IN FOCUS ⟩ Eesti Energia plays Russian roulette with people’s money in the United States

• Eesti Energia is preparing to end business operations in Utah
• The oil shale project has cost 65 million euros
• The scheming carried out to obtain a water permit ended in defeat

Eesti Energia's plan to start producing oil shale oil in the United States ended in failure and litigation in the US revealed that Russian roulette was played with Estonian taxpayers' money from the start.

Eesti Energia announced on Thursday that the group is preparing to end business operations in Utah. The schedule is being determined. Documents sent from the US show that there is no hope of recovering the money lost in Utah - 65 million euros according to Eesti Energia - due to the scheme that was terminated under the pressure of the court and other mistakes that were made.

Enefit American Oil (EAO), owned by a subsidiary of Eesti Energia, is not getting a drop of water for oil shale mining and oil production (380 million tons was anticipated), it was determined in a Utah state court at the end of August this year. Another legal dispute with environmentalists - similar to that of the oil plant in Estonia - remained pending.

A few weeks before that, Enefit withdrew from a research, development and demonstration (RD&D) lease with the US government.

The lease is scheduled to expire on November 30. EAO said that “upon extensive consideration of business plans” it does not wish to continue with the development and will relinquish the land by the deadline.

EAO CEO Ryan Clerico said that it was not possible to extend the lease, but it was possible to apply for a commercial lease, which EAO abandoned due to the cumbersome and expensive transition process.

"This is essentially the end of the federal oil shale program under George W. Bush, Enefit had the last active RD&D lease from that era," said Ashley Davidson, representative of the environmental group Grand Canyon Trust, which led the water permit court battle. The fuel giant Shell abandoned the development due to a lack of perspective already in 2013, followed by others.

Eesti Energia's oil shale project in the US - from high expectations to setbacks

2006

The board of Eesti Energia starts investigating the possibility of investing in oil shale mining and oil production in the US state of Utah.

2010

November

The board of Eesti Energia makes a proposal to the supervisory board and the minister of economic affairs and communications to launch the Utah project. The supervisory board votes against the proposal, considering it too risky.

December

The management board reiterates the proposal and cites another interested party, who would otherwise buy a 100% stake in the company that owns the oil shale deposit.

2011

January

After a visit to Utah, the supervisory board of Eesti Energia decides to buy a 100% stake for 29.6 million euros.

2013

January

It emerges that producing oil from Utah oil shale is more expensive and complicated than expected. Eesti Energia board member Harri Mikk resigns.

2015

February

Eesti Energia board announces that the production of oil from Utah oil shale with Enefit’s technology is not profitable, Eesti Energia writes down the project by 26 million euros.

Enefit American Oil, owned by Eesti Energia, sells an expiring water permit to the electric cooperative Deseret for 10 US dollars for it to extend the permit and lease back the water. Environmentalists challenge the illegal scheme in court.

2016

December

National Audit Office’s audit on the state of the Utah project.

2018

Environmentalists challenge permit granted to Enefit American Oil for infrastructure investment on federal land in court.

2023

Fall

Court forces Deseret to annull the illegal water lease contract with Enefit American Oil. Enefit American Oil announces the termination of its contract with the US government. Eesti Energia announces preparations to end business operations in Utah.

Illicit scheming ends in defeat

Clerico denied that the withdrawal was related to the water use right lost in court: "We did not participate in this [court] trial and agreement in any way. EAO does not have any agreement with Deseret regarding water rights.”

A court document sent to Postimees proves that EAO was deprived of the water by scheming in cooperation with an electric cooperative called Deseret: Enefit had a water permit that could have been used only if the oil plant had started working in 2015 at the latest. As the deadline approached, EAO sold the permit for 10 dollars to the electric cooperative, which, as an exception, had the right to extend its commissioning deadline by 10 years. But only if the water is used to produce electricity needed by the public. The electric cooperative claimed that this was exactly what was planned, and got an extension, but had previously signed an agreement with EAO for the so-called leaseback of water.

According to the agreement reached in court, the electric cooperative had to renounce the contract with EAO and may also not lease water to others for the purpose of processing mineral resources. Thus, EAO, which belongs to Eesti Energia, lost the right to use nearly 380 million tons of water within 30 years.

According to EAO representative Clerico, the discussion of considering and abandoning business plans only concerned the leased federal land. According to him, the profitability of integrated solar and wind energy production has been assessed on the land with oil shale reserves belonging to Eesti Energia. Citing business confidentiality, he refused to disclose the results of the assessment. Eesti Energia specified that EAO is making preparations and investigating business opportunities to increase the value of existing assets.

