Ministries merger aims for efficiency

The Baltic Times, TALLINN
By Kairi Kurm
Mar 28, 2002

New Minister of Economy Liina Tonisson has started the long awaited merger of the Roads and Communications Ministry and the Economy Ministry. The two ministries have been operating as two separate entities under one minister, Tonisson, since January.

Former ministers are lukewarm about the idea.

“It’ll be a ministry with a huge area of responsibility that is difficult to manage,” said former Economy Minister Henrik Hololei. “I believe that when Estonia becomes a member of the European Union the minister of economy will have to spend more time outside Estonia than the minister of foreign affairs does. There are constant meetings of the councils which the minister has to attend.”

Former Minister of Roads and Communications Toivo Jurgenson said that while representing one ministry he could not attend all the necessary meetings.

“I tried to participate in at least two international meetings a month and was constantly balancing near international scandals,” he said. “The annual forums of international institutions on shipping, aviation, railway and road transportation were always attended by ministers.

“Besides that she should propose new bills in Parliament and attend Cabinet and government meetings.”

According to Aap Tanav, former spokesman of the Ministry of Roads and Communications, the tasks of both ministries don’t coincide.

The Ministry of Economy deals mostly with energy policy, trade and construction, he said. Only the number of employees from the administrative, accounting and public relations departments could be decreased in a merger, he said.

The Ministry of Roads and Communications currently employs 80 people, while the Ministry of Economy has 140 employees.

“The economic effect is small,” said Tanav. “Cutting down 10 million kroons ($562,000) in a 2 billion kroon budget is a small number.”

Efficiency not cost savings is the prime motive behind the merger, according to Kuldar Vaarsi, a spokesman for the Roads and Communications Ministry.

“We aren’t aiming at creating an inexpensive organization, but a better and more effective structure,” said Vaarsi.

Jurgenson said that a positive effect would be that economic policy could be worked out by one structure.

The responsibilities of each ministry have decreased since most of the state-owned companies were privatized. According to Jurgenson there were over 600 state-owned companies in 1994 when he was the minister of economy. By 1995 there were 23.

Both Jurgenson and Tanav said the new ministry would work on roads and communications issues, while the Economy Ministry’s duties could be divided between other ministries.

The idea to merge the ministries was first raised in 1997, when several government officials said there were too many ministries for a country of Estonia’s size.

The merger should be completed by the end of November.



Kallas refuses to re-examine energy deal

The Baltic Times, TALLINN
By Kairi Kurm
Mar 28, 2002

Estonia’s Prime Minister Siim Kallas last week turned down an offer from the U.S. company NRG Energy to restart negotiations on the sale of two Soviet-era oil-shale fired electricity plants in the Estonian city of Narva.

Under a privatization agreement that was canceled Jan. 8, NRG Energy was to borrow 285 million euros ($252.21 million) for renovation of the two plants, which account for 90 percent of electricity production in Estonia.

The Estonian government canceled the deal, which was six years in the making, because NRG Energy failed to obtain funding by the end of 2001.

Under the deal, NRG Energy would have bought a 49 percent stake in the facility.

Then Prime Minister Mart Laar resigned soon after the unpopular deal was quashed.

Dave Peterson, president of NRG Energy, wrote in a letter to Kallas, who was finance minister when the deal was initially signed, on Feb. 19 that NRG was prepared to conclude the deal in three to four weeks if necessary.

“Prime Minister Kallas, when you and I sat down together to sign the memorandum of understanding at the U.S. State Department more than six years ago, we were full of excitement at this opportunity to revitalize Estonia’s oil-shale energy sector and northeast Estonia,” he wrote. “I ask you to return to these noble goals.”

Kallas, who was finance minister when the deal was signed, refused.

“I sincerely regret that the parties were unable to achieve the expected outcome set down six years ago in the memorandum of understanding,” Kallas wrote to Peterson on March 21. “We should, however, acknowledge that the political and economic situation in Estonia has changed dramatically in the past six years.

“There have also been significant changes on the international level, most notably in the European Union energy market policy that we must take account of in light of our impending EU accession.”

Kallas went on to present several reasons why the deal could not be completed. The main argument was that the banks requested a state guarantee although it was agreed from the start that the state would not provide one.

There were also complaints about a planned price hike that would help cover NRG’s profitability demands.

The deal’s cancellation had long been demanded by former Estonian President Lennart Meri, Estonian scientists, environmental organizations and the former opposition Center Party, which is now a governing coalition partner.

“It is my understanding that the real reason for the failure to finance the project as originally intended was in fact the situation in the markets that changed significantly after the events of September 11,” said Kallas.

The U.S. Embassy in Estonia issued a sharp reaction on March 22, stating that the U.S. government was disappointed by the Estonian government’s flat refusal to re-examine the deal.

“We are continuously supporting NRG in all its efforts to make it a successful deal,” said Thomas Hodges, the embassy’s public affairs officer. “This was a deal that held many positive aspects for Estonia, especially for the public and for communities in northeastern Estonia, and is something that the U.S. government attached great importance to.

“It would have improved the technology, reduced pollution, enabled more efficient energy production and involved investments in Ida Virumaa (the region where the plants are located).”

Peeter Kreitzberg, deputy chairman of the Center Party, told The Baltic Times in January when the deal was canceled that NRG Energy had gone to unacceptable lengths to secure the deal, with Petersen even saying that backing out would jeopardize Estonia’s chances to join NATO and the EU.

