-Volume 7, No.7/8 July-August/2003 Estonian Economy

ESTONIAN ECONOMIC POLICY...... 2 the Economist Group Estonia can achieve the present average EU level in 30-35 years, while it may MAJOR ECONOMIC INDICATORS...... 3 take Poland 60 years and Romania as much as 80 years GDP ...... 3 to achieve it. Harmonization of tax laws will become a PRICES...... 3 very complicated and lengthy process in the EU, FOREIGN TRADE...... 4 because the countries' needs differ a great deal. As a FISCAL POLICY...... 4 result, Estonia can now design its tax reform in peace LABOUR MARKET...... 5 and should simply ignore other countries' complaints in DEVELOPMENT BY SECTO RS ...... 6 that respect.

IT ...... 6 Estonia has improved its ranking in the world BANKING...... 6 economic freedom index covering 123 countries of INSURANCE...... 7 the world, climbing from last year's 41st to 16th INDUSTRY...... 7 place ahead of such countries as Germany, Norway, FOOD INDUSTRY...... 9 Sweden and Japan, and ranking highest among ENERGY ...... 9 CONSTRUCTIONS...... 10 East European states. Estonia earned a rating of 7.5 REAL ESTATE...... 11 on a zero to 10 scale in the index compiled by the Cato COMMUNICATIONS...... 11 Institute, the Canadian Fraser Institute and more than TRANSPORT...... 11 50 other research institutes, placing narrowly behind AGRICULTURE...... 12 Austria, Denmark and Iceland with a score of 7.6. The TOURISM...... 13 index was based on data of year 2001. FOREIGN ECONOMIC RELATIONS...... 13 Citing weak external demand, the International Economist Group - Estonia will gain by all means Monetary Fund (IMF) has lowered its forecast of by accession to the European Union economic growth for Estonia this year to 4.5 In the opinion of one of the world's leading economic percent and raised the growth forecast for 2004 to analysis centers, the Economist Group, Estonia will gain 5.5 percent. In its previous estimate released in April, by all means by accession to the European Union, the IMF expected the Estonian economy to grow 4.9 despite problems facing the EU. Nened Pacek, director percent this year and 5.2 percent in 2004. The IMF said of Central Eastern Europe in the Economist Group, that while Estonia's economic growth and the inflation said at a conference in Tallinn that the Economist has outlook remain positive, external demand is weaker than thoroughly studied the positive and negative factors expected. Economic growth is likely to accelerate in of accession and is convinced that Estonia has 2004 as a result of anticipated improvement in the Euro much more to win than to lose from the accession. zone demand environment, increased inflow of EU Pacek said that in substance Estonia has no funds and an anticipated positive outcome of the alternative to accession, as the country's further referendum on EU membership, the IMF said. economic welfare depends on foreign investments and 90 percent of major international firms welcome EU According to the Statistical Office 59.8 percent of enlargment as a continued stimulus for investment. Estonia's gross domestic product (GDP) was Pacek said that the experience of EU enlargement so far created in the North Estonian region or Tallinn and shows that some countries have achieved considerable the metropolitan Harju County in 2000. The South post-accession economic growth although accession Estonian region comprising the counties of Jogeva, itself does not give a guarantee of prosperity. "The most Polva, Tartu, Valga, Viljandi and Voru accountedfor important factor is domestic economic policy - reforms, 16.6 percent of GDP in 2000. a strong government free of corruption, a favorable business environment and reliable budgetary policy," he The steering committee of the Phare aid program said. "Estonia has acted very well in this sphere so far. Thursday approved 20 projects of Estonia's national In the opinion of the Economist Group Estonia has Phare program on whose basis the European Union achieved the best business environment in the whole of is going to allocate 368 million kroons. Estonia is Central Eastern European region." In the opinion of cofinancing the projects in the sum of 125 million

ESTONIAN ECONOMY is compiled from materials issued by Bank of Estonia, Statistical Office of Estonia, Estonian Ministry of Finance and from local news services. Review is issued by the Press and Information Department, Ministry of Foreign Affairs ISLANDI VÄLJAK 1,TALLINN, 15049 ESTONIA Tel: +372 631 7615 (Liis Variksaar) Fax: +372 631 7617 To subscribe please contact: [email protected], http://www.vm.ee

