June prices were influenced by cheap electricity

According to Statistics Estonia, the change of the consumer price index in June 2014 was 0.0% compared to May 2014 and –0.4% compared to June of the previous year.

Goods were 0.3% more expensive compared to June 2013 and services were 1.5% cheaper.

Regulated prices of goods and services have risen by 0.7% and non-regulated prices have fallen by 0.7% compared to June of the previous year.

Compared to June 2013, the consumer price index was influenced the most by electricity. In June 2014, the electricity that arrived at homes was 13% cheaper than in June last year, when the price of electricity was record-high. Compared to June of the previous year, 4.1% more expensive alcoholic beverages, 6% more expensive tobacco, 13% cheaper mobile communication services and 7% more expensive dairy products also had a bigger impact on the index. Motor fuel was 0.8% more expensive than in the same month last year. Compared to June 2013, of food products, the prices of processed fruit have increased the most (11%) and the prices of sugar and apples have decreased the most (31% and 23%, respectively).

The last time that the annual change of the consumer price index was below –0.4% was in the period of June 2009 to January 2010, when it ranged from –0.7% to –2.2%.

In June compared to May, the consumer price index was mainly influenced by 1.3% more expensive motor fuel, 10.8% more expensive accommodation services and 0.3% cheaper food (mainly due to the 4% cheaper fresh vegetables). Compared to May, the prices of sweet pepper increased the most (20%) and the prices of Chinese cabbage and tomatoes decreased the most (27% and 26%, respectively).

Change of the consumer price index by commodity groups, June 2014
Commodity group June 2013 –
June 2014, %
May 2014 –
June 2014, %
TOTAL -0.4 0.0
Food and non-alcoholic beverages -0.3 -0.2
Alcoholic beverages and tobacco 4.6 -0.6
Clothing and footwear 1.1 -0.4
Housing -3.4 0.4
Household goods 0.3 -0.4
Health 3.1 0.2
Transport -1.2 0.3
Communications -5.7 -0.5
Recreation and culture 1.8 -0.1
Education -14.3 0.5
Hotels, cafés and restaurants 4.9 2.2
Miscellaneous goods and services 1.8 -0.2

Source: Statistics Estonia

The stealthy privatization of Eesti Energia

Last spring, when Minister of Finance Jürgen Ligi allocated Eesti Energia under the his governance (beforehand it was the subject of the Ministry of Economic Affairs), he pointed out that the issue of privatization concerning Eesti Energia is in a dire need of investigation and needs to be handled step-by-step.

As it happens to appear, Eesti Energia has been privatized “step-by-step”, writes Harry Tuul of the business daily Äripäev. Sandor Liive, the head of Eesti Energia has in the time span of five years sold partnerships of five firms, the majority to private enterprises. The most recent transaction saw the birth of Võrguehitus, which is company to focusing on the building of electrical and communication networks. The contract was signed with Leonhard Weiss, of German origin, and amounted to 7 million euros.

In addition to this, in 2012 Televõrgu stocks were sold to Tele2 and Kohtla-Järve Soojus, and the majority of shares were sold to the Viru Keemia Grupp. Two transactions have been also sealed with the state. In 2010 Elering was sold and last year when the associate company Estlink’s assets were sold to Elering and Fingrid.

From a business standpoint, these deals are reasonably well considered and a sensible arrangement, where Eesti Energia focuses on its main objectives and delegates the less important and profitable projects to other companies. Due to the fact that Eesti Energia is a public company, every transaction will be carefully investigated – just like listed companies for which investors and the public show a heightened interest. Although contrary to publicly listed companies, the state owned Eesti Energia presents its partial privatization to its investors as fact in hindsight. Justification as well as the effects to the company value is secondary.

The most efficient cure for this kind of behavior is to base one’s actions on the stock exchange rule. The plan to take Eesti Energia to the stock exchange, which was on its homestretch during 2010-11, was shot down by former Prime Minister Andrus Ansip. In vain, Tuul writes.

Source: ERR News

Plan for Estonian, Finnish LNG gas terminals hits bump

Estonia and Finland have suffered a minor setback in their plans for proposed paired liquified gas terminals in both nations, linked by a pipeline.

