ERR News, Estonia
Arbitration overrules Tallinna Vesi tariff complaint, must pay costs
BNS, ERR News
23 June 2019
Tallinn water utility Tallinna Vesi has seen its claim against the Estonian state overruled by the International Centre for the Settlement of Investment Dispute (ICSID), and has been ordered to pay costs likely to be in excess of half a million euros.
Tallinna Vesi had made its complaint in conjunction with United Utilities B.V., registered in the Netherlands, which is a major shareholder in Tallinna Vesi.
Tallinna Vesi announced it was to start international arbitration in May 2014 for potential damages as high as €90 million over the period 2011-2020, BNS reports, constituting a breach of the Agreement on the Encouragement and Reciprocal Protection of Investments, between the Kingdom of the Netherlands and the Republic of Estonia.
The company’s own calculations revealed €50 million in damages had already been caused from the period 2011-2013, it says, due to a freezing on its tariff increases by an Estonian Supreme Court decision which ruled in favor of the Estonian Competition Authority (ECA); the latter had said that Tallinna Vesi needed to submit a new tariff application and the ECA was not bound by the agreement signed between Tallinna Vesi and the City of Tallinn, when the company was privatized in the early 2000s.
Dispute dating back to original agreement when Tallinna Vesi privatized
The eventual projected damages to 2020 were estimated at €72 million by Tallinna Vesi last summer; BNS reports a figure of €90 million, though the eventual figure Talinna Vesi claimed for at the ICSID was €67.5 million.
According to Tallinna Vesi, the Republic of Estonia as a signatory to the agreement undertook to ensure "the fair and equitable treatment" of investments protected by the agreement.
Tallinna Vesi argued that the Republic of Estonia had breached the requirement by changes to the law (see below) and activities of the public authorities, which deprived Tallinna Vesi of tariffs approved according to the Services Agreement concluded as part of the privatization in 2001.
The ECA refused to give the nod to the next tariff increase, in part the result of the change in Estonian law and in 2011 ordered Tallinna Vesi to bring its tariffs in line with the law, after which Tallinna Vesi took legal action which. This, together with differences of opinion with the ECA, has continued down to the present.
Tariffs frozen then accusation made of overcharging
For its part the ECA said, following the Supreme Court decision, consumers would have the potential to claim tens of millions of euros in compensation from Tallinna Vesi for rates that had been pitched too high.
On the other hand, since Tallinna Vesi had had no freedom to alter its own tariffs, the too-high fees claim could be seen as a fait accompli in that light.
Tallinna Vesi and the City of Tallinn concluded a services supply contract on January 12 2001, which among other things set the water company’s price regime for five years. Six years later this contract was extended to 2020. Under the contract, Tallinna Vesi theoretically had the right to raise tariffs in line with inflation (i.e. the Consumer Price Index – CPI).
Amends to the Public Water Supply and Sewerage Act 1999 which came into effect in November 2010 empowered the ECA with approving tariff changes, and also set the criteria for water prices as justified costs and cost benefits and not CPI, according to BNS.
The international arbitration hearings were held in November 2016, with materials avaiable to the public here.
International arbitration is a procedure whereby an independent, international tribunal issues a final ruling on a dispute. Pursuant to the agreement, arbitration in the Tallinna Vesi/United Untilities case was carried out by the ICSID, which is part of the World Bank Group.
Tallinna Vesi’s next steps
The ICSID tribunal ruled that the claimants, i.e. Tallinna Vesi/United Utilities, must cover 25 percent of the respondent’s (i.e. the Estonian state) legal costs, fees and expenses, plus 25 percent of the respondent’s share of the advance costs of the arbitration.
Those two sums are estimated at around €500,000 and €165,000 respectively, giving a total of €665,000 though the precise amount due from Tallinna Vesi has not been set yet.
Tallinna Vesi is now conducting legal analysis of the decision, BNS reports.
Tallinna Vesi is one of very few private water companies in Estonia and the only one to supply a major population center, with over 450,000 people. The majority of the 200 plus other companies, serving the remainder of the Estonian population, are municipality-owned. Some municipalities adjacent to Tallinn reportedly have higher water rates than Tallinna Vesi’s.
The bulk of Tallinna Vesi, and thus Tallinn’s, water supply is piped into Lake Ülemiste from several reservoirs outside Tallinn. The company also operates a sewage treatment plant in Kopli.