Eesti Energia introduces new price policy

  • 1998-08-27
  • By Urmas Maranik
TALLINN - The Estonian electricity utility Eesti Energia signed a contract on Aug. 5 with its largest electricity consumer, chemicals producer Nitrofert, setting special electricity prices.

Even after Eesti Energia was privatized it continued to apply the same electricity rates for each of its customers, both persons and organizations.

It was only a matter of time, when Eesti Energia's largest clients, some of them annually consuming about 3 percent of the total electrical energy produced in Estonia, would have started negotiations to get price discounts.

Nitrofert, which currently exploits five to seven percent of the Estonian electricity company's output, initiated talks on electricity rates with Eesti Energia some months ago.

"The base contract between Eesti Energia and Nitrofert specified different tariffs for electricity consumed during business and night hours, whereby the tariff was higher for business hours," said Lembit Vali, the production director and Eesti Energia's board member.

"The contract appendix signed on Aug. 5 levels the rates so that Nitrofert will be charged according to the night electricity rate for the excess energy it has used regardless of the fact whether the electricity has been consumed during day or night," Vali said.

The base limit on which excess usage is calculated relies on the average monthly electricity used for production.

"AS Nitrofert is constantly increasing its production and is about to open a new methanol plant, this contract is aimed to increase the chemical company's electricity consumption, but at a lower rate," said Sergei Zagrebailov, Nitrofert council's deputy chairman. "Consequently we no longer feel the necessity of constructing our own power station," Zagrebailov said.

"Concluding this pilot deal was enabled by mutual aspects of interest. As more of Eesti Energia's production is used, the net price of electricity becomes cheaper, and owing to smaller energy expenditure costs, Nitrofert can expand its production lines," Vali said.

Vali predicted the chemicals producer will not be the only company to negotiate price reductions. "Companies have to show their own initiative. There is no state directed policy behind price differentiation," Vali said.

Eesti Energia's largest customers are those companies that might ask for price discounts. Besides Nitrofert, the energy utility company supplies large amounts of electricity to the cement plant Kunda-Nordic Tsement, the chemicals manufacturer Kiviter, the electricity supplier Viimsi Elekter, the water-supply company Tallinna Vesi, the heating company Tallinna Soojus and some other companies.

All of these companies are looked at as possibly vying for cheaper energy, which could set also the Estonian electricity market on its way towards free market competition.

Eesti Energia produced 7.9 TWh in 1997, of which 6.7 TWh were sold on the domestic market and 1.2 TWh were exported. Compared to the first half of 1997, energy consumption has declined by 4 percent this year.

"The analysis indicates that private clients have increased their share, while industrial clients have cut back on their electricity usage. The new price policy will hopefully reverse this tendency," Vali said.

"Compared to Finland, Estonians use four times less energy per capita, but it is likely that electricity consumption will increase substantially in the forthcoming years, as energy consumption is one of the indicators suitable for assessing a country's living standard," Vahi said.

Vali predicts the energy market will be open to competition in the future, and the customer will be able to choose the supplier.

"If the Narva power station is going to be privatized, as the government has verbally promised to the American NRG Energy, there will be a strong competitor for Eesti Energia in 10-15 years time," Vali said.

In Vali's opinion 10-15 years is a sufficient period of time for an energy bourse to be established, meaning that the constant part of energy consumption will be sold with long-term contracts, while the residue is sold through the mediation of the bourse.

"Necessity and production will be in balance," Vali predicted the situation on the Estonian energy market by the year 2010. The competition on the energy market is also a precondition of accessing the European Union, which sets certain sights for Estonia. The present monopoly created by a formerly state owned municipal company can therefore no longer continue.

According to Sandor Liive, Eesti Energia financial director, the company is already making preparations to face the American energy giant's coming to Estonia. It has applied for a 480 million kroon ($34.2 million) loan from an international syndicate, with Bankgesellschaft Berlin of Germany as the syndicate coordinator.

"The loan is planned for a five-year term and this year's investments will be covered from Eesti Energia's own funds," said Liive. According to him the company is planning on a billion kroon investment in 1998. As Liive, said Eesti Energia's investments in 1999 will be of the same magnitude and the company is working hard to come up with other loan funds for an even longer term.