Durejko: No law change necessary for oil plant conditional complex permit

Andrus Durejko, the head of Eesti Energia, said that the halting of the almost completed Enefit 280 shale oil plant could result in over €20 losses per year. Durejko does not see the need to change the law to grant a temporary or conditional complex permit to allow the plant to operate.

Last Friday you met with the Minister of Finance. Have you had any closer communication and contact with the Ministry of Climate about the oil plant? What does the Ministry of Climate think about the plant now?

There are different kinds of meetings, but I might not be able to discuss them in detail. The minister [Kristen Michal] has to make his own decisions. The work on the environmental impact assessment is ongoing and we want to start the application for the environmental complex permit as soon as possible. That is the focus today. I think all parties are contributing to that.

Part of the Ministry of Climate's concern is that if this complex permit is issued unconditionally, it is as if the same European climate regulations adopted in 2021 could provide grounds for revoking it. How do you see this?

I have to admit that I am not very qualified to judge. Of course, there is a debate about this and we have given our answers in the environmental impact assessment (EIA). It is a public document and we have described the scenarios that we can foresee today.

2035 is so far away that it is very difficult to prepare for these issues today from an oil processing perspective. That is the problem.

I am not a lawyer, but some lawyers have suggested that even in today's legal framework, a complex permit can be issued with a time limit or restrictions. This analysis is ongoing. I would rather not speculate on whether the law needs to be changed or not – conditions can always be imposed.

Our focus is to bring oil and chemical processing to Ida-Viru County, provide jobs for the people, make a profit for the company and reduce climate impact. This is ongoing work, and I believe we will succeed. Just as we have reduced the company's footprint and will continue to do so.

But why does the Ministry of Climate think a change in the law is needed to issue a complex permit with time limits?

I cannot answer, I don't know.

It is probably a legal assessment and then trying to be legally correct. Which I think is very important. So in that sense I'm not saying it's right or wrong. If it is necessary, it should be done. Maybe the Ministry of Climate can answer that.

As a taxpayer, I still find the current situation somewhat incomprehensible. For years we have been investing money – now several hundred million euros – belonging to a state-owned company in order to build a factory. Now one of the ministries wakes up and cannot guarantee legal clarity in a situation, where the plant is about to be completed. What do you think about that, why is this the case?

The Ministry of Climate was created on July 1, so it is a new ministry, even though it is based on the staff of the former Ministry of the Environment. It is the decision of the Supreme Court, with which the risk for the company was realized, that brought about this situation.

Nevertheless, this discussion is good: Estonia's climate targets are set, they have to be met within the framework of 2035. Whether this shale oil processing plant is now the only concern in meeting them, is a good question, but of course the climate targets and the reduction of CO2 emissions is a goal for all of us.

So the discussion is not wrong. Its economic viability is another matter. The company will incur economic costs, and many factors will influence what they will be.

Considering Estonia's export revenue, processing shale oil today makes economic sense. All the opportunities are there.

The chemical industry's orientation in Ida-Viru County is key to the green transition. Another key point of the prime minister's address today was Ragn-Sells' oil shale ash improvement, which she hailed as an Estonia 2030 example.

These all are ways Eastern Estonia could generate jobs and a green, circular economy. Eesti Energia does this as well. Even if we now produce this shale oil, the chemical sector also relies on this plant's future capability, so it makes sense to continue today with that in mind.

Which scenarios have you calculated? In what range could the company be weakened?

The situation is complicated. This suspension of construction contracts is going to cost, but how much precisely is unknown. Naturally, we have estimated expenditures over time. The investment's interest cost is straightforward to determine. This analysis is ongoing and is done everyday.

Our optimistic construction period extension is a little over half a year, but if it's up to a year, the numbers will be different. But I don't want to be specific now.

I heard building delays cost €2 million per month; so it would between €12 to €24 million a year?

It is in that range. The investment amount is known, so the implicit interest cost could be calculated. It is likely to exceed €2 million.

Add to that the cost of conservation of the construction and restarting...

Yes. We will have to pay twice if we are taking everything down and then putting it back up. It is in addition to what was already planned.

We are in a situation where all options are on the table. We are trying to find the most economical solution, but also the legal solution, and that work is ongoing. Most people are on board with us.

What has really changed since 2019, when the decision to invest in the plant was made? Even the EU climate regulations that have been adopted in the meantime, the content of which was already known. Is it just a Supreme Court's ruling or something else?

Life has moved on in four years. Climate issues are more acute. Our knowledge is different than in 2019. Of course, the climate targets that Estonia committed to until 2035 have come in May 2021. The whole climate program is in the hands of the Ministry of Climate. There are likely to be more challenges in meeting this target.

Overall, industry and the energy sector have made and will continue to make huge reductions in their CO2 emissions. I don't have a complete picture today of where the challenges are.

After all, the Supreme Court's ruling specifically stated that the building permit process must continue.

There was no assessment of climate targets being met. It stipulated process continuation. The oil processing plays a crucial role in solving these national targets, but not a decisive one.

CO2 emissions will be substantially lower in 2035 than at the start of the plant, which are 800,000 tons. They won't be 10 percent of Estonia's emissions [as the ministry of climate estimates].

What will it be in 2035?

In the best-case scenario, it is zero. Or let's say, close to zero. This is what we are working towards. We are analyzing technologies to capture carbon CO2. There have also been press reports on the subject from professors at Tallinn University of Technology.

We are in the analysis phase, and this is an experimental technology. Of course, people can say, no, it is not happening, but the world has consistently shown good results in the technology process. It is in development. I can't make any promises, but part of our plan is that we will certainly start using these technologies.

