When the Estonian government on 27 June approved the privatisation deal for the country's two main power plants, it brought to an end an epic that began in the mid-1990s. NRG Energy, a division of the Minnesota-based Northern States Power, won the right to a 49 per cent minority stake in the two power plants that provide about 90 per cent of Estonia's electricity.
Many never believed the deal would ever be concluded. At times, it appeared to fall victim to unscrupulous businessmen, misinformed politicians and foreign interests, all trying to affect the deal one way or the other. It was the focal point of immense domestic and foreign intrigue, the likes of which Estonia has not seen since the days of negotiating Russian troop withdrawal in 1994.
Ever since letters of intent were signed between various officials from all sides of the deal - beginning in 1996 - the talks have stumbled and collapsed on several occasions. However, the two sides entered accelerated talks for the privatisation deal following the March 1999 general elections. The new government, headed by Prime Minister Mart Laar, kept then outgoing transport minister Raivo Vare as the chief negotiator with NRG - despite the possible conflict of interests as Vare moved into an executive position at the oil transit firm Pakterminal. A timetable was set for talks to conclude by the latter part of the year, and both sides finally became cautiously optimistic.
At this point, foreign interest remained high in the talks. However, unlike the deal for the Mažeikių nafta oil complex in Lithuania, which involved another US company, Williams International, the intrigues were less Cold War and more Banana War, pitting the US against the EU. Certain neighbourly EU countries have all but suggested that the deal with NRG would turn into a speed bump on Estonia's road to EU membership, saying that the origins of the deal failed to follow competition norms.
It was no secret that when the Estonian government decided to start discussing the sale of the power plants (totalling about 3000MW in capacity) with NRG, several Nordic energy companies felt angry at being slighted, especially Finland's Fortum, which has brought up the question of EU membership each time it has lost a bid for an enterprise in Estonia.
As time went on, the issue of EU competition norms and EU relations began to grow on the politicians within Estonia who were against the deal with NRG, even though the Europeans themselves stopped grumbling about it vocally. However, others argue that such a large US investment in Estonia would, in effect, be a guarantor of security, which is the same argument used by supporters of the Mažeikių nafta deal in Lithuania. It didn't hurt, of course, that the regional Narva power grid is owned by a conglomerate led by another US company, Cinergy.
Some politicians argued over the entire deal in terms of what international advantages or disadvantages would come out of it, forgetting about the actual worth of the deal itself. President Lennart Meri, and even Prime Minister Mart Laar, all fell into this trap somewhat.
Dirty and expensive, but ours
By the latter part of 1999, both sides realised that the deal was slowing
This self-sufficiency easily translates into less dependency on Russia or anyone else for energy. The supply of oil shale is estimated to last decades, and if the two power plants ran at full capacity, Estonia could easily be a significant electricity exporter - hence the frequent discussion of a power cable link to Finland.
However, oil shale is dirty and expensive. Mining it is expensive, compared to using natural gas or heavy fuel oil. EU directives, as well as norms agreed upon at the Kyoto Summit, forced Estonian authorities to also consider the environmental effects of continually burning oil shale. This made the NRG deal all the more attractive, as the company pledged hundreds of millions of dollars over future years to make the plant more efficient and bring it up to environmentally acceptable standards.
As in many countries in the world, miners seem to have an amazing ability to very vocally make their plight and anger known. Any restructuring of the energy sector, whether it was to involve privatisation or environmental protection, would affect the mining sector, as the power plants consume a vast majority of the output of oil shale company Eesti Põlevkivi (Estonian Oil Shale). Plans to restructure and merge mines had already pushed thousands out of work, threatening a massive social catastrophe.
So one of the biggest hurdles was overcome when the government, in May 1999, ruled to give 51 per cent of Eesti Põlevkivi to Narva Elektrijaamad (Narva Power Plants), the company NRG is looking to gain a stake in, and left 49 per cent to the power company Eesti Energia. This was a principle decision by the government, signalling that oil shale will remain the primary fuel for power generation for decades. At the time it was seen as the clearing of one of the major obstacles to the NRG deal. The NRG position then also envisioned a substantial commitment to employment and environment - two key issues keeping social activists at bay.
The blind side and the snowball effect
Nevertheless, the deal continued to be bogged down and dragged into 2000, after the two sides remained at loggerheads over electricity sales and the sale conditions for the plants itself. Numbers kept floating about in the press, as media speculated whether the dispute involved the price of electricity (which inevitably made headlines, as it would mean a rise in power tariffs for consumers) or the guaranteed supply purchase. However, negotiators remained hopeful, and it appeared the gaps were, in fact, much smaller than the media hyped them up to be.
The biggest jolt to the deal came from the most unexpected source - President Lennart Meri. Previously caring little about the sale, on Independence Day - 24 February - Meri suddenly said he was opposed to the deal. Everyone was shocked, as Meri had never bothered with the issue and as far as most people knew had little knowledge of the details of the deal.
