Self-employment still a precarious venture

The Baltic Times
By Kairi Kurm
May 31, 2006 

Starting a company of your own can be a sign of wealth or disaster, depending on the idea and the owner’s personality. After the collapse of the Soviet Union, the number of entrepreneurs in Estonia soared. Today, the job market has much more to offer. Nevertheless, many still believe they can manage better on their own.

According to recent data from the Statistical Office of Estonia, 44,500 people – 4 percent of the country’s working population – were self-employed in 2004. Most live in the southern and northern part of the country.
In southern Estonia, most entrepreneurships – one third to be exact – deal with agriculture, hunting and forestry. In the north, self-employed residents work mainly in retail and wholesale trade; repair of motor vehicles, motorcycles and personal and household goods.

Katrin Truumagi, a young broker, told The Baltic Times that the only real estate job she could find was in company registration. The position enabled Truumagi to use the company office and name, but in return she would have to pay a so called “table duty.” Rather than work as a sole proprietor, she prefers having a company of her own, as it ensures better bank loan conditions and she doesn’t have to worry about losing her personal assets if a company goes bankrupt (which is the case with sole proprietors).

Kaupo Kikkas, a young photographer who opened the studio a few years ago, is quite successful and well-known today. “In this business it is very important to have your own company. People such as artists, photographers and writers sell their own resources and have customers who want to buy their personal creation. For them it does not make any sense to be an employee, because a company does not give any additional value to their work,” he said. “On the other hand I would be glad to have well-paid work. The time has passed where people must have their own companies [to do well]. Wages have increased, even in the public sector,” said Kikkas. “The responsibilities are very high for the self-employed. You work 60 or even 80 hours per week, not 40. But there is no one to blame but yourself.” Surprisingly, Kikkas did not face any major obstacles when opening his business. “The problems arise as you start hiring people and miscalculate expenses,” he said. “Many start their own business and pay taxes in accordance with law and then later find that there is no profit at all.”

Kadri Akermann, a young lawyer who opened her own consultancy, Acte Konsultatsioonid, a few years ago, mentioned a number of things that people forget to take into account when opening a business. Starting a company takes more time than initially planned, she specified, suggesting that people hold on to their permanent jobs in the beginning to disperse the financial risks.
In 2003, 59 percent of Estonia’s self-employed made a profit, while 15 percent ended in the red and one fourth failed to receive monetary income. Half of this number’s income came strictly from their own company, while 19 percent also worked for an employer.

The statistics also show that entrepreneurs struggle more than their employed peers. In 2003, more than one third of Estonia’s self-employed were living in poverty, which means their income was below 23,300 kroons (1500 euros) per year – the nation’s “at-risk-of-poverty threshold.” Company employees were much better off, with only 7 percent defined as poor.
Estonia’s local governments offer few support schemes for start-up companies, and even Enterprise Estonia’s programs are scarce. The support projects that do exist are mainly related to consulting and training. For example, in an effort to create more jobs, the City of Tallinn offers 100,000 kroons of financial support to entrepreneurships if they pass certain criteria.
But if owners try hard enough, financial support can be earned.

Hain Dengo co-founded a furniture business in 2004 and received 160,000 kroons support from Enterprise Estonia for the purchase of new equipment. The company is currently producing design furniture and looking for business partners abroad.
Although his business has created a few new jobs in the area, he and his partners’ main motivation was insuring their own future, Dengo said. And this, it seems, is true of most entrepreneurs, whether they realize what they’re in for or not.


Estonians skeptical over digital TV


The Baltic Times
By Kairi Kurm
May 24, 2006 

Although Estonia is widely known as an e-country, it seems to be stuck in its digital TV development. Whether it’s a fear of new competition or lack of technology, television channels aren’t in any hurry to push ahead. According to EU recommendations, member states should switch to digital TV technology by 2012. Finland has already made arrangements for the transfer in autumn 2007, and Sweden for 2008. Even Latvia and Lithuania are a few steps ahead of Estonia, although not by much.

Neither of Estonia’s two locally private TV channels, nor its national station produces digital programs. Rather, they are transmitted in analog formats, without the functions that digital TV is supposed to offer.
Digital technology provides a more efficient way to deliver television than with analog transmissions. It enables the same services to be delivered in less space with greater clarity. The signal either reaches the customer or does not reach them at all. With analog signals, people often see poor-quality pictures.

In Estonia, digital transmission is offered by Starman cable-TV networks and Elion’s ADSL2+ networks, as well as Viasat’s satellite transmission and Levira’s Digital Terrestrial Transmission.
“When the latter two are left out, then the share of households watching digital TV is very marginal.  I would estimate the figure of clients to be well below 10 000,” said Henri Treude, marketing director at Starman.

What’s the big deal?
With digital transmission, sound and pictures are converted into a digital format and compressed, using as few bits as possible to convey the information on a digital signal. This technique enables several television channels to be carried in the amount of space that analog signals use for one channel. Thus, this form of production is much cheaper for broadcasters.
Although the process is coming along slowly, more and more Estonians are making the switch. According to Ain Parmas, spokesman of Elion, 5,000 customers joined the digital TV campaign last month.
“The main thing is that digital TV allows for many more channels,” said Mike Butcher, a freelance technology writer at The Financial Times. “High Definition TV (HDTV) will come along and take up more bandwidth, so that there may end up being less digital channels but the picture quality will be amazing.”

Ainar Sepp, technology director at the national station ETV, told The Baltic Times that people would greatly benefit from digital TV’s convenient features. By autumn this year, Elion, an Estonian fixed-line operator, is planning to start providing a digital Video on Demand service, which means that clients will be able to choose films and programs from menus on their TV screen and watch the newest music videos. With certain TVs people can also record their favorite movies on hard discs while they are away and continue watching in real-time as they return. Starman, a cable network operator, offers a similar service.
By the end of this year, digital TV and super-high-speed Internet connection will be provided to every town and to about 100 larger locations in Estonia, reaching approximately two thirds of all Elion Internet subscribers, said Ain Parmas, a spokesman for Elion.

However local TV broadcasters are hesitant to “go digital,” and will continue to be as long as Estonians lack the necessary equipment – either a digital box or modern TV – to accommodate digital transmission. According to the abovementioned estimates, Estonia only has about 10,000 people with digital-accessible equipment. In comparison, the U.K. has approximately 15 million people with such technology. Urmas Oru, director general at Kanal2, said that it was up to Levira, Estonia’s largest radio broadcaster, to determine when, how and by which conditions local TV channels can broadcast their programs digitally.
“It is not a one-sided topic,” said Oru. “We need a decision on the governmental level about how to proceed. Everybody needs to be ready – the broadcasters, the customers, the government. We need to go in one rhythm. We also need a network. There is no equipment to transmit programs outside Tallinn.”

Levira is the only broadcaster in Estonia that serves its three analog TV networks. Once the Estonian Broadcasting Transmission Center, Levira was privatized in 1997 and is now owned partly by the state (51 percent) and the French telecom and broadcasting company, TDF (49 percent). Since switching from analog to digital is a huge investment, and because broadcasters will have to incur the costs of transmitting signals in both formats until about 2012, many suggest that the government should provide a helping hand. The Finnish government, for example, invested money from a privatized broadcasting transmission center to develop its digital network. So far, the Estonian government has not yet followed this example, and is probably not planning to do so.

Instead, a 10 million kroon tax has been established for newcomers to the digital market. This, according to Alar Pardla, editor-in-chief of the IT magazine Arvutimaailm, will hinder the development of digitalization.
“The main reason why new, self-made channels do not join the digital networks is the small number of customers,” said Henry Treude, marketing director at Starman. “Developing a channel for such a small portion of customers is just not feasible. In Finland, it worked because they used digital terrestrial transmission and channels were probably supported in order to make people switch over.”

Looking to the future
Aivar Kender, manager of the DigiTV department at Levira, agrees that the government should support both current and new broadcasters through tax benefits and other means. Levira’s interest is to service a wider network of TV broadcasters. Besides TV, radio channels will also be broadcast digitally.
But Sepp says a number of circumstances hinder the establishment of new channels. The main obstacle, besides state tax, is that digital TV cannot be passed through the air. The potential customers are those using cable networks, but this number is too small to create competition with existing channels. As soon as digital terrestrial transmission starts, the number of digital -box owners should increase.

“A logical course of events would be that national TV would be the first channel to start with DTT transmission and other channels would join as soon as the number of digital -box holders has increased,” said Sepp.
As for private channels, Sepp says there is little incentive for private channels to make the switch.
“After reaching a stable profit a few years ago, which increases year by year, private channels do not want the instability that will come with the switch over,” said Sepp.

So what is the future of digital TV? According to Treude from Starman, analog television will remain in Estonia as long as the difference in quality, the number of channels and function does not compensate the difference in price.
During the next few years, digital TV will dominate in areas where cheaper alternatives are not available and in high-income homes that can afford the higher monthly fees. As for the rest of Estonia, it may take years.


Estonian labor asks for better price

The Baltic Times
By Kairi Kurm
Mar 22, 2006

The free movement of labor and migration is one of the biggest issues facing the Baltic states today. Since EU accession, Estonia has seen a stream of blue collar laborers enter its market while qualified professionals leave. According to Agu Vahur, chief operations officer at the recruitment company CVO Group, Estonia lacks desirable candidates for today’s labor market. But the situation could prove beneficial to employees, as salaries and the overall working environment improves. The Baltic Times listened to Vahur as he explained the pros and cons of Estonia’s current labor shortage and what changes it can expect in the future.

Years ago companies would choose the best employee among several candidates, but now the situation is just the opposite. Candidates choose who they want to work for, and there is a line outside recruitment company doors – not a line of unemployed managers, but of companies to be managed.
There has been a rather rapid transformation on the labor market. Deficit has occurred in almost all sectors, and there are fewer employees available than there is a demand. Right after joining the EU, small- to medium-sized enterprises from mature markets such as Sweden, the U.K., the Netherlands and Germany started to pay more attention to our labor markets. Hence, employees feel that they have an almost unlimited freedom of choice. It is harder to recruit and harder to retain people in their jobs today than it was 12 months ago.

You previously said that a few years ago there were 980 applications for the sales director position at the Kalev confectionery. Now the number is 100 times less.
If you choose the right channels and advertise your vacancy professionally, both online and in traditional media, then you will get over 10 qualified applicants for a job response. There are occasions where the response rate is nil.

Is it a problem of poor recruitment advertising?
No, we are talking about combined media here – the print media and online media. What companies do nowadays is advertise their jobs in all media.
But this is not the only way. You can also headhunt or hire temporarily. Headhunting used to be only for managerial jobs, but now specialists are also subject to headhunting. In this respect, the landscape has changed in the labor market as well as on the marketplace for recruitment services.

Although Estonia’s un-employment rate has decreased from 10 to 9 percent, this is still considerably high. Who are the people who can’t find work?
We have long-term unemployment. There are people who are mentally or physically not capable of working full-time. The other type of unemployed people are those who do not want to move to the city for work. There is also some artificial joblessness. These are people who work part-time in Finland for example, and declare themselves officially unemployed to receive social benefits and medical insurance. If you listen to what people say in rural areas, you realize they have no problem finding a job.

You mentioned temporary recruitment as an option. In other parts of the world this sector makes up 2 percent of the labor market. What is the case in Estonia?
There are two sides of the story. One is that the temporary recruitment service market took off only a year ago. There is still no appropriate legislation in the Baltic states. There are over 1,000 employers offering temporary services in Estonia and hundreds in Latvia and Lithuania.
The other is that people are still uncomfortable about being temporarily employed. It is good for an employee as they have an agent looking after them; you are like an actor or football star. You will have an agent who sells your services. Hence it is pretty convenient for employees as well. The share of temp services is increasing 20 percent on a monthly basis. Recruitment agencies are also struggling to find employees. But by focusing on these services, they are more effective than companies operating in other fields. Often it is a money issue. For the right salary there is no problem attracting employees.
But sometimes companies think they can still get away with 2004 wage levels. They just lose people.

Some companies cut costs in every possible way to keep salaries high, bringing down expenses on rental, training and equipment. What is the future here?
Nowadays, especially with key strategic position holders, customized compensation packages are the only way to go. You see a lot of occasions where people have cut salaries, which may seem weird. But these are difficult times for the generation that entered the labor market in early ‘90s. They have been working day and night and earned some level of wealth. Now they prefer to raise a family – a change of lifestyle. A job is like a support mission for them.
This is also true with the younger generation. They are not as career-oriented as they are society-oriented. The overall mindset and meaning of employment is changing. It is not about survival any more. In this respect, flexibility and providing a meaningful work environment is key. It is no longer only about the salary and bonuses. It is about the team and the nature of the job.

You also said that people who left to work abroad place less of a priority on wages once they return. They value something else. They want flexible working hours and a positive team atmosphere.
When you work abroad, like in Moscow for example, you spend four hours a day in traffic and another six hours to get home on the weekends. In other locations you don’t even have direct flights home. So you spend almost twice as much time on the job. The actual quality of life is better at home. You also spend more money while living abroad. The tendency among young people is to leave right after graduation and come back when it’s time to start a family. It’s beneficial for the local labor market to have these young professionals back.

Do you foresee any major increase in the labor movement now that Finland has opened its market?
There will be a slight increase. Those who wanted to go are already there.
It depends on the local economy as well. If the salary increase comes to a halt but prices continue rising, there won’t be too many attractive jobs around, and more people will decide to leave. Whether or not we can retain our labor force is up to macroeconomic and political developments in Estonia, Latvia and Lithuania.

How many foreigners are entering the Estonian labor market? What kind of jobs can they get if they don’t speak the local language?
Foreigners are mostly self-employed and establish their own service organizations to invest in the local market – mainly the real estate businesses. But the technology sector and call centers are also popular. You don’t need to speak the local language if you speak Java.

A company manager said he’s looking for people close to retirement and young people with huge loans who want stability. This way he can keep his engineers and other professionals from moving abroad.
You can build your strategy on recruiting those with less liquidity – people who do not speak foreign languages or don’t consider it an option to leave the country. But you can also work out your strategy to recruit the most qualified people and pay the best salaries. You focus on getting the best projects and the best bids from the government, and you build a successful company. You can no longer take the labor force for granted, so you have to work much harder to get your strategy right and hire the right type of people.
Despite all of this, Estonia is still a rather attractive market place. There have been no occasions where we haven’t found anyone in IT, finance, management or other areas. Companies are already recruiting from all three Baltic countries at the same time. You simply need to approach individuals with the right offer at the right moment. Inefficient companies will go out of business or become targets for takeovers and mergers. The quality of management matters. The strongest will survive. There will be a lot of companies going bankrupt and plenty of investors purchasing a handful of firms and merging them. Efficiency will increase and employers’ ability to pay individuals will improve.
The Baltic countries are still an attractive place to invest, even at a slightly higher cost of labor. The price gap between the Baltic states and mature EU countries will remain in the foreseeable future, but the quality of the professional labor force will increase continuously.


Booming economy brings up Estonia’s housing prices

The Baltic Times, TALLINN
By Kairi Kurm
Mar 15, 2006

Estonia has claimed the crown for the highest increase in real estate prices throughout Europe in 2005. The Royal Institution of Chartered Surveyors reported last week that the average price for a home in the Baltic state increased by a remarkable 28 percent, compared with 22 percent in Denmark and 15 percent in Spain.

Indrek Toome, development manager at SRV Kinnisvara, offers a rather inverse explanation for the surge: It’s not that real estate prices are especially high today, he says, but that they were too low to begin with. “The cost of land was low, and the cost of construction personnel was low. There were less solvent people,” Toome explains. “Profits on such projects were low, otherwise developers would not have been able to sell these properties.”
But that was then, he adds; the situation has changed dramatically. “People’s overall well-being and income have risen. The low mortgage rates driven by competition is an important factor as well.”
Hindrek Leppsalu, manager at Ober-Haus Real Estate Company, says that Estonia’s real estate prices could have increased by as much as 35 percent last year.

Other experts told The Baltic Times that the trend was mostly due to favorable mortgage loans, an expanding economy, a rise in salaries and a lack of available homes. “There are simply not so many new apartments. The supply is limited by inefficient city planning, which takes a lot of time, and by a lack of construction industry capabilities, although it is based on market economy and should therefore be solvable,” says Viljar Arakas, chairman of the board at Arco Vara.
Arakas predicts that prices will increase as long as the economy continues to grow. Estonia’s GDP increased by about 9 percent last year, compared with 2 percent among older EU countries. The average salary increased by 10 percent.
“People believe in economic growth and are not afraid to lend money,” stresses Leppsalu.
Since July 2004, mortgage interest rates in Estonia have been lower than comparable rates in the eurozone. As competition in the banking sector is strong, banks have become very flexible in granting loans. The current maximum lending period stands at 30 years, and credit may be granted for up to 100 percent of the property value.
“During the last five years the average interest rate on mortgage loans has decreased by roughly 5 percent. This is a major price signal by any standards and the property boom is just a response to that signal,” says Hardo Pajula, an economist at SEB Uhispank, in reference to the average 4 percent interest rate.

“Moreover, the unprecedented low interest rates have also had important second round effects in terms of improving the overall business climate, boosting incomes and making more and more people capable of entering the mortgage market.”
Indrek Hinno, an analyst at Nordea Bank, explains that banks have been selling their mortgages aggressively while bringing down their lending criteria. Although mortgage rates have increased due to EU pressure, they’ve had little effect on lending.
“There’s an opinion in society that real estate is currently a good purchasing decision,” said Hinno.
Maris Lauri, an analyst at Hansabank, says that real estate agencies very often lie to the public on behalf of their own sales interests. As a result, many people are convinced to invest in property. “I think that the role of the press and of anticipated price movements has ushered in a speculative phase in this price rally,” he says.
The price of new apartments jumped a massive 30 percent in 2005 and as much as 50 percent in downtown Tallinn, Ober-Haus reported in its recent market research. And demand continues to outpace supply. In fact, old Soviet block flats are selling at levels only 20 percent less than newly built apartments. In such cases, Toome warns that people might not receive a fair price if they one day decide to sell.

But it’s not only locals who purchase real estate. Estonia is known in the U.K. as an investment hotspot. British and Irish investors could, in fact, be the ones “blamed” for the boom in downtown Tallinn.
Leppsalu believes that foreigners account for at least half of Tallinn’s downtown real estate deals. Many foreigners working in Estonia have not passed up the opportunity to purchase a flat, as prices are two to three times cheaper in the Baltics than in Scandinavia, said Leppsalu.
Aimi Raudam, a board member of Property in Estonia Haldus OU, buys apartments from British and Irish investors, furnishes them and then rents them out. In her opinion, apartments are not expensive in Estonia and the market could be of interest for another two years.

In downtown Tallinn, prices range between 2,100 and 3,400 euros per square meter, reaching up to 3,500 euros in the Old Town. The most inexpensive new housing can be found in the suburbs, starting from 1,450 euros per square meter.
Most apartments are sold before project completion. IT specialist Mari Kamp has been on a waiting list for a planned residential area since before construction even began. She just recently learned that the price of her two-room flat of 45 square meters was 2.1 million kroons (134,000 euros) and that her name is still far behind on the list.
“I don’t understand who buys these flats if normal people don’t even have a chance,” says Kamp. “Wherever a new house is being built, it has been sold and booked. The requirements are very tough. The booking fees have to be paid fast. It is very tiresome, and I don’t want to deal with it any more.”

