Yesterday, we saw crude hitting record lows again, the Brent benchmark doing a below $52 plunge. Top to bottom, this makes for roughly half price oil. The impact reaches farther than Russia’s budget or employment at Norwegian rigs. While, broadly speaking, the cheaper fuels are a blessing for Estonian and European economies, Ida-Viru County oil industry and oil shale mining face prompt problems.
VKG (Viru Keemia Grupp) is a large Viru County company which poured big money into oil production. While oil prices stayed high, the investments’ outlook looked sunny. Not anymore. The company is cutting costs full speed. Over couple of hundred staff is laid off. Whoever stays will face smaller salary. The VKG problems will not be limited to company alone. The oil producer is Kohtla-Järve’s largest employer and its shrinking will hit town budget. Companies that used to sell services to VKG are losing their client.
Oil shale producers have been harsh in their criticism towards state policy regarding their domain. Oil shale mining has a yearly volume ceiling of 20 million tonnes set to it. By that, mining volumes have been split between enterprises involved so that VGK has to buy in expensive oil shale from Eesti Energia. The fees and taxes related to oil shale production are planned as if oil stayed expensive for ever.
When, a couple of years ago, VKG did a public ad campaign to demand better conditions, it basically backfired. There’s this resentment in the air regarding helping industrialists who in recent times have done rather well.
Meanwhile, it is obvious that even with a more favourable oil shale policy, the current price drop is so steep that the problems would not go away. VKG has reacted rather fast and by painful measures, to save the company. However, the developments cannot but also touch others in Estonia operating in the selfsame sector – Eesti Energia and Kiviõli Keemiatööstus. For Ida-Virumaa, 2015 will not be their best.
The state’s role should at least be avoiding steps that would tighten the noose around oil shale industry neck. An eye on the future, a real option would be to show flexibility when taxing the industry – tie the state revenue therefrom to oil price. Even so, what we have here is crisis not catastrophe – in mid-1990ies, Estonian oil shale industry did survive times much tougher than today. Estonian state does have social measures, we have a functioning Health Insurance Fund, and we will have to help these people – caught in the cogwheels of global economy – to make it thru the hard times.