Elering: Alexela’s LNG mooring quay offer is not acceptable in terms of both market organisation and price

Elering has negotiated various possible solutions for the construction and management of a mooring quay required for a floating LNG terminal, but the negotiations have not reached a solution which Elering could accept, which would be in compliance with European and Estonian legislation and would not be too encumbering for Estonian gas consumers.

The solutions offered by Alexela in the course of negotiations are not acceptable in terms of price or are in strong conflict with open market rules.

When Elering began negotiations for constructing a mooring quay for a floating terminal, the owners of the project indicated a potential price of 20 million, but a proposal has been offered in the course of negotiations according to which Elering would have to pay the total construction price of the quay – 40 million euros – as rental fees, while Alexela would regardless hold the ownership of the quay afterwards.

The 40 million euros would have to be paid within mere two years if Elering does not ensure that the other party has the preferential right to use the LNG floating terminal service, which would allow them to handle one terawatt-hour of gas per year from the terminal in preferential order. Meanwhile, all other participants on the common Finnish-Baltic gas market would have to compete for the remainder of the capacity of the terminal. This preferential right cannot be granted to a market participant without the permission of the Estonian Competition Authority and the European Commission.

Elering has submitted three written proposals concerning the terms and conditions of the contract and is willing to continue negotiations in good faith in order to reach an agreement in the near future. The motivation of the other party is incomprehensible as it is attempting to resolve the matter by blaming Elering via media instead of actually taking part in negotiations. It is hard to see this strategy reaching an acceptable conclusion. When Elering does not agree with unreasonable terms and conditions with a non-transparent cost structure demanded by private companies, it cannot be considered to constitute dragging. In the end, the consumer would have to pay the unreasonably high price.

Elering’s objective is to develop LNG reception capacity in Estonia by the end of the year in order to ensure the security of supply in a situation where the supply of Russian gas from pipelines to Estonia were interrupted. For this purpose, a mooring quay and a connecting pipeline between the quay and the Estonian natural gas network must be built in Estonia. A floating LNG terminal would operate in the next few years that Elering is planning to rent together with Gasgrid Finland, the gas network operator belonging to the Finland.