Jaanuar, 2001

kroons. The Phare steering committee in Brussels approved 20 projects of the second part of Estonia's Estonian businesses launched a pro-EU campaign national Phare program in 2003 in the sum of 23.5 in second half of August A campaign in favor of million euros, the Finance Ministry reported. Among the Estonia's accession to the European Union organized by approved projects are strengthening of the border the Chamber of Commerce and Industry was launched infrastructure in the east, development and in television, print and outdoor media in the week implementation of an anti-drug state strategy, energy starting Aug. 18. efficiency investments of local governments, development of a hydrographic network and establishment of an electronic information system of structural funds.

ESTONIAN ECONOMIC POLICY Finance Ministry was ready to add to the budget if According to recommendations released by the additional revenues or sources of funding could be International Monetary Fund (IMF), Estonia found. Finance Minister Tonis Palts forecasts that the should seek to achieve a budgetary surplus to the extra expenditure could total between 300 million and tune of two percent of GDP this year and postpone 400 million kroons. some of the taxation reforms planned by the ruling coalition. The IMF said that the coalition's tax policy Bank of Estonia Vice-President Marten Ross said initiatives for 2004 and beyond, such as the increase in that for its budgetary revenue Estonia should not parent benefits and tax reform, may easily undermine too much rely on dividend payments which depend the government's goal of bringing the budget into on the development of financial markets and trade balance. "While we commend the government for cycles. "Considering the current situation of the wanting to lower the income tax and are sympathetic to economy -above all the high current account shortfall - the government's policy initiatives to stem the fall in as well as its development in the near future it is population, we urge the government to postpone some important to ensure a budgetary policy that supports a of the measures to ensure that they are consistent with a balanced economy, which means surplus in this year balanced budget. In particular, we are concerned that and at least balance the next year," Ross said. without an overall spending cap, the cost of parents' benefits might substantially exceed projections," the The board chairman of the Estonian Chamber of concluding statement of the IMF mission says. Commerce and Industry, Toomas Luman, says the "terminator-style" practices of the Tax Board are In connection with its merger with the Customs Board, increasing unemployment by forcing the owners of planned to take place next spring,the Estonian Tax Board small companies to close down business. "The large would lose 150 jobs, bringing an economy of 14 million companies generally can handle the foolish accusations kroons (EUR 895,000). The merging of the two and won't go out of business," Luman said. "But the instituions will take place in two stages starting with trend in the counties is truly dismal -- the number of June 1, 2004 after Estonia's likely accession to the small entrepreneurs is decreasing because the laws are European Union, which will bring significant getting more and more complex and the Tax Board changes particularly in the customs sphere. The more and more aggressive," he said. The Tax Board's second stage of the merger will be completed in 2005. attitude, that every entrepreneur is a potential tax evader, is something that shouldn't be permitted in a The Estonian State Audit Office will launch an situation where 10 percent of the people ever get the audit of the activities of supervisory boards of idea to go into business, three percent try it and one business corprations wholly or partly owned by the percent succeed, said Luman. state, with the main focus on the remuneration appointed to executive board members. The aim of The Estonian government approved Tuesday an the audit is to describe the effective practise and to order by which the Finance Ministry is to get 77.25 assess the principles of the appointment of the million kroons (EUR 4.94 mln) from the guarantee remuneration, the State Audit Office said. reserve for provisional funding of ISPA projects. The ministry has to return the money to the guarantee The Estonian Finance Ministry said on Friday that talks reserve when funds from the European Commission on the 2004 state budget on ministerial level have been come in. Of the appropriated sum, 32.9 million kroons ended, the differences eliminated and the budget is will go to the Via Baltica road link project for the bigger than the draft reviewed by the government one continuation of reconstruction of the Ikla-Tallinn- and a half weeks ago. The draft that the government Narva highway. reviewed on Aug. 12 showed expenditures at 46.1 billion kroons (EUR 2.95 b). Differences at the time concerned sums in excess of 800 million kroons that the 2

