Estonians debate future of utility market

  • 2004-03-18
  • Baltic News Service
TALLINN - Top officials and businessmen joined in a debate on the future of Estonia's utility monopoly, Eesti Energia, which the government intends to split into separate generation and distribution operations.

Economic Affairs Minister Meelis Atonen said he had initiated a study to determine the economic and financial efficiency of severing energy production from the main power grid and transforming the two into independent companies.
Like his predecessor Mihkel Parnoja, Atonen said he agreed in principle that the ministry wanted to separate energy production and distribution but that questions remained as to when to carry out the changes and whether the newly created companies would remain directly under the control of the Economic Affairs Ministry.
In order to best weigh the pluses and minuses, Atonen commissioned the study, which ministry experts will carry out, and the report will be presented to the Cabinet for a final decision.
Any split of Eesti Energy would take place in a year at the earliest, Atonen said.
Juri Kao, businessman and former chairman of the supervisory council of Eesti Energia, said that carving up the 100 percent state-owned utility would neither benefit the economy as a whole nor increase competition.
Breaking up Eesti Energia, Kao explained, would contradict common business logic that multiple operations are more effective while performed in a single group.
Also, a split would defeat the stated goal of competing with larger Russian competitors.
"We will achieve no competition. If we want to meet Fortum or Gazprom halfway, we will do so by splitting up our energy system, which will seriously damage its competitiveness," Kao said.
Centrist Heido Vitsur, an economics adviser to the Tallinn city government and a former Eesti Energia supervisory board member, agreed, saying that the small power companies born as a result of a potential split would not be able to survive in competition.
In fact, he said no new competition would appear on a market the size of Estonia's. As it is now, Estonia's power plants could conceivably compete with Lithuania's nuclear power plants of Finnish power generators once the underwater cable was completed.
Vitsur stressed that Estonia should have as big a utility as possible given the size of its economy.
But Atonen stressed the inevitability of a split in the Eesti Energia monopoly, particularly in light of EU regulations. "Knowing that the Estonian energy market must be fully open by 2015, it could be right to prepare the market for this today and to create real terms for competition," the minister said.
He said the firms established on the basis of Eesti Eenrgia's split would still belong to the state, but they would have no subordnation relations between them.
In terms of debt, Atonen said that all of Eesti Energia's loans have been received without a state guarantee and that the company has a high credit rating.