two of the Postal Law and
Section 25, Paragraph one of the Law On Regulators of Public Utilities

I. General Provisions

1. Methodology for the calculation of the universal postal service tariffs stipulates the procedure by which the universal postal service tariffs shall be calculated by a provider of the universal postal service and the postal merchant participating in the tender (hereinafter jointly - merchant), organised by the Public Utilities Commission (hereinafter - the Regulator) to determine the provider of the universal postal service (hereinafter - tender).

2. The following terms are used in this methodology:

2.1. effective tax rate - enterprise income tax rate, which is calculated by the merchant in accordance with the laws and regulations, taking into account whether the merchant makes a profit or loss;

2.2. separation of accounts - calculation of profit or loss, used capital and capital financing costs by field of activity;

2.3. rate of return on capital - the average weighted rate, calculated by the merchant or determined by the Regulator, of the rate of return laid down for equity capital and of the long-term credit interest rate laid down for the borrowed capital;

2.4. current cost accounting - accounting of merchant's costs taking into account the value of fixed assets after revaluation and capital maintenance principles;

2.5. indirect costs - costs of general nature imposed on the merchant and not directly related to the provision of each individual postal service;

2.6. other services - services other than postal services provided by a merchant;

2.7. other postal services - traditional postal services and other postal services provided by a merchant which are not included in the list of postal services of the universal postal service;

2.8. production capacity - the amount of postal services that may be provided by a merchant within a specified period of time making full use of fixed assets at its disposal;

2.9. direct costs - costs of a merchant, which are directly related to the provision of certain postal services;

2.10. transfer payment - cost allocation and calculation in the internal accounting system of the merchant where the universal postal services, other postal services or other services are provided by one unit of a merchant to another unit of the same merchant, i.e., services are provided within the framework of the merchant.

3. The merchant shall use rate of return on capital for determining the costs of capital. The rate of return on capital shall be calculated by a merchant for a specified equity capital to borrowed capital ratio. Upon request of the provider of the universal postal service rate of return on capital shall be determined by the Regulator. A merchant who participates in the tender shall independently determine rate of return on capital.

II. Cost Allocation and Calculation Principles and Tariff Calculation

4. Cost allocation shall be based on a direct or indirect causal relationship. If a merchant cannot directly allocate the costs, he or she shall use the methodology of activities, where each step of cost allocation is determined by taking into account the causal relationship.

5. The merchant in its internal accounting system shall break down the costs as follows:

5.1. direct costs that can be directly allocated to particular postal services;

5.2. indirect costs that cannot be directly allocated to particular postal services:

5.2.1. if it is possible, costs shall be allocated, based on a direct analysis of costs incurred;

5.2.2. when direct analysis is not possible, indirect costs shall be distributed based on an indirect linkage to another cost category or group of cost categories for which a direct allocation is possible (indirect linkage is based on comparable cost structures);

5.2.3. where neither direct, nor indirect cost allocation is possible, costs shall be allocated based on the general distribution which is calculated using the proportion of all directly or indirectly allocated costs for each service.

6. A merchant shall calculate the tariff of the universal postal service by aggregating the operating costs and costs of capital financing allocated to the universal postal service. The universal postal service tariff calculated in accordance with this methodology and approved by the Regulator shall be the maximum limit of the price of the universal postal service offered by a merchant, and it shall be uniform throughout the territory of the Republic of Latvia, at the same time ensuring profitability for the activities of the merchant.

7. The provider of the universal postal service for the purposes of the calculation of the costs of postal services and accounting separation shall use the annual account of the provider of the universal service provider which has been drawn up in accordance with the laws and regulations.

8. A merchant who participates in the tender and has not previously provided the universal postal service, shall calculate the expected total annual costs for the provision of the universal postal service and use these costs as the basis for the calculation of universal postal service costs and for accounting separation. A merchant who participates in the tender and has not previously provided the universal postal service, shall calculate the planned total costs for the universal postal service based on operating costs and fixed assets and intangible long-term investments that are required by the merchant for the provision of the universal postal service in conformity with the quality requirements laid down by the Regulator in the scope laid down in the tender regulation.