Clerico did not answer the question whether there is no other choice but to sell the piece of land with oil shale reserves, which is comparable in size to the extension of the Nursipalu training ground. Probably not for the nearly 30 million euros with which the land was bought.

Enefit American Oil’s oil shale deposit in the US

In the state of Utah, water resources have been decreasing on a catastrophic scale in recent decades. Enefit American Oil, owned by Eesti Energia, would have needed nearly 380 million tons of water to extract oil shale over a period of 30 years.

Since the company does not have the right to use water and water permits cost an extortionate sum because of the water crisis, it is not worth developing any project with a higher water demand there. The state of Utah has not issued extensive new water rights in the Colorado Basin since 1990.

However, Clerico tried to make it seem like there was no problem. "EAO has considered options for obtaining water for various business plans, including leasing or acquiring privately owned water rights, leasing water from a regional water conservation area, and/or applying for new water rights from the state of Utah."

Utah is facing a water disaster

According to a Princeton University study, the water crisis in the Colorado River basin has worsened dramatically and is approaching disaster proportions. This is also confirmed by NASA maps.

The US online magazine Grist revealed already in October 2022 the Achilles' heel of the development project owned by Eesti Energia: the impossibility of obtaining a large amount of water for production.

There are more so-called water rights on paper than there is water in rivers. According to Utah law, a water right reverts to the state if the right has not been used for 50 years. Enefit had purchased a water right issued in 1965 that expired in 2015. “Given the number or regulatory hurdles it needed to overcome before it could even start drilling, there was no way it would start using its water in time to keep its right,” it is said in the article.

A court document sent to Postimees proves that Enefit American Oil, owned by a subsidiary of Eesti Energia, was deprived of water by scheming in cooperation with an electric cooperative called Deseret.

The forbidden deal between EAO and the electric cooperative did not bother the officials of the Donald Trump administration, the plan was thwarted by environmentalists who challenged the agreement in court. They pointed out that shale oil production runs counter to the public interest: the region is one of the most polluted in the US, smog, or toxic fog, is above the norm there and it ranks first among the states in terms of stillbirths. EAO's 30-year production plan would also derail the efforts of the administration of President Joe Biden to reduce the nation's carbon emissions by half by 2030.

“It’s really not an overstatement to say that this project would be one of - if not the - most harmful single industrial project in the history of industrial development on the Colorado Plateau,” Michael Toll, a representative of the conservation nonprofit Grand Canyon Trust, said. “Approving the Enefit project would be like pouring gasoline on the fire of an existing pollution nightmare.”

Wool was pulled over eyes from the start

At the end of 2010, when Sandor Liive, then CEO of Eesti Energia, and board member Harri Mikk started promoting the desert project to the Estonian government and the supervisory board of Eesti Energia, they failed to warn that the water permit, which is vital for the oil plant, must be used in four years and cannot be legally extended. According to the rosy scenario presented then, the oil plant would be completed in seven years (by 2018). At present, they both claim that they were convinced of the possibility of extending the water permit.

Instead, they considered the drop in the world market price of oil to be the biggest risk of the Utah project, which the supervisory board and politicians considered to be small (National Audit Office audit 2016). The price of oil was the same then as it is now, nearly 13 years later. When the price briefly fell to half of its value in 2015, Eesti Energia, raising this as a shield, quickly reduced the value of the project.

The particularity of the local oil shale, which made oil production significantly more complicated and expensive, was not mentioned among the major risks at first. However, Eesti Energia had not been able to conduct any tests with Utah oil shale - the pilot plant was not ready. However, the technological oversight was the first thing that Eesti Energia was forced to admit in only two years’ time.

The managers of Eesti Energia circled around Utah's oil shale reserves for as long as four years before buying, according to Sandor Liive, contacts were established at oil shale conferences in the US. A lot of material has been published about the water crisis there, the deadline for the water permit was known and the state laws should have been known.

However, those who decided on the major investment were left with the impression that obtaining the necessary permits for construction did not depend on laws, but on the support of US politicians, the guarantee of which was the smile of the then president of Estonia, Toomas Hendrik Ilves, who grew up in the US state of New Jersey.

Ultimately, there was the trick involving haste - if we don't buy immediately, another interested party will - and the politicians opened the people's wallet.

