Experiences of Privatization of the Estonian Energy Sector

1
Experiences of Privatization of the Estonian
Energy Sector

• Einari Kisel
• Director of Energy Department

2
Topics of the presentation

• State of play in privatisation
• Electricity sector (production, distribution)
• Natural Gas sector (distribution, sales)
• District Heating sector
• Lessons learned

3
State of play in privatisation of Estonian
Energy Sector - Electricity

• Production 98 produced by state owned power
  plants
• Transmission 100 state ownership
• Distribution 91 distributed by distributors
  with direct or indirect state ownership
• Sales 93 sold by state owned company.

4
Lessons from the Electricity market

• Production case negotiations for the sale of
  minority shares of Narva Power Plants to NRG
  (1995-2002).
• Lessons
• Before privatisation in competitive power market
  one must have a properly functioning market
• No investments without market guarantees
• You must exactly know, what value must be created
  by the strategic investor
• Existing regulatory framework of EU is not
  suitable for Estonian circumstances.

5
Lessons from the Electricity Market

• Distribution case Several privatisations during
  1995-1999
• Lessons
• Privatisation agreement must specify investment
  requirements or quality standards for the owner
• Foreign energy utilities are better owners than
  local businessmen
• Regulatory framework must be in place in general,
  but can be developed also further later
• Good reference for the state-owned distribution
  companies.

6
State of play in privatisation of Estonian
Energy Sector Natural Gas

• Transmission and Distribution 100 privatised,
  around 95 of gas is distributed by AS Eesti
  Gaas
• Sales100 privatised, around 60-70 sold by
  major seller (purchases around 80 of natural
  gas).

7
Lessons from the Natural Gas Market

• AS Eesti Gaas was 100 privatised in 1993. New
  distribution areas are developed by private
  capital.
• Lessons
• Restructuring of the company should be made prior
  to privatisation
• Special attention should be applied to prevent
  the abuse of market power.

8
State of play in privatisation of Estonian
Energy Sector District Heating

• Production around 60-70 produced by state
  owned power plants or boiler houses up to 10 is
  produced under municipal ownership.
• Distribution and sales around 50-60 distributed
  and sold by distributors with direct or indirect
  state or municipal ownership

9
Lessons from District Heating Market

• Privatisation 1991-2001
• Lessons
• Competition on comparison can work!
• A lot of problems, if legal and regulatory
  framework is not efficient however, companies
  are interested to help in preparation of
  legislation zoning of heating areas supports
  development
• Driver for CHP development
• Be aware of municipal ownership! Political price
  setting!

10
Conclusions

• Privatisation must be well targeted and planned
• Different sectors need different approaches, and
  also international competence might not work in
  special circumstances
• Regulation must be clear for long term in order
  to allow investments to enter.