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.


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