The Estonian government has tasked the Economy Ministry with finding alternative ways to finance the renovations of the plants. Some analysts have suggested that the company should be listed on the stock exchange.


Neighborly relations

The Baltic Times, TALLINN
Interview by Kairi Kurm
Mar 28, 2002

Estonia’s relations with Russia are as vital to Estonia’s political stability and economic prosperity as they have always been. Kairi Kurm talked to Karin Jaani, Estonian ambassador to the Russian Federation, in Moscow about how things stand between the two countries.Slowly but steadily the tension in relations between the two neighbors is ebbing. That negotiations are underway for a summit between the Estonian and Russian presidents proves that both sides, once barely on speaking terms, have grown a little closer together.

Russia’s negative attitude to NATO expansion to the Baltic states, a row over which branch of the Orthodox church should be registered in Estonia, and double custom tolls are the main thorns in the side for anyone trying to improve relations.
What are the biggest issues in Estonian-Russian relations?

Estonia has been ready for years to develop good-neighborly relations with Russia. The two countries have prepared five economic agreements, which have not yet been signed. Russia has expressed a desire to review the agreements a couple more times. It seems to me that Russia is currently politically not ready to sign any business agreements.

Estonia’s relations with Russia are already today viewed as being part of the relations between Russia and the European Union. From Russia’s point of view the main obstacle to establishing normal relations with Estonia seems to be the problem of the registration of the Estonian Orthodox Church of the Moscow Patriarchate by the Estonian authorities. The Russian side has said clearly that as soon as the church is registered the Estonian-Russian Intergovernmental Commission can start working again on improving business relations.

What is Russia’s standpoint on Estonia’s NATO aspirations?

We can see some dynamics here. A year ago Russia’s position on NATO’s enlargement toward Russia’s boundaries was stiff, but after the tragic events of Sept. 11 in the U.S. it changed. Russian Foreign Minister Igor Ivanov told our Foreign Minister Kristiina Ojuland in a meeting in Kaliningrad two weeks ago very clearly that although Russia was not happy about the accession, it accepts the sovereign right of each country to choose its own security guarantees.

President Putin has also said that Russia cannot dictate to any nation how to ensure its security, but at the same time the expansion of NATO to include Estonia, Latvia and Lithuania would probably not increase their level of security.

Estonia’s consulate in St. Petersburg was attacked last week. There was a noisy meeting in front of the building and the window was smashed with a brick. Do you feel safe here in the Estonian Embassy in Moscow?

It was a regrettable hooligan attack. I don’t see any strong political signs behind it. There was a bomb threat here last fall, after the terrorist attacks in the U.S. The Russian side has guaranteed the safety of our embassy as well as other diplomatic representations, and we follow our own safety measures as well. I should say that we feel quite safe here.

Will Estonia joining the EU influence relations with Russia?

This should liven up trade between Estonia and Russia. Becoming the EU’s border state and knowing Russia so well, Estonia might become a good connecting link between EU and Russia. Cross-border cooperation is an important issue between the relations of two countries. Considering this, we already have established good connections with St. Petersburg and the Pskov region.

Russia is Estonia’s 10th biggest export partner, with a 2.8 percent share in total exports and the fifth import partner with 8.1 percent. How might this change in the future?

Regarding exports to Russia we’re in a bad situation. We have a 5.4 billion kroon ($303 million) trade deficit with Russia. Our exports to Russia in 2001 were 6 billion kroons and imports were 11 billion kroons. These figures are regrettably small. But there is nothing Estonian producers can do about it. Since 1995 Russia has imposed double customs tariffs on Estonian products, which makes it very difficult for Estonian producers to enter the Russian market.

When will Russia abolish the double tariffs?

Imposing them was their sovereign decision. Russia can unilaterally abolish them, because it has unilaterally enforced it. It depends a lot on the general political atmosphere. They will most likely be abolished when Russia becomes a member of the World Trade Organization.

What’s the business climate like in Russia today?

The business climate has improved in the last few years, but it’s still uncertain. Several large international companies have come here lately. The bigger the company the more secure it feels itself here.

One of the biggest problems is that Russia has yet not carried out banking reform. There are many commercial banks the survival of which is difficult to estimate. The situation is similar to what we had in Estonia at the beginning of the 1990s, when some banks merged and others went into bankruptcy.

The situation is improving and Russia itself wants foreign companies to come. The climate is advantageous also because income tax is very low. It’s 13 percent. The time to experiment and start a business here will come in the near future.

The Organization for Security and Cooperation in Europe closed its missions in Latvia and Estonia at the end of December, a sign it is satisfied that the rights of the Russian minority are being protected. When will Russia be satisfied with the minority situation in Estonia?

Russian diplomats have told me they regret the OSCE left Estonia and Latvia. They think there are still problems we should solve under international supervision. This has something to do with active lobbying by some non-citizens in Estonia, who have not overcome the relics of the past and believe that Russian should become the state’s second official language.

The new government is reviewing the question of maintaining Russian schools. Time will tell whether the demand for a Russian secondary school education remains. The Council of Europe, the OSCE and the United Nations are of the opinion that the human rights of non-Estonians are guaranteed and correspond to international standards. Russia’s disagreement is just a different opinion.