OREANDA-NEWS. The Company's total sales for the first quarter of 2014 increased by 4.8% year on year. As the Company's tariffs are frozen at the 2010 level, the changes in the revenues from main activities is fully driven by consumption. Despite of the fact that the sales have gone up, the net profit in the first quarter decreased by 18.6% to 6.21 mln euros, mainly due to the recognition of increased pollution tax costs.

Apart from the increased pollution tax recognised in the financial results, the financial performance of the Company in in the first quarter of 2014 is good. Compared to the last year's first quarter the administration costs are slightly elevated due to the legal costs that are related to the ongoing tariff dispute, other costs and revenues are broadly in line with the results from the 1st quarter in 2013.

The main reason for recognising increased pollution tax costs is related to the change in AS Tallinna Vesi's water abstraction permit issued by the Environmental Board at the end of December 2013. The former concentration limits for zinc and copper in treated effluent were reduced by a multiple of 400. The modern treatment process that is also applied in Paljassaare wastewater treatment plant, allows removing approximately 70% of zinc and copper from the wastewater. Despite the highly effective removal process it is possible that the Company is currently not technically able to meet the new legal limits. This new law is causing severe problems across the water sector in Estonia, as it is not currently clear how the law should be applied.

Due to this decrease of the allowed concentration the Company has prudently recognised the full potential pollution tax charge, hence extra pollution tax expenses of 0.80 mln euros were recognised in the quarter one financial statements. Furthermore, the Company's financial results might also be impacted in the coming quarters, if until a clear solution has been established.

AS Tallinna Vesi confirms, that there has been no deterioration in the performance of the wastewater treatment plant during the first quarter. The effluent discharged to the sea continues to comply with all requirements, except for zinc and copper as outlined above.

The company is currently working with the Ministry of Environment and Estonian Water Association (EVEL) to understand how this change in law can be implemented across the water industry in Estonia to minimise the effect on operating costs and customers' bills. According to the Chairman of the EVEL, Vahur Tarkmees this is a general problem concerning the water economy in Estonia. “The new regulation is confusing, it is very difficult to understand what substances and concentrations can or cannot be discharged into a water body. We understand the importance of protecting the environment, but this must be economically justified and the price of service should be affordable for consumers. Unfortunately the legislator has not carried out a social-economic survey on what the reasonable limit values for heavy metals would be in Estonia. In terms of Cu and Zn, a member state is able to consider the limit values,“ Tarkmees explained the difficult situation.

Regarding the dispute over the Estonian public law privatisation contract, the date of the next court hearing is not set. Discussion of the complaint submitted to the EU Commission is ongoing.