CEO of Eesti Gaas, that recently announced a sharp gas price hike, Margus Kaasik said that the price the company charges is determined by the exchange and promised not overcharge customers to maximize profits. Even in a situation where the government pays for much of the price hike.
Eesti Gaas customers who had opted for the flexible gas package paid €1.5 per cubic meter of gas as recently as August. The same amount cost €2.65 in October and might set customers back as much as €4.1 in October.
CEO of Eesti Gaas Margus Kaasik promised that should the market price of gas fall in September, this will be reflected on people's gas bills.
"We alerted our clients of a price rise in the spring of last year since, at the time, we were unable to see any other outcome," Kaasik said. "Fortunately, market prices fell, and we were able to avoid that particular price hike."
Kaasik said their price is determined by the stock market and their profit margin on flexible contracts does not fluctuate dramatically from month to month.
"It's not exactly the same every month," Kaasik said, adding that while the company still generates a profit on a monthly basis, August's contracts caused a loss.
"Our aim has been to maintain pricing stability for as long as possible. If one month's profit is little lower, the following month's profit will be slightly higher, therefore cancelling off the difference. In the last two or three months, however, the price rally in the gas market has been phenomenal," Kaasik said.
Kaasik: we do not know our purchase price till the gas is made available
Eesti Gaas and Norway's Equinor reached an agreement in July to purchase two terawatt-hours of LNG.
ERR reported at the time that the contract was signed at market prices and cost Eesti Gaas about €300 million. This equates to a winter reserve price of €150 per megawatt-hour, more than double the current stock market price.
Kaasik said that the price will be determined when the gas arrives at the terminal in Klaipeda in October and November.
"We still receive this gas based on the same gas market index, the TTF index," Kaasik said. The gas for October is based on the October index, while the gas for November is based on the November index.
"It was not bought at a fixed price," Kaasik explained.
In July, gas on the global market cost approximately €150 million per terawatt-hour. Kaasik said that the purchase price was not fixed at the time because there were no committed buyers willing to pay that price.
"A short while ago, gas was priced at €100 per megawatt-hour, so we cannot take the risk of purchasing gas for €150 with the expectation that prices will rise," Kaasik explained.
Timo Tatar, the deputy secretary general for energy at the Ministry of Economic Affairs and Communications, said that he, too, will learn the actual price of Eesti Gaas' winter reserves only when the gas is delivered.
"If you compare the price that Eesti Gaas announced yesterday to what we're witnessing on the European gas market, you'll find that it is, sadly, quite realistic," Tatar said.
Price increases impact the state, not the consumer
Domestic consumers will see little impact from the October price increase because they will receive a discount in October. A new energy subsidy regulation will go into effect in a month, requiring the state to refund 80 percent of the monthly average gas price that exceeds €80 per megawatt-hour excluding tax.
In September, a person who uses two megawatt-hours of electricity per month, or approximately 187 cubic meters of gas, would pay €482. The same amount of consumption would cost €766 in October, when prices are higher.
However, state support will significantly reduce this cost.
The price is €4.1 per cubic meter, or €385 per megawatt-hour, tax included. The compensation is calculated before tax at a price of €308 per megawatt-hour.
Of this amount, the individual is responsible for €80. Twenty percent, or €45, of the remaining €228 is also paid by the consumer.
The ultimate price is therefore €125 plus tax, or €150 per megawatt-hour.
The state, on the other hand, pays €182 per megawatt-hour and does not receive the expected tax.
In sum, a consumer who uses two megawatt-hours of natural gas at a monthly price of €4.1 per cubic meter will be charged €300, while the state pays €364 for this gas and loses almost €100 in taxes.
Tatar said that people will not be left stranded in winter, but nobody knows how much the support measure could cost the state.
Tatar: Subsidies could be misused only by means of unlawful deals
Due to energy subsidies, for domestic consumers each subsequent €100 price increase factually means a €20 increase. The cost to the state, however, will significantly increase.
The dilemma then becomes how to prevent gas dealers from taking advantage of the subsidies and inflating prices artificially.
"The first and foremost precaution is in place since Estonia has quite a range of gas suppliers," Tatar said. "If we assume that gas sellers do not engage in illegal business practices on the market, gas customers can vote with their feet and switch to a different gas supplier."
Tatar said that gas consumers are now evaluating their options and sellers are more concerned about retaining their customers.
"I believe that gas sellers are now making every effort effort to keep the price of gas consistent with the purchase price, keeping both the their own and consumers' heads above water," Tatar said.
Tatar believes that a 20 percent price increase for consumers is sufficient to persuade them to seek out less expensive alternatives.
"For example, if the state compensated the total amount above €80 per megawatt-hour, the gas consumer would not seek to switch suppliers," Tatar said.
Margus Kaasik also emphasized that Eesti Gaas will not take advantage of the state for subsidies.
"Our job is not to milk anyone but to provide the best possible energy service to our customers."
He said that even with subsidies market competition exists: "In the end, the market still works."
"I've never thought about these subsidies as where the state is paying for everything, regardless of what we ask the client to pay."
Editor: Marcus Turovski, Kristina Kersa