MAJOR ECONOMIC INDICATORS

GDP of goods and services in July 2003 were 0.8 percent higher than in July 2002. Administered prices dropped 0.4 percent while non-administered prices rose 1.3 Change of the GDP in constant 2000 prices percent. Compared with July 2002, food and non- against the same period of the previous alcoholic beverages became cheaper in July by 1.2 year (%) percent. Household items dropped 0.6 percent, transportation was four percent cheaper and leisure items slid 0.1 percent. 8 6 4 5,7 5,5 5,1 6,5 6,7 5,9 5,2 2 3,9 3,2 0 Change of the CPI by commodity groups, 2001 2002 2003 August 2002- August 2003, %

20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 18,7

Source: Statistical Office of Estonia 15

Growth in the gross domestic product (GDP) will decline further in Q3 in Estonia as compared to Q2, but growth rate should increase in Q4, the Finance Ministry said. Expectation of an even lower GDP 10 growth in Q3 is due to continuation of the previous quarter's trend and an even higher basis of comparison, the ministry said. Restoration of foreign demand is 6,3 being delayed all the time. European economic 4,5 4,5 5 4,4 indicators do not show any significant increase in CPI in economic activity yet, the ministry said. The ministry August 2,2 said Estonia's economic growth should start gathering 2003 1,8 speed in the last quarter this year. The ministry still 0,5 0 expects y-o-y GDP growth to be 4.5 percent. Slowdown 0 in GDP growth in Q3 was in line with their forecast, the Transport Household goods Recreation and culture Food and non-alcoholic beverages Clothing and footwear Housing Miscellaneous goods and services Hotels, cafés nd restaurants Alcoholic beverages and tobacco Education Communications Health -0,4 ministry said. -0,7 PRICES Estonian consumer prices index unchanged in August Change in the Estonian consumer price -5 -4 index (CPI) was 0.0 percent in August, the Statistical Office reported. The prices of goods fell by 0.3 percent, including groceries by 0.6 percent. The prices of non- food articles did not change. The hike in the prices of -10 services was by 0.5 percent in August. The consumer price index was affected more than the average in August by a seasonal fall in the prices of vegetables and a rise in the prices of medical services and tobacco, the Statistical Office said. Compared with August 2002, the prices of consumer goods and services were 1.3 Source: Statistical Office of Estonia percent higher on the average. The rise in administratively regulated prices was by 0.0 percent and June. 2003 - July 2002 - in free market prices by 1.8 percent. July 2003 July 2003 The consumer price index (CPI) grew in Consumer price index 0.2% 10.8% Estonia 0.2 percent in July compared with the month of June. Year-on-year over July 2002, the prices Producer price index -0.1% -% of goods and services had grown on the average 0.8 Export price index 0.2% 8.1% percent. The prices of goods decreased 0.2 percent Import price index 0.4% -2.1% during the month: food prices edged up 0.2 percent Source: Statistical Office of Estonia; Bank of Estonia while the prices of non-food articles fell by 0.5 percent. The prices of services climbed 0.8 percent during the month, the Statistical Office said. On average, the prices 3 May/June, 2003

The producer price index of industrial (56 percent in June), and to CIS countries 12 percent output in Estonia declined in July by 0.1 percent (13 percent in June).. month on month but showed no change compared with July 2002. In manufacturing the index was down Share of countries in Estonian foreign trade (%) 0.2 percent compared with June and off 0.1 percent in May 2003 against July a year ago. The biggest month-on-month price drops were recorded in wood processing -- 0.8 Exports percent, production of furniture and goods not listed Country of destination 6/2003 7/2003 under other categories -- 0.4 percent, and the Finland 27.8 22.1 production of foods and beverages -- 0.2 percent. In Sweden 15.2 12.9 energy the index was unchanged month on month, Germany 9.013 13.0 while easing 0.1 percent from July 2002. Producer prices Latvia 6.8 7.9 in mining showed an increase of 0.2 percent on month UK 3.9 3.8 and 1.1 percent on year. The export price index declined Denmark 3.7 2.9 last month by 0.2 percent compared with June and Russia 4.2 4.9 showed a year-on-year rise of 8.1 percent. The import Lithuania 3.8 5.0 price index was up 0.4 percent on month and dropped Norway 3.3 4.5 by 2.1 percent compared with July 2002. Netherlands 3.0 2.6