She also thinks prices are too high. There was another, similar offer at the beginning of 2004, for a price twice as cheap. Now she and her boyfriend are dreaming of building a house in a suburb.
Supply is expected to stay lower than demand for the next two to three years, as the number of detailed plans is still low and construction periods have lengthened due to a lack of personnel on the labor market.

ID cards could replace concert tickets

An ID-card reader
The Baltic Times, TALLINN
By Kairi Kurm
May 10, 2006

Estonian software companies Cooperative and Developers Team have created a unique system that enables one to use an ID card as a concert ticket, as well as pay for refreshments at the concert. If the system takes off, Estonian concert-goers will be able to leave their wallets at home. “The idea of the project is simple: We save the time and costs of guests and organizers of the events,” said Gunnar Peipman, managing director at Developers Team.

Holders of an ID card can purchase their tickets through the Web site As they receive a virtual ticket, they do not have to bother with a paper ticket. The ticket control will check their ID cards with the help of special computer software and will print out a hand band, if necessary, for people to move in and out of the concert area. If a computer fails to read ID cards, organizers an resort to a list of ticket holders’ names from the Web site. People who decide to resell their tickets can easily change the ownership through the Web site. Before a payment can be made, money has to be transferred to the card-holder’s ID card credit account via an online bank.

The Paradise Beach festival is the first event to which people were invited to buy virtual tickets. The sale of tickets surpassed organizers’ expectations. Peipman said that it was difficult to predict the use of virtual tickets of the festival, but the event itself should bring together up to 40,000 guests per day. He is also not quite sure about the use of ID cards as a payment card throughout the whole concert area. “We hope to complete the solution by the time the Paradise Beach festival starts in July. Currently we are quite in time with our schedule. There are areas where ID cards can be used as payment cards, but due to the tight schedule we will not be able to cover the whole area with this solution,” said Peipman. The first event where virtual tickets can actually be used is a dance party at the end of May. Virtual tickets to this event are one-third cheaper than tickets normally sold by Piletilevi and Statoil.

Jaanus Beilmann, CEO of Telspec Trade, a company that holds the Piletilevi brand, said that he was not aware of the pros and cons of the new ticket sales system, but he was also not terrified by competition. “We know from our experiences that it is a time consuming process to create a ticket sales system that services a huge amount of events daily,” said Beilmann. He is convinced that as the use of ID cards expands they could use it in their system in the future. Both Piletilevi and get their revenues as a commission from ticket sales.

Peipman sees additional opportunities for the new system. Besides using it as a means of identification and a payment system it could also be used in trade as a customer card for discounts and people will not have to carry along wallets packed with various cards any longer. If tests are successful, their plan is to work closely with manufacturers of cash register systems so that ID cards could be used as widely as bankcards are used today.


Companies keep an eye out for downtown offices

The Baltic Times, TALLINN
By Kairi Kurm
May 10, 2006

The supply of office space is very low in Tallinn, forcing companies to book their new offices months or even years in advance. And the city’s increased construction costs, lack of available land and growing rental levels aren’t helping the situation. “Few office buildings are being built because residential developments are more attractive than renting office spaces. Unlike offices, flats are sold at once and bring in fast profit,” said Hindrek Leppsalu, the manager of Ober-Haus Real Estate.

However, a growing number of companies want to purchase offices in order to reduce their rental overheads by replacing them with monthly loan repayments. This trend also attracts companies that are not planning to expand but are looking to invest. In many cases, the monthly loan repayments are as high as the rent itself. Besides, lending conditions are quite favorable at the moment at a competitive 3.5 percent to 4.5 percent interest. “In the future, I believe that developers will offer more offices for sale. There’s a demand for that,” said Leppsalu. There are currently about 217,000 square meters of office space in downtown Tallinn, 128,000 of which are “A class” office stock. Another 8,000 square meters will be added this year. “As we have a shortage of A class office space in Tallinn, I would say that another 20,000 – 25,000 square meters could be added to the market,” said Leppsalu.

Vacancy in most office buildings has dropped below one percent, which has resulted in available space being open for only a short time. Although office buildings with a vacancy rate of about 20 percent do exist, they are rare, according to Arco Vara real estate agency. But yields – what an investor regains from the purchasing price in rental revenues – are not as high as they were a few years ago, dropping from 18 percent to 7 percent. Developers are struggling to profit mainly due to Tallinn’s lack of property, increasing land prices and construction prices. Besides, rental prices have not increased substantially. “The yield is about 8-9 percent at a developing stage, and 6.5-7.5 percent on the aftermarket,” said Leppsalu. The Danish investor Baltic Property Trust bought two office buildings last year at yields of 9-10 percent. “There are few deals with 10 percent yields nowadays. Even warehouses bring in only 8-8.5 percent,” said Leppsalu.

