Raising electricity prices: plain stupidity according to Ansip

  • 2010-10-20
  • Staff and wire reports

TALLINN - Eesti Energia AS, the biggest Baltic utility, withdrew its application to raise Estonian power transmission fees after Prime Minister Andrus Ansip called the request “plain stupid,” reports Bloomberg.
Eesti Energia’s Distribution Network unit withdrew its application to the country’s competition board to raise fees for customers by 12.4 percent next March as “there has been no agreement so far,” the Tallinn-based company said in an e- mailed statement late yesterday.

The Estonian Competition Board approved the increase of grid fees for smaller Estonian energy firms, the privately-owned Fortum and VKG but did not respond to the application of the state-owned energy giant in time for the price increase to take place as planned at the beginning of next year.
Postimees said that it is unclear why the Competition Board did not even give the firm a rejecting response to its price increase application while it managed to approve the price increase requests by other firms at the time they applied.
Considering the political statements made in the past weeks it seems clear that the board found itself in a situation with no way out.

Ansip, who is struggling to control inflation before the country adopts the euro next year, said last month that the country has “few tools” to control price increases. He was responding to a Sept. 20 statement by European Central Bank President Jean-Claude Trichet that Estonia must remain “alert” on price developments and take “forceful” action to stem inflation after joining the euro-region economy.

“This kind of application was audacious, plain stupidity,” Ansip told journalists on Oct. 7. “I cannot tell an independent institution - the competition board - what they should do about this application but I can express myself to the extent that I understand price formation of electricity. Asking for such an increase is utterly unthinkable.”
The company lowered its request last month, citing higher sales forecasts, after applying for an 18.8 percent increase last March as lower revenue would not cover the costs of upgrading aging networks. Estonia’s electricity prices are among the lowest in the European Union.

Academician Anto Raukas says that the talks by politicians that there will be a price increase for electricity in the near future is just pre-election propaganda and there is no escape from a major price increase.
Raukas told Kuku radio’s morning program that the Estonian energy branch has been underfinanced for a long time and also the EU is issuing instructions about the energy sphere that Estonia diligently observes.
Raukas said that it is a scandalous situation that Estonian people subsidize renewable energy that is later exported to Latvia.

He noted that electricity has become considerably more expensive for large consumers since the opening up of the electricity market and ordinary consumers face the same situation considering that in 2013 they also will have to start buying electricity from the electricity market. The amount of electricity bought at the Estonian electricity market that was opened for competition on April 1 for large consumers has tripled in the first six months, and in September, electricity bought from the electricity bourse formed 38% of the Estonian domestic consumption, Aripaev Online reports.
Raukas said that in 2020, electricity will be likely 2-3 times more expensive than it is now. He also noted that Estonia does not have a proper energy development plan, as no decisions have been made as whether to build our own nuclear power plant, join the Lithuanian project or expand the Narva power plants.

Accelerating Inflation

Estonia’s inflation rate jumped in September to 4 percent, the highest rate in 20 months, mainly because of rising food and heating prices.
Deputy central bank Governor Marten Ross last month urged the government to increase domestic competition to keep inflation in check as the country’s adoption of the euro in January provides an excuse to boost prices.
Inflation expectations in the Baltic nation of 1.3 million people are rising because of increasing food and fuel costs and concern that adopting the euro in January will boost prices.

The central bank is trying to protect Estonia’s economic recovery after the inflation rate rose to 10.6 percent in 2008, choking off domestic demand and contributing to the EU’s second- deepest recession during the global financial crisis.
Mart Laar, a former prime minister, and the chairman of junior coalition party Isamaa ja Res Publica Liit, said Economy Minister Juhan Parts, a fellow party member, had “pulled a hand brake to stop electricity prices from rising amid galloping inflation,” according to an e-mailed statement late yesterday. The competition board is accountable to Parts, while it is fully independent in its decisions by law.

Laar said the government’s next task in slowing inflation is to approve measures to reduce “excessive” subsidies for renewable energy producers. Ansip said last month the plan should be delayed until after general elections in March to keep investors’ trust.

Eesti Energia, founded in 1939, is a state-owned energy company in Estonia with its headquarters in Tallinn. The company operates in Estonia, Latvia, Lithuania, Finland and Jordan. In Estonia the company operates under the name Eesti Energia, while using the brand name Enefit for international operations. The main raw material for energy production – oil shale – is extracted from mines owned by the company.