III. Operating Costs

9. The merchant in its internal accounting system shall break down the operating costs in the following cost groups:

9.1. provision of customer service at the point for provision of postal services;

9.2. collection and acceptance of postal items;

9.3. sorting of postal items;

9.4. transportation of postal items;

9.5. delivery of postal items;

9.6. costs exceeding costs needed for the effective provision of the universal postal service;

9.7. spare capacity;

9.8. indirect costs;

9.9. commitments;

9.10. undistributed profit;

9.11. transfer payment;

9.12. depreciation.

10. A merchant is entitled to expand and establish the necessary cost subgroups in conformity with the internal accounting system of the merchant.

11. The costs included in the cost groups may be directly or indirectly allocated by the merchant to the postal services belonging to the universal postal service, postal services for special tariffs, other postal services and other services. The merchant shall perform a detailed breakdown of operating costs and allocation of such costs in conformity with the example for breakdown of service operating costs and allocation thereof (Annex 1).

IV. Revenue Allocation

12. A provider of the universal postal service shall allocate revenues of the provision of the universal postal service directly to the relevant universal postal service. If a direct allocation of revenue is not possible, then the provider of the universal postal service shall allocate revenues of the provision of the universal postal service based on an indirect causal relationship.

13. A provider of the universal postal service shall separate turnover of the universal postal service from turnover of postal services for special tariffs, other postal services and other services.

V. Return on Capital and Rate of Capital Financing

14. A provider of the universal postal service shall calculate the cost of capital by applying the rate of return on capital to the value of the used capital determined at the end of the previous calendar year.

15. A merchant, who participates in the tender and in the previous calendar year has not provided the universal postal service, shall calculate the cost of capital financing, by applying them to the planned value of the capital which is required for the provision of the universal postal service in conformity with the quality requirements laid down by the Regulation in the scope laid down in the tender regulation.

16. A merchant shall calculate the rate of return on capital as follows:

wacc = re * E/(E+D) + rd(1 - T) * D/(E + D),

where

wacc - weighted average rate of capital financing;

re - rate of return on equity capital;

D - borrowed capital;

E - equity capital;

E/(E+D) - ratio of equity capital to the total (equity and borrowed) capital;

D/(E+D) - ratio of borrowed capital to the total (equity and borrowed) capital;

T - merchant's effective income tax rate;

rd - weighted average rate of loans received by a merchant.

17. A merchant shall calculate the rate of return on equity capital as follows:

re = rf + rc,

where

rf - risk-free investment rate;

rc - the risk premium that includes the assessment of country risk and sector risk.

18. Risk-free investment rate is the long-term bond rate published by the Bank of Latvia.

19. The weighted average rate of the loans received by the merchant may not exceed the weighted average annual rate of long-term loans issued in lats determined by the Central Statistical Bureau for the respective reporting period.

20. The merchant shall perform detailed allocation of fixed assets and intangible long-term investments in conformity with the example for allocation of fixed assets and intangible long-term investments (Annex 2).

VI. Accounting of Current Costs

21. For applying and allocating depreciation, a merchant shall include the following key indicators in its internal accounting system:

21.1. the total amount of long-term intangible investments and fixed assets as a source of profit;

21.2. the planned time period during which operation of fixed assets is economically viable;

21.3. the estimated residual value of fixed assets at the end of the period of their economically viable use.

22. A merchant shall calculate depreciation value by taking into account the international accounting standards and methods adopted by the merchant.

23. For determining the used capital and depreciation included in the cost calculation, the merchant shall perform revaluation of fixed assets by using one of the following methods:

23.1. purchase value minus depreciation (financial statement value);

23.2. purchase value indexed by inflation, minus depreciation;

23.3. the remaining substitution value (substitution value, by taking into account the current prices and possible changes in the quality of fixed assets, minus the actual depreciation determined by an expert);

23.4. market value;

23.5. retrievable value, which is the highest of the net sales value of fixed assets or of use value (discounted cash flows from the use of fixed assets).

