State sentenced to return millions

Risto Berendson
, reporter
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Photo: Raigo Pajula

Supreme Court decision to declare sharp rise in environmental fees unconstitutional, null and void hits state coffers hard.

The debate around legality of sharp rise to environmental fees, as brought forth by Postimees in November 2012, came to an explicit end at the court of highest instance, yesterday. According to Supreme Court, the government regulation prescribing mining fees rise of 60 per cent during upcoming three years – instead of the 15 per cent agreed well in advance – is unlawful.

For state coffers, the decision naturally comes as quite a blow. As of April 1st 2013, miners and other minerals processors (like building material producers, chemical and peat companies etc) have been paying the state environmental fees at raised rates.

«The excess payments will now have to be returned by the state,» says mining industry association chief Rein Voog. We may be talking about five to ten million euros.

Argument against argument

As the fees were supposed to rise next year as well, again by some 20 per cent, the state will miss that as well. A year ago, the added environmental fee revenue was predicted at about €12m.

That would be about a half of the money planned by the car VAT amendment, recently stirring the parliament. That had to be found another filling; now, a new hole has appeared.

There will be some slight rise to the environmental fees, by 5 per cent. Regarding that, the government agreed in 2009 already. Still, considering that the current environmental fees already exceed the former agreement by 15 per cent, the state can only count on 10 per cent of increase over two years – not 40 as hoped.

That indeed was the expense the business originally prepared for – until, at the very end of 2012, the government issued an eleventh hour regulation to legalise increase of environmental fees by 20 per cent, three years in a row.

The regulation was kept an insider-secret till it got to the government. After Postimees delved into the uncoordinated plan to raise environmental fees, environment ministry said it had been known to entrepreneurs.

Entrepreneurs said the ministry was telling a lie, asking for Chancellor of Justice to help protect their rights. The eleventh hour regulation, they claimed, was against the constitutional principle of legitimate expectations. Also, interest groups had not been included in working out the regulation, thus disregarding the inclusion practice confirmed by the government.

Chancellor of Justice Indrek Teder found the entrepreneurs to be right, as the governmental regulation did violate their constitutional principle of legitimate expectation. The entrepreneurs have a legitimate expectation that the fee rise schedule agreed earlier would not be altered. Thus, the entrepreneurs had entered into advance contracts, reckoning with the prices earlier agreed. 

The Chancellor of Justice found no extraordinary circumstance that would justify raising the prices once agreed. The government tried defending itself, claiming the entrepreneurs had basically half a year to get adjusted to the new fees, as the new pricelist entered into force since April 1st only.

Half a thousand mining permits

Also, the government justified itself by an advice by SEI, Estonian branch of the Stockholm Environment Institute, dating from 2007, to raise mining fees by an average of 20-30 percent a year. The more so that the rates agreed in 2009 belonged to the «crisis era», in need of review in the new situation.

Environment minister Keit Pentus-Rosimannus, answering Supreme Court in the name of the government, stated that Estonia has issued 490 mining permits, the demand being great. Thus, this is a well functioning and competitive sector where interests of entrepreneurs are not significantly harmed by price rise. More precisely, the added environmental fees would add 1-1.5 per cent to product prices.

Nevertheless, Supreme Court found the Chancellor of State was in the right, as the changes in laws should not constitute breaking one’s word. In a situation where the state has not encountered extraordinary circumstances – like an unexpected and widespread economic crisis – budgetary interests will not outweigh the principle of legitimate expectations. The same would concern the environmental aspects underlined by ministry.

The entrepreneurs, emerging victorious from the court battle, now face fresh negotiations in environment ministry regarding fees from 2016 and onwards.

«We are not challenging the situation where we would have to pay more in environment fees, in times to come. We were against a situation where they started to break earlier promises,» says Rein Voog, representative of the miners and former top politician at Reform Party.  

«The court ruling clears a lot of air, between ministry and enterprises. We do not want changes like this and the recent car VAT thing to pop up in budget talks at eleventh hour,» he added.

The debate

•    On November 12th 2009, the government issued a regulation regarding mineral resources and water environmental fee rates for 2010–2015, stating that rates were to be raised by about five percent, yearly.

•    On October 12th 2012, a new governmental regulation entered into force, raising environmental fees by a total of 60 per cent over next three years.

•    Last November, mining enterprises association, association of construction material producers, peat association, and federation of chemical industries had recourse to Chancellor of Justice to get their rights. 

•    On April 23rd 2013, the Chancellor of Justice proposed the government bring the regulation in line with the Constitution i.e. return to the rates agreed earlier.

•    On May 9th, the government left the regulation unaltered.

•    On June 6th, the Chancellor of Justice took the case to Supreme Court.

•    On December 16th, the court, having reviewed the case by way of written proceeding, ruled the government regulation to be unlawful.

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