Officials from both countries said that the European Commission raised some flags after companies involved in the project and its promoters presented their plan for the terminal project to a member of the European Commission in Tallinn on Wednesday. But neither country said they were ready to abandon the paired model.

“The plan is not sufficient yet,” Timo Tatar, director for energy projects at the Ministry of Economic Affairs and Communications, told ERR News.

“The companies involved in the project need to work further to create more synergies between them,” he said, referring to the structure of the ownership and the operation of the terminals.

“The companies are now negotiating between them to find those synergies, and then they will submit an amended proposal for the terminal project.”

A thumbs-up for the project is needed by the Commission for the plan, which would increase the energy diversification of the two nations, as it will rely heavily on EU subsidies. The estimates for the cost of the project is in the hundreds of millions of euros, perhaps around 1 billion after the cost of the pipeline is added in.

Read more from ERR News

Electricity production increased last year

According to Statistics Estonia, in 2013 the production of electricity totalled 13 TWh which is nearly 11% more than previous year. The electricity production from renewable sources decreased more than 10% compared 2012.

The growth in electricity generation was caused by exports, which increased nearly 27% compared to 2012. Exports to Latvia accounted for over 90% of total exports and increased more than one-fourth compared to 2012. At the same time, due to an unusually warm winter period, the inland consumption of electricity decreased 1%.

While in 2009–2012 there was an increase in the share of electricity produced from biomass in the total production of renewable electricity, then in 2013 there was a sharp decrease in the consumption of wood fuel for electricity generation, which, in turn, caused a fall in renewable energy production. At the same time, the implementation of environmental projects has remarkably livened up waste treatment and increased the consumption of waste fuel and biogas for electricity generation.  In 2013, wind energy production accounted for 40% of total renewable energy and increased nearly one-fourth compared to 2012 (22%).

In 2013, over 20 million tons of oil shale was produced, production increased 9% compared to the previous year. The majority of oil shale is consumed in power plants and as raw material for shale oil. In 2013, compared to 2012, consumption by power plants increased 16%, with 85% of electricity being produced from oil shale. Year by year, the consumption of oil shale in the oil industry has increased, together with the growth in shale oil production. The production of shale oil increased more than 4% compared to 2012. and more than 85% of the production was exported. 40% of the exported shale oil went to Belgium, followed by exports to the Netherlands (20%) and Sweden (18%).

In the last years, wood pellets have become an important type of fuel in the energy market. In the last five years, the production of pellets has increased more than 1.5 times. In 2013, the production of wood pellets grew nearly 15% compared to 2012. More than 90% of the wood pellets produced were exported: 61% to Denmark and one-fifth to Sweden.

While the production of peat fuels decreased significantly in 2012 due to bad weather conditions, then in 2013 the production increased substantially compared to the previous year. Compared to 2012, the production of peat for fuel grew nearly two-thirds and the production of peat briquette – 8%.

Electricity production from renewable sources, 2002–2013

Diagramm: Electricity production from renewable sources, 2002–2013

Source: Statistics Estonia

Finland and Estonia continued their negotiations on gas projects

Representatives of the respective Ministries of Economic Affairs of Finland and Estonia and the project developers Gasum, Alexela and EG Võrgu-teenus (Estonian Gas network service) deliberated on the progress in the projects involved with the planned gas pipeline to connect both countries, in Helsinki on May 22.

It is the goal of the Estonian and Finnish governments and enterprises to build a regional gas terminal on the shores of the Gulf of Finland, and the Balticconnector which would connect the natural gas transmission networks between the Baltic States and Finland.

The participating parties took the view that Alexela and Gasum have made progress in their negotiations regarding the liquidised natural gas terminal, and that obviously terminals will be built on both sides of the Gulf of Finland. At the same time EG Võrguteenused and Gasum will continue with the development of the Balticconnector.

In June a proposal containing the solutions shall be submitted to the European Commission in order to obtain the approval for the suitability of the solutions, which is required for the participation in the qualifying round for the European Projects of Common Interest initiated for the improvement of a reliable energy supply in Europe. The solutions must be conforming for the participation in the first qualifying round which will be opened this summer.