Eesti Energia is still covering for the architects of the project

Although business secrets can be kept for a maximum of 10 years according to the Public Information Act, Eesti Energia used the legal opportunity to refuse to release to the daily the minutes of the Eesti Energia supervisory board meetings where the supervisory board members were, so to speak, talked into investing in Utah.

Therefore, it is possible to rely on the partially public audit of the National Audit Office, according to which the board, which proposed the project, the supervisory board, which greenlighted it, and Minister of Economic Affairs and Communications Juhan Parts, who approved it, were responsible for the project. "It is not entirely clear what information the minister governing the state’s participation based his decisions on," the National Audit Office said.

The audit revealed that the decision to bury tens of millions of people's money in the desert was essentially made at lightning speed. Barely two months before the decision, Liive presented for the first time the opportunity to participate in an oil shale processing project in the state of Utah, and a month later, he came out with the plan to buy a majority stake in Oil Shale Exploration Corporation (OSEC), a company that owns oil shale reserves. However, the amount that Eesti Energia was prepared to pay is a business secret.

Two opposing members of the supervisory board get sacked

The first time, the supervisory board voted four in favor and four against, with chairman Jüri Käo's vote against being decisive. Meelis Atonen, Rein Kilk, Kalle Palling, Rein Kuusmik, Aivar Reivik, Janek Parkman and Toomas Luman were also members of the supervisory board at the time.

Those who voted against it pointed out that Eesti Energia does not have working shale oil production technology and that the board had presented too little information about the project's profitability and possible risks. Also, according to supervisory board members, it was not clear what environmental requirements must be met and whether it is possible to obtain all the environmental permits necessary for operation. The supervisory board members felt that obtaining environmental permits could be hindered by the United States' occasional political action against oil shale. In addition, according to the supervisory board members, it was not clear whether it is possible to obtain water use permits for the project.

"Based on what we know about America, this matter would have ended up being very difficult there anyway, and this is also what happened," Aivar Reivik, one of the members who voted against the proposal, says now. "I didn't know all the risks, but my gut feeling was that there was no faith [in the success of the Utah project]. A big country has a lot of bureaucracy, one can go against a small country with only a hooray. I was also aware that the water permit would be difficult. It was known that there is a great shortage of water there.” According to him, there was also talk about the poor oil content of Utah's oil shale.

"Together with Rein Kuusmik, we also voted against some other things, and we definitely felt the result of that!" Reivik says, referring to the expulsion of himself and Kuusmik from the supervisory board in July 2011.

The game with a mysterious "other interested party"

The management board did not give up and presented a new plan to the supervisory board a month later: some other company had allegedly made an offer to buy the entire stake from the owner of the oil shale reserves. That a decision should be made quickly, otherwise it won't be possible to get it anymore. And that Eesti Energia already informed OSEC that it is considering investing in a new situation where it is possible to acquire a 100% stake (as if there was a problem with the size of the stake).​

Harri Mikk, a member of the board of Eesti Energia and head of the fuels department, had also told the supervisory board about the risks, but not in detail. "The price of oil is the biggest risk, the second risk is water - the project does have water use rights, but they need to be extended. The third risk is the air emission permit - this is a federal license," he was quoted by Eesti Ekspress as saying.

The supervisory board, which had just abandoned the plan, grabbed hold of it immediately. In early January 2011, Jüri Käo, Kalle Palling and Rein Kilk as well as Sandor Liive and Harri Mikk from the board and Minister of Economic Affairs and Communications Juhan Parts, together with a delegation, went to Utah to negotiate the terms of buying the stake with representatives of OSEC.

"There was also a meeting with the deputy governor of Utah and representatives of the local government and the university, who, in order to mitigate the risks, promised to express their support for obtaining the environmental and water use permits," the National Audit Office said.

As a facade (what else should one call barely a week's work?), Parts’ ministry assembled an expert committee of its employees, whose task was to find out what opportunities and risks the Utah project entails for Eesti Energia, and to assess the feasibility of the business plan. The committee approved the plan to invest in the United States.

Postimees asked the Ministry of Economic Affairs and Communications for the report of said committee. The ministry's public relations department initially claimed that it could not find the report, while in the end neither e-mails nor calls were responded to.

The audit of the National Audit Office revealed that immediately before the first vote on the Utah project, the minister went to express his support for the project. Also, before the second vote, the chairman of the supervisory board pointed out that the project is supported by President Toomas Hendrik Ilves, Prime Minister Andrus Ansip and the US ambassador to Estonia.