FOREIGN TRADE Imports Estonia's trade deficit more than doubled against Country of origin 6/2002 7/2003 June and amounted to 3,807 billion kroons (EUR Finland 17.7 15.7 243 mln). Customs figures revealed that export of goods totaled 6,436 million kroons and import 10,243 Germany 11.8 11.7 million kroons in July. Compared with June, export of Russia 6.5 6.7 goods declined by 844 million kroons, while import Sweden 8.7 7.3 increased by 1,178 million kroons. In June, customs China 4.2 4.0 posted a trade shortfall of 1,785 million kroons. Of the USA 4.7 8.2 import of goods in July, 23.7 percent or 1,522 million Ukraine 4.3 4.0 kroons' worth went to Finland, 10.8 percent to Russia, Italy 3.2 3.5 10.3 percent to Sweden, 9.6 percent to Germany, 8 Japan 3.7 3.7 percent to Latvia and 5.4 percent to Lithuania. Of the Lithuania 3.9 3.5 imports 22.5 percent or 2,302 million kroons' worth came from Finland, 12.4 percent from Germany, 8 Source: Statistical Office of Estonia percent from Russia, 7.2 percent from Sweden and 4.1 FISCAL POLICY percent from the Netherlands. Export of mechanical The total assets of the Bank of Estonia grew by machines and electrical appliances took first place in the 756.7 million kroons or 4.5 percent to 17.575 billion export of goods, accounting for 20.4 percent of the total kroons (EUR 1.123 b) in July. The gold and net export. Export of means of transport was in second foreign currency reserves of the central bank totaled place at 14 percent. Of imports, 26.2 percent were 15.7 billion kroons at the end of the month; compared mechanical machines and electrical appliances, followed with the end of June the reserve increased by 595.1 by means of transport, which made up 22.5 percent of million kroons or 3.9 percent. The Bank of Estonia total imports. unencumbered reserve fell in July by 41.3 million The Estonian foreign trade shortfall soared to 3 kroons or 1.3 percent to 3.102 billion kroons. billion kroons (EUR 192 mln) in July from 2.2 In its economic policy quarterly comment, the billion kroons in June. According to the main trade Bank of Estonia lowered its forecast of 2003 system, the turnover of foreign trade totaled 12,435 inflation in Estonia from earlier 3.2 percent to million kroons according to preliminary figures, 1.5percent. The central bank did not revise its annual including 4,679 billion kroons export and 7,756 billion GDP growth forecast, leaving it at 4.4 percent. The kroons import, the Statistical Office reported. In June, Bank of Estonia expects the current account deficit to export totaled 5,137 million kroons and import 7,302 be up to 14 percent. million kroons. Export declined by 9 percent while Prime Minister Juhan Parts has thrown his import increased by 6 percent against June. Compared backing behind the camp calling for bigger with July 2002 export increased by 14.4 percent and appropriations from the Bank of Estonia's profit import by 17.4 percent in July. The share of European into the state budget, saying the profit is part of Union countries in the exports accounted for 65 percent taxpayers' money. "My personal opinion is that the in July (69 percent in June),while CIS countries Bank of Estonia, too, should serve the interests of the accounted for 7 percent (6 percent in June). Imports to taxpayer more," Parts said in his remarks broadcast on European Union countries made up 53 percent in July Estonian Radio on Friday. Finance Minister Tonis Palts, 4 May/June, 2003