Otherwise, no results can be achieved. This requires investment. Today we are taking steps, number one is to start up the oil plant, to get it up and running. Then improve its processes.

We selected and will develop two major technological methods with Estonian and foreign researchers. Next, we will study the economics of the best oil shale technologies. In fact oil shale technology is rare, making it rather challenging.

No large-scale carbon capture is used yet anywhere worldwide, these are still only experiments.

If you look at the price of CO2 today, these technologies can already be plus or minus zero, but they don't deliver yet the economic effect. But the technology is evolving and if we achieve a positive economic effect, then it will be implemented.

Entrepreneurs look at the economic viability. If we apply carbon capture technology right now, we get the same result economically, so why bother? The climate target alone is not a motivator, it is not a reason to invest – we should also gain something economically.

We have applied technologies to measure carbon emissions. Our effort to reduce the amount of oil shale used with recycled components instead is also very important for the future of our chemical industry. There has been talk of recycling plastics and waste. As a whole, shale reduces the burden on liquid fuels production.

But this is already the subject of the circular economy and the ambitious reuse of products already made from oil processing; so that component is there too. It doesn't directly reduce CO2, but it gives a positive impact on the environment.

When I looked at the statements made by the Minister of Finance Mart Võrklaev last week about the oil processing, they were rather ambivalent until he met you. What did you say to persuade him?

The minister of finance and the entire Ministry of Finance is looking at public finances and the outlook for the future. The sensible view is that we need to recoup this investment. The liquid fuels plant is exports and jobs for people – it makes economic sense.

Our activities fit with Estonia's 2035 climate targets, and we looked at it in a broader context than just this oil plant. The entire carbon footprint of today's energy generation and chemical sector was taken into account. That footprint is large, but if you look at the history of how much Eesti Energia's CO2 footprint has been reduced, it gives confidence that we can meet these targets.

Of course, there is a lot of estimation there, none of us knows what will happen in 12 years' time, but the technological base today and the studies that have been done give us the confidence that we can bring back this investment and turn the plant into an economically viable activity for the Estonian state.

Even in a situation where the launch could be delayed by several years?

Of course, every day and year of delay - I hope it will not be that long - makes this situation more difficult. But at the same time, we know from the fossil fuel market, and especially from the oil market, that this plant is justified.

It would certainly help to solve this problem as soon as possible and get this plant up and running, so that we can get this investment recovered and that we can guarantee jobs for the people of Ida-Viru County and tax revenues as well.

There is a lot of potential, a lot of innovative solutions that are coming in – it is a complex picture if we look at it in terms of the chemical industry. Sustainable development of oil shale technology is our focus here and there are many components to that.

The chemical industry potential in Ida-Viru County today, with the addition of the oil plant, is quite substantial. And that is the reasonable argument to move forward.

What would be the socio-economic impact on Ida-Viru County and Estonia if the plant does not start up?

The factory itself will provide jobs for around 400-450 people. Including the preparation of shale, other materials, plastics and tyre residues. All these components count in terms of employment and if you look at the cumulative effects – the impact is quite large.

The liquid fuels plant is crucial to the chemical industry's transformation. The most advanced technology has been developed here for 10-15 years. Old Enefit 280 oil plant opened in 2012 and its technological improvements make it the smartest, cleanest technology today.

This, in turn, will enable a number of new investments. For example, we looked at different refining components there to move up the value chain. To move from liquid fuels to selling inputs to the chemical industry, the prices in the market are much higher and so is the demand.

There is a particularly strong demand for the recycle component, so if we can show that we have it, this will allow us to move into higher value-added products, so the impact is very complex.

Taking one step back does not build a stronger future for the chemical industry. In this respect, the plan is a bit bigger. Of course, our intention is to reduce the direct combustion of oil shale for power generation in the near future. But the processing of oil shale in the chemical industry will continue and in a carbon-neutral way. Whatever number I put forward, time will make corrections, but the impact will be big.

What is the annual tax revenue of such a plant?

The oil plant generates 250,000 tons per year. This ton of fuel costs between €500 and €600 on the global market, but we hope it would be even higher. The total impact comes from there. The entire mining chain's costs must be re-evaluated.

This oil plant delivers electricity, albeit on a modest scale, which is also important for energy supply. Processing shale oil can create 30 megawatts of electricity.

250,000 times 500 is €125 million, times 600 is €150 million per year.

Take the cost out of it, now we take the normal percentage of profit, it is about €20 millions. There are also additional resource fees, additional pollution fees, but it all actually goes to the state.

We have evaluated the resource fee side. The direct contribution to the state budget will be €7 to €8 million a year, which takes away all the profitability, but it goes directly into the Estonian economy.

If the permit process drags on, are you going to let the miners go?

The whole chain is longer. Of course, a company must have an economic activity that makes sense. Today, we have planned our activities with the launch of this new oil plant. Now we have to adjust our plans, and it all depends on a lot of components: what is the use of oil shale today, what will be the price of electricity this winter, etc. Our need for oil shale depends on all that and we are adjusting those plans now.

Today you are extracting more shale than you are using. If the oil plant doesn't come on line, at some point it won't make sense to store the shale.

But let's face it, I do not want to say it is a good argument, but look at the the price of electricity in the winter. We see geopolitical tensions rising. If shale power plants come on the market in the winter, it will be a completely new situation and we have taken that into account in our scenarios.

The market situation for shale power plants inevitably improves during the winter, which increases the use of oil shale. Our current oil plants are also on a record production schedule, so the situation is not so pessimistic.

What if there will be a winter of low electricity prices?

Then yes, we have a very big problem.


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

Editor: Kristina Kersa

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: