Estonia collects 45 percent of six month’s budget

The Baltic Times, TALLINN
Jul 27, 2000
Kairi Kurm

The Estonian state budget department collected 12.9 billion kroons ($772 million) in revenues in the first half of the year, which is about 45 percent of the budget for 2000. The best inflow to the state budget was the corporate income tax and the worst was the excise.

By the end of June, the national state budget had received 124 percent of estimated corporate income tax or 787 million kroons and 1.3 billion kroons from personal income tax, which is about 44 percent of the annual target.

“The inflow of taxes on income and profits turned out to be better than we expected,” said Dmitri Volkov, analyst at the Ministry of Finance. He said that the government had received about 500 million kroons from Eesti Telekom and 400 million kroons from Hansapank.

The revenue payments from the value-added tax and social tax came in as expected. The state budget collected 3.6 billion kroons from VAT and 5 billion kroons from social tax during the first half of the year.

But the share of excise tax in the state budget for six months was only about 33 percent or 1.2 billion kroons. The excise duties planned on alcohol, 497 kroons, came as anticipated. The excise received for motor vehicles was 60 million kroons (43 percent), motor vehicles fuel excise was 450 million kroons (25 percent) and tobacco was 187 million kroons (25 percent).

Volkov said that the ministry was too optimistic about the revenue flow from tobacco excise tax.

“First of all, the volume of tobacco imports was smaller, because the importers had brought in two months supply in advance of the raise in excise duties on tobacco on Jan. 1, 2000. Additionally, the size of the illegal market has increased due to the rise of excise duties. According to some importers, the size of the illegal market may be about 25 percent.”

The decline in the fuel excise is also caused by the rise of the illegal market, said Volkov. He said that imports of fuel have decreased by 30 percent compared to the same period in 1999, while the imports of fuel components in the first five months had increased by 2.5 times.

The excise duties did not bring in as much as predicted for 1999, when the state received only 78 percent (2.7 billion kroons) of the target.

At the same time, the state managed to spend 2.5 percent more than it earned in six months. The consolidated expenditure of general government amounted to 13.6 billion kroons in six months this year, which is 681 million kroons more than it gained for the same period, year on year.

The size of the deficit is, however, in accordance with the economic policy memorandum to the International Monetary Fund, in which the state is promising to keep the fiscal deficit of the general government in 2000 to no more than 1.25 percent of GDP and 700 million kroons during the first six months.

“According to our latest predictions, the deficit of the general government will stay on the level of 1.1 percent of the forecasted annual GDP,” said Volkov.

According to Tiiu-Tatjana Reinbusch, deputy head of the state Budget Department at the Ministry of Finance, May and June were the most costly months.

“It is the period when the tax board is paying out the sums declared in the tax declarations, and teachers are paid for their summer vacations in advance,” said Reinbusch.

Parnu, the summer capital of Estonia

The Baltic Times, PARNU
Jul 20, 2000
Kairi Kurm

 A summer resort in southeast Estonia at the mouth of the Parnu River is called the “summer capital of Estonia” because of its white sand beach and health spas. The Parnu government is also planning to turn the town into year-round conference site.

“Summer is how Parnu sells itself,” said Romek Kosenkranius, Parnu government spokesman. “Although the town is most active during the summer time, health resorts are popular with Finnish and Estonian tourists year around.”

With a population of 50,000 people, Parnu is the fifth biggest town in Estonia. In the summer, there are even more people in the town because of the huge number of tourists and Estonians vacationing there.


Finns love it

According to Kosenkranius, more than 300,000 tourists stayed overnight in Parnu last summer. In 1998 their number reached only 220,000 because of bad weather. According to a survey done by the Development Board of Parnu town government, 60 percent of the foreign tourists come from Finland.

There are also many tourists from Sweden, Germany, Latvia and the United States.The number of Russian tourists is very small, although the town was a popular summer resort with the Russian and Jewish intelligentsia during the Soviet period.

But the history of the town as an internationally recognized health resort goes back to the middle of the 19th century when the first bathing establishment was built.

The town itself was first mentioned in 1251 A.D. There were two separate towns on each bank of the river until the year 1920.

