Estonian PM: Paying bonuses to Eesti Energia's managers not justified

Kaja Kallas. Photo: Madis Veltman

Estonian Prime Minister Kaja Kallas announced on Thursday that paying bonuses to the outgoing managers of state-owned energy group Eesti Energia is not justified, as the group has not fulfilled the owner's expectations.

Minister of Finance Annely Akkermann, in her capacity as the general meeting of shareholders of Eesti Energia, earlier on Thursday proposed that the Eesti Energia supervisory board review the plan for the payment of performance bonuses to the group's managers, citing shortcomings in the work of the board.

Kallas said she supports the finance minister's move.

"As the state, we are the owners of Eesti Energia and have formulated owner's expectations that should be manageable for Eesti Energia. Eesti Energia should be a part of the Estonian state and as such not work against the interests of the state. This list is very long, where Eesti Energia has acted against the interests of the state," Kallas told reporters at the government press conference on Thursday.

As an example, Kallas cited what she described as ineptness of the Eesti Energia power distribution subsidiary Elektrilevi in ​​eliminating power outages caused by a storm in Saaremaa in last December, as a result of which some households were without electricity for several weeks.

The premier also accused Eesti Energia of failing to solve the problem of cooling water supply for its Narva-based power plants.

"The government decided in March, after the war in Ukraine started, that we have to minimize all the risks arising from Russia. However, it turned out in August that nothing had been done," Kallas said. He referred to the government's assignment to Eesti Energia to devise a solution to ensure a supply of cooling water for the Narva plants, because Russia could lower the water level in Narva River by opening the locks of the Narva Reservoir, causing Eesti Energia's Narva-based oil shale powered plants to shut down.

Kallas also does not consider the energy company's dividend distribution proposal to be justified. Eesti Energia announced on Tuesday that the company's normalized net profit in 2022 was 128.3 million euros, which is more than three times the profit earned the year before. On Tuesday, the government approved 68.9 million euros as the amount of dividends to be paid to the state budget by Eesti Energia in 2023. This is more than the 52.2 million euros that Eesti Energia wanted to pay. Part of the dividend would come from Eesti Energia's undistributed profit, which, according to Akkermann, stands at 461.5 million euros.

In the opinion of the government, against the backdrop of last year's high electricity prices, most of Eesti Energia's profits should go back to consumers.

"How can they be paid a bonus in a situation where they have not been able to carry out the tasks they have been given. The high profit was not due to the excellent work of the management board, but to the rise in electricity prices, which in turn was due to the rise in gas prices," Kallas said.

"This profit must go for the benefit of the people. Through the dividend, this profit must go back to the people," the prime minister said, noting that according to the law, a board member may be paid an additional fee taking into account their work performance, but the law does not say it is obligatory.

In addition, Akkermann listed confusion over customers' bills and ultimatum-style communication with micro producers as shortcomings in the work of the Eesti Energia board. However, the minister admitted that, as she had not seen the contracts of the board members, she did not know whether the refusal to pay performance bonuses could conflict with the provisions of the contracts.

The contracts of Eesti Energia CEO Hando Sutter, who has served in that position since December 2014, and members of the management board Andri Avila, Raine Pajo, Margus Vals and Agnes Roos expire on Friday, March 31.

The supervisory board in January confirmed Andrus Durejko, CEO of Ericsson Estonia, as the new chairman of the management board of Eesti Energia effective April 1.