OREANDA-NEWS. September 28, 2010. AS Tallinna Vesi has been asked by the Competition Authority to give its input to forming the new tariff methodology. The Company welcomes the open dialogue between the regulator-to-be and the largest water undertaking in Estonia, but insists on balanced and transparent regulation that complies with best regulatory practices.

According to AS Tallinna Vesi CEO Ian Plenderleith, the early draft presented by the Competition Authority does not define the full objectives of regulation. „Internationally accepted regulation principles always take into account quality and service aspects as well as price regulation, however the current methodology can not be implemented without avoiding unequal treatment. It is impossible to estimate or compare the inputs or costs necessary for achieving the outputs of water companies, without specifying the main outputs, e.g. quality and service standards,“ added Plenderleith.

It is positive, that the Competition Authority recognizes that „the activities of infrastructure companies have an important impact on the whole society and economy“, but AS Tallinna Vesi finds it regrettable that the regulator-to-be has yet only considered the price sensitivity of the customers and ignored fully their expectations regarding the product and service quality.
AS Tallinna Vesi is concerned about the Competition Authority’s approach to corporate governance and transparency. „For example it would be helpful to water companies and for the Competition Authority to develop a comprehensive list of non-controllable costs and to give very clear guidelines on how operating and capital costs will be included or excluded in the tariff calculation,“ commented Plenderleith. Without clearly defined standards and principles it would be poor regulatory practice to assume that the „regulator has the right to correct the asset value“ or to arbitrarily include or exclude capital and operating costs without a full and transparent justification and disclosure of the reasons. Furthermore, the current regulation suggests that any appeal against a decision for the Competition Authority needs to be made to the Competition Authority, which is in clear violation of any best practice governance principles
Another major issue arising from the proposed draft methodology for calculating water and wastewater tariffs concerns one of the primary objectives of any regulator – to guarantee an acceptable return on invested capital for investors. Within the current methodology it appears that the Competition Authority is excluding the privatisation value of AS Tallinna Vesi from the calculation of justified profitability, which since 2001 has been included in the calculation of justified profitability of AS Tallinna Vesi under current regulation within the Services Agreement signed with the City of Tallinn. Therefore to be in accordance with best practice regulation for privatized utilities, such as that favoured by Ofwat in the UK, ASTV has requested that the Competition Authority should expand the definition of regulated asset base to include the privatisation value of the utility. „This would ensure the privatisation contract was not unilterally broken and would respect the investments made in good faith into Estonia by our investors on the basis of that contract,“ added Plenderleith.
AS Tallinna Vesi will publish its comments to the Competition Authority on its website and to the Tallinn Stock Exchange and will keep its investors informed of all future developments regarding the future calculation of its water and wastewater tariffs.