Ministry: Merger of most Estonian water companies a prerequisite for water sector reform

TALLINN - The Estonian Ministry of Climate has prepared a strategic roadmap for water service reform for the period until 2035, focusing on the structural reorganization of the water sector, which requires the merger of most of the current service providers.

The document provides guidance on how to reorganize the water sector in the coming years in order to ensure the necessary investments, maintain service quality and keep water prices reasonable for consumers.

Karin Kroon, head of the water department at the Ministry of Climate, said the Estonian water sector is very fragmented and the quality and price of the service today depends more on where you live than is fair. There are around 130 service providers in Estonia and the prices of water and sewerage services vary considerably from region to region, depending on whether you live in a big city or are a customer of a small, rural water company.

But the more serious problem, she says, is that if nothing changes, in many areas a price increase of up to five times in the next five years could be necessary for services to continue at all. Differences in water prices also have a negative impact on the development of business in areas where the price of the service is high.

An analysis of the data revealed that instead of the current 130 operators, the optimal solution for Estonia would be to have up to four strong regional water companies. However, under current conditions, a realistic goal would be to reduce the number of water utilities to a maximum of 20 by 2035.

According to Kroon, the sector will require an estimated two billion euros in investments by 2035. These funds will need to come primarily from water tariffs, as no additional support from the EU is expected. At the same time, not all water companies can manage with their existing resources.

"It must be kept in mind that access to drinking water is a vital service, and ensuring it is a constitutional obligation of the state. We cannot allow a decline in quality, nor can we accept a situation where the price makes drinking water inaccessible to part of the population," the official said.

To find a solution, a comprehensive analysis lasting nearly two years was carried out with the support of the European Commission's structural reform support program, using the Technical Support Instrument (TSI) of the European Commission. Both Estonian and international experts participated in the work.

One of the central conclusions of the analysis was that the monthly cost of water and wastewater services, based on average consumption, should not exceed two percent of the net income of a resident in the lowest-income county in the future. Based on this definition, the price cap would be approximately 7.50 euros per cubic meter including VAT, given current income levels.

The reform will be implemented in stages, starting with the creation of a legal framework. The changes will then be carried out in cooperation with municipalities and water companies, and finally, the results and system resilience will be evaluated. The entire process is led by the Ministry of Climate, in cooperation with the Competition Authority and the Environmental Investment Center. The necessary legislative changes must be adopted by the end of 2026, and all key strategic moves must be completed by 2035.

The water sector reform has also been set forth as an objective in the government's coalition agreement for 2025-2027. A steering group has been formed to launch the project, work on which is already underway.