Estonian industry body: Natural gas excise hike brings future of Balticconnector into question

A natural gas facility in Poland. Photo is illustrative. (AFP/Scanpix)
11/28/2016 8:03 PM
Source: BNS
Category: Business

The Estonian Gas Association is seeking a review of the new government's plans to increase natural gas excise duties, arguing that a jump in the duty will reduce industrial investments in Estonia and bring into question the rationality of large investments such as the Balticconnector pipeline and the Karksi compressor station.

"Our position is that an additional increase in the excise duty rate on natural gas will be harmful to gas consumers, the country's whole economy and the development of the gas market alike," the association said in its appeal to the Estonian government.

The association noted that approximately 2,000 legal entities use natural gas in business. "Taking into account large-scale foreign investments in an energy-intensive industry, the high price of electric energy and the years-long unequal competition situation compared to both the [other] Baltic states and Nordic countries, raising the gas excise duty to such an extent calls into question the rationality of past and future foreign investments in Estonia," it said.

Furthermore, Estonia has made and is about to make very large investments in purchasing and building gas connections, such as the acquisition of the transmission network by Elering, the Balticconnector project and the Karksi compressor station, the association noted. "This raises the question of what the point is of all these efforts and spending taxpayers' money if deliberate activity to reduce the competitiveness of gas continues," the appeal continued.

According to the association, gas consumption in Estonia is on the decline and has been more than halved over the last 10 years. If the state is eyeing bigger tax revenue, it can be achieved by stimulating consumption, and policy should be directed at increasing the consumption of natural gas by 200 million cubic meters.

Security has become a hollow argument for shunning natural gas as the situation has drastically changed from what it was just a few years ago, given the completion of an LNG terminal in Lithuania which diversified supply, real competition in the market, Gazprom's sale of its Estonian assets, and a clear course towards creating a single Baltic-Finnish gas market, the association said.

If the government's plan is implemented, the excise duty rate on natural gas will increase 3.4 times over six years to double the rate levied on other fuels by 2020. Compared to Latvia, Lithuania and Poland, the rate would be 5-15 times higher in Estonia.

The association therefore proposed that the gas excise hike mapped out for 2018-2020 be reconsidered. "The impact of the planned duty hike is very extensive and disproportionate, as well as discriminatory against one type of fuel," the appeal concluded.

Editor: Aili Vahtla

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