Distributor privatization portends regional energy strategy

  • 2003-09-11
  • Steven Paulikas
As the energy market in the Baltic states undergoes the dual process of
privatization and European integration, a combination of public and
corporate interests hopes to create a shared zone of electricity production
and distribution that could lead to a more integrated energy.
At a news conference held in Vilnius on Sept. 3, Estonian Energy, a
joint-stock company 100 percent owned by the Estonian government, announced
its intention to submit a bid in the public tender for a 71.35 percent stake
in Rytu Skirstomieji Tinklai (RST), the electricity distribution company for
eastern Lithuania.
While other energy companies, such as Germany's E.ON Energie and the Finnish
concern Fortum are expected to declare plans to submit offers for the
controlling stake in RST as well, Estonian Energy's bid is unique in that it
envisions Lithuania, Latvia, and Estonia largely working together in a
regional electricity sector.
"We're here because we believe in Baltic cooperation," said Estonian Energy
CEO Gunnar Okk in Vilnius.
During his conversation with the Lithuanian press, Okk outlined his
long-term vision of the future of electricity production and distribution in
the Baltic states.
Central to this is a combination of the highly disparate energy resources in
each country - nuclear power in Lithuania, hydroelectricity in Latvia, and
Estonian oil shale - to form a complementary system of electricity
production that would serve not just national customers in each individual
market, but all nine million residents of the Baltic states.
While the EU has pledged massive amounts of funds to help shut down the
Chernobyl-style RBMK nuclear reactors at Ignalina that supply almost all of
Lithuania's electricity, the government has recently expressed interest in
constructing a new nuclear facility on the same site, a suggestion Estonian
Energy supports.
Naturally, such a hypothetical system - with Okk's company at the helm -
would serve the interests of Estonian Energy's plans for expansion, yet Okk
argued that such consolidation was the only viable way forward for energy in
the Baltic states.
"Even though we're one of the largest companies in the Baltics, beginning
next year when the market opens to EU competition, we'll be very small in
comparison. The only logical action is consolidation - and it's just a
matter of when and who," said Okk.
Estonian Energy's potential competitors in the public tender are as of yet
in a preparatory phase with regard to the bid and have not been as
forthright with their plans.
"We currently have a few projects in mind, but I am not at liberty to
comment on them," said Alexander Land of E.ON's press office.
Regardless of which corporation actually wins the stake in RST, one of the
largest distribution companies in the Baltic states, Estonian Energy's
blueprint for panBaltic electricity is significant in that it reflects
government intentions as well.
"This is a logical plan," said Faustas Juska, director of the energy
development department in Lithuania's Economy Ministry.
According to Juska, the combination of the respective energy resources of
the three countries could help to meet inequalities in supply and demand
between them.
"If Lithuanian electricity production is in excess, it would be economically
logical to adjust infrastructure to meet demand elsewhere. It makes sense
for us to work together," he said.
Juska's counterparts in Estonia were equally as enthusiastic about
"In principle, such a solution could be quite good - it's clear that we are
part of a bigger electricity market in the region," said Einari Kisel, head
of the energy department in Estonia's ministry of economic affairs and
Government representatives appear to harbor similar affinity for the second
pillar of Estonian Energy's long-term strategy - the creation of dual
northern and southern distribution corridors to Finland and Poland, thus
permanently linking electricity infrastructure to the EU and away from the
more volatile Russian market.
While both Estonia and Lithuania have already initiated negotiations with
their respective neighbors and the EU, Estonian Energy suggested a common
regional interest to see both projects come to life.
"The Baltic states are already perfectly connected to one another - the
problem is how to get them online with the rest of Europe," said Juska.
"Without a doubt an Estonian-Finnish connection would help Lithuania as
well, although it is of less immediate concern to us than the connection
with Poland," said Juska.
Juska further emphasized that abstract plans of a power grid ring around the
entire Baltic Sea have been floated for several years, although it appears
as if such proposals are only now being realized.
All companies or consortia interested in bidding for RST must declare their
intentions by Sept. 15, and the selection process is scheduled to continue
into next year.