Estonian Competition Authority has challenged the legality of the tariff mechanism in the privatisation of AS Tallinna Vesi
Estonian Competition Authority has challenged the legality of the tariff mechanism in the privatisation of AS Tallinna Vesi
In the court proceedings between AS Tallinna Vesi and Estonian Competition Authority, in which AS Tallinna Vesi has challenged the Competition Authority’s decision not to accept AS Tallinna Vesi requested prices for 2011, the Competition Authority, who is representing the Republic of Estonia, has taken a position which, in its view, places under doubt the legality of the terms of Tallinna Vesi’s privatisation in 2001, which established the principles for forming the Company’s service fees.
AS Tallinna Vesi’s privatisation was organised by the City of Tallinn in 2001, who at this point in time and until 31 October 2010, was the water regulator appointed by the Republic of Estonia with the responsibility to organise the water service and tariff regime.. The aim of the privatisation was to improve the water services provided by AS Tallinna Vesi substantially and as quickly as possible at the lowest price to the customer.
The Company was privatised under an international procurement process according to the conditions formulated by the City Government of Tallinn. The bidder who offered the lowest real tariff rates’ increase, won the bid. According to the privatisation documents the long-term contractual document the Services Agreement, resulting from the privatisation was deemed to be the most efficient way to govern the privatisation and ensure the improvements in quality.
Since 2001 Tallinna Vesi’s performance has always been in accordance with and exceeded the requirements of the governing Agreements concluded during the privatisation.
In November, 2010, on the basis of the valid privatisation agreements and as required by Estonian law, the Company submitted an application, together with all the documents required by the law, asking the Competition Authority to approve a tariffs increase of 3.5% for 2011. On 02 May, 2011, the Competition Authority refused to approve this tariff application, basing their decision on the change in law as a result of the Law on Price Restrictions for Monopolies, which was passed in August 2010 (came into force on 1 November, 2010).
On the 1st of June 2011 AS Tallinna Vesi submitted a complaint to the Tallinn Administrative Court a against the Competition Authority’s 02 May, 2011 decision asking the court, among other things, to require the Competition Authority to accept the Company’s price request and require the Competition Authority to follow the law and also take into consideration the agreements signed in connection with privatisation.
In its response to the court, submitted on 29th of August 2011, the Competition Authority has put forward its view that the principles used during the privatisation for setting the water tariffs by the City Government of Tallinn were incorrect and in conflict with the laws in force already at the time of privatisation. According to the Competition Authority “setting the service prices by way of a bid, is not allowed”, and “the Competition Authority cannot approve that the water price could be formulated with the aim to achieve the smallest real tariffs increase” and “it is wrong to claim that the water tariffs arising out of the Service Agreement could be in line with the laws in force at the time of the privatisation”.
AS Tallinna Vesi has taken the necessary legal advice and strongly disagrees with the abovementioned Competition Authority’s opinion and will challenge it in the ongoing administrative court proceedings. Currently the Company is unable to assess how the Competition Authority’s opinion impacts the Company’s activities. Nevertheless, in the view of the Company the position taken by the Competition Authority on behalf of the Republic of Estonia seriously compromises the application of the principle of legal certainty in Estonia and prejudices the rights and interests of all shareholders of the Company.
Ian Plenderleith
Chairman of the Management Board
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