In Parnu in 1850, students were taught in their mother tongue for the first time in Estonia in the school opened by Johann Wolde-mar Jannsen.


Transport is the biggest issue

Parnu has had an important role in the economy of the country since the 14th and 15th centuries, when it was a Hansa town on the waterway to Novgorod.

Almost half of all the registered commercial companies in Parnu are active in wholesale and retail business, but the biggest employer in the town is still the state government with its education, health care and social welfare institutions. Almost one quarter of personal income tax comes from health care enterprises and government institutions.

Some of the biggest enterprises in Parnu are furniture and ski producer Viisnurk, metal goods producer Rannila Profiil, fish processing and canned fish producer Maseko, meat processing company Parnu Lihakombinaat and a textile producer, Parnu Marat.

Parnu’s biggest export partners are Finland, Sweden and the Ukraine, while the biggest import partners are Finland, Germany and Sweden.

The biggest exports in 1998 were livestock and foodstuffs (28 percent), metal and metal products (23 percent), textile and textile products (17 percent) and timber products (13 percent). Almost 40 percent of the imported goods in 1998 was metal and metal products.

“The biggest concern of the town government today has been to turn the companies in the so-called industrial town of Parnu into an environmentally friendly businesses,” said Kosenkranius. “The Parnu River used to be very polluted by the enterprises lying on its coast, but now it is in a much better shape.”

The other big objective of the government is to keep trucks out of the town. This task required moving the popular river harbors in the center of the town nearer the sea. Reldor, one of the harbors in the center of the town, is accusing the town government of hindering their business in the name of town planning. The town owns about half of Parnu harbor.

“The town government is solving the conflict by selling its shares in enterprises like the bus company Parnu ATP, the heating company Parnu Soojus and the mud bath establishment Parnu Mudaravila. The town is selling its shares in the harbor in order to show that the decision was not based on its businesses.”

Parnu has already sold its shares in road company Parnu Teed. According to Kosenkranius, roads are the second biggest concern of the government of Parnu.

“The town is looking for investments in the social welfare of the town,” said Kosenkranius. “An ice hockey association is planning to establish a big sports hall with the help of private investments. We are also planning to build a conference center. Our famous artist Mark Soosaar has come out with the idea of establishing an art museum.”

Soosaar, head of the Chaplin Art Center, is one of the organizers of the annual International Documentary and Anthropological Film Festival. He is also organizing the annual international nudes exhibition “Man and Woman” in Parnu.

Other popular entertainment events in Parnu are the Parnu Jazz festival, David Oistrakh classical music festival and the water festival Watergate.

“An investor will come to the town only if he knows his investments are profitable, and the town government is here to help to carry out these investments,” said Kosenkranius.

Kosenkranius also confessed that the government is planning to cut the administration costs of the town and make the management of public business more friendly.

“It’s just a matter of attitude. Every public official is representing the town government and should thus be able to help citizens instead of shaking them off their shoulders,” said Kosenkranius.

Soosaar is very dissatisfied with the administration of the town. “Parnu is in a very big crisis because the adminsitration is not capable of administrating the town. The general planning foresees leaving the express train out of town and letting the Via Baltica move through. To my mind, the general planning of the town is out of order,” Soosaar said.

He also said it is ridiculous to dismiss environment protection specialists and conservationists in a town which has several 400-year- old buildings and many parks.

“Decreasing the number of public officials on account of these people means that they are in someone’s way.”

Soosaar said the town has enough places for conferences and needs a big hall for congresses and concerts instead.

“Our hotels and restaurants are capable of hosting and feeding 1,500 people at once. In order to keep them busy all year around, we need to establish a big congress hall.”

But Soosaar said he loves his hometown.

“It has a naturally advantageous position, an interesting history and an even more interesting future,” he said.


American NRG gets clear shot at power investments

The Baltic Times, TALLINN
Jul 06, 2000
By Kairi Kurm

After four years of negotiations, the Estonian government on June 27 finally approved the terms under which NRG Energy may purchase a 49 percent stake in power stations of Narva Elektrijaamad and a 51-percent stake in oil shale mines of Eesti Polevkivi. The state-owned Eesti Energia’s share of Narva Elektrijaamad will drop to 51 percent.