a member of the Res Publica party of which Parts is A working hour cost more than six times less for chairman, has taken a hesitant stance on asking for a employers in would-be European Union member bigger share of the central bank's profit to be states in 2000 than it did in the EU countries, a incorporated into the state budget. Parts said the topic survey by Eurostat shows. According to the survey, of the central bank's profit requires a broader debate on an hour of work cost on the average more than 22 euros the parliament's level and in the council of the Bank of inclusive of wages and social taxes in EU countries in Estonia, as distribution of the profit is neither a matter 2000, whereas in the countries about to join the EU the of the budgetary process nor something that can be figure was just 3.5 euros. The cost of an hour of work in decided by the government. Finland was on a par with the EU average. Estonia's According to a preliminary estimate of the per-hour average of 3.03 euros meanwhile was 2.7 times Bank of Estonia, the current account shortfall was lower than that of Portugal, the EU member with the 3.1 billion kroons (EUR 198 mln) in Q2 and 884 cheapest labor. million kroons in June. "The Q2 current account deficit was higher than last year, but in the last four Average monthly gross wages in Estonia quarters the ratio to the gross domestic product of the period remained at the previous quarter's level," the average monthly gross wages, kroon central bank reported. Foreign trade turnover in June 8000 change in average monthly gross wages, y-o-y20% totaled 1,800 million kroons, which put the Q2 shortfall 6915 at 5,190 million kroons. This is significantly lower than 6353 6512 6333 5721 5853 the foreign trade shortfall of 5,750 million kroons in 6000 Q1, the central bank said. The surplus of the balance of services amounted to 1,194 million kroons in June, 12,20% 10,8% 11,5% 1,076 million kroons in May and 722 million kroons in 4000 10,20%10,4% 10% 8,8% April. Net inflow of investments was low in terms of all investments, whereas inflow outstripped outflow in 2000 terms of portfolio and other investments. The balance of direct investments was negative in June -- direct investments to the tune of 452 million kroons were 0 0% made out from Estonia, while 336 million kroons of Q1 Q2 Q3 Q4 Q1 Q2 investments were made into Estonia. In Q2, foreign 2002 2003 direct investments to the tune of 1,933 million kroons were made into Estonia, while 1,045 million kroons of Source: Statistical Office of Estonia investments were made out from Estonia. Estonian state budget is 68.66 pct full after Employment and unemployment in eight months. The total revenue paid into the Estonian Estonia (%), ages 15-74 state budget by the end of August was 27.2 billion kroons (EUR 1.74 b), which makes up 68.66 percent of the 12-month target including also the supplementary 15,0 12,411,9 11,9 60,0 11,2 11,3 10,610,7 9,4 budget. Revenue inflow in August totaled 3.31 billion 9,1 57,1 kroons, 8.36 percent of the target set for the year, the 10,0 56,1 56,2 56,2 55,0 55,654,955,5 55,0 Finance Ministry said. 5,0 According to the latest estimates, the size of 0,0 50,0 the Estonian state budget for 2005 will be about Q2 Q3 Q4 2002/Q1 Q2 Q3 Q4 2003/Q1 Q2 49.8 billion kroons (EUR 3.18 b), Finance Minister Tonis Palts said. The revenue side of the state budget employment rate for 2004 is forecast to total 42.9 billion kroons. The unemployment rate state budget for this year together with the Source: Statistical Office of Estonia supplementary budget totals 39.551 billion kroons in revenue The rate of unemployment went up to 10.7 and 39.748 billion kroons in expenditures. percent in Estonia in Q2 from 10.6 prercent in Q1. In Q2 2002 the unemployment rate was 9.4 percent. LABOUR MARKET The unemployment rate mainly increased due to The average gross wages were 6,915 kroons (EUR increased joblessness among young people. The jobless 442) in Q2 in Estonia, 8.8 percent higher than in the rate in the age group from 15 to 24 soared to 24.2 same period last year. In April, the gross wages were percent. Unemployment among young people was last 6,478 kroons, in May 6,832 kroons and in July 7,417 as high in early 2002. In Q1 this year the unemployment kroons, the Statistical Office reported. rate dropped to 10.6 percent from 11.3 percent in Q4 last year.

