The state-owned Estonian energy group Eesti Energia is about to record an impairment loss of 65.6 million euros in financials for the final quarter of 2015.
The impairment loss relates to the following assets: Auvere power plant - 39.6 million euros, and assets relating to the Utah project - 26.0 million euros, Eesti Energia told the London stock exchange.
Eesti Energia said its management board has finalized impairment tests of property, plant and equipment, and intangible assets as of Dec. 31, 2015. The management board determined that for certain assets the balance sheet carrying value exceeds its recoverable amount and an impairment loss must therefore be recognized.
When carrying out the impairment tests the management board has taken into account the persistent low and falling prices on both Nordic electricity as well as global oil markets. The impairment loss will have a negative impact on Eesti Energia's operating and net result in the fourth quarter of 2015. Eesti Energia will publish its annual report on Feb. 25, 2016.
«The main reason for the devaluation of assets is low prices at energy markets. The market price of electricity has declined by 28 percent in two years. The world market price of oil has declined by 43 percent, reaching 25 euros a barrel on Monday. Considering developments on the energy markets, the need for a devaluation of assets is obvious,» Eesti Energia CEO Hando Sutter said in a press release.
The precise size of the impact of the impairment on the financial results of Eesti Energia will be published with the financial result on Feb. 25. The impairment has no direct impact on the business operations of Eesti Energia or its ability to meet its loan obligations before creditors, Eesti Energia said.
«The competitiveness of Eesti Energia continues to depend on how effectively and flexibly we are able to produce electricity and oil using our own assets. The beginning of the year has shown that the production capacities of Eesti Energia continue to be very significant regionally. This is confirmed by the record of electricity generation for the period since our country regained its independence set on January 15. At the same time, increased demand for electricity at the beginning of 2016 has helped compensate for the effect of the low oil prices,» Sutter said.
Built for an investment of 640 million euros and having a capacity of 300 megawatts, the Auvere power plant is the newest and the most effective generating unit of Eesti Energia. In addition to oil shale the Auvere plant can operate using biofuel to the extent of 50 percent and its output can cover up to a quarter of Estonia's annual demand for electric energy.
The Auvere plant was linked up to the power grid on May 2 last year and since then it has produced electricity periodically. It has operated for 2,700 hours by now and produced approximately 550 gigawatt-hours of electricity. The plant's projected maximum annual net output is 2,200 gigawatt-hours, which equals about a quarter of Estonia's energy consumption.
Eesti Energia has invested 51 million euros in the Utah project. Work is currently going on to seek environmental permits and improve the competitiveness of technology. Eesti Energia has substantially cut the project's operating costs and brought a large part of development operations over to Estonia. The group has a small team in Utah's that is doing work related to the procedure of environmental permits.
When global oil prices move up and the project's business plan becomes more competitive, Eesti Energia is planning to bring strategic investors also into the Utah project like it did with the Jordan project.
Of major projects, Eesti Energia has not yet completed also a project to build a power plant in Jordan, on which a financing agreement has been concluded but negotiations on equity financing are still under way, without which construction will not be started.
Sales revenue of Eesti Energia in the third quarter of 2015 totaled 171 million euros, 13 percent less than in the same period a year ago, and profit was down 29 percent at 31.3 million euros. The reduction in revenue mainly was a result of lower energy prices and output.
Eesti Energia posted a revenue of 880 million euros and a profit of 159 million euros for 2014. As a result of low energy prices the result for 2015 will fall short of the result for 2014.