Developers Alexela and Infortar that are constructing LNG handling infrastructure in the city of Paldiski have been awaiting a government guarantee to manage business risks since spring. The government has now decided to boost the share capital of the Estonian Stockpiling Agency to help the developer out should said risks manifest.

"In connection with the quay and pipeline construction work, the government today decided to increase the [agency's] share capital by €38 million and provide a mandate for signing contracts meant to ensure the mooring infrastructure and pipeline will be built in cooperation of the private consortium and Elering and Estonia can handle LNG by late November," Minister of Economic Affairs and Infrastructure Riina Sikkut said at the government press conference on Thursday.

Martin Jasko, head of communication at the Estonian Stockpiling Agency, said that this provides certainty for moving forward with investments. "It will be formalized in a contract the exact contents and conditions of which are still being prepared and negotiated between EVK and the developers," he said.

Small size of local gas market main concern

"The private company is currently constructing the quay using own assets. We know that Finland is constructing its mooring infrastructure. In short, there is not enough business in the region to cater to two locations where LNG can be received as gas consumption is modest and there is considerable risk that one of the locations, the quay in Paldiski in this case, might not be economically feasible," Jasko said.

He said that the investment is therefore of questionable worth for the private developer, which is why the agency is in talks for how to provide an additional government guarantee.

"It is too soon to say what form it will take or what will be the contractual relationship, while it needs to be enough for the construction process to continue on schedule," Jasko explained.

The press officer added that the funds will not be used should risks not materialize. "We have little choice when it comes to supply security. We cannot afford not to build the necessary infrastructure and find ourselves in a situation where we are cut off from natural gas."

Government extends state gas stockpiles deadline

The Thursday decision also extends the agency's deadline for procuring for Estonia sufficient gas stockpiles.

EVK planned to procure gas reserves of 1 terawatt-hours by the end of summer, while its tenders have not seen enough bids and the agency has just one-fifth of the gas it needs.

"Initially, the plan was to have the quantity by October 30. That is usually the quantity reserved before it is consumed at the Latvian storage facility where we also keep our reserves. This time, it is clear there is a competition for available gas, and the stockpiling agency is a competitor like everyone else," the economy minister said.

"The [Incukalns] storage facility in Latvia has also altered its conditions and is allowing us to keep adding gas until the end of the year. Additional capacity has been created in the pipeline between Latvia and Lithuania for November-December, making it possible to pump LNG into the facility from the terminal at Klaipeda," Sikkut said.

--

Follow ERR News on Facebook and Twitter and never miss an update!