EU energy pact angers Greens

The Baltic Times, TALLINN
By Kairi Kurm
Aug 08, 2002

Environmental groups have criticized an energy agreement between Estonia and the European Union, saying the country should consider alternative sources of energy rather than relying on oil shale fuel as it does now.

The closure of the energy chapter in Estonia’s accession negotiations with the EU on July 30 allows Estonia to continue producing expensive and polluting oil shale based fuel, and allows the country’s energy market to remain partly closed to foreign competitors until 2012.

The “concessions” enable Estonia to preserve its competitiveness, independence from foreign energy producers and stable prices, said Alar Streimann, deputy under secretary at the Foreign Ministry, who led the delegation.

“If we didn’t have a major producer (the oil shale power stations), it could happen that suddenly we don’t have any electricity at all,” Streimann said.

“This also guarantees stable prices. Our main aim is to prevent imports of electricity – for which there may be doubts about continuity – and possibly at dumping prices.”

The EU agreed to fund oil shale research in northeastern Estonia, where thousands of people are engaged in the sector. Estonia, in turn, promised to restructure the sector by 2012 and provide the oil shale industry with the best possible equipment to preserve the environment.

But the Estonian Fund for Nature and the Estonian Wind Power Association criticized the agreement, saying Estonia should invest in the production of alternative green energy.

“We weren’t happy about the closing of the chapter,” said Jaan Tepp, chairman of the board at the Estonian Wind Power Association.

“It should have been done only after it had been made clear what the state’s role in supporting the production of renewable energy was.”

Urmo Lehtveer, spokesman for the Estonian Fund for Nature, agreed.

“From one side, it is inevitable that Estonia depends on oil shale energy and can’t make fast changes. It would have become expensive if it had agreed on shorter terms. On the other hand, the Estonian government is passive toward environmental matters and does nothing to develop alternative sources,” said Lehtveer.

The Estonian Green Movement has started a court case against the Economic Affairs Ministry alleging that the government had not estimated the impact of oil shale based energy production on the environment before starting the development project.

“The emphases are wrong here. We should give up the use of oil shale one day and the sooner we start preparations, the better,” said Lehtveer.

According to some estimates Estonia’s oil shale mines will be exhausted in 30 years.

Eesti Energia’s promotion of the use of electrical energy for heating houses is contrary to the policies of more environmentally enlightened governments, said Lehtveer.

Government policies also attract foreign investors in spheres such as cellulose production and metallurgical engineering which make intensive use of electricity, he added.

Under the agreement Estonia needs only to open 35 percent of its energy market to foreign investors by 2009 and can wait to open the rest of the market until 2012. Currently the state owned energy company Eesti Energia controls 90 percent of the market while wind and water power from Latvia and Russia account for the remaining 10 percent.

Estonia has provisionally closed 28 of the 31 chapters in the accession negotiation process. Still open are chapters on agriculture and financial and budgetary provisions, after which a catch-all chapter to tie up loose ends will be discussed.

Finland concerned over feared tax haven

The Baltic Times, TALLINN
By Kairi Kurm
Aug 08, 2002

Finnish trade unions are trembling at the prospect of a tax paradise for the country’s firms just across the Gulf of Finland when Estonia joins the European Union.

Estonia’s system of low taxes, approved by the European Commission, the EU’s executive arm, will be a magnet for Finnish firms looking to improve their bottom line, the unions say.

In Finland, corporate income tax is 29 percent while in Estonia it is 26 percent and there is no tax on reinvested corporate profits. The personal income tax rate is progressive in Finland and may reach up to 60 percent; in Estonia it is set at 26 percent.

The EU has agreed to allow Estonia to preserve these tax rates upon accession, but Finnish trade unions are crying foul.

“When you have a common market and soon a common currency, and services are free to cross the border, problems will arise due to the very different levels of taxation in Estonia and Finland,” said Matti Viialainen, deputy head of the Central Organization of Finnish Trade Unions. “In the case of many businesses, it will be very lucrative to operate under the Estonian flag or from Estonia instead of highly-taxed Finland. I am worried that due to the huge gap in taxation, Finland will become a loser in terms of employment and tax revenues.”

Viialainen also mentioned Estonia’s favorable value added tax system, which releases companies with an annual turnovers of less than 16,025 euros from registering for VAT. In the EU the barrier is only 5,000 euros and in Finland 8,400 euros.

Tax-free trading on Estonian ships will disappear when Estonia joins the EU, but tobacco will be taxed at a lower rate until 2009, thereby boosting shopping tourism from Finland, he said.

However, Estonian officials dismiss such claims. Prime Minister Siim Kallas said that rather than fearing an outflow of companies, other nations should follow Estonia’s example and lower their taxes.

The Finns, Kallas said, were “over-dramatizing the situation.” There has never been a limit on foreign investments in Estonia, so there will not be a sudden inflow of Finnish money.

“So it is definitely not correct to state that Estonia is a tax paradise,” he said.

