Eesti Energia: Prime minister's charge of delay tactics 'incomprehensible'

Eesti Energia headquarters in Tallinn.
Eesti Energia headquarters in Tallinn. Source: ERR

State-owned electricity generator Eesti Energia has described as "incomprehensible" Prime Minister Kaja Kallas' accusation of engaging in delay tactics on the proposed separation of network operator Elektrilevi, from the main Eesti Energia group.

Analysis commissioned for that purpose also demonstrated that this separation was not logical, Eesti Energia says.

In a statement sent to ERR on behalf of both the companies management board and its supervisory board, Eesti Energia said: "The Eesti Energia board has always based its work on the expectations of the state, as Eesti Energia's owner, fulfills all tasks set us."

"Yesterday's assessments by the prime minister were also analyzed at the regular Eesti Energia board meeting held today. The Eesti Energia board, headed by its chair Anne Mere, also confirms that the board of the group has been open involved in all discussions of the future of Elektrilevi, has provided high-quality input to the discussion and supported the plan of floating Elektrilevi on the stock exchange, or of separating it from the group, under market conditions," the statement continued.

Eesti Energia says the prime minister made three claims, which they can refute, namely that revenue collected from Elektrilevi customers did not find its way back into the network via investments, that the company had been deliberately delaying progress on the planned separation of Elektrilevi from Eesti Energia, and that loans to Elektrilevi incur a higher interest rate than they would do if the company operated alone.

Eesti Energia: Network fee revenue always returned to Elektrilevi

Eesti Energia says it rejects the prime minister's claim that revenue collected from Elektrilevi customers in the form of network connection fees is not ploughed back into Elektrilevi infrastructure, but rather into other, often unrelated Eesti Energia projects.

"All the money which Elektrilevi collects as a network fee, is always returned to the electricity network. This is constantly monitored by the Competition Authority," the statement read, adding that: "Elektrilevi operates in a regulated business and is independent of other Eesti Energia undertakings."

Elektrilevi's investment volume is not contingent on developments in other areas of the group, ie. with Eesti Energia, the statement added.

No 'Italian strike', says generator

On the issue of intentional delay tactics, which the premier referred to as an "Italian strike," Eesti Energia says that in the course of analysis of the effects of the separation of Eesti Energia and Elektrilevi, conclusions were drawn that the separation of Elektrilevi from Eesti Energia would not serve the bests interests of consumers, as it would lead to a rise in the network fee.

This increase would mainly reflect IT costs, the duplication of the service process and the consequence of loan capital becoming more expensive.

Eesti Energia also highlighted that none of its board members are related to Eesti Energia; former Minister of Finance Keit Pentus-Rosimannus (Reform), on August 25 this year, confirmed the updated owner's expectations for Eesti Energia.

Pentus-Rosimannus was acting as representative of Eesti Energia's owner, ie. the Estonian state via the Ministry of Finance.

"Thus, until today, the expectations reached by the board of Eesti Energia have been the opposite of the separation of Elektrilevi," Eesti Energia added.

The recent extensive and exceptionally lengthy power outages that occurred on the island of Saaremaa in the wake of Storm Birgit, while unacceptable, not the main point as regards the clear goal of the hiving off of Elektrilevi from Eesti Energia.

The main goal is acting in the interests of consumers, and based on the correct factual information, Eesti Energia added in its statement.

Eesti Energia: Loans to Elektrilevi not more expensive than would be if company were separate

Eesti Energia also rejected the prime minister's claim that Elektrilevi's loans work out more expensive because it belongs to the same group as Eesti Energia, on the grounds that while Elektrilevi is less risk-bearing, Eesti Energia has a history of being more so, in its investments.

In fact the reverse was the case, Eesti Energia said.

"As part of the Eesti Energia group, Elektrilevi has managed to get a loan on more favorable terms than when operating as a separate grid company," the statement went on.

"As of the end of 2022, Eesti Energia's loan volume stands at one billion euros, at an average interest rate of 2.03 percent. Elektrilevi's loan volume in the meantime stands at €365 million, at an average interest rate of 1.2 percent, or almost half that of the group as a whole."

Elektrilevi loan money was "significantly cheaper" than that of, for instance, Eesti Energia subsidiary Enefit Power, the statement added.

"It is clear that today Elektrilevi would not be able to raise capital at such a good price level [on its own]," the statement added.

Eesti Energia has in fact enabled Elektrilevi to increase loan volumes more than the , as owner, had foreseen, the company says, as a way of mitigating the effects of Competition Authority (Konkurentsiamet) procedures, which Eesti Energia calls "time-consuming."

 "Without the group's support, Elektrilevi would not be able to continue investing at the same level today," the statement went on.

Elektrilevi's loan volume has increased by about 30 percent. In the past two years, the company says.

At the same time, whereas Elektrilevi made a profit of €33.5 million in 2020, this year's loss forecast stands at €10 million, directly the result of soaring costs and inflation, it is reproted.

Appearing on Vikerraadio's "Stuudios on peaminister" broadcast Wednesday, Kaja Kallas said the deliberate delays mainly resulted from Eesti Energia's concerns over loans becoming costlier.

While Kallas says she has been pushing for separating Elektrilevi from the Eesti Energia group for a decade already, a 2019 2019 EU directive in any case says that a distribution network operator with more than 100,000 consumer must be separated from activities not related to distribution and the company can no longer engage in providing free market services.

Elektrilevi says it has over 533,000 customers, and it is in any case the largest electricity network service provider in Estonia. Its day-to-day roles include dealing with large scale power outages such as those experienced nationwide, and particularly on Saaremaa, during and after Storm Birgit, December 10-12.

Eesti Energia has a renewables subsidiary, Enefit Green, and is also the largest electricity generator worldwide to use oil shale, mined in Estonia, as a fuel source. It is also a supplier of electricity to households and businesses.

Some of its past, high-risk investments included a plan to extract oil shale in the U.S. state of Utah and involvement in same in the country of Jordan. The company is no longer involved in these projects.


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Editor: Andrew Whyte, Marko Tooming

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