President ratified the law setting price limits for monopolies

President ratified the law setting price limits for monopolies

On 5 August 2010 the President of Estonia ratified the law setting price limits
for monopolies. As we reported in our announcement on 3 August 2010 the main
consequence of this Act is that from 1 November 2010 the company's tariffs will
be approved by the Competition Authority and not the City of Tallinn. At this
point in time it is very unclear what impact this will have on ASTV as the
Competition Authority has not yet defined the price methodology nor the service
standards that ASTV must achieve. Both ASTV and the City of Tallinn will need
to engage in professional and open dialogue with the Competition Authority to
ensure the terms and conditions of the current contract are respected. ASTV has
no objection to balanced and professional quality and economic regulation of
the Water industry that meets with internationally acceptable principles. To
date however no professional discussions have taken place with ASTV regarding
this subject. 
Over the past few weeks the Competition Authority has made a number of public
comments stating that, as a result of their thorough analysis of ASTV's
financial performance ASTV's tariffs will now have to reduce by anything
between 15% and 25%. We would like to point out to our investors and customers
that these our headline statements only, and that the Competition Authority's
analysis was, in their own words, a high level simulation which did not
thoroughly analyse ASTV's results and performance since privatisation. Before
statements such as these have any economic credibility there needs to be a
thorough analysis of past performance using best practice regulatory
principles. The Competition Authority's simulation includes a number of aspects
that require further discussion as the regulatory principles used do not appear
to be in accordance with internationally acceptable principles of economic
regulation. For example, it is not clear: 
 
1) What are the service standards that the company will have to achieve post
November 2010? 
2) How has the privatisation value of ASTV been factored into the calculation
of invested capital? 
3) What is the methodology for calculating the weighted average cost of capital?
4) What principles does the Competition Authority use to protect the purchasing
power of invested capital from inflation? 
5) Has the Competition Authority calculated ASTV's returns since privatisation
and does it believe that ASTV has been too profitable over this period? 
6) the current structure lacks independence as according to the law the company
can make pre-court appeals about the methods and decisions of the Competition
Authority only to the Competition Authority, this needs reviewing. 
 
ASTV looks forward to open and professional dialogue with the Competition
Authority on the above points and many others prior to any changes in
methodology being implemented. ASTV is only interested in open and transparent
regulation that meets with internationally acceptable principles and recognises
the terms and conditions of the privatisation agreement signed in 2001. ASTV
will keep its investors fully informed of these discussions over the weeks
ahead. 


Ian Plenderleith
Chairman of the Management Board
AS Tallinna Vesi
6262201
ian.plenderleith@tvesi.ee