Estonia to spend EUR 3.4 mln on arbitration proceeding with Tallinna Vesi (1)

Photo: Postimees/Scanpix
1/6/2016 1:04 PM
Source: BNS
Category: Economy

According to estimations made by the Ministry of Justice, Estonia is to spend about 3.4 million euros on legal costs in the court dispute with the listed water company Tallinna Vesi, to which around half a million euros of VAT would be added, and by now the state has spent around one million euros of the sum.

The Ministry of Justice has asked the government to allocate additional 2.3 million euros from the ownership reform's reserve fund, documents of the ministry show. By today two additional sums have been allocated from the reserve fund to cover the court dispute's costs -- one million euros to the Ministry of Economic Affairs and Communications and 500,000 euros to the Ministry of Justice to hire economic experts. The total cost for using the services of experts would be 583,000 euros.

According to an analysis of the case, the state has a chance to win the dispute or at least substantially reduce the size of the compensation for damage. If Estonia wins the dispute, it would be possible to request the state's procedure expenses to be partially or fully compensated for.

Hearings in the arbitral court will take place in November.

Tallinna Vesi and the City of Tallinn concluded on Jan. 12, 2001 a services supply contract which among other things put in place the water company's price regime for 15 years. The contract was extended until 2020 in 2007. Under the contract Tallinna Vesi has the right to raise tariffs by the change in the consumer price index.

Under the Public Water Supply and Sewerage Act that stepped into effect in November 2010 proposed tariff changes are subject to approval by the Competition Authority. The law states that the price of water supply services must be based on justified expenses and profitability, not on the consumer price index. The Competition Authority did not give its nod to the next price rise and ordered Tallinna Vesi in 2011 to bring its tariffs into line with the law. The water company did not comply with the precept and so the sides have been engaged in a legal battle since 2011.

In May 2014 Tallinna Vesi announced it had given formal notice to the Estonian government of potential international arbitration proceedings over breach of an international treaty resulting in potential damages of more than 90 million euros over the lifetime of the contract to 2020, of which more than 50 million euros is damage already caused.

Tallinna Vesi is claiming compensation for potential damages of over 90 million euros from the Competition Authority for total losses over the lifetime of the contract to 2020. The total compensation claim applies when the tariffs will remain unchanged till 2020, the water company said.

Of this amount, over 50 million euros has been already caused by the Competition Authority's refusal to approve tariff increases in the period of 2011-2013, having an impact on the period 2011-2020. The balance of the claim is avoidable should the Competition Authority change the decision, according to the company announcement.

The Competition Authority has been refusing to approve the water tariff applications submitted by Tallinna Vesi since 2011, despite the fact that Estonian courts have deemed the tariffs part of the services agreement to be an administrative contract, Tallinna Vesi said.

It said that according to the services agreement, Tallinna Vesi is entitled to increase the water tariffs by the change in the consumer price index. The change in CPI has been agreed to be established based on the period of 12 months ending at the end of June of the year preceding the new tariffs. CPI has increased by 17.1 percent from June 2009 to June 2013. The applications submitted by the company have been for tariff increases of respectively 3.5 percent from Jan. 1, 2011; of 4.9 percent from Jan. 1, 2012; of 3.9 percent from Jan. 1, 2013; and of 3.8 percent from Jan. 1, 2014.

Priit Luts

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