OREANDA-NEWS. AS Tallinna Vesi received a response from the Minister of Economic Affairs and Communications regarding The Company's query, dated September 10th 2012. In this response, the Ministry stated that the Competition Authority and the Head of the Competition Authority have applied uniform price regulation principles to AS Tallinna Vesi and other regulated companies (including Kunda), and have not breached the principle of equal treatment.

The Ministry has taken this decision as it believes that AS Tallinna Vesi's international privatisation contract cannot be honoured because it is a purchase of shares (i.e. shares in the assets), however in the case of Kunda the participants purchased assets and not shares, therefore the terms of this contract should be honoured.

This different treatment is made clear when reviewing the wording repeatedly used by the Estonian authorities when rejecting AS Tallinna Vesi's tariff application. To quote:

"(A)n approach where the value of the assets subject to regulation is derived from the value of the company agreed upon between two parties cannot be considered justified. If an incorrect principle is followed, the price of the water service for consumers will rise as a result of the privatisation transaction solely due to the fact that the value of the assets subject to regulation increases. But no changes that improve the public water supply and sewerage system take place solely through entering into a privatisation agreement (no new investments are made) and only a change of ownership takes place".

However in the case of Kunda where the Estonian authorities have declared the contract in full compliance with the law and regulation, when using the same paragraph above and making only presentational adjustments to the wording (changes in capitals), the Estonian authorities have implied the exact opposite decision:

"(A)n approach where the value of the assets subject to regulation is derived from the value of the company agreed upon between two parties CAN be considered justified. If a CORRECT principle is followed, the price of the HEATING service for consumers will rise as a result of the PRIVATE SALE transaction solely due to the fact that the value of the assets subject to regulation increases. But no changes that improve the HEATING system take place solely through entering into a PRIVATE SALE agreement (no new investments are made) and only a change of ownership takes place".

The difference in the application of the law and regulation is clear and discriminates against AS Tallinna Vesi's international privatisation contract in favour of private sale and purchase transaction. The Company believes that this latest evidence further supports its claims that the privatisation contract has always been in accordance with the law and custom and practice regualtion in Estonia. For a regulator not to honour The Company's privatisation contract on the basis of an accounting intricacy breaches all good regulatory practice.

Furthermore, the statements made against AS Tallinna Vesi's international privatisation contract are completely incorrect. Firstly, AS Tallinna Vesi's privatisation was a market led international public procurement carried out with the full support of the EBRD, it was not a private sale agreement between two parties. Secondly, the main requirements of the international privatisation contract were to make significant improvements to the quality of water and wastewater by inviting international companies into Estonia in order to deliver those improvements more quickly and more efficiently – all of which have been delivered.

AS Tallinna Vesi would like its shareholders to know that it will use all necessary means to find a solution to this dispute.