Unfortunately, Meri had actually sprung his little surprise earlier on the visiting US energy secretary, Bill Richardson, catching everyone totally unprepared for the blind-side knockout that came from the unpredictable President. If anything, this single act damaged US-Estonian relations more than any other incident of the past years, not on account of opposition to a privatisation deal but due to the manner in which it was done and the callousness that accompanied it.
Then, as the spring came and the deal drew closer and closer to completion, the snowball effect took hold from the President's side. Even a trip to Minnesota to discuss the deal with the head of NRG's parent company - Northern States Power - did not quell Meri's opposition. Some analysts suggest that the President was inclined to see this deal in the same light as the disastrous Mažeikių nafta deal between US-based Williams International and the Lithuanian government - a deal that left Lithuania in a horrendous state in terms of its national development, its debt guarantees to the company, and its reputation in the region and further abroad.
By the very end of the period leading to the decision made on 27 June, individuals from all sides chimed in. President Meri reiterated his opposition to the deal, calling for the government to divert the issue to the Parliament. Several business magnates also voiced opposition to the deal, expressing serious concern about possible price hikes on electricity. Even executives of Eesti Energia, seeing their power shrinking within the sector, sounded off against the deal.
Such interests, which can be called nothing short of selfish, had not been expressed during the early parts of the negotiations. Suddenly, worries about environmental problems and social chaos in the region disappeared in the face of fears that the price of electricity would jump by perhaps a few per cent. Estonia's electricity is already a 25 per cent cheaper than Latvia's, albeit Latvia is more dependent on Mother Nature and imports.
In the wake of this new-found concern, some opponents of the deal began promoting the idea that the refurbishment of the plants could be financed domestically. Some said that this could entail the closing of one of the two power plants, inevitably leading to massive job losses. Others suggested switching one plant to natural gas fired boilers, also inevitably leading to massive job losses in the mining sector and eradicating the old self-sufficiency argument.
No wonder, then, that the sector's trade unions are in support of the NRG deal, which even includes an employment agreement. For, in all honesty, would using domestic funding to bring the plants to the EU's high environmental standards keep prices lower than those promised by NRG? It seems that the opposition tactics, playing on tones of nationalism and protectionism, were really nothing more than cloaked opportunism.
Courage under fire
Under fire from all corners and sides, the government bravely decided to accept the NRG deal after NRG agreed to a set of government ultimata. After a heated debate, the cabinet voted unanimously to accept the deal. And thus the epic that had dragged on for years, with NRG showing more patience than Job, finally came to a satisfying conclusion.
Central Europe Review had the opportunity to be the first to sit down with Prime Minister Mart Laar after the government press conference announcing the deal [the full interview can be seen in next week's special Baltics issue]. Calling the meeting "most difficult," Laar said that the conclusion was most satisfactory, despite the circumstances and the "enormous pressure" from all sides:
"This was an issue on which everyone in Estonia probably has a different opinion from that of the government. It is very popular to have such a different opinion and to say what not to do; we, unfortunately, must always ask what is the alternative. And we made our joint decision."
Newspapers on the morning of the decision day were merciless, offering their own opinions and opinions of almost anyone who wanted to offer one.
|Travelling to Estonia soon? Choose Hotels Central at HotelsEstonia.com to reserve a hotel online at a great price.|
With even the President playing the Russian card, one was left wondering why everyone was really lobbying and who they were lobbying for in this case.
The opposition in the Riigikogu immediately called for parliamentary debate - or even a referendum - on the sale of the minority stake in the power plants. Although the majority stake - and control - of the plants remains in Estonia.
Nevertheless, the deal was approved. NRG will pay USD 54.5 million for the 49 per cent stake in the power plants. A deputy spokesman of the US State Department, Phil Reeker, said plainly: "The approval of this investment demonstrates to other potential investors that Estonia has an open, transparent business environment." And although the US government did have a hand in the whole mess, it couldn't be said better than that.
Lessons for the unwise
Estonia should count its lucky stars that NRG Energy remained so patient after years of confusion, and frankly, abuse.
Now, let us hope that nothing strange and unfortunate happens between the sealing and actual implementation of this deal. That would ruin Estonia's reputation to an even greater degree than the damage already done over the last four years.
But the players move on: Eesti Energia has turned its attention fully to the proposed merger with Latvian power utility Latvenergo. Lose one deal, move on to another one - just ask MeritaNordbanken, Telefónica or Vivendi. It's the European game, the real Euro 2000. And Estonia is quickly learning its rules.
Mel Huang, 29 June 2000
Next Week: CER brings you an entire special issue dedicated to the Baltic countries.
- Archive of Mel Huang's articles in CER
- Buy English-language books on Estonia and the other Baltic states through CER
- Return to CER front page