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THE BALTIC TIMES

MAY 8 14, 2008

BUSINESS

How strong is competition in

Estonias banking sector?
2 Risto Ruutel
Estonias
commercial
banks in recent
weeks
have
announced their
e c o n o m i c
results for 2007,
and apparently they are doing very
well. Even the smaller market players e.g., Nordea Bank, Sampo
Bank showed remarkable results
despite a smaller customer base and
market share. However, it remains
to be seen whether the banks profits were derived from effective commercial activities in the presumably
competitive environment, or if
they were solely based on last years
robust economic growth and the
booming real estate sector.
There are already some indications that the Estonian banking sector might not be wholly competitive.
In the past few years the European
Commission has carried out
inquiries in the financial services
sector (working closely with the
national competition authorities
and financial supervision authorities) and reached a conclusion that
there are significant problems in
the national financial services markets (including retail banking), as
well as in the common market as a
whole.
The identified problems involve
a lack of efficient competition, high
entry barriers caused by vertical
integration, lack of transparency of
pricing policies, possible anti-competitive collusion between the market players, etc. The commission
has specifically referred to retail
banking as one of the sectors where,
due to high barriers of entry, no
new market players will likely
appear and help foster competition.
The commission also expressed concern that the bank fees are higher
than expected and financial institutions are cooperating with each
other in ways that might not be in
conformity with the Competition
Law.
Estonias banking sector might
suffer several of the abovementioned competition questions. For
instance, the service fees of
Estonian banks (especially the bigger players) have caused controversy and debate among customers for
quite some time. Customers seldom
understand what services are supposedly rendered for the fee and
what are the banks costs associated
with the service. There is, for
instance, considerable disparity

among banks in relation to the fees

for transfers, including the differentiation of in-house and domestic
transfers in some banks, while there
is no such differentiation in other
banks. Curiously, fees tend to be
higher in banks with the biggest
market share, although it should be
the opposite when taking into
account the efficiencies created by
economies of scale.
Furthermore, Estonian banks
have cooperated with each other in
situations where one would rather
expect them to compete. For example,
the
Estonian
Banking
Association (having a majority of
Estonian banks as members) has
announced that its members have
decided to simultaneously decrease
the daily transfer limits to the exact
same amount (320 euros) when the
customer uses permanent passwords. That low daily limit will render the permanent passwords virtually useless and force customers to
buy special equipment to make bigger transfers.
Clearly, the limits of transfer
would have provided banks the
opportunity to compete with each
other for customers letting customers decide upon the risks related
to permanent passwords. But now
that banks have mutually agreed on
the identical and simultaneous
decrease of daily transfer limits,
they dont have to worry about an
exodus of clients. The agreement is
thus a lessening of the competition
that exists between them.
The Estonian Competition
Authority has recently started to
investigate the banks service fees
for card payments. It remains to be
seen whether the investigations will
be confined to card payments or if it
will be broadened to encompass
other fees and tariffs. No matter
what the Competition Authority
decides to investigate, it is already
clear that the banks should make
their activities and pricing policies
more transparent and avoid collusion when it is likely to weaken
competition between them. o
Risto Ruutel is an attorney at law a
Glikman & Partnerid, a member firm of Baltic
Legal Solutions, a pan-Baltic integrated network of law firms including Kronbergs &
Cukste in Latvia and Jurevicius, Balciunas &
Bartkus in Lithuania, dedicated to providing a
quality one-stop shop approach to clients
needs in the Baltics.

Company briefs
Opab, a Swedish firm, applied for a permit to explore for oil in the
Baltic Sea, the Finnish daily Helsingin Sanomat reported. The company
hopes to find 300 350 million barrels of oil, or enough to cover 20 percent
of Swedens oil consumption for a 20-year-period. According to Erik
Palmlov, chief geologist with Opabs mother company Svenska Petroleum
Exploration, the oil field straddles the boundary of five countries exclusive economic zones but extends 110 kilometers into Swedens zone south
of Gotland. Opab wants to start with test drilling next fall and to begin
extracting in 2012-2013 if crude oil is found.
Tallinna Sadam (Port of Tallinn) handled a total of 10.3 million tons
of goods in January-April this year, a dramatic fall of 32.1 percent yearon-year. Oil products handling fell by 19 percent to 7.3 million tons, the
report said. Timber handling plummeted 73.4 percent, coal 98 percent and
fertilizer 58 percent. By contrast, the number of passengers passing
through the port grew 13.6 percent to 1.8 million. Most of them 86.6 percent traveled on the Tallinn-Helsinki route.
Rokiskio Suris, Lithuanias largest dairy group, reported a loss of 9.4
million litas (2.7 million euros) for the first three months of this year,
down from a profit of 3.5 million litas in the same period last year. First
quarter sales shrank 3.6 percent to 138.8 million litas. The company attributed the poor financials to a plunge in the price of products for exports,
lower demand and an approximate 50 percent surge in the prices of raw
milk.

