Dear Mr. Prime Minister,

The decisions related to the development of the Estonian power system made in connection with NRG are so fundamental that they do, to a considerable extent, also determine the future existence of the Republic of Estonia. Therefore, I revert to the problem that we have discussed repeatedly, and point out the strategic key aspects of the sale of the share in the Narva Elektrijaamad Ltd.

1.When compared to the EU average, the growth of Estonia's gross domestic product during the last five years indicates that Estonia's GDP will reach the level of the well-developed EU countries within 25 years. Such development is not satisfactory for Estonia. Cheap electric power is a precondition of economic growth. The agreement with NRG would considerably increase the price of electric power in Estonia. This results on the one hand from the investor's desire to acquire high profit from the capital; and on the other hand from the intended speedy renovation of the boilers, not conditioned by technical necessity: not a single provision proceeding from Estonia's international agreements or EU law compels us to undertake renovation, as Estonia is not violating a single environment protection requirement within five or six years to come. The above agreement would compel Estonian economy to bear considerable expenses that are not necessary even in long perspective and would slow down our economic growth.

2.Without knowing the details of the agreement, it is difficult for me to assess the extent to which it is in concord with the liberalisation of the power market in Europe; and whether it might be a hindrance or an obstacle to our accession to the European economic structures.

3.The agreement involves several tactical risks that have not been neutralised. First, I would like to point to the project's inherent risk of management conflict, resulting from the ultimately contradictory interests of the two shareholders, whereas both parties would be able to block all the activities of the other side. Neither is the NRG actually responsible for fulfilling its obligations, as the agreement is not concluded with the main enterprise, but a buffer company it has founded. At the same time, the Republic of Estonia is assuming considerable obligations - should the financial status of Eesti Energia deteriorate as a result of this transaction, the state would be under compulsion to assist in every possible way. This is not a matter of formal guarantees: the state is responsible for the existence of electric power network. As for environment protection, it has been neither proved nor guaranteed to the least extent that the new method would be any more environment friendly than the one already employed.

4.Of course, the security policy aspect of the named agreement is to be considered the most significant. From the viewpoint of national security it is important for Estonia to be separated from Russia's power system. The current situation poses actual threats to the Republic of Estonia and her economy. Today it is for Russia to decide whether Estonia's power system is functioning or not, and Estonia is unable to take any action in this respect. Estonia can not function in isolation, as in such a small system it is impossible to create sufficient power reserves. We are also defenceless against any changes in current frequencies that would make us incompatible with the EU power systems and, in the worst case, damage our electricity-powered systems. Staying in the system of the Russian Federation would render the development and utilisation of IT production, as well as modern medical and computing equipment impossible.

Thus, the conclusion of the named agreement would render it impossible for Estonia to separate herself from Russia's power system and connect herself to the EU power system. The conclusion of the agreement would reduce the credit standing of Eesti Energia to the extent that would render the company incapable of making the investments necessary for joining the EU power network. Leaving the control over the power frequency in the hands of a third party, a state whose behaviour may be unpredictable, would considerably reduce the sovereignty of the Republic of Estonia. Losing control of the oil shale mines would mean the same: whoever controls the oil shale mines also controls the Eastern Viru County. The argument that the transaction would give Estonia an advantage in joining NATO and thus guarantee our national security is unfortunately unrealistic. Our national security is first and foremost guaranteed by a stable government coalition, liquidation of unemployment and labour deficit, balanced state budget, our will to defend our country and our solid principles. The latter also mean the responsibility to make our own decision on what is good and what is harmful for Estonia, and the resolve to decline this transaction in a clear and well-founded manner, without fearing the political pressure of the lobbyists of one administration or another. In long perspective, solid principles have always turned out to be the best investment in the good reputation of the state.


Lennart Meri

At Viimsi, on June 26, 2000

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