According to a report by Ober-Haus, rents have been stable in Estonia for the last seven years. During the first half of 2006, due to limited supply, rents have gone up by 10 to 15 percent to 13.5 to 16 euros per square meter. Typical service charges are 2.5-3.5 euros/sqm. Rents for class B office space range from 8 to 11 EUR/sqm and have increased by 5-10 percent during the last year.


Tallinn twin towers, Tartu St., Tornimae 3-5-7
Area: 7500 m2
Price: 200-250 kr/m2 (rent)
Completion date: November 2006

Foorum, Hobujaama
Area: 5000 m2
Price: 180-240 kr/m2 (rent)
Completion date: November, 2006

Katusepapi 8
Area: 2900 m2
Price: 17,000-21,000 kr/m2 (sale)
Completion date: 2006

Parnu St. 139e
Area: 6000 m2
Price: 160-170 kr/m2 (rent), 17,000-20,000 kr/m2 (sale)
Completion date: May 2006

Liimi 1b
Area: 2500 m2
Price: 130 kr/m2 (rent)
Completion date: February 2006

Fahle Maja, Tartu St. 84a
Area: 3000 m2
Price: 17 000-20 000 kr/m2 (sale)
Completion date: October 2006

Ulemiste Arimaja, Peterburi tee 2f
Area: 5500 m2
Price: 160-180 kr/m2 (rent)
Completion date: Spring 2006

Source: Arco Vara
Source of the article:

Time for trans-national environmental cooperation

The Baltic Times, TALLINN
Interview by Kairi Kurm
May 03, 2006

Estonia is still recuperating from its worst environmental disaster in history – two oil spills that tainted the Baltic state’s coastline and killed more than 10,000 birds. The government was impugned for its slow response to the disasters, and now the Interior Ministry is developing a six-year financial plan for future incidents. But the source of the problem – the growing traffic in the Baltic Sea – will remain. According to the Finnish government, the amount of oil being shipped through the Gulf of Finland has tripled in less than 10 years. The Baltic Times turned to transit company Estonian Oil Service (EOS) board chairman Arnout Lugtmeijer to discuss the recent spills and some possible methods to avoid future disasters.

What do you think of the government’s reaction to the oil spills that occurred this year?
It is not that easy to make a “quick” comment on this issue. This subject is very electorate-sensitive for politicians, and therefore quick and simple solutions are sought, and quick and simple accusations are made to identify those people to blame and those who should pay. It should be noted that the origin of the two spills were very different, with only the type of pollution [fuel oil] being similar. The first incident [in January] probably involved an oil carrier, whereas the second spill [in mid-March] involved a bulk cargo ship traveling in a caravan. An icebreaking vessel was leading the convoy of ships, and as the line slowed down the unlucky [Runner-4] vessel slowed at a different pace and therefore collided with the ship in front of it. The ship eventually sank, leaking a large amount of its marine fuel into the sea.
In my opinion, the government’s task is to provide uniform rules and regulations to reduce the probability of a marine accident occurring. It is also responsible for diminishing the consequences of such accidents if they happen.

What do you mean by the uniform rules and regulations?
I believe that a country can only achieve a certain degree of control if a uniform and common policy is created for all countries on the Baltic Sea. If one country unilaterally decides to implement a certain taxation policy or regulatory measures that make [its waters] less economically attractive to pass through, it will only result in transit through other ports with the same degree of – or lack of – control. But the cargo will still be passing its coastline.
As for taxation, it is only fair when the “risk contributor” is presented with the bill – i.e., the shipping companies.
In Estonia, Tallinna Sadam [Tallinn Port] has recently increased fees levied to ship-owners in return for the utilization of port infrastructure for oil tankers. Since the levies for tankers are proportionally more than for other cargo ships, this justifies the additional expenses incurred for equipping the port with new tools to limit the consequences of an oil spill.
This system should also apply to the technical and operational requirements of any ship passing through the Baltic Sea. But the port must provide a way of policing these rules, so as to ensure compliance.

What is the best solution for diminishing the consequences if a future oil spill should occur?
It would be advisable for the Baltic Sea countries to jointly, as with NATO, establish a “rapid reaction force” that is adequately equipped to deal with potential pollution calamities. In my opinion, it would be inefficient to equip each country individually with the means to deal with oil pollution. Aside from the efficient use of clean-up equipment, a special task force could be established with highly trained experts in pollution control.

Is it accurate to assume that we would not have had these accidents if the Baltic Sea’s traffic weren’t so heavy?
One should recognize that the economic activity among the Baltic Sea countries and around the Finnish Gulf has dramatically increased after the break-up of the Soviet Union and the arrival of thriving new economies. This has resulted in increased trading and transportation requirements for all types of cargo. Additionally, the significantly higher output of crude oil and oil products from Russia in the past three to four years has provided for increased liquid cargo volumes.
So it is fair to say that traffic has significantly increased in the Baltic Sea. Unfortunately, this also means that the probability of accidents or calamities occurring has also risen. If no additional regulatory rules are established, it will become increasingly difficult for Baltic Sea countries to contain pollution. This is especially true if they go without the proper equipment, adequate training and international coordination.