The price of the deal is not set, but according to the terms approved by the government, it must be no less than $54.5 million. The state will in no way guarantee the deal.

Raivo Vare, chief negotiator for the government, said the negotiations were not easy.

“It is a commercial deal. The state is neither supporting nor giving any aid. The state has a coordinating function instead,” said Vare.

Narva Elektrijaamad, a company that runs the two largest power stations in Estonia, owns oil shale-fired generation plants of approximately 3,000 megawatts’ capacity. The oil shale mining company Eesti Polevkivi is 51 percent owned by Eesti Energia, with 49 percent of its shares belonging to Narva Elektrijaamad.

NRG Energy is a wholly-owned subsidiary of Northern States Power Company, one of the largest utilities in the United States. NRG owns all or a portion of 57 power generation projects with a total generating capacity of more than 23,000 MW. Its net ownership interest in these projects exceeds 13,000 MW.

The terms of the purchase include a commitment by Narva Elektrijaamad to invest approximately $361 million in reconstructing and refurbishing the generation plants and making environmental improvements. NRG Energy will make an initial $65 million to 70 million equity commitment, including a $5 million contribution to establish a social fund to help the residents of the Narva region, in which the plants are located.

“It is a good investment,” said Hillar Lauri, director of NRG Energy in Estonia. “People in the northeastern part of Estonia can sleep in peace now, because they know that they will have bread on the table and a secure future. The present government has taken a step forward, and I can see that they have a serious wish to advance the process.”

A representative from the United States Embassy in Tallinn declared the U.S. government’s continued support for the plan of NRG Energy to acquire a holding in Narva Elektrijaamad on June 27.

“Not only will this be the largest American investment ever made in Estonia, but also it will provide jobs and re-training for many workers in the economically depressed area [of northeastern Estonia],” the embassy representative said. “Additionally, this investment will address pollution problems connected with the burning
of oil shale, bringing emissions down to internationally accepted levels by the year 2005.”

Under the privatization terms NRG Energy must also ensure that the Estonian energy market becomes part of the European energy market.

Narva Elektrijaamad will enter into a 15-year power purchase agreement with Eesti Energia, according to which it must ensure a certain amount of gigawatt-hours for a certain period.

The producer price of electricity would range according to the amount purchased from 0.43 kroons ($ 0.026) to 0.495 kroons per kWh. At present, the producer price of electricity is about 0.32 kroons per kWh. The price of oil shale sold by Eesti Polevkivi may not exceed 131 kroons per ton until 2010 and 101 kroons per ton in the following

Eesti Energia, Meri not happy

The board of Eesti Energia fears that the terms of the deal may have a negative effect on Eesti Energia’s competitiveness in free market conditions, as the price of the electricity they are obliged to buy for the next 15 years is higher than its market price, the Estonian daily Eesti Paevaleht reported.

Eesti Energia’s supervisory council ruled on June 28 to put all responsibility for the privatization of the national power stations company on the government in order to avoid having to answer for what it believes is a bad deal.

Whoever approved the sale of the shares for political considerations must take ultimate responsibility, and that person is Economic Affairs Minister Mihkel Parnoja, said Eesti Energia council chairman, Juri Kao, in a Baltic News Service report.

Thus, the deal on the privatization of 49 percent of the shares in Narva Elektrijaamad must be signed by Parnoja as the representative of the owner, according to the council.

Meri also announced his dissatisfaction in his letter to Prime Minister Mart Laar on June 26. Meri said the growth of Estonia’s ross domestic product during the last five years indicates that Estonia’s GDP will reach the level of the well-developed EU countries within 25 years. But the sale of the shares would compel Estonia to make considerable investments that would raise the price of power higher than in Nordic countries and make Estonian goods less
competitive, thus hindering economic growth even more.

Meri also said the government needs a mandate from Parliament before deciding the matter, since the company is on a list of strategically important business ventures needing a parliamentary approval for privatization.

Laar told the daily Postimees that if the government would reject NRG Energy’s offer, there would be no better alternatives, and it would give Eesti Energia the possibility to create a super monopoly, a worse problem.