For Eesti Energia, the separation of Elektrilevi would mean a need to restructure its current loan portfolio and refinance its loans. Should Enefit Power, which generates electricity from oil shale, be unable to obtain loans, the state, as its owner, would have to increase its equity, said Hando Sutter, chair of Eesti Energia's management board, on Vikeraadio show "Uudis+."
The Reform Party, led by Prime Minister Kaja Kallas is in favor of Elektrilevi's separation from Eesti Energia. Kallas has, among other things, said, that, despite the government deciding on the split in August 2021, Eesti Energia's management has deliberately delayed it due to concerns that loans will become more expensive.
According to Eesti Energia board chair Hando Sutter, the group's loans currently total around €1 billion. The separation of one company would mean a need to negotiate with banks to restructure its loan portfolios. "If a company is restructured, then the entire loan portfolio also has to be restructured," he said.
Sutter said, that in this scenario, it would be most difficult to obtain a loan for Enefit Power, which produces electricity from oil shale. However, as borrowing has become more expensive in general, and in light of the difficulties involved borrowing to fund oil shale power generation, refinancing would have a significant impact on the group as a whole.
"It can be done, but at the moment it is very, very difficult. Borrowing has become a lot more expensive. If we were to pay back all our loans and start refinancing again, the increase in cost would be extremely high," said Sutter. "If the owner puts the expectation on us to keep the oil shale power plants running beyond 2026, then lenders today are not happy with that," he said.
Sutter said, that, should Enefit Power be unable to get a loan, this would mean the state, as its owner, would have to provide the company with funds.
"It could mean, that Enefit Power's equity would have to be increased slightly and (also) that the kind of loan money we have now would not be available, if we were to refinance today," he said.
In Sutter's view, it is wrong to suggest, that borrowing is becoming more expensive for the entire group, due to the cost of oil shale power generation.
"When Eesti Energia, as a group, borrows money, all our companies can use it, but at different interest rates. While last year Elektrilevi's average interest rate was 1.2 percent - a very competitive rate - Eesti Energia's average was well over two percent. This means that our thermal power plants get the money at a higher interest rate. The interest rate at which we borrow is not the same rate at which we finance the networks," Sutter said.
Different views on the analysis
In August 2021, the government agreed that the best way forward was for electricity network services firm Elektrilevi to separate from generator Eesti Energi. At the same time, it was also decided to commission an analysis into the potential effects of the separation.
The analysis, which was carried out by KPMG, was completed last year, though the results will not be shared with the public until after it has been discussed by the government.
However, both Sutter and Minister of Finance Annely Akkermann (Reform), have already passed comment.
Akkermann said, that the analysis had shown that the separation would be no more expensive for the state than under the current arrangement, and had persuaded her that a split was the best way forward. According to Akkermann, the final decision on the separation could still be taken by the current government.
However, Eesti Energia's board and supervisory board are of the opposite opinion. Both believe that separating Elektrilevi from Eesti Energia would not be in the best interest of consumers, as it would lead to higher network charges due to the need to duplicate information systems and service processes. They argue that the split would also lead to an increase in debt capital costs.
According to Sutter, the analysis does not suggest that the situation would improve for either consumers or the company's owner, if it does go ahead.
"It (the study) is quite extensive. The bottom line is, that, if the will is there, than separation is possible, however, how things are going to get better did not come out of it."
"When this (separation) was being looked at, the situation in the capital markets was different, there was talk of a ten percent increase. Today, when capital is significantly more expensive, the number could be quite different," Sutter said.
According to Sutter, Eesti Energia's leadership cannot, therefore be blamed for not having made the necessary preparations for Elektrilevi's separation.
In August (2022), the Minister of Finance updated the ownership expectations for Eesti Energia, among which, it was stated, that Elektrilevi and its networks will remain part of Eesti Energia.
"The Eesti Energia board certainly does not want to oppose the government of the republic or the prime minister," said Sutter.
Sutter said, that as the board felt the analysis did not provide a strong enough case in favor of the separation, maintain the status quo was the best option.
Editor: Michael Cole