How do you feel about Environment Minister Villu Reiljan’s plan to tax transit companies with 2 kroons per ton?
Consequently, the establishment of the Oil Fund does not meet the abovementioned objective of establishing uniform rules and regulations. Therefore, the plan will not trigger a reduction in the probability of accidents. If the transit tax were to be established at 2 kroon per ton, and if the quantity of oil passing through Estonia remained steady and the annual funds we receive – which are approximately 60 million kroons per year – would be used to purchase equipment, then maybe the objective of diminishing consequences would be within our reach.
However, as history has shown with ice-breaking fees, which are collected by the government year-in and year-out in a greater extent than required, when extreme winter conditions prevail and an additional ice-breaking capacity is required, the funds are still spent elsewhere.

Estonia’s oil transit threatens Baltic Sea

The Baltic Times, TALLINN
By Kairi Kurm
May 03, 2006

Estonia’s prime location on the Baltic Sea has long provided it with profitable transit business, and, at least in the eyes of Russia, is one of the country’s most valuable features. But as Estonia saw earlier this year, when two tanker oil spills created the nation’s worst ecological disaster, managing oil transit across the Baltic Sea can have serious repercussions. “The Baltic Sea, especially the Finnish Gulf, is very vulnerable due to its peculiar geography.

The Finnish Gulf makes up only five percent of the Baltic Sea and has a low sea level, with an average depth of 37 meters. Yet there is an ever increasing Russian transit passing through it,” says Ivar Tamm, a spokesman for the Estonian Nature Fund. Some blame the accidents on heavy traffic in the Baltic Sea. According to the Finnish government, the amount of oil being shipped through the Gulf of Finland has tripled in less than 10 years. Much of this comes from the new oil terminal in Primorsk, Russia, which opened in 2001. And based on Moscow’s plan to increase capacity at Primorsk, the area will only become more crowded.
The Ministry of Interior Affairs has admitted that the growing amount of cargo transported across the Baltic Sea is an increasing threat. The most dangerous areas are those near the harbors – the gulfs of Muuga, Tallinn, Paldiski, Kopli and Narva.
“Looking at the events that have taken place in Estonia, we can say that the likelihood of sea pollution is high,” said ministry spokeswoman Kristina Kareva.

Tamm, however, believes the problem lies elsewhere. “I would not say the traffic is too heavy. It is relative. It is the administration that has not managed to catch up,” he said.
Other officials see it as the European Union’s problem, since the vessels that pass through the Baltic Sea are international.

Passing the blame

After two of the worst oil spills in Estonia’s history, the Interior Ministry has allocated hundreds of millions of kroons from next years’ budget to cope with future disasters.
The first spill was detected off the coast of northwestern Estonia on Jan. 30. Since none of the vessels sailing on the Baltic Sea at the time admitted to the spill, the government began an investigation. Investigators followed a Liberian-flagged tanker, the Flawless, which had earlier announced an oil-pumping accident as its first suspect.
In the following weeks, Estonian officials were heavily criticized for their slowness to react, both in terms of clean-up and the investigation. As the ecological consequences became more severe, the government scrambled to cover up for its incompetence.
Then, on March 6, a second oil spill occurred when a Dominica-flagged cargo ship, the Runner- 4, collided with a second vessel and sank. The ship was carrying 102 tons of heavy fuel, 35 tons of light fuel oil and 600 liters of lubricant oil in its tank. This time, the ecological consequences were far worse.

Ornithologists estimated that 10, 000 birds were killed by the oil, although officially only 4,000 were found. For weeks, volunteers worked with the Estonian Nature Fund to clean the beachside, and attempted to rescue oil-sodden birds. According to Helena Loorents, a spokeswoman for the Estonian Border Guard, 50 tons of oil had spilled into the sea.
Again, the Estonian government was lambasted for its slow response. Shortly after the disaster was announced, three parties launched a vote of no-confidence against Minister of Environment Villu Reiljan for withholding information about the spill.
Interior Minister Kalle Laanet was also blamed for not having prepared an appropriate action plan, as he had promised after the first oil spill. Laanet responded by lamenting the ministry’s poor budget, and quickly drawing up a six-year investment plan.
Minister Reiljan suggested creating an Oil Fund and collecting five 5 kroons (0.33 euros) per ton of oil from transit companies. The minister was forced to bring the fee down to two kroons per ton, as transit companies did not agree to his first proposal.
At the end of March, a crisis management team was formed by members of the Rescue Board, Environmental Inspectorate, the Board of Border Guard, the Ministry of the Environment, the Ministry of the Interior, the Tallinn City Government, the Harju County Government, the National Nature Protection Centre and the Maritime Administration. The team will focus on coordinating pollution clean-up in Northwestern and Northern Estonia.

What next?

