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Estonian report Estonian report
by Euro Reporter
2010-10-03 08:53:58
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Estonia has largest wages and pensions in the Baltics

Estonia has not only the largest wages in the Baltic countries but also the highest pensions, according to a financial survey of Baltic households by SEB Group economists. In the second quarter of 2010, monthly wages in Estonia increased an average 1.2% year-on-year, reaching EUR 822. In Lithuania, wages fell 5.4% to EUR 595 and in Latvia by 6.3% to EUR 632.

Estonia is the first Baltic country where wages have resumed growing. Estonia also reposts the region's highest retirement pension of EUR 305 – unchanged compared to the second quarter of 2009, informs LETA. Latvia and Lithuania reduced pensions so they could cope with increasing budget deficits. However, Latvian pensioners were paid the withheld amounts in spring 2010 after the Constitutional Court ruled that the government's decision to reduce pensions was against the Constitution.
The amount of pensions currently paid in Latvia still exceeds the average amount of the existing pensions, which means that average pension amount continues to increase in Latvia. The average pension in Latvia reached EUR 250 in the second quarter this year, an increase of 1.6% on the second quarter of 2009. Lithuania has the smallest pensions in the Baltic countries, EUR 216, which is 8% less than in the second quarter of 2009. SEB group representatives also inform that the research report will from now on be published on a biannual basis.


Ensuring the Reliability of Estonia’s electrical power system

Estonia’s TSO, Elering, the state-owned independent transmission System operator, is responsible for the functioning of the Estonian electricity system as a whole so that the high quality of electricity supply is guaranteed to consumers at all times. Elering OÜ is the Estonian Transmission System Operator - the only TSO in Estonia. Using 110−330 kV high-voltage power lines, Elering unites Estonia’s biggest power stations, distribution networks and corporate consumers in an integrated energy system.

Taavi Veskimägi Elering is not an ordinary profit-oriented commercial entity, but an organisation that performs the tasks of a transmission network operator directly arising from public interest, ensuring equal treatment of all electricity market participants pursuant to law. Our goals include ensuring the technical functioning of the system, security of supply and a well-functioning marketplace - an electricity network which would create an opportunity for as many new suppliers as possible to enter the market and allow consumers to choose their own supplier.

“Our annual revenue is over one billion kroons and EBIT for 2010 is forecast at 330 million kroons,” explains CEO Taavi Veskimägi. “We have 137 employees and on average they have worked for us for 16 years. Elering has a reputation as a good and stable employer and we offer a good and competitive motivational system to our present and future employees.” Perhaps Elering retains its employees for a number of reasons. Firstly, it provides a trainee programme where students majoring in energy studies can spend two months in the summer getting ‘real-life’ experience of the different functions of the organisation. For its existing employees, the company has a development plan which includes in-house training and public seminars in and outside Estonia. It also encourages employees to further their own education through various programmes.


Spots on the gloss

Few outsiders know the Baltic States better than James Oates, a Scottish investment banker and blogger. So Estonians and their friends should take note of his sharply worded remarks about the Estonian government's treatment of Tallinna Vesi, the foreign-owned company that runs water and sewerage in the Estonian capital. Estonia has long prided itself on an exemplary reputation in everything from anti-corruption indices to rankings of business-friendliness. That has stoked smugness (never far from the surface in Estonia) and perhaps even a degree of complacency.

But as Oates points out, Estonia's record on treating big foreign investors is a bit spotty: “... few of the major international investments in Estonia over the course of the past few years have gone smoothly. The American investment in Estonian Railways ended in acrimony and a more or less forced renationalisation. The American investors were caught between powerful Russian interests that limited their participation in the lucrative Russian freight market. However they also faced challenges from the Estonian political establishment that repeatedly kept trying to alter the terms of the contracts which the Americans had signed in good faith. In part this was perhaps because many Estonian politicians had developed grave doubts about the wisdom of Rail privatisation in the first place, but possibly it was also because they had fundamental misunderstandings about the nature and strategy of the business. The investment ended in a welter of arbitration and litigation, with the American investors more or less accusing the Estonian government of using force majeure against them. At that time, several allegations of corruption were also made against political and state figures in Estonia.”

Now Tallinn Water, which used to be seen as a model example of privatisation, is embroiled in a similar row: “The terms of the privatisation were clear and, although the pro forma return on investment was relatively low, United Utilities [the British owner] have made substantial investments in order to bring Tallinn Water up to international standards. Now, however, the company is facing political pressure to restructure and to reduce its prices well below the levels agreed under the formula set at privatisation. Furthermore, the company believes that specific legislation targeting Tallinn Water is being drafted- which it considers to be purely arbitrary. The company has repeatedly requested meetings with state officials and these have been repeatedly denied. The government appears to be dealing with Tallinn Water, as with other investors, on the basis of ultimatum and not negotiation. Putting pressure on investors by creating a kind of Kangaroo court of public opinion is dangerous populism.”

Oates blames the "small and clannish nature of much of the Estonian political system" which can be "opaque to international investors". He also takes a brisk swipe at the Faustian pacts that some free-market politicians have entered into. For legal reasons I won't repeat his central allegation here. He concludes “The fundamental basis of a healthy free market economy and democratic politics is trust- and investors have found that they can not always trust the Estonian state not to break or unilaterally alter the contracts that they have entered into, or to properly investigate serious allegations of malpractice. Whether this is the result of corruption, bloody mindedness or just incompetence, it still amounts to the same thing: considerable damage to the country.”

To be fair to the government, voters are quite cross about Tallinna Vesi and what they see as its inordinate price rises. Politicians have to listen to their electorate. But they also have to explain reality. The original terms of the privatisation may have been too soft, and the regulatory oversight too lax. But breaking a bad deal is often even costlier than honouring it. Estonia may find that the price of an acrimonious public lawsuit with a high-profile investor is more than just lawyers fees and compensation payments.

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