AS Tallinna Vesi has been asked by the Competition Authority to give its input
to forming the new tariff methodology. The Company welcomes the open dialogue
between the regulator-to-be and the largest water undertaking in Estonia, but
insists on balanced and transparent regulation that complies with best
regulatory practices.
According to AS Tallinna Vesi CEO Ian Plenderleith, the early draft presented
by the Competition Authority does not define the full objectives of regulation.
„Internationally accepted regulation principles always take into account
quality and service aspects as well as price regulation, however the current
methodology can not be implemented without avoiding unequal treatment. It is
impossible to estimate or compare the inputs or costs necessary for achieving
the outputs of water companies, without specifying the main outputs, e.g.
quality and service standards,“ added Plenderleith.
It is positive, that the Competition Authority recognizes that „the activities
of infrastructure companies have an important impact on the whole society and
economy“, but AS Tallinna Vesi finds it regrettable that the regulator-to-be
has yet only considered the price sensitivity of the customers and ignored
fully their expectations regarding the product and service quality.
AS Tallinna Vesi is concerned about the Competition Authority's approach to
corporate governance and transparency. „For example it would be helpful to
water companies and for the Competition Authority to develop a comprehensive
list of non-controllable costs and to give very clear guidelines on how
operating and capital costs will be included or excluded in the tariff
calculation,“ commented Plenderleith. Without clearly defined standards and
principles it would be poor regulatory practice to assume that the „regulator
has the right to correct the asset value“ or to arbitrarily include or exclude
capital and operating costs without a full and transparent justification and
disclosure of the reasons. Furthermore, the current regulation suggests that
any appeal against a decision for the Competition Authority needs to be made to
the Competition Authority, which is in clear violation of any best practice
governance principles
Another major issue arising from the proposed draft methodology for calculating
water and wastewater tariffs concerns one of the primary objectives of any
regulator - to guarantee an acceptable return on invested capital for
investors. Within the current methodology it appears that the Competition
Authority is excluding the privatisation value of AS Tallinna Vesi from the
calculation of justified profitability, which since 2001 has been included in
the calculation of justified profitability of AS Tallinna Vesi under current
regulation within the Services Agreement signed with the City of Tallinn.
Therefore to be in accordance with best practice regulation for privatized
utilities, such as that favoured by Ofwat in the UK, ASTV has requested that
the Competition Authority should expand the definition of regulated asset base
to include the privatisation value of the utility. „This would ensure the
privatisation contract was not unilterally broken and would respect the
investments made in good faith into Estonia by our investors on the basis of
that contract,“ added Plenderleith.
AS Tallinna Vesi will publish its comments to the Competition Authority on its
website and to the Tallinn Stock Exchange and will keep its investors informed
of all future developments regarding the future calculation of its water and
wastewater tariffs.
Priit Koff
Head of Public Relations
AS Tallinna Vesi
+372 62 62 209
Priit.koff@tvesi.ee