Source: Estonian Ministry of Economic Affairs and Communications

Electricity price decrease affects industries

According to Statistics Estonia, in February 2014, the producer price index of industrial output changed by -0.4% compared to January 2014 and by –0.9 % compared to February 2013.

In February, compared to the previous month, the producer price index was more than average influenced by the decrease in prices in electricity, gas, steam and air conditioning supply and in the manufacture of building materials as well as by the increase in prices in the manufacture of wood products.

Compared to February 2013, the producer price index was more than average influenced by the decrease in prices in electricity, gas, steam and air conditioning supply, in the manufacture of electronic equipment and in mining as well as by the increase in prices in the manufacture of wood products .

Change in the producer price index of industrial output by economic activity, February 2014
Economic activity according to EMTAK 2008 February 2014 – January 2014, % February 2014 – February 2013, %
TOTAL -0.4 -0.9
Manufacturing 0.4 0.2
Mining 2.7 -11.4
Electricity, gas, steam and air conditioning supply -9.3 -6.9
Water supply; sewerage; waste management and remediation activities 0.0 1.0

In February 2014, the export price index changed by 0.3% compared to January 2014 and by –2.3% compared to February 2013.

In February, compared to the previous month, the prices of oil products, timber and wood products increased more than average and the prices of electricity, building materials and food products decreased more than average.

In February 2014, the import price index changed by -0.6% compared to January 2014 and by –2.7% compared to February 2013.

In February, compared to the previous month, the prices of electricity, wearing apparel and electronic equipment decreased more than average and the prices of building materials, wood and wood products increased more than average.

Source: Statistics Estonia

Russia could nationalize Estonian assets

 

Estonian economist Maris Lauri writes that EU and US are likely to impose extensive trade sanctions in Russia in the light of Ukraine events. Russia is likely to respond with its own means which may include that the assets of foreign companies in Russia could be nationalized.

Lauri says that although such retaliation would be mainly targeted against US and British enterprises, one should not forget that Russia likes to attack weaker ones which means that this is something that also Estonian entrepreneurs must be prepared for.

Since Estonia is fully dependent on supplies of Russian natural gas, the Estonian government must quickly look at alternative possibilities to reduce Estonia’s energy dependency on Russia.

Read more from BBN

Lowest inflation in four years

Data from Statistics Estonia show that inflation in Estonia slowed in February to 0.6%. Inflation has been falling steadily since last summer and the last time inflation was below one percent was four years ago. Consumer prices were 0.1% higher in February than in January. Preliminary assessments show that inflation in the euro area stood at 0.8%* in February, the same as in the preceding two months. Although there was no change in inflation in the euro area in February, prices of manufactured goods rose faster, though this was offset by a simultaneous fall in energy prices.

The fall in energy prices was the main factor behind the fall in inflation in Estonia. Motor fuels were 4.6% cheaper in February than a year earlier, while heat energy was 4.7% cheaper. The price of district heating was affected by the lower price of gas, which is linked to changes in the oil price over the past three quarters. The strengthening of the euro has also had a strong impact on the fall in energy prices. However, the factors that have driven the fall in energy prices have probably by now been exhausted.

The sharp rise in electricity prices of 29% in 2013 was replaced by falls of 1.3% in January and 4.1% in February. The price on the electricity exchange fell in February to its lowest level for a year and a half as electricity consumption was lower than usual because the weather was warm. The electricity price was also brought down by the energisation of EstLink 2, which increased the transmission capacity between Estonia and the Nordic countries and led to stiffer competition in the local electricity market.

Food products, which includes alcohol and tobacco, were 2.8% higher in price in February than a year earlier. Food prices have exited their slump on world markets and the price of milk for example has been rising for a long time, while prices of coffee, sugar and cocoa rose sharply in February. The impact of these price rises is steadily passing through to Estonian consumers.

