The Competition Board plans to unilaterally impose a temporary water tariff in Tallinn
The Competition Board plans to unilaterally impose a temporary water tariff in Tallinn
Dear Shareholder,
AS Tallinna Vesi (ASTV) is writing to notify you that on Monday 10 October 2011 it received a prescription from the Competition Authority (CA) informing the Company that should the company fail to submit a tariff application reducing current prices by 14.11.2011, the CA intends to take action and unilaterally impose a 29% reduction in the Company’s current tariffs. In order to impose such a reduction the CA has invoked the 02.11.2010 Decree of the Minister of Economy and Communications number 95, which enables temporary prices to be enforced. In addition and in support of its decision the Competition Authority has taken the extreme action of declaring the privatisation contract signed in 2001 to be illegal. To quote “the CA, having familiarised itself with ASTV’s claim regarding privatisation, is of the opinion that in the part concerning the price of water services, conducting the privatisation with the alleged aim of achieving the lowest possible tariff increase was not in accordance with the law.”
ASTV disagrees with the CA’s position on tariff reduction
The Company wishes to make it absolutely clear to all its shareholders that it completely disagrees with the position taken by the CA and will seek an interim injunction from the Estonian Courts to block this action. It believes that by declaring the privatisation illegal and using a Ministerial decree to attempt to force down ASTV’s tariffs the CA as an agency representing the Estonian state has shown a disregard for legal due process.
ASTV has fulfilled its contractual obligations but must defend itself in court
For the Company to have to defend itself in court for honouring all the terms and conditions of its contract, including most importantly the improved service obligations that were contractually required by the Government of the City of Tallinn in 2001, goes against the internationally acceptable norms of business conduct and public governance in long term privatisation contracts. Neither the Company nor its shareholders would ever have anticipated having to consider the “caveat emptor” principle 10 years after the privatisation in its dealings with the Estonian government.
The CA declares the privatisation illegal after service benefits to customers have been delivered
The privatisation contract was structured in such a way by the City of Tallinn and its advisors to ensure that the required improvements in service to the customers had to be delivered before the investors could make a reasonable rate of return on the expertise, operating capability and capital they had invested in the privatisation. To date the real rate of return made by the investors is just above 6%. Therefore, to declare the most important criteria in the privatisation process illegal, ten years after the privatisation, and once all the service improvements have been delivered, demonstrates that the CA does not respect the investors, contracts and the principle of legal certainty. Such an approach is definitely detrimental to the investment climate in Estonia, and certainly the future of privatisations in the country.
The CA has not published any evidence to support its view of the privatisation
Shareholders should be aware that the CA has not made an analysis of the performance improvements and efficiencies made by the Company since privatisation. Had the CA done so, it would have understood that in all probability tariffs would have been higher and service standards much lower had the privatisation never happened and it been the regulator since 2001. The CA’s instruction to reduce tariffs by 29% is based solely on its opinion that the privatisation has not been beneficial for the citizens of Tallinn, whilst it has provided no evidence to support this opinion.
ASTV believes in mutual respect for contract and the principles of legal certainty and would like to reiterate that it has no objections to best practice regulation that fully takes into account the principles of the privatisation. The Company is using and if necessary will continue to use all available legal means both in Estonia and internationally to uphold the terms and conditions of the current contract, which were entered into good faith by our shareholders and have brought and, provided that the Company is successful in its legal action, will continue to bring significant benefits to the citizens of Tallinn.
ASTV understands that the situation where another legal battle is inevitable is not the most efficient way of operating due to its longevity and cost for all parties. Our aim remains the same, to continue servicing our customers by providing them with the highest quality water and sewer services in the Baltics.
Sincerely,
Ian Plenderleith
Chairman of the Management Board
Siiri Lahe
Chief Financial Officer
Member of the Management Board
Tel. 62 62 262
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