24. At its own discretion the merchant may use the following principles for current cost accounting:

24.1. working capital maintenance, which is understood as ensuring of the merchant's constant liquidity at the beginning and at the end of the reporting year;

24.2. financial capital maintenance, which is understood as maintenance of the merchant's financial capital at its current value. Capital shall be considered maintained, if at the end of the reporting year it is equal or greater than at the beginning of the period.

25. A merchant shall maintain the working capital, based on the following principles:

25.1. merchant's production capacity is maintained constant or increased;

25.2. depreciation costs shall be re-determined by recalculating current costs of fixed assets;

25.3. the merchant shall determine the total value of fixed assets used in the calculation of costs, differently from the accounting value of fixed assets, by taking into account changes in the price of fixed assets and technology: in order to carry out revaluation of fixed assets, specific price indices shall be applied to the total current value of fixed assets (the merchant may also use other well-defined and transparent procedures);

25.4. revenue needed for ensuring the planned profit is the total amount of capital costs, operating costs, current depreciation value and part of overall costs;

25.5. in order to correctly calculate the value of fixed assets, the merchant shall calculate annual depreciation value based on the assessment of the new fixed assets, by taking into account price and useful life thereof.

26. A merchant shall maintain financial capital based on the following guiding principles:

26.1. the merchant in the revaluation of fixed assets shall calculate additional depreciation and accumulation in accordance with the methods laid down in Paragraph 21 of this methodology, while profit and losses resulting from the difference between fixed asset specific inflation and general inflation, and affecting the merchant's equity capital shall be taken into account separately;

26.2. changes to the merchant's equity value shall be determined according to inflation;

26.3. revenue needed for ensuring the expected profit is the total amount of capital costs, operating costs, current depreciation value and part of overall costs or values that cover overall costs.

VII. Transfer Payment

27. A merchant shall apply a transfer payment, if the merchant uses the universal postal services, other postal services or other services to provide the universal postal service, postal services for special tariffs, other postal services or other services.

28. In transfer payments the merchant shall account and allocate costs to the extent of the tariff of the universal postal service, other postal service or price of other services.

VIII. Merchant's Report

29. A provider of the universal postal service within seven months after the end of the current financial year, as well as upon submitting the draft universal postal service tariff, shall draw up and submit to the Regulator a report containing the following information:

29.1. profit and loss calculation;

29.2. balance sheet;

29.3. review on the scope of the provided universal postal service and the associated costs.

30. In order to ensure cost-based, transparent and equitable determination of universal postal service tariffs, a provider of the universal postal service in its report to the Regulator shall include information on the universal postal service, postal services for special tariffs, other postal services and other services.

31. The report of the provider of the universal postal service submitted to the Regulator shall be used by the Regulator for regulating the tariffs of the universal postal service ensured by the provider of the universal postal service.

IX. Final Provisions

32. A provider of the universal postal service that has not previously provided the universal postal service shall within one year after the determination of commitments to provide the universal postal service establish a cost accounting system that is compliant with this methodology.

33. By 1 January 2014 the word "lats" used in Paragraph 19 of this methodology shall be replaced by the word "euro".

34. The weighted average rate of the lonas received by the merchant specified in the capital financing cost calculation contained in the report for 2013 of the provider of the universal postal service shall not exceed the weighted average annual rate of long-term loans issued in lats determined by the Central Statistical Bureau for the respective reporting period.

35. A draft tariff, which has been calculated and submitted to the Regulator before the day when the euro is introduced, shall be drawn up and calculated in lats. Starting from the day when the euro is introduced a provider of the universal service shall convert a draft tariff calculated in lats, the evaluation of which has not been completed, into euro in conformity with the exchange rate determined by the Council of the European Union and the principles of rounding laid down in Section 6 of the Law On the Procedure for Introduction of Euro (hereinafter - converted draft tariff). The total sum of costs of the converted draft tariff shall be formed by the converted costs positions included in the calculation of the draft tariff and their total sum shall not exceed the total sum of costs of the draft tariff under evaluation in lats, which has been converted into euro in conformity with the exchange rate determined by the Council of the European Union and the principles of rounding laid down in Section 6 of the Law On the Procedure for Introduction of Euro. A draft tariff which has been calculated and submitted to the Regulator on the day when the euro is introduced or afterwards, shall be prepared and calculated in euro. Such currency shall be indicated in the substantiating documents, which is used in drawing up the documents in conformity with the accounting requirements and the Law On the Procedure for Introduction of Euro.

