TALLINN - The Foreign Ministry announced last week that any processing of Russia's oil shale in the future will be linked to Eesti Energia's (Estonia Energy's) being able to use Russia's hydroelectric power plant on the Narva River.
Estonia stopped processing Russian shale in April due to the latter's arrears and is searching for a new arrangement that will take into account the country's energy needs and emissions quotas pursuant to the Kyoto treaty. On the one hand the government wants to process Russian shale for the sake of bilateral relations, but on the other there is little economic justification for doing so.
"Various structures of the deal and different concrete terms of projects in the agreement have been discussed," the Foreign Ministry said.
In its talks with Russia, the Estonian side said it was guided by the principle that the deal must be economically justified, that it must bring no loss of jobs in Estonia and that it is necessary to continue the agreement in the context of Estonian-Russian relations.
"It is clear that the agreement cannot go on at exactly the former terms because the carbon dioxide emission quota trade launched in the European Union has a significant effect on the electricity market," the ministry said, adding that there has been a significant fall in electricity exports to Latvia.
Regardless of the final deal, Estonia wants to prevent a situation where the expensive emission quota granted to Narva Power Plants would be used to generate cheap electricity for Russians.
"It is clear today that Russia cannot offer a solution to the emission quota problem before 2008. As a result, solutions have to be found where the emission quota would be used on generating electricity from oil shale in Narva as little as possible, or where the use of the emission quota would be compensated by some other additional gain," the ministry said.
Last week Estonia proposed continuing the deal by signing an additional operating lease contract between Eesti Energia and the hydroelectric power plant, which is located on the Russian bank of the Narva River. The proposal was made keeping in mind the fact that by acquiring the "green electricity" from the power plant on the river, Narva Power Plants can preserve its emission quota.
Under the previous contract, the Narva Power Plants literally provided electricity generation services to Russia.
In April Estonia Energy's power-generating subsidiary, AS Narva Elektrijaamad (Narva Power Plants), stopped providing Russia the service of using Russian oil shale for generating electricity for supply to Russia, saying its partner in the agreement had failed to abide by obligations arising from the agreement.