In Tamm’s opinion, it is crucial that Estonia improves its monitoring capabilities and legislation at once. “The fast discovery of pollution would decrease the effect immensely,” he says.
He admits that protecting the Baltic Sea is also the European Union’s problem, explaining that since the waters are joined, every activity related to pollution depends on international cooperation.
Estonia should both improve its readiness to act within its public institutions as well as trans-nationally, Tamm says, and set higher standards for those vessels sailing on the Baltic Sea, such as guarantees, ownership and technology that can identify possible leaks.
“It is important to work out financial mechanisms so that it’s not the citizens paying for the expenses that occur, but the insurance company or the oil fund,” he says.
Priit Looper from the Ministry of Economics and Communications agrees. Estonia alone, he asserts, can not do much to avoid oil pollution in its waters.

Estonia joined the Convention on the Protection of the Marine Environment of the Baltic Sea Area (The Helsinki Convention) in 1992 and the Oil Pollution Preparedness, Response and Co-operation convention in 1990.
Kareva says the Interior Ministry is working on a pollution-prevention plan in which they will detect the risks and work out a cooperation scheme for various ministries and institutions.
“Estonia’s readiness for sea pollution is incomplete in all areas, starting from prevention and discovery to liquidation and rehabilitation,” she said.
But slowly, Estonia is beginning to cooperate with its Baltic Sea neighbors, especially Finland.
Right now the biggest obstacle is money. The Estonian Border Guard needs an additional 107 million kroons to invest in various equipment. At the end of March, the board received 12 million kroons, and steps are being taken to receive more.
The Interior Ministry has written in its 2007 – 2010 budget to acquire two multifunctional ships worth 708 million kroons, two planes worth 108 million kroons, and two used ships from the Swedish border guard for 40 million kroons for pollution clean up.

Previous oil spills in Estonian waters:

January 1993: Approximately 104 tons of oil leaked into the Gulf of Tallinn from the tanker Kihnu. The salvage cost 15 million kroons.
April 1994: Fifty-three tons of oil spilled into the Gulf of Kopli from the super trawler Tamula. Damage to the environment cost 1.8 million kroons.
February 1997: Thirty-two tons of fuel spilled into the sea at Kopli harbor from the Arzamas training ship. A few days later the ship sank.
September 2000: About 250 tons of crude oil spilled into the Baltic Sea at Muuga Harbor from the oil-tanker Alambra. Damage per ton was 180, 000 kroons.


Ministry of Finance offers for discussion the possible solution of corporate income tax

An analysis has been completed in the Ministry of Finance on the possible versions of the income taxation of commercial organisations since 2009, as the transition period for bringing into conformity the income tax law with the directives of parent undertakings and subsidiary undertakings, provided for Estonia, is ending.”We assessed six income tax models and their possible positive and negative effects on the Estonian business environment, taking as the basis the international practice and the latest developments in the field of corporate income tax,” told Minister of Finance Aivar Sõerd when introducing the analysis.

“When analysing the models we paid special attention to their functioning in the context of European Union directives and international tax agreements.”

“From the different models we consider most appropriate the one with which the profit is taxed with a low tax rate, irrespective of whether it has been distributed or not,” the Ministry of Finance explained. “According to this model, the profit of a commercial organization shall be taxed after the end of the financial year. The taxing of the expenses not related to enterprise, specific benefits and gifts and donations is continued. In the case of the parent undertaking with at least 10 percent sharing the income tax is not deducted on dividends at the distribution of profit.” The tax rate of commercial organisations would be 10% and when paying dividends to natural persons, an additional 10% income tax would be deducted in order to guarantee people the equal taxation of wages and of the income on investments (i.e. 20% rate).

The basis for calculating the tax rate is the principle that the corporate tax burden would not increase when compared to today.

Minister of Finance has sent the analysis to the interest groups for getting their opinion, and he is planning to meet with them in order to discuss the models.
All others can express their opinion on given material and make additional proposals to the Ministry of Finance on the address Suur-Ameerika 1, 15006 Tallinn or by e-mail: .

Estonia needs to change its income tax system as the transition period for bringing into conformity the income tax law with the EU directives of parent undertakings and subsidiary undertakings, provided for Estonia by the EU accession agreement, is ending on 31 December 2008. According to the directive, the profit that is distributed to the parent undertaking needs to be exempted from the deducted income tax in case of at least 10 percent sharing as of 1 January 2009.

According to the decision C-294/99 (Athinaïki Zythopoiia AE) of the European Court of Justice from 4 October 2001, any liability to taxation that has emerged from the distribution of profits of a company, can be regarded as a deducted tax, irrespective of whether legally the tax payer is a profit-distributing subsidiary undertaking or the income tax is deducted from the parent undertaking that receives the dividends. Since in Estonia also the company profit is taxed at the moment of paying the dividends, the European Commission has stated that income tax of legal persons paid in Estonia at the time of distribution of profits is not in compliance with the directive.

The analysis can be read in detail on the Ministry of Finance home page , subdivision Tulumaks 2009.
Source: Ministry of Finance