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Indrek Neivelt: When the ship springs a leak you plug the biggest holes

Indrek Neivelt.
Indrek Neivelt. Source: Priit Mürk/ERR

Estonia's economy has now contracted for eight quarters straight, yet the government has been working on solving small issues, over the past year, entrepreneur and former banker Indrek Neivelt says.

To alleviate the situation and grow the economy again, firms need to have cheaper input and operations costs, and especially more affordable energy, Neivelt adds.

While there are objective factors from outside Estonia at play here too – Russia's full-scale invasion of Ukraine starting nearly two years ago being pre-eminent among them when it comes to the energy sector – this is no reason for Estonia not to be more proactive.

Bigger decisions than those currently being made are needed, he went on, in an appearance on ETV politics show "Esimene stuudio" on Thursday.

"When the ship is leaking, you have to start plugging the holes," he said.

"We have however just been tinkering with tiny holes, for a year now. The bigger ruptures are still letting in water. We have been trying to discreetly patch up the smaller holes: Finding €10 million, for one little hole here, another €10 million for another hole there.

"However, then €200-300 million is leaking in one place, €150 million in another. We have to start facing up to this," Neivelt continued.

"Why don't we have EstLink 3?" he said, referring to a planned undersea electricity cable between Finland and Estonia, joining two already in place.

"Why? The Finns said several years ago that they didn't have time to deal with it, postpoing it to after 2030. But did our prime minister, or any minister for that matter, go there to Finland?"

"I am aware that at one time, Juhan Parts (prime minister 2003-2005 – ed.) went there in order to get the first undersea cables done, but has anyone even called, or talked face-to-face?

Neivelt also identified a potential bargaining chip there, but which has now passed.

"Up until that point the Finns needed our approval to join NATO, they would have said okay we'll lay a cable there. And all the other things too; connections, in other words," he went on.

Finland formally joined NATO last summer, having applied to join a year earlier.

Neivelt added that the government needs to provide a narrative to business which is also credible, to business. " logical argument to the entrepreneur is needed. If, for example, Tiit Vähi (another former prime minister, in the 1990s – ed.) or someone else came and recounted a logical argument, then a business person would also have cause to believe in this case. Yet at the moment, there is just no faith in what anyone is saying," Neivelt said.

According to Neivelt, many small to medium enterprises (SMEs) are having difficulties in the current economic situation, yet banks have emerged the clear winners given their bumper profits.

However, even though a tax on banks would be a welcome thing in Neivelt's perspective, this is less important than ensuring business competitiveness in Estonia – by putting them on an equal footing in terms of input costs, which includes being able to take competitive rate loans.

He said: "We shouldn't be talking about whether banks make big or little profits."

"Entrepreneurs are interested in what the cost of a loan to them is. What is our input – it has to be competitive. Similarly it is the case for home loans.

"This is actually what the state should be dealing with and looking at. To close up these major holes, so that we are competitive, so that we have competitive loan rates, so that we have competitive energy – and not talking about subsidies. Businesses are ready to compete, and they have the know-how to do so, but they want to hear about competitive input prices," he continued.

Will renewable energy bring competitive benefits?

Estonia aims to transition to roughly 100 percent of electricity consumption needs being met by renewable sources, mainly wind and solar power, by 2030, while January of this year saw the greatest volume of green energy to have been generated in Estonia to date.

However, the transition to renewable electricity may not make Estonian companies more competitive in and of itself, Neivelt added.

"I cannot understand how it could be possible to be more competitive than others via renewable electricity. When we install a solar panel, it's actually 20 to 25 percent less efficient. This means it's always more costly. Plus, the sun shines when we don't have as high a level of consumption (ie. during the long summer days – ed.).

"Via wind power, we could obtain the electricity and the prices to go with it, on a competitive basis, but since we have much sharper peaks in consumption than in more southerly latitudes – because of our climate being colder, and usually when it's colder, there is less wind."

"This means the consumption peaks are higher. We have the means to have storage of electricity, but this is absurdly expensive right now too.

"Either that or we have to have other controllable power sources as back-up."

"I would argue that renewable electricity is getting more expensive, so we cannot get a more competitive price. I would be delighted to be proven wrong, and if someone could explain how this is a faulty syllogism."

Neivelt compared renewable energy with a convertible car, that, in Estonia, can only be driven sometimes in the summer.

"When there's no wind, you have to have extra capacity built on the side. That means you have to have two power stations, you use one or the other. It's just like having two cars – one 'proper' one, which you can drive in the mud and snow, and the other on the asphalt roads in the summer. For me, renewable energy in our climate is like this tale with a convertible. You can of course drive a convertible very comfortably in the South of France, say, or Spain."

We have a climate where our heating costs are one-and-a-half to two times higher compared with the Central European average. Up to now, we have compensated for this simply by having cheaper raw materials to hand," he concluded.

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Editor: Andrew Whyte, Merili Nael

Source: 'Esimene stuudio,' interveiwer Mirko Ojakivi.

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