Eesti Energia announces big price hikes

The Baltic Times, TALLINN
By Kairi Kurm
Oct 18, 2001

Estonian energy monopoly Eesti Energia has announced that electricity prices will rise by an average of 33 percent for residential consumers and 5.6 percent for low-voltage business customers starting April 2002.

The move comes after demonstrations this month against a new standing charge to pay for electricity distribution regardless of the quantity consumed.

The utility said it was restructuring prices to end the subsidizing of domestic consumption by business.

“As of the spring of 2002, there will be no separate price lists for residential customers and business customers, and all customer groups will have equal rates,” said Jaanus Arukaev, marketing director at Eesti Energia.

Eesti Energia has established eight different packages for its customers. The highest residential rate will rise from 0.91 kroons ($0.05) per kWh to 1.10 kroons per kWh, and the highest business rate will rise from 1.08 kroons per kWh to 1.10 kroons per kWh.

Under the new system some business customers may even see a drop in prices, particularly Eesti Energia’s most important business clients, who have individual contracts with the company.

Arukaev attempted to discourage those with electrical heating systems from switching to gas, saying that gas prices will rise by 50 percent next year.

The new pricing system meant electricity prices had reached European levels and would not increase further, he said. “Electrical heating is the most convenient form of heating. One can turn it off during the day and move the heating system from one place to another. It does not freeze and the preliminary costs of switching to electricity are low.”

The company’s main justification for the price hike was that Eesti Energia should operate profitably and, prices should cover the cost of electricity generation.

Eesti Energia plans to break even in the current financial year, ending in April 2002, and to earn a profit in 2003.

“The market situation is not good and exports are dropping constantly,” said Arukaev. “The main reason is that Estonia’s energy market is the most liberal in the world, certainly more so than Latvia’s and Lithuania’s. Sales are also decreasing because industries that once consumed a lot of electricity inefficiently are folding.”

Last year the company had a net loss of 4.56 billion kroons on a turnover of 4.56 billion kroons. It attributed its losses to depreciation of its assets from 16 billion kroons to 14 billion kroons.

Margus Kasepalu, spokesman for the Energy Market Inspectorate, expressed approval for Eesti Energia’s new pricing system.

The company’s separation of its electricity production business from network services was also a positive move, he said.

“The network service wants to earn some revenue regardless of whether the electricity is used or not.”

A monthly 20 kroon distribution fee payable by all customers would guarantee high-quality electrical power at all times, said Arukaev.

He acknowledged that people who use only a few kilowatts annually at summer cottages, for example, must pay at least 240 kroons a year for distribution – something which prompted protests by residents’ associations, pensioners and trade unions outside the Economy Ministry on Oct. 3.

According to Aino Runge, of the Consumer Protection Union, the electricity bills of the poor, who try to save money on utilities, are currently around 40 kroons per month. The new prices will mean them paying an additional 11 kroons on top of the 20 kroon monthly fee. “The new prices would hit the poorest people the most. We have about 1,500 customers who earn from 1,400 kroons to 1,600 kroons a month. They go to bed early and wake up early in order to save electricity. They have to count each cent,” said Runge.

According to Arukaev, Eesti Energia together with the Ministry of Social Affairs will launch a special social program in order to alleviate the effects of the price rises on poorer households.

Previously, electricity was not considered a basic necessity and was not compensated for. But last year 60,000 of Eesti Energia’s 584,000 domestic customer received support from the ministry, 10,000 of them on a regular basis.

Arukaev said that Estonia’s electricity prices are lower than in Latvia and Lithuania, adding that electricity would still be 30 percent more expensive in neighboring Finland after the rises.

Kasepalu said that electricity is probably slightly too expensive in Estonia because of the environmental expenses incurred in generating electricity from oil shale. “We can’t help it. In future we will have cables,” he said referring to a planned underwater power cable between Estonia and Finland to be completed in 2004. “Maybe it will have a positive effect for consumers.”

Estonia’s competitiveness clear from yearbook

The Baltic Times, TALLINN
By Kairi Kurm
Oct 18, 2001

Estonia ranks 22nd among 49 countries surveyed in this year’s World Competitiveness Yearbook, which is published by the International Institute for Management Development based in Lausanne, Switzerland. The survey’s aim is to inform potential investors and local authorities alike on a country’s international competitiveness.First place goes to the United States, followed by Singapore and Finland. Rounding up the survey, at the bottom, are Indonesia, Venezuela and Poland. Russia comes in at number 45. In this survey Estonia leads such economically developed countries as Spain, France, Japan and Korea. Estonia’s competitiveness is 40 percent that of the U.S. level.

“Estonia’s 22nd place is a good and significant message to foreign investors and promotes recognition of the country’s economic policy,” said Leev Kuum, researcher at the Estonian Institute of Economic Research, the publisher’s partner in Estonia. According to Kuum, a total of 286 criteria were taken into account in the study, two-thirds of which consisted of statistical data, and the rest, the so called soft data, gathered through a survey that was carried out among 100 of Estonia’s top managers. “The competitiveness reflects first and foremost the country’s ability to sell its products abroad,” said Kuum. He said that the research took into account the country’s small size and can thus be considered “a product balancing science and the arts.”

Estonia’s biggest strengths, as brought out in the survey, are its high level of services’ exports, well developed foreign trade, a large share of women in the labor market (48 percent), low internal and national debt and a high level of annual labor productivity increases. The other pros mentioned include the country’s low prices and a large share of foreign direct investments. At the same time, Estonian citizens are among the most literate of the 49 nations surveyed, placing second after Slovakia, with only a 0.2 percent illiteracy rate. India, which holds the last position in this category, has an illiteracy rate of 47 percent.

The country’s negatives are, its inefficient use of energy, a lack of qualified labor, including engineers and management, and low labor productivity. The businessmen questioned found that it was difficult to hire foreign labor and to get export credits and insurance. Estonia ranked in the last position regarding its huge foreign trade deficit, as a percentage of its GDP, and in 45th position with its high state budget deficit, which totals 4.7 percent of its 1999 GDP.

“Part of the information used in the survey derives from 1999,” said Marje Josing, director of the Estonian Institute of Economic Research. “We hope that Estonia’s position will improve next year because the exports in 2000 were quite good,” she said.

Raul Malmstein, deputy secretary general at the Ministry of Economic Affairs, said that the state’s average expenditures on research and development, which equal 0.75 percent of the GDP, have to be increased to the European average of 1.8 percent within three to four years. He said that the share of the private sector’s research expenditures, which is 0.15 percent of the GDP today, should outstrip the state’s spending in the future. “Estonian companies depend on foreign outsourcing and are thus not interested in further developments or in increasing their productivity,” said Malmstein. “The other problem is the country’s low awareness abroad. A product advertised as ?made in Estonia’ does not entice a consumer to reach for it. Estonia’s brand identity project should improve this and help bring tourists to Estonia and boost our exports.”

According to Malmstein, the proportion of private companies to population is two times less in Estonia than in the European Union, where there are 51 companies per 1,000 people.

The 49 countries surveyed in the book are not the most succesful among the world’s total of 220 but are the ones with the most interesting economies, said Josing. The survey did not cover Latvia or Lithuania. Estonia was included in this yearbook for the first time thanks to the efforts of the former head of the state-run Estonian Investment Agency, Agu Remmelg, said Josing. The International Institute for Management Development is one of the most well-known business colleges in the world, staffed with some 50 professors and spending 20 percent of its budget on research.