9 Jan 2002 – The Estonian government yesterday pulled out of a deal to sell the country’s monopoly power producer to US power company NRG Energy after the Minneapolis-based group failed to meet the deadline of 31 December to arrange funding for plant upgrades.

The deeply unpopular privatization was the last act of the outgoing government of Prime Minister Mart Laar, who until recently had supported the deal saying it was economically sound and would boost Estonian security by increasing ties with the US. The deal, signed in 2000, sparked fierce debate in this Baltic Sea nation of 1.4m people, with critics claiming it would lead to sharply higher electricity prices.

NRG were to have taken a 49 per cent stake in Narva Power’s two oil shale-fired power plants for a cash payment of $70.5m. NRG had agreed to invest $300m more in plant improvements without which the facilities, which together supply 90 per cent of Estonia’s electricity, will eventually grind to a halt.

“Its nobody’s fault,” Kersti Kaljulaid, economics adviser to the prime minister said on Tuesday. “Maybe at the beginning we were too optimistic that this amount of money could be borrowed without state guarantees.”

The collapse of Enron and subsequent close scrutiny of all US energy companies have cast doubts over NRG and may have contributed to the failure to arrange the necessary borrowings – Moody’s have out NRG under review for a downgrade.

Money will be needed to upgrade Estonia’s soviet-built power plants if they are to meet the standards required for EU applicants and this will now be the task of the incoming administration.