36. In the report and its substantiating documents set out in Paragraph 29 of this Regulation a provider of the universal service shall indicate such currency, which is used in drawing up the documents in conformity with the accounting requirements and the Law On the Procedure for Introduction of Euro.

37. Decision No. 1/4 of the Public Utilities Commission of 17 September 2009, Universal Postal Service Tariff Calculation Methodology (Latvijas Vēstnesis, 2009, No. 151) is repealed.

38. This methodology shall come into force on the day following its publication in the official publication Latvijas Vēstnesis.

Acting in the capacity of the chairperson of the Public Utilities Commission
Member of the Board G. Zeltiņš

 

Annex 1
Decision No. 1/28 of the Public Utilities Commission
of 11 October 2013

Example for Breakdown of Service Operating Costs and Allocation thereof

Cost group

Costs included in the cost group

Types of services to be covered by the costs included in the cost group

Provision of customer service at the point for provision of postal services Work remuneration and other personnel costs incurred on the merchant

Machinery and equipment

Infrastructure maintenance costs

Raw materials and materials

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Collection of postal items Work remuneration and other personnel costs incurred on the merchant

Transport

Maintenance of post boxes

Universal postal services (by the postal services)

Postal services for special tariffs (via the postal services)

Other postal services (via the postal services)

Transportation of postal items Work remuneration and other personnel costs incurred on the merchant

Transport

Machinery and equipment

Infrastructure maintenance costs

Universal postal services (via the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Sorting of postal items Work remuneration and other personnel costs incurred on the merchant

Machinery and equipment

Infrastructure maintenance costs

Raw materials and materials

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Delivery of postal items Work remuneration and other personnel costs incurred on the merchant

Transport

Machinery and equipment

Infrastructure maintenance costs

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Costs exceeding costs needed for the of provision of efficient universal postal service Justified or related to laws and regulations

Historical aspect

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Spare capacity Work remuneration and other personnel costs incurred on the merchant

Machinery and equipment

Infrastructure maintenance costs

Transport

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Indirect costs Labour remuneration and other personnel costs incurred by the merchant

Machinery and equipment

Infrastructure maintenance costs

Transport

Office expenses

Settlements for international mail carriage and shipments

Administrative costs

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Commitments Discount applied to universal postal services, other postal services, other services

Credit interest

Delayed international settlements

Compensation of delayed revenue from international letter-post items with tariffs of other postal services

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Undistributed profit Capital replacement costs.

Expected profitability

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Transfer charges Costs related to provision of the universal postal service, other postal services or other services to another unit of the merchant Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Depreciation   Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Acting in the capacity of the chairperson of the Public Utilities Commission
Member of the Board G. Zeltiņš

 

Annex 2
Decision No. 1/28 of the Public Utilities Commission
of 11 October 2013

Example for Allocation of Fixed Assets and Intangible Long-term Investments

Cost group

Fixed assets and intangible long-term investments

Types of services to be covered by fixed assets and intangible long-term investments included in the cost group

Buildings and structures Post offices

Other buildings and structures

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Transport vehicles

Machinery and equipment

Road transport

Postal technological and other equipment

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Computers and computer network Computers

Computer network

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Land Land Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Office equipment and devices Furniture

Office equipment

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Other fixed assets Other fixed assets Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Intangible long-term investments Licenses

Computer software

Universal postal services (by the postal services)

Postal services for special tariffs (by the postal services)

Other postal services (by the postal services)

Other services

Acting in the capacity of the chairperson of the Public Utilities Commission
Member of the Board G. Zeltiņš

 


Translation © 2015 Valsts valodas centrs (State Language Centre)

 
Document information
Status:
In force
in force
Issuer: Public Utilities Commission Type: decision Document number: 1/28Adoption: 11.10.2013.Entry into force: 19.10.2013.Publication: Latvijas Vēstnesis, 204, 18.10.2013. OP number: 2013/204.7
Language:
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