5 Veebruar, 2000

DEVELOPMENT BY SECTO RS

IT market have already set up branches here. Uhispank The information technology company TietoEnator Eesti estimates that in 2002 more than 10 billion kroons made last year a loss of 1.2 million kroons (EUR 0.08 (EUR 0.64 b) was borrowed from Estonian banks but mln) on sales turnover of 25.83 million kroons; in 2001 6-7 billion kroons from European foreign banks. Private the company earned a profit of 3.8 million kroons. The loans are more complicated for a foreign bank to serve. running and closing of a loss-making "It's difficult at present for a foreign bank to realize telecommunications unit last year involved substantial property located in Estonia that's been pledged to the expenses for TietoEnator Eesti and caused also the loss bank," head of Uhispank's strategic planning and drop in turnover, the company explained. department Katre Kelder said. "A Spanish bank, for Estonian IT co Helmes ends 2002 with EUR example, would have to do it in line with Estonia's Law 0.38 mln loss. The Estonian information technology of Property Act and the bank would have to be familiar company Helmes ended last year with a loss of 5.9 with the law." She said it makes more sense for a foreign million kroons (EUR 0.38 mln); a year earlier the firm bank to open a branch office in Estonia employing posted a profit of 3.4 million kroons. The turnover of specialists well-versed in local legislation and business Helmes according to the 2002 economic report was 106 environment. "All banks that wanted to set up branch million kroons compared with 110 million kroons in offices here have already done so," she added. Estonian 2001. The loss stemmed from restructuring the firm banks believe money transfers to the European Union which began at the beginning of the year. In the course (EU) will become cheaper before Estonia's possible of the restructuring the average number of employees accession to the euro, which can happen in 2006 at the decreased from 65 to 50. earliest. MicroLink Arvutid (MicroLink Computers) Lars H. Thunell, president of Svenska Enskilda emerged as the largest computer producer in Estonia Banken, owner of Estonia's Uhispank, said with 6,660 sales in the first half of the year, closely competition in the Baltic banking sector would followed by Ordi. "We sold 6,660 computers in all in strengthen after the countries' accession to the the first half of this year," CEO of MicroLink Arvutid European Union (EU). "In connection with accession Mait Rahi said. The six-month sales turnover totaled 80 to the EU, new operators will certainly appear on the million kroons (EUR 5.11 mln). In June the firm sold Baltic banking scene and also our present competitors 1,508 computers. will begin working even stronger in the name of The council of the Finnish electronics industry increasing their market shares," Thunell said. "This subcontractor Elcoteq discussed during a meeting in should prevent any potential increase in the price of Parnu, southeastern Estonia Wednesday the possible banking services." However, Thunell did not forecast transfer of the company's headquarters to Estonia. The very serious competition for the Estonian banking council of Elcoteq, chaired by Antti Piippo, gathered in sector. "In Lithuania, where German banks are now Parnu and met later with Estonian Prime Minister Juhan busy side by side with the Swedes, the race will Parts. "We're trying to find out right now what kind of apparently be tougher," Thunell said. effect the migration of the company's headquarters and According to the Bank of Estonia the loan site of listing would have on the company's operations turnover of the country's commercial banks totaled and value. We have time for this activity until the end of 5,363 million kroons (EUR 342.7 mln) in July, 844 the year, therefore it cannot be said at this point million kroons or 18.6 percent more than in June. Of whether the relocation of headquarters will become the banks' loan turnover, loans to financial institutions reality," Elcoteq's chief spokesman Osmo Kammonen accounted for 2,726 million kroons, loans to business said. The Elcoteq council members discussed with corporations 1,721 million kroons, loans to individuals Estonian leaders the significance of EU accession for 874 million kroons and loans to the government 41 Estonia. Elcoteq employs more than 2,000 people in million kroons. Estonia now and its operation is the largest of any Estonia's Krediidipank earned 4.8 million kroons Finnish company here. (EUR 307,000) profit in January-August this year, of this 941,000 kroons in August. Krediidipank said that as BANKING of August 31, its total assets stood at 1,396 million Membership in the European Union may lead to kroons, 139 million kroons more than at the beginning tougher competition on the banking market if of the year. corporate clients begin taking more loans from The Russian-owned Latvian Business Bank European investment banks offering more acquired this week a holding of 18,695 percent in favorable conditions, banks in Estonia estimate. In Estonia's Krediidipank; the Estonian financial supervisory the banks' opinion, the possible tightening of body had earlier issued a respective license to carry out competition concerns the market of corporate loans the transaction. "Krediidipank has a cooperation because all banks interested in the Estonian private loan agreement with the Bank of Moscow, owner of Latvian

