Estonian Parliament passes "Establishing Price Limitations on Monopolies Act"

Today the Estonian National Parliament passed the “Establishing Price
Limitations on Monopolies Act”. The amendments, subject to proclamation by the
President of Estonia, will change the principles of economic regulation,
quality regulation and the regulator of AS Tallinna Vesi and 50-60 other larger
water undertakings. This is the second time this Act has been approved by
Parliament. On the previous occasion is was not ratified by the President for
constitutional reasons, however on this occasion the Company does not
anticipate such a problem. 
The details of this change mean that the City of Tallinn will no longer fulfill
the role of economic and quality regulator for AS Tallinna Vesi. It is intended
that this function will now be carried out by the Competition Authority. The
implications of this change for the terms and conditions of 
Tallinna Vesi's contract are not yet clear. We believe that to date the
Competition Authority, the Ministry of Social Affairs, the Ministry of
Environment and the City of Tallinn have not yet discussed nor determined any
of the quality standards that the Company has to achieve. In addition, in the
tariff mechanism and methodology for calculating an allowed rate of return has
not been discussed with the Company and is not contemplated within the Act. 
This is a change of law but as far as we know does not yet constitute a breach
of the Services Agreement we have with the City of Tallinn. Currently our
performance standards remain the same and there has not been any change to our
tariffs nor the tariff adjustment mechanism that we have contractually agreed
until 2020. 
AS Tallinna Vesi will continue to operate in accordance with the terms and
conditions of its contract with the City of Tallinn until the new regulator
decides otherwise or the terms of the contract are broken by the State of
Estonia or the City of Tallinn. The Company has always met or exceeded all
performance measures and believes its returns on invested capital are in
accordance with accepted norms when international best practice regulatory
principles are used. 
The Company has been and will continue to consult with its legal and economic
advisors to better understand the implications of this change in law  and the
actions it needs to take to ensure the terms of the current contract are
respected. 
The Company will keep its investors informed whether the President of Estonia
approves the Act and will provide complete information regarding the
forthcoming tariff approval process. 
AS Tallinna Vesi has no objection to balanced, independent and professional
economic and quality regulation of the water industry that is in accordance
with international best practice principles. 

As ASTV understands the situation the AMB's key aim is to de-politicise price
setting by implementing a fully transparent methodology that meets with
international best practice. The Competition Authority already regulates other
industries where it clearly states its key regulatory objectives. These are: 

•	To protect consumers ;
•	To use regulation principles that allow companies to remain economically and
financially viable, i.e. to cover running operating costs and finance necessary
investments through equity and debt 
•	To motivate companies to organize their operations more efficiently
•	to ensure a revenue acceptable for investors from the assets invested by them
or at least revenue of equal value, which they could get from other investments
with the same risk level“ 

ASTV would welcome the implementation of a methodology that was developed to
ensure the above principles are fully respected. This would require that all
aspects of the economic and quality regulation methodology are fully
transparent and completely independent. To ensure full independence the
legislators will need to consider who will oversee and rule upon any appeals
made by companies against the decisions made by the Competition Authority. As,
under the current legislation, a company would have to appeal to the
Competition Authority against a decision made by the Competition Authority,
which is clearly not a situation that accords with good governance principles. 

This passing of the AMB  is only the first step; in addition it will be
necessary to ensure the consistent and transparent achievement of quality
standards in an efficient manner. 

To achieve this is a huge amount of works and will require open communication
between the MoSA, the MoE, the municipalities and the Competition Authority in
order to develop industry wide performance measures and information recording
and auditing standards. Without this it will not be possible to ensure quality
standards are achieved consistently and efficiently. Furthermore all
institutions will need to develop reliable reporting standards and open and
transparent communications in order for customers to know what they are paying
for and understand the comparative performance of their own and other water
companies. 

Priit Koff
Head of Public Relations
AS Tallinna Vesi
+3726262209
priit.koff@tvesi.ee