The price of the deal is not set, but according to the terms approved
by the government, it must be no less than $54.5 million. The state
will in no way guarantee the deal.
Raivo Vare, chief negotiator for the government, said the
negotiations were not easy.
"It is a commercial deal. The state is neither supporting nor giving
any aid. The state has a coordinating function instead," said Vare.
Narva Elektrijaamad, a company that runs the two largest power
stations in Estonia, owns oil shale-fired generation plants of
approximately 3,000 megawatts' capacity. The oil shale mining company
Eesti Polevkivi is 51 percent owned by Eesti Energia, with 49 percent
of its shares belonging to Narva Elektrijaamad.
NRG Energy is a wholly-owned subsidiary of Northern States Power
Company, one of the largest utilities in the United States. NRG owns
all or a portion of 57 power generation projects with a total
generating capacity of more than 23,000 MW. Its net ownership
interest in these projects exceeds 13,000 MW.
The terms of the purchase include a commitment by Narva Elektrijaamad
to invest approximately $361 million in reconstructing and
refurbishing the generation plants and making environmental
improvements. NRG Energy will make an initial $65 million to 70
million equity commitment, including a $5 million contribution to
establish a social fund to help the residents of the Narva region, in
which the plants are located.
"It is a good investment," said Hillar Lauri, director of NRG Energy
in Estonia. "People in the northeastern part of Estonia can sleep in
peace now, because they know that they will have bread on the table
and a secure future. The present government has taken a step
forward, and I can see that they have a serious wish to advance the
A representative from the United States Embassy in Tallinn declared
the U.S. government's continued support for the plan of NRG Energy to
acquire a holding in Narva Elektrijaamad on June 27.
"Not only will this be the largest American investment ever made in
Estonia, but also it will provide jobs and re-training for many
workers in the economically depressed area [of northeastern
Estonia]," the embassy representative said. "Additionally, this
investment will address pollution problems connected with the burning
of oil shale, bringing emissions down to internationally accepted
levels by the year 2005."
Under the privatization terms NRG Energy must also ensure that the
Estonian energy market becomes part of the European energy market.
Narva Elektrijaamad will enter into a 15-year power purchase
agreement with Eesti Energia, according to which it must ensure a
certain amount of gigawatt-hours for a certain period.
The producer price of electricity would range according to the amount
purchased from 0.43 kroons ($ 0.026) to 0.495 kroons per kWh. At
present, the producer price of electricity is about 0.32 kroons per
kWh. The price of oil shale sold by Eesti Polevkivi may not exceed
131 kroons per ton until 2010 and 101 kroons per ton in the following
Eesti Energia, Meri not happy
The board of Eesti Energia fears that the terms of the deal may have
a negative effect on Eesti Energia's competitiveness in free market
conditions, as the price of the electricity they are obliged to buy
for the next 15 years is higher than its market price, the Estonian
daily Eesti Paevaleht reported.
Eesti Energia's supervisory council ruled on June 28 to put all
responsibility for the privatization of the national power stations
company on the government in order to avoid having to answer for what
it believes is a bad deal.
Whoever approved the sale of the shares for political considerations
must take ultimate responsibility, and that person is Economic
Affairs Minister Mihkel Parnoja, said Eesti Energia council chairman,
Juri Kao, in a Baltic News Service report.
Thus, the deal on the privatization of 49 percent of the shares in
Narva Elektrijaamad must be signed by Parnoja as the representative
of the owner, according to the council.
Meri also announced his dissatisfaction in his letter to Prime
Minister Mart Laar on June 26. Meri said the growth of Estonia's
gross domestic product during the last five years indicates that
Estonia's GDP will reach the level of the well-developed EU countries
within 25 years. But the sale of the shares would compel Estonia to
make considerable investments that would raise the price of power
higher than in Nordic countries and make Estonian goods less
competitive, thus hindering economic growth even more.
Meri also said the government needs a mandate from Parliament before
deciding the matter, since the company is on a list of strategically
important business ventures needing a parliamentary approval for
Laar told the daily Postimees that if the government would reject NRG
Energy's offer, there would be no better alternatives, and it would
give Eesti Energia the possibility to create a super monopoly, a