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Address by the President of the Republic to the Riigikogu
27.02.2002


Dear Chairman of the Riigikogu,
Dear members of the Riigikogu,


My address to you today, honourable Riigikogu, is caused by my concern for the future of the Estonian power engineering.

Very many inhabitants of Estonia have expressed their concern. Several public addresses of researchers, environmental experts and other specialists in the same issue have been constructive and persistent. Recently, on 15 February, the Power Engineering Council of the Academy of Sciences made another decision. All this has indicated that power engineering problems have ceased to belong to just a narrow sphere of interests of government agencies.

Power engineering as a part of infrastructure is one of the most important components of the quality of life, manifested both in the life of households and in the competitiveness of products and services. Planning of this vital sphere of activities above all assumes that the state fulfils the functions of the state and balances the interests of business communities.

The resolutions adopted by the Riigikogu for the organisation of the energy sector are oriented by nature towards open market economy and are able to secure positive developments. The respective documents have been listed in the written text that I will deliver later and that I request to be recorded in the minutes.
(Energy Act, 11 June 1997; ratification of the European Energy Charter Treaty in 1998; Long-term National Development Plan of the Fuel and Energy Sector, Resolution of the Riigikogu No. 487, 18 February 1998, and Resolution of the Riigikogu No. 28, 16 December 1998, on the Approval of the List of Companies of Strategic National Importance)

However, starting from the autumn of 1998 the executive power decided - for reasons known only to itself - to orientate oil shale power engineering in the direction of a closed and guaranteed market.
(Resolution of the Government of the Republic of Estonia: Basic Positions of the Government of the Republic of Estonia Regarding the Involvement of an Investor in the Production of Electrical Energy, 27.-28.10.1998, No. 55; Order of the Government of the Republic of Estonia: Approval of the Restructuring and Privatisation Plan of Eesti Energia AS and AS Eesti Põlevkivi, 29.12.1998 No. 1277-k; Order of the Government of the Republic of Estonia: Increase of the Eesti Energia Public Limited Company and Delivery of State Assets to the Eesti Energia Public Limited Company, 16.06.1999, No. 716-k; Order of the Government of the Republic of Estonia: Increase of the Share Capital of the Eesti Energia Public Limited Company and Delivery of State Assets to it, 18.01.2000, No. 21-k)

During the subsequent period the activities of the Government in the area of power engineering were concealed from the general public, justifying the information block with the commercial secret.
Systematic memoranda of the scientific community that pointed to the riskiness of the road selected were not discussed by the Government and did not lead to a dialogue.
(Resolution of the General Assembly of the Estonian Academy of Sciences from December 1998; Resolutions of the Power Engineering Council of the Estonian Academy of Sciences from 1999 and July 2000 and the Public Address of Estonian Scientists-Academicians from June 2001.)

Written objection of more than 160 thousand inhabitants of Estonia to the privatisation of the Narva power stations and positions of Estonian environmental organisations have received no attention either.
(27 June 2001, 26 September 2001 and January 2002)

The current Government is actively engaged with the settlement of urgent issues. We should mention among these the deceleration of the raising of electricity rates and development of financing schemes required for the renovation of oil shale power stations. But this is already the liquidation of consequences.

The resolutions to be adopted in the next few months have to be based on the principles of sustainable development of Estonia. We have to determine the long-term development of the energy sector, involving our scientific community in the analyses. At the same time we need to take into account the needs of the consumer and common interests with neighbouring regions and also monitor the fulfilment of the functions of the state.

The main task of the state is to secure long-term uninterrupted supply of consumers with high-quality electrical energy. The state also has to secure that the calculations of energy rates are fully transparent and take into account all technical, environmental, reliability and quality requirements as additional conditions.

For the critical selection of the further direction in power engineering we need a political decision of the Riigikogu concerning:

  • whether to continue legitimisation of advantages to oil shale power engineering in the market;
  • or to turn to the principles of gradual opening of the electricity market (Resolutions of the Riigikogu from 1997 and 1998).