Aku Sorainen, an attorney at the Finnish Sorainen Law Offices in Tallinn, agrees with Kallas. Sorainen said that Finns often misunderstood the full concept of Estonian tax system, due to it being so different and modern.

“Public comments in Finland have often ignored the fact that the distribution of company profits in Estonia is taxed more or less the same as in Finland,” he said. And because the social taxes paid by the employer are higher in Estonia (33 percent) than in Finland (about 20 percent), Estonia could be a model for Finland in how to create a simpler tax system that encourages entrepreneurship, investment and hard work by employees, he said.

“Employees are often discouraged from working more in Finland since increased salaries would also mean increased tax rates,” Sorainen said.

Kallas said lower taxes did bring advantages to the state.

“Estonia certainly wants to preserve the comparatively low taxation level for a long time,” Kallas said. “I suggest other countries move toward decreasing taxes rather than pressuring others to increase theirs.”

The Finnish trade unions think the heavy tax burden should be gradually decreased in Finland, Viialainen said. This has also been the policy of Finnish Prime Minister Paavo Lipponen. According to next year’s proposed budget, the tax rate will be decreased by 1 percent next year.

But it is hard for Finland to decrease the tax rate while trying to uphold a social-welfare system, he said, and so it is difficult for the country to compete internationally on low tax levels. He suggested that the EU set tax standards to avoid harmful competition between member states.

Viialained said that taxation was an internal matter for Estonia, but EU negotiators should have considered the issue more carefully.

“When Estonia is a member of the same union, then the common internal market is not totally (the country’s) own business any more,” he said. “That is why I hope Estonians understand our criticism.”


Estonia mulls simpler visas for Russians

The Baltic Times, TALLINN
By Kairi Kurm
Aug 01, 2002

The number of Russians visiting Estonia has been increasing lately thanks to promotional work done by the government and the private sector in Russia. But some say the inflow of Russian tourists could be even higher if the visa issuing procedure were simpler.

Leisure and business travelers from Russia could mean billions of kroons for Estonia, says Oliver Staas, regional director of Radisson SAS Hotels and Resorts.

“Estonia has always been a popular destination for Russian travelers,” Staas said. “Now with increased awareness of Estonia as an attractive conference destination with modern infrastructure, this could only grow.”

Last year 281,000 Russians visited Estonia, according to the Estonian Tourism Board, forming one-quarter of the total number of foreigners visiting the country, just behind Finns and Latvians.

Almost half of the Russians visit their relatives and friends in Estonia. Some 22 percent come for business and 12 percent for vacation, according to the tourism board.

By the end of this year, the number of Estonian visas issued at the consular office in Moscow will increase by 30,000, a result of the aggressive promotional campaign by Estonian tourism authorities, said Tarmo Punnik, second secretary at the Estonian Embassy in Russia.

Recent research at a travel fair in St. Petersburg shows that the visa procedure was the main obstacle, mainly among the older generation that used to travel to Estonia without visas during Soviet times. Russians also complain about the long lines at the three Estonian consular departments.

“I think extra resources should be allocated to deal with the queues and lower cost visas should be available with a Pan Baltic agreement allowing Pan-Baltic access for Russians on one visa,” said Paul Taylor, regional director of sales for Radisson’s Baltic and Russia operations.

Only citizens of Canada and South Africa may travel to Estonia on Latvian or Lithuanian visas.

It takes Russians up to five days to get a regular visa to Estonia and one day to get an urgent visa. The regular single-entry visa costs 210 kroons (13 euros), while the urgent one is twice as expensive. In addition, Russians traveling to Estonia need an invitation either from relatives or friends, a tourism agency or the company they are visiting.

Oliver Olin, sales manager at a Moscow travel agency, says the agency route is the easiest. But others said improved transportation and infrastructure, not easier visa requirements, would bring more Russians to Estonia.

“I don’t think the problem is in visas,” said Punnik. “It is rather a bad transportation connection, lack of hotel rooms and lack of information. You can’t get a Schengen visa in Russia in a day or a week, even an urgent one.”

Russian tourists have complained about transportation links to Estonia, Punnik said. There is an airplane route to Moscow, which is often booked solid. The trip from Tallinn to Moscow takes 16 hours by train and bus.

A direct flight from Tallinn to St. Petersburg could also help increase the number of Russian tourists, said Staas.

Another way is to work on shaping Estonia’s image within Russia, which can be affected by negative news and lack of information, Ollin said.

Punnik added that the Estonian government should do more to advertise the country in Russia.

“A Russian tourist spends all his money on a vacation,” Punnik said. “Unlike Finnish tourists, he wouldn’t go to the Kadaka market, but to the most expensive restaurant to drink the most expensive vodka..”

According to the international weekly Tourism & Vacations magazine, about 20 million Russians travel abroad each year and spend nearly 50 billion euros.

Estonian travel agencies and hotels lobby for Russian tourist dollars in Russia at their own expense. Some major Estonian hotels promote themselves in Russian travel magazines. Radisson SAS even offers special tours to the country with discounts on traveling expenses.