Core inflation, with food and energy prices removed, stood at 0.8% in February. Without the effect of lower prices for communications, inflation in service prices would have been 3.4%. The slowdown in prices of imports meant that inflation in prices of manufactured goods also slowed, falling to 0.4% in February. Prices for goods sold in Estonia are highly dependent on what happens in foreign markets as imports account for around 40% of household consumption, but the higher inflation rate for manufactured goods in the euro area was not reflected in Estonian prices.

Eesti Pank’s forecast expects consumer price inflation in Estonia to be 2.1% in 2014. Inflation will remain low in the coming months, partly because of the high comparison base from last year, but it is forecast to pick up in the second half of the year.

The primary role of the central banks of the euro area is to maintain inflation in the euro area at below but close to two percent over the medium term. The fact that Estonia’s inflation is slightly higher than the euro area average is to be expected and is a consequence of faster economic growth and harmonisation of relative incomes with those of the euro area.

* Calculation based on the harmonised index of consumer prices.

Source: Bank  of Estonia

Author: Rasmus Kattai, Head of the Economic Policy and Forecasting Division, Eesti Pank

Eesti Energia ditches plant expansion for shale oil

State-owned energy giant Eesti Energia’s board will cancel plans to build a second boiler unit for a Narva power plant today.

The company’s CEO, Sandor Liive, told Postimees today that they will not go forward with the 640-million euro plan of adding a second block, which would double the capacity of the Auvere plant to 600 megawatts.

Liive said they will concentrate on more lucrative shale oil production, which also produces electricity as a byproduct, and the company hopes to increase shale oil production by 10-fold by 2025, with Liive adding that producing shale oil doubles the amount of energy extracted from oil shale rock, compared to producing only electricity.

Source: Estonian Review / ERR

Inflation slowed as energy prices fell

Inflation in Estonia continued to slow in January, declining to 1.1% according to data from Statistics Estonia, while prices were 0.4% higher than in December. Preliminary assessments show that average annual inflation in the euro area slowed in January from 0.8% to 0.7%*.

The causes of the slowdown in inflation in Estonia were similar to those in the other countries of the euro area. The lower rate of inflation was mainly a consequence of lower prices for energy, notably a fall of 3.1% in prices for motor fuels and of 1.5% in the price of district heating. The slowdown in inflation in Estonia was to a large extent a reflection of the sharp rise in electricity prices a year ago passing out of the comparison base, with the result that the price of energy consumed fell. This is why inflation fell despite the faster rise in the prices for the rest of the consumer basket. In recent months falling prices have been seen over a slightly broader base in Estonia as 15 other groups of goods and services alongside energy saw lower prices in January, affecting around one third of the consumer basket in total. Among these were several manufactured products and food products.

Food products as a whole were 3.2% more expensive in January than a year earlier. Price growth was maintained by a seasonal rise in the prices of fruit and vegetables and by an increase in alcohol excise. The rise in tobacco excise will most likely be passed into consumer prices during the next three months because of stocks in warehouses, as happened last year. Prices for food commodities fell on world markets in January, with rises in only some product groups, notably dairy and meat products.

Core inflation in Estonia without energy and food accelerated to 0.8% in January from 0.4% in December. Core inflation was mainly pushed up by price rises of 4% for services other than communications. With communications included, services inflation was 1.2% in January. Factors holding down core inflation other than the fall in communication prices were weak economic activity in Estonia’s neighbours and a strengthening of the euro over the year. However core inflation rose by an estimated 0.3 percentage points as the effect of free public transport in Tallinn passed out of the calculation. The slowing of inflation in clothing and footwear prices since autumn was noteworthy among prices of manufactured goods.

Eesti Pank’s forecast expects consumer price inflation in Estonia to be 2.1% in 2014.


The primary role of the central banks of the euro area is to maintain inflation in the euro area at below but close to two percent over the medium term. The fact that Estonia’s inflation is slightly higher than the euro area average is to be expected and is a consequence of faster economic growth and harmonisation of relative incomes with those of the euro area.

* Calculation based on the harmonised index of consumer prices.

Source: Bank of Estonia

Author: Rasmus Kattai, Head of the Economic Policy and Forecasting Division, Eesti Pank

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