    The latter would also mean that with the strengthening of the state regulation of the power network, which has the status of a natural monopoly, the network would be opened on equal basis to all producers and consumers.

    It would be reasonable to select the latter road, for the following reasons:

    1. Due to state defence considerations we have to increase the security of power supply, diversifying the fuel types used and decentralising power production.
    2. This would also create new jobs for qualified employees in the regions.
    3. Economic effect can be achieved by reducing losses in power lines and producing combined heat and power.
    4. The loan burden and risks can be financially distributed between companies.
    5. The effectiveness of state regulation has to be increased as well. Competing power producers will present their rate calculations to the Energy Market Inspectorate, making it possible to compare them. Eventually the pressure of producers to raise rates will decrease.

    Here we also have to assure that we should not fear an imminent end of oil shale power engineering. This is not possible due to technical, economic or social reasons. It will take 20 or more years to deplete the resources of the oil shale complex. But the importance of electricity produced from oil shale will inevitably decrease as we need to start already today to create conditions for allowing other electricity producers to come to the market.

    The reason is obvious: the electricity consumers are not able to pay for the renovation of all oil shale power stations with an estimated cost of 25-30 billion kroons. In addition there will be expenditures on environmental protection and oil shale mining.

    There have been statements according to which the decrease in the role of oil shale power engineering would lead to a loss of jobs and consequently to a risk of social catastrophe. These statements are not, however, based on sufficient analysis. In the conditions of the current guaranteed market for oil shale electricity, Eesti Energia actually made 2050 jobs, i.e. 16%, redundant in the last accounting year.
    According to the Development Plan of Eesti Põlevkivi up to 2015, the number of miners will be decreased by approximately one-third by 2003 compared to the level of the summer of 2001.
    (Annual Report of Eesti Energia AS 2000/2001).

    I am convinced that the Riigikogu will proceed from the need for the sustainable, balanced development of Estonia in the adoption of its decision. Representatives of the people are also fully responsible for the actual standard of life of the people.

    In order to implement the political decision, the existing Long-term Development Plan of the Fuel and Energy Sector will have to be amended with the following principles and implementation mechanisms:

    1. To open the electricity market gradually in the entire Baltic energy space, decentralising the production of electrical energy.
    2. The role of oil shale, shale oil and other energy carriers in the energy balance has to proceed from comparative technical and economical calculations, in order to guarantee the security of supply, protection of the environment and also optimum price of energy.
    3. To restructure power engineering, separating power production, transmission, distribution and sale from each other.
    The deliver the shares of the company to be set up on the basis of the transmission network and those of AS Narva Elektrijaamad to the state, keeping the participation of the state to the level of at least 2/3 of the share capital.
    4. Following the principles of sustainable development, to stimulate the combined production of heat and power and to implement a support mechanism for the use of renewable energy sources.
    5. To make electricity pricing transparent and public, increasing also the rights and responsibility of the independent Energy Market Inspectorate.
    6. At first, to renovate two feeding units in oil shale power stations, further renovation will depend on the role of oil shale in the national electrical energy balance.

    In order to secure proper legislative basis, it is necessary to review, restore and renew the acts of legislative and executive power related to power engineering and bring them into conformity with the above-mentioned principles.

    The six years of the privatisation process of the Narva power stations that have come to an end by now have given us a sufficient lesson. Let us not repeat the mistakes! We cannot privatise power stations with the current system of the energy market as that way we can fall out of the frying pan into the fire.

    This was a summary of the positions expressed by the scientists of the Academy of Sciences and power engineering specialists. These are not instructions for the Riigikogu, but I ask you to discuss the issue of the development of the power engineering sector in the Riigikogu as an issue of national importance.


    Arnold Rüütel

    Kadriorg, on 27 February, 2002


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