Ansip: There are no convincing arguments in favor of separating Elektrilevi

Andrus Ansip.
Andrus Ansip. Source: Siim Lõvi /ERR

Andrus Ansip, vice-chair of the European Parliament's Committee on Internal Market and Consumer Protection (IMCO), said before starting the process of separating Elektrilevi from Eesti Energia, it is important to reflect on what this means for the Estonian people and the reasons behind this. Ansip said that there are no convincing arguments in support of this.

Separating Elektrilevi from Eesti Energia has been discussed for almost a decade and is now included in the coalition agreement.

Speaking at the energy conference "Voltage 2023. A Century of the Estonian Power Grid" organized by Elektrilevi, Ansip recalled that Prime Minister Kaja Kallas (Reform) wrote in her blog 10 years ago that the electricity distribution network should be separated from Eesti Energia, but this has not been done.

"Before taking action, it is important to understand the rationale behind the separation and the potential benefits that the Estonian people may derive from it. And it becomes easier to find an answer to the 'how' question, once a convincing answer has been provided to the 'why' question," he said.

Ansip pointed out that he is not unfamiliar with the idea, as the government decided in November 2009 to separate the transmission system operator Elering for EEK 2.7 billion. This action was taken in accordance with EU regulations that mandated independence from the generation and sales activities of transmission networks, and the separation was a requirement set forth by the EU.

"But there were other arguments besides this mere requirement. Estonia wanted to join the euro area, and the state-owned Eesti Energia simply came to the rescue of the state: the state bought Elering, Eesti Energia paid generous dividends to the state and thus contributed generously to the euro, or in other words, our government deficit was much smaller thanks to these dividends than it would have been without them," he continued.

Ansip stressed that there was a clear reason for the separation and an understanding of how to do it. But why it would be a good idea to separate Elektrilevi from Eesti Energia, he said, was something he did not understand very well.

"The main arguments were more independence and more competition. The electricity network is, of course, a monopoly; no one else is allowed to build an alternative network in the same area. As a result, the price, investment and service quality of network services are under the watchful eye of the competition authority, regardless of who owns Elektrilevi," he added. "Today, Elektrilevi also has an independent supervisory board, and as far as I know, Elektrilev's activities do not depend very much on Eesti Energia. So the need for deeper separation is not a very credible argument in my eyes".

According to Ansip, a stronger argument could be the costs. He pointed out that Eesti Energia has been active on the international financial markets for several decades and that the company has borrowed at practically the same price as the Estonian state.

"Eesti Energia borrowed in quantities and from places that Elektrilevi could not have done on its own. But let's be honest, there has been a significant change in recent years. The cost of borrowing for a group that owns fossil fuels, and especially a carbon-rich oil shale industry, has certainly increased significantly, and it is questionable whether new loans will be granted to fossil fuel-based industries at all," he said.

Ansip said that according to the latest published data, Eesti Energia's loan balance as of June 30 this year was €1.7 billion, of which €0.4 billion was a loan from Enefit Green. In addition, Eesti Energia has bought back bonds worth half a billion euros in recent months. In addition, Eesti Energia has bought back bonds worth half a billion euros in recent months.

"I assume that Eesti Energia has direct loans in the order of one billion, which will have to be repaid when Elektrilevi is separated from Eesti Energia. Why repayment is necessary – I assume that no bank would lend billions in such a way that the borrower would be able to move a large part of the assets out of the group," he explained. "Normally, banks don't allow that."

Therefore, the separation of Elektrilevi would mean that the state would have to buy it from Eesti Energia, just as it bought Elering. Eesti Energia would use the money to repay all the loans it had taken out, and Ansip admitted that the sums were more or less the same, as Elektrilevi's fixed assets were also in the order of €1 billion.

"Eesti Energia will purchase a controlling stake in Enefit Green and become a debt-free oil shale company. Owned by the state, Elektrilevi would function independently. If necessary, loans will be granted to a well-capitalized monopolistic grid company; however, I don't have the expertise to figure out the terms and amount of such loans. We have nothing to worry about, as the grid company is going to be able to handle the situation, and the interest rate will likely be less than for the current Eesti Enerigia.

The former prime minister further said that the responsibility for overseeing Eesti Energia's construction of the incomplete shale oil processing plant in Auvere and the storage of the 1000 megawatts of oil shale capacity until alternative solutions are developed in Estonia rests with the state, as the proprietor.

The building permit issued to Enefit Power AS for the development of a shale oil processing plant was revoked by the Supreme Court this week on the grounds of errors identified in the environmental impact assessment. However, Ansip said the completion of the facility is imperative due to the substantial investment of  €230 million and the certainty that fuel oils and liquid fuels will not be depleted in the near future.

Ansip also pointed out that if the state, as the owner, forced Eesti Energia to sell Elektrilevi, it would relieve the state of the need to find a billion euros on its own, but we have to ask ourselves if we are ready for this in Estonia, and if this is the best time to sell a regulated company in a time of rising interest rates and war.

"I don't think it's the right time for a sale," he said, adding that he could not make a very convincing case for a sale. "Based on my own experience, I think it is necessary to warn those who think that a simple division of assets into two piles would bring happiness to the Estonian people, I doubt it. It won't. If you just try to divide assets in two piles, it's just going to be a big mess."

Without Auvere, the last energy crisis would have been worse

Ansip also spoke about the fact that the first Estlink's cable was completed in 2006 and the second one in 2014, which provides quite considerable security of supply, and it can no longer be said that the Baltic States are like an isolated island in the European Union in terms of security of supply.

During Ansip's time as prime minister, the Auvere power plant was completed, and he says it has been much criticized, but he cannot imagine how Estonia would have survived the last major energy crisis without it. The plant cost €645 million, but Alstom Power Systems, the company that built it, was ordered to pay back €130 million, because it admitted that it made a calculation error by changing the technological process.

"And now that the amendment in Auvere is done, we have invested back €40 million of the €130 million we got back, so we got Auvere cheaper than we originally intended. True, we had to suffer inconveniences, but we have it and it serves the Estonian people well," Ansip said.


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Editor: Karin Koppel, Kristina Kersa

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