Before the fateful vote, three members of the supervisory board announced that they were against the project because no substantive changes had been made to the project between the two meetings. Two of them did not go to the meeting, the third went and voted for the project.

Based on a decision of the supervisory board made on January 28, 2011, Eesti Energia bought OSEC together with oil shale reserves in Utah for 29.6 million euros.

Eesti Energia presents cheery messages

In March 2011, Eesti Energia announced to the public that it had bought a company in the US together with the largest compact oil shale reserve in Utah - 3.1 billion tons. According to Liive, development was supposed to take three years and construction four years.

"Our economic benefit will come from increasing the value of the project in the development phase and selling our unique oil shale processing technology to America," Liive said. "A significant amount of work has also been done in building relationships with the local community and other interest groups," he added.

According to the promotional materials, the plant was supposed to start up in 2018 and reach full capacity - 57,000 barrels (a barrel is approximately 120 liters) of shale oil per day - by 2022. The estimate of the construction cost of the oil production plant was covered with a trade secret. Eesti Energia's investment plan for 2009-2018 proudly stated that Eesti Energia should become the world's leading provider of oil shale technology and services.

The public found out about the mess bit by bit

Eight months after the major deal, the supervisory board of Eesti Energia already extended the project's deadline by two years, because problems with the processing of US oil shale were the first to appear.

It had not even been tested prior to the purchase transaction whether Enefit’s technology could be used to produce oil from it, as the Enefit plant in Narva and the pilot plant in Frankfurt did not start operating until the end of 2012.

The bomb went off in public a few months after it was determined at a pilot plant that the breakdown of oil shale took more energy than expected and produced more carbon dioxide. Even before that, Harri Mikk, the promoter of the project, submitted his resignation. Eesti Energia admitted to Eesti Päevaleht and Eesti Ekspress that 37 million in additional funds is needed for technology development.

Eesti Energia refused to show its cards to the publications, but after a few days, the dirty details were disclosed in an unexpected place - in a blog post by Edgar Savisaar, then leader of the Center Party. It is no longer possible to ask who was behind the leak that provided the opposition leader with US research and the information that, before Eesti Energia acquired the oil shale deposit in Utah, the Japanese technology company Mitsui and the Brazilian oil company Petrobras had assessed the project as unpromising despite the millions of dollars spent on preliminary studies.

An analysis in Eesti Ekspress followed a week later and only after this did Sandor Liive tell Eesti Päevaleht about the depressing results of the tests carried out with Utah oil shale.

National Audit Office’s audit enrages the media

Eesti Energia put on a good face despite a bad game for two more years. In February 2015, the board informed the supervisory board that the production of oil from Utah shale with Enefit technology was not profitable, as the price of oil as a competing fuel had fallen well below the level necessary for profitable production. The value of the Utah project was written down by 26 million euros.

In the National Audit Office’s audit completed in 2016, the endeavor that had eaten up 49.7 million by that time was handled delicately. ("Foreign investments of Eesti Energia. How were the investments in the oil shale projects in Jordan and the United States decided in Eesti Energia?" Report of the National Audit Office to the Riigikogu, Tallinn, December 2, 2016)

"Based on what we know about America, this matter would have ended up being very difficult there anyway, and this is also what happened," Aivar Reivik, former member of the supervisory board of Eesti Energia

„In general, there isn’t much to criticise about the way decisions were made in the projects. What can be pointed out is that decisions were made in haste in the case of the Utah project, as there was a competitor to beat. Some circumstances should have been given more attention,” the National Audit Office noted. “However, it is certain that the development of the foreign projects has been a learning curve and a source of valuable experience,” it is added.

"The risk related to water use permits was also considered to be mitigated, as politicians from the state of Utah promised to express their support for obtaining various environmental and water use permits at meetings with Eesti Energia's management and supervisory board members," it is said in the audit.

This caused an uproar in the media. According to Ärileht journalist Ann-Marii Nergi, the audit exhibited „astonishing modesty“.

Things are getting even worse

Eesti Energia had hopes of defeating the pesky environmentalists starting from the fall of 2017, after Donald Trump had become the president of the United States. Trump, who was awarded the title of the most environmentally hostile president in history by critics, gave more than 140,000 square kilometers of national parks and other protected areas to miners and loggers to do with as they please.

In 2018, the Bureau of Land Management, an agency within the US Department of the Interior, approved the construction of 19 miles of transmission lines and pipelines on federal land for an oil shale mine and oil project. Environmentalists, led by the Grand Canyon Trust, immediately challenged the permit in court.

