Increase of environmental fee feared to fell oil shale industry

19 August 2014

Environmental ministry is hatching a rise in fees which, according to experts, will spell the death of oil shale industry development. 

«By raising taxes on oil shale industry, the ministry desires to finance activities of Environmental Investment Centre, but will break the neck of the hen laying golden eggs,» said Viru Keemia Grupp (VKG) CEO Priit Rohumaa. «We want to invest €400m into oil production, but the environment ministry is shaking tax policy to such a degree that the banks have opted to be standby on us.»

As assessed by the international auditor Ernst & Young, Estonian oil shale industry faces a fast death or slow suffocation if the environment minister Keit Pentus-Rosimannus’ plan indeed goes through.

Currently, environmental fees rise by five percent, yearly; however, starting with 2016 the tax rise may skyrocket to16–32 percent per year. The dark scenarios are complemented by the policy research group Praxis report on demographic impact of oil shale industry.

As seen in the charts, the fast death scenario would cut the revenues to Ida-Viru County local governments from resource and income taxes by almost a dozen times, by 2025. Of the almost €20m expected by 2015, mere two-tree million would remain.

The Ernst & Young analysis was ordered by Estonian national committee at World Energy Council, the secretary-general of which Mihkel Härm sees the tax rise not as a long term aim to reach environmental goals, but a plug to budget holes.

«We have made several proposals regarding the framework; regrettably, the feedback is poor regarding the acceptance or rejection of the proposals, and the overall concept of the framework is incomprehensible,» complained Mr Härm in his letter to environment ministry vice chancellor Ado Lõhmus.

The ministry has held many a meeting with entrepreneurs, but has yet to answer the questions on how much they intend to raise the tax. «We will disclose the planned environmental fee rise to the industrialists and media at the beginning of September, when we have processed it on the basis of analysis ordered from Praxis,» said Mr Lõhmus. «Definitely, we do not desire to damage the oil shale industry and even the maximal rise would surely be below 32 percent.»

Eesti Energia is of the opinion that, currently, it would make sense to only raise environmental fees by the inflation rate. «When a rise in environmental fees is not based on environmental impact assessment, decrease will hit the companies abilities to invest, the long-term state revenues from oil shale industry, and the oil shale industry related jobs in Ida-Viru County will decrease – the said jobs currently numbering close to 14,000,» said Eesti Energia environmental director Olavi Tammemäe.

According to Kiviõli Oil Shale Processing & Chemicals Plant (Kiviõli Keemiatööstus), the trouble is due to the poor cooperation of economy and environment ministries, leading to a lack of a comprehensive approach considering economic and environmental factors in Estonia. «A definite agreement regarding environmental fees is needed at least ten years in advance, as the investments in oil shale industry have a lifespan of 40–50 years,» said Kiviõli Keemiatööstus’ environmental director Vahur Keerberg.

During the next ten years, up to 75 percent of oil shale industry in Estonia needs to be updated.



Urve Palo, economy minister

The rise in environmental fees may prove fatal to the industry. Oil shale industry’s input into Estonia’s domestic product is four percent, and five percent into Estonian state revenues, which is a very large share. Oil shale industry needs large investments and these can only come in a stable tax environment.

In the future, mining of oil shale might be under the domain of the economy minister. Under economy ministry direction, Estonia’s mineral resources policy would be better pointed towards the goal of using the resources to raise the wellbeing of the people of Estonia.

Keit Pentus-Rosimannus, environment minister

Forceful pressure by oil shale business to leave the environmental fees unchanged was predictable; regrettably, they do not consider taxpayers’ interest to earn just income from the resources belonging to them and to tax the pollution. Surely there are those who hope for less severity from the environment minister, but I will have to disappoint them. The desire to take the mineral resources topic out of the environment ministry and unto the economy ministry can be explained by expectations in the oil shale business that environmental requirements would be loosened. Concessions are totally unsubstantiated here.

Source: Increase of environmental fee feared to fell oil shale industry, PM