National Audit Office: Eesti Energia was sufficiently informed about risks of oil shale projects abroad (1)
Looking into Eesti Energia’s Jordan and Utah projects, both focused on oil shale processing, the National Audit Office found that the company had explained the involved risks sufficiently before making the investment.
The National Audit Office analyzed how the oil shale processing projects in Jordan and the United States came to pass, and found that both Eesti Energia’s supervisory board as well as the then-Minister of Economic Affairs and Communications had agreed to them.
The risks involved in both projects had been explained before the decision to invest was made. In the case of Utah, the minister, the supervisory board, and Eesti Energia’s management had been aware that they were looking at a high-risk investment. The political support of the projects both in Estonia and the U.S. had convinced them to go ahead, the audit stated.
Neither the facility in Jordan nor the one in Utah ever worked according to the original plan, as the global oil price dropped, dragged the price of shale oil with it, and made the production anywhere in the world a lot more complicated and expensive.
According to the audit, the project to build a power plant in Jordan made the most headway, reaching the pre-construction phase. By now, Eesti Energia is trying to slim its involvement down from a 65% stake to one of just 10%. Negotiations are still ongoing.
Eesti Energia says that the sale of its majority stake in the project covers “the majority of investments made”. The National Audit Office found that at the time the investments were made, it was not sufficiently evident that Eesti Energia had the resources and possibilities to continue its investments domestically while spending a lot of its means on projects abroad.
Eesti Energia’s foreign investment budget had been smaller in 2010 than the planned combined investment in the Utah and Jordan projects. At the same time, the company was planning to make substantial investments in its Auvere power plant, the Enefit 280 oil plant, into its distribution network, and in other projects in Estonia.
Current CEO Hando Sutter confirmed to the National Audit Office in the course of its analysis that investments abroad could not be justified with the company’s need to make strategic investments, or change its plans.
The recommendations of the auditors included the suggestion that the Ministry of Finance make sure all state-owned companies would invest based on a single set of principles, to minimize potential risks. This would allow them to go ahead with large projects without suddenly having to compensate elsewhere.
Auditor General Alar Karis commented on the audit’s results, saying that the natural objective of any business, including state-owned businesses, was to make a profit. “The Estonian market it very small, and if the possibilities to increase profits in the home country run out, it makes sense that the business’ management and supervisory board look abroad for possibilities to make a profit as well.”
About the Jordan and Utah projects, Karis said that it was too early to say whether the investments had been a success, or a failure. The plans had not been carried out yet. Both depended on the global oil price, which again did not depend on Eesti Energia.