Estonia to build oil shale

plant in Jordan
2 Staff and wire reports,
TALLINN

esti Energia (Estonian

Energy) announced on
April 30 that it has signed a
contract with the Jordanian government and the state-owned
power company to build the
Middle East countrys first oilshale fueled power plant.
Under the agreement, Estonian
Energy will have the exclusive
right to develop the construction of
a 900 megawatt power plant,
including all the lengthy preparations needed before the actual
building can begin, the company
said.
The deals value was not
announced.
Estonian officials lauded the
unprecedented agreement, which
will finally allow the Baltic state to
capitalize on its unique status as
an oil shale-reliant state.
Its worth pointing out that
one Estonian enterprise has undertaken such a massive project, said
Economic Affairs Minister Juhan

Parts, who traveled to Jordan to

participate in the signing of the
deal.
Khaldoun
Qutishat,
the
Jordanian minister for energy and
mineral resources, said the project
was a breakthrough for the Middle
East country since a shale oil plant
would help it realize the decadeslong aspiration of reducing independence on imported energy in
one of the worlds most volatile
regions.
Indeed, for Jordan, a net energy importer, the prospect of developing an oil shale industry was
probably too enticing to pass up.
The power plant to be built in
Jordan would be the first considerable oil-shale fueled power plant
operating outside Estonia, said
Estonian
Energy
Chairman
Sandor Liive.
We will have the wonderful
opportunity of applying the knowledge and skills accumulated in
Estonia in the valuation of oil
shale and getting energy out of
that mineral resource, he said.
Estonian Energy will provide

its know-how, while the capital necessary will be borrowed from

major investors, the company said.
In addition to the power plant,
Estonian Energy may also help
construct a facility for producing
liquid fuel from oil shale, which
would be a boon for Jordan.
The Estonian utility has presented its proposal, and talking on
a possible deal will soon be
launched.
Estonia is the most oil shalereliant state in the world, getting
some 80 percent of its energy needs
from the fossil fuel.
Eesti Polevkivi (Estonian Oil
Shale), the mining arm of
Estonian Energy, extracted a total
of 16.3 million tons of oil shale in
the business year ended in March,
the biggest amount in the last 15
years.
In all, the company sold 17.2
million tons of oil shale in the 20072008 business year. o

PHOTO BY SCANPIX

TAKING COUNSEL

SELLING COAL TO NEWCASTLE: Liive announced plans to bring

Baltic expertise to the Middle East.

Liive told an energy forum on

May 5 that there was no reason to
delay deregulating Estonia and
other EU member states electricity markets and that moving the
2013 deadline forward would
bring more clarity to the market.
As he explained, investors
are busy creating electricity generation capacities in which a significant part of income comes
from subsidized energy, and in
such an atmosphere there is little
wish to establish a free market
for energy production.
By opening up the energy
market earlier than 2013, investments would be more rational
and reflect capacities capable of
coping in a normal, competitive
environment.
Considering the present situation, a speedier opening of the
Estonian market would mean a
rise in the price of electricity, as
the open market price is higher
than the current, regulated one,
Liive admitted.
Under current plans, the electricity market will open for corporate customers in 2009 and
then for households in 2013.
-BNS

Swedish firm purchases two Latvian

forestry companies
2 Staff and wire reports, RIGA
Swedens Bergvik Skog, a
forestry company, has announced
that it is purchasing two Latvian
companies to become the largest
private forest owner in the Baltic
state.
The Dienas Bizness daily reported that after Bergvik Skog takes
over Fraxinus and Ruda it will possess over 30,000 hectares of total forest property.
Bergvik Skogs chairman,
Tobjorn Larson, told the paper that
the transactions should be finalized
on May 12.
He declined to state the size of
the deals. However, experts have
estimated that the possible sum of
the transaction could be 40 50 million lats (57 71 million euros), the
paper reported.
According to the paper, Bergvik
Skog purchased a 100 percent stake

in Fraximus (parent company of

Myrtillus and Fragaria) from a U.S.
investment
fund,
Phemus
Corporation, and 100 percent in
Ruda from four small Swedish companies.
Larson said the takeovers were
part of a long-term investment plan
and one of the companys priorities
is sustainable forest management.
He also said that Bergvik Skog
did not plan to purchase any new
major assets in Latvia though small
transactions are possible to
improve the companys group structure.
According to Dienas Bizness,
this will be the largest transaction
involving forest properties in
Latvia.
Previously the sale of 4,800
hectares of forest by Finlands
Metsaliito to Swedens Sodra Skog
in late 2006 was considered to be the
largest.

In recent years Latvias forestry

has been undergoing a boom. In
2007, the Baltic state exported 994.8
million lats worth of forestry products, a 17.6 percent increase compared with 2006.
Exports of timber and timber
products reached 850.6 million lats,
a 20.1 percent rise year-on-year,
and comprised 85.5 percent of
Latvias total exports of forestry
products.
The pace of growth has
decreased significantly this year,
with exports of forestry products
ticking up 1.1 percent in JanuaryFebruary compared with the same
two months in 2007.
Latvia supplied its forestry
products mainly to the U.K. (198 million lats, or 20 percent of total
industry exports), Sweden (169 million lats, or 17 percent) and
Germany (98 million lats, or 10 percent). o