The federal court had not yet made a decision in the case, which dragged on for more than four years, when Enefit American Oil abandoned the lease agreement with the government and lost the water permit in court, Grand Canyon Trust attorney Michael Toll said in September this year.

By 2019, Eesti Energia had buried 60 million euros in the Utah desert.

Sutter covered for the project

On March 31 this year, Hando Sutter, then CEO of Eesti Energia, was asked on the Vikerraadio radio channel what had become of the investments made by Sandor Liive, the previous head of Eesti Energia, in Jordan and the US state of Utah.

"I have to admit that with Utah, the biggest step that the current board has taken is that we have written off half of this value already in 2015. Eesti Energia has a very large oil shale resource there, significantly larger than in Estonia, we have tried to sell the resource there, but this has not been successful.

​Today, the value of the company that is on the balance sheet and the one with which the land and water rights will be realized at one point is roughly balanced, there should no other major write-offs. But the truth is that we haven't had any good ideas on how to move this project forward," Sutter said.

Now that Sutter has been removed from Eesti Energia, he is considerably more critical.

Sandor Liive: I cannot remember, the year now is 2023

Eesti Energia CEO 2005-2014 Sandor Liive. Photo: Mihkel Maripuu

We had some kind of water permit there, we had a solution. I cannot remember exactly, the year now is 2023. We would not have bought it if we had known that there is no water, water is needed for the process. Harri Mikk was responsible from the management board’s side. There were also local advisers.

I can tell you why we went to Jordan and Utah in the first place. It is a fundamentally big thing that Estonia is the world leader in the production of energy from oil shale, both in terms of volumes and technology. The oil price forecast then was 200 US dollars a barrel, that was the environment in which we made this decision. In Jordan, where we also invested, the power plant is ready and running! Eesti Energia's share is 10%. The fact that Utah's oil shale is not exactly the same [as Estonia's] is obvious. All risks were outlined in the reports. I also said publicly at the time that the worst thing that could happen is that we lose a hundred million in Utah. But if we had succeeded, how much would we have gained?

Harri Mikk: I didn’t know that the water use permit could not be extended

Eesti Energia board member, head of the fuels department 2006-2012 Harri Mikk. Photo: Ilja Smirnov

We acquired the water use permit after acquiring the project. During the acquisition of the project, the acquisition of water usage rights was a clearly defined priority task, necessary for the success of the project, and we succeeded. At the time of acquiring the use rights, I was not aware of any circumstances that would have fully precluded the extension of the water use rights in the future, should such a need arise. According to the knowledge at the time, these rights were sufficient for the implementation of the project.

Hando Sutter: I don’t understand why such a sum was invested there

Eesti Energia CEO 2014-2023 Hando Sutter. Photo: Mihkel Maripuu

This one water permit is not the reason this whole big thing is ending, there are many reasons.

Where it all is located: it is not logistically possible to get anywhere from there, there’s no infrastructure.

I said as soon as I familiarized myself with this matter that I do not understand why such a sum was invested there. I only dealt with consequences to the best of my abilities. I tried to find buyers, but it didn't work out.

If Eesti Energia had the technology to create something valuable from oil shale, it wasn’t necessary to go and buy a piece of America to do it. Estonian know-how could have been sold or leased to the locals.

Juhan Parts: If someone says that getting a water permit is not possible, then I don't believe it

Minister of Economic Affairs and Communications 2007-2014 Juhan Parts (Isamaa, former Res Publica). Photo: Eero Vabamägi

The broader strategy must definitely be looked at. The capacity of the Estonian economy, where greater added value could be obtained from. One such place is undoubtedly oil shale. 75 percent of the world's oil shale reserves are in America. From the perspective of economic and energy cooperation, in terms of trade and research ties, it [launching the Utah project] was a big plus for the Estonian economy and it was a very big plus in the context of security and Estonian-US relations.

The main business risk is oil market demand, oil price. In development, the risks are various environmental permits. Democrats at the time - the mainstream was certainly supportive. It also depends on the research - not all things are ultimately known.

12 years ago there was certainly no such knowledge [that Eesti Energia could only get a water permit that expired in 2015 and there was no legal possibility to extend it]. If they [Liive and Mikk] knew, then the situation is completely different. I remember that the authorization at the federal level was treated with greater complexity - due to the political worldview. Utah is a Republican state and they were very supportive. If someone says getting a water permit is not possible, then I don't believe it. This must be dealt with, after all, the world has not run out of water!