Estonia may sell Eesti Energia stake to fund plant upgrades

Estonia’s government may sell as much as a third of Eesti Energia AS, the biggest Baltic utility, to help fund an estimated 20 billion krooni ($1.9 billion) of planned investments including oil-shale power plant upgrades.

Prime Minister Andrus Ansip’s cabinet will decide on a possible initial public offering by the end of the year, according to Sandor Liive, chief executive officer of the state- owned utility. He ruled out a sale to a minority investor.

“This is a stable electricity business with growth potential from a liberalizing market,” Liive said in an interview in Tallinn, Estonia, on Thursday. “In combination with its oil-shale production potential, it’s an offer to investors that is unique.”

The utility plans to build two units at its power plants in northeastern Estonia, both with a capacity of up to 300 megawatts, at an estimated cost per megawatt of “less than” 1.5 million euros, Liive said. Estonia is the only country in the world where oil shale, a rock from which petroleum-like shale oil can be extracted, is the primary source of energy and Eesti Energia is planning to export this technology to Jordan.

The size of the share sale may be in the range of 300 million to 500 million euros ($447 million to 743 million), said Peter Priisalm, a fund manager at Tallinn-based Avaron Asset Management.

“Eesti Energia is well-capitalized for the current businesses and therefore the company’s value will largely depend on returns from future investment projects,” Priisalm said.

-------------Boost exports

The company has in the past few years taken advantage of the opening up of regional markets to boost power exports to Latvia, Lithuania and Finland. It’s also seeking to sign a production-sharing contract with Jordan for shale-oil extraction and power production.

The project in Jordan, which will require as much as $600 million to develop and $5 billion for industrial-scale production of shale oil, will “hopefully” receive final approval by the Jordanian government before the end of the year, Liive said. Output of 37,000 barrels of shale oil a day is targeted.

Eesti Energia’s annual investments are expected to rise to 4 billion krooni for the current financial year from 3.5 billion krooni in 2008. The utility is also investing in wind power and wants to get involved in nuclear projects in Lithuania or Finland or build its own atomic plant.

Estonia’s government in August agreed to buy the country’s power transmission system operator from Eesti Energia for 2.1 billion krooni, to meet European Union guidelines to separate the ownership of power grids from electricity. The sale was also a precondition for a share sale, said Veikko Maripuu, a senior partner at Redgate Capital.

“An IPO is a very strong and clear alternative” to obtain financing for Eesti Energia, Maripuu said by e-mail.

(Source: Bloomberg)

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