6 May/June, 2003

Business Bank, since 1999, and they have proved their Hansapank's online bank, hanza.net, had 456,788 users credibility as a business partner," said Krediidipank at the end of July, up by 4,985 from end-June. As many board chairman Andrus Kluge. Kluge said that although as 5,076 new clients joined Uhispank's online bank U- Krediidipank is mainly oriented at the Estonian market, Net last month, bringing the number of valid U-Net its strategic plans include also closer cooperation with contracts to 223,683. Sampo Pank's Internet bank had at the financial sector of the neighboring countries. the end of July 57,679 clients, of whom 1,885 Latvian Business Bank bought the holdings of subscribed during the month. Krediidipank's earlier shareholders, the U.S.-registered Estonia's five commercial banks had issued a firms IPD Inc and Markel International Ltd. Fifty total of 1,141,669 debit and credit cards to their clients percent of Krediidipank's shares belong to Estonian by the end of July, 10,996 cards more than by the end of capital. The biggest shareholders are two private June. Hansapank had issued 702,492 debit cards by the persons, Rein Otsason and Valentina Otsason, who end of July, 3,494 more than by the end of June. control 30 percent of the shares. Latvian Business Bank Hansapank's credit cards totaled 110,388, 3,169 more has operated in Riga since 1992. The bank's total assets than by the end of June. Of the credit cards 79,353 are at the end of H1 were 20.3 million lats (EUR 32.12 mln) Eurocard/Mastercard and 31,035 VISA credit cards. and its profit by the end of the period was 233,000 lats. Uhispank had issued 235,575 debit cards by the end of Latvian Business Bank is nearly one hundred percent July, 2,248 more than in June. The number of owned by Bank of Moscow, one of the biggest banks in Uhispank's credit cards increased by 815 to 54,178 in Russia. July. Hansabank, the Baltic states' largest financial group, earned the biggest part of its 29 million euro net INSURANCE profit in the second quarter of this year in Estonia. Net profit earned in Estonia during the second quarter Estonian life insurance companies collected 302.10 totaled 17.3 million euros, the figure for Lithuania being million kroons (EUR 19.3 mln) of premiums in the 4.8 million euros and for Latvia 4.4 million euros, first seven months of this year, 73.34 million kroons Hansabank announced on Friday. Other operations, or 32 percent more than in the same period last which include leasing operations in Russia and Ukraine year. Premiums in the first seven months of 2002 had and non-strategic areas, produced a net totaled 228.76 million kroons. The companies paid out profit of 2.4 million euros. The breakdown of total some 49 million kroons in claim settlements against assets by country was as follows: Estonia 2.759 billion 31.29 million kroons in the first seven months of 2002. euros, Latvia 1.187 billion euros and Lithuania 1.603 In the first six months of 2003, Estonian billion euros. insurance companies signed 7,042 new additional The Q2 net profit of the Estonian Uhispank funded pension, or so-called third pillar pension group, part of the Swedish SEB Group, stood at 138.1 contracts, 28.7 percent more than in the same period million kroons at the end of Q2; total assets of the last year. In all, 52,599 additional funded pension group amounted to 22,919 million kroons. The total net contracts had been concluded by the end of June and on profit of the Uhispank group in H1 was 270 million their basis premiums to the tune of 131.6 million kroons kroons, the bank reported. were paid in H1, Martin Rajasalu, project leader with the In connection with the focusing of operations Estonia Insurance Association, told BNS on Friday. on investment management in Central and Eastern Europe, Trigon Capital Baltics will cease providing stock INDUSTRY analyses and investment recommendations. "Instead of the present reports we are planning to start issuing Industrial output in Est onia in July was 9.0 percent reviews of the Central and East European bigger than in July 2002; in manufacturing the increase markets, including those of the Baltic region, Trigon was 7.8 pecent, data released by the Statistical Office Capital director Kristel Kivinurm said. Kivinurm said shows. Month on month, output grew by one percent. Trigon's Central and East European Fund is the biggest Aggregate sales of industrial output in July totaled 4.666 open-ended share fund in the Baltic countries. "While billion kroons (EUR 298 mln), bringing the seven- most developed countries' big funds focus on a few month total to 34.517 billion kroons. The sale of output flagships of the stock exchanges, then Trigon's focus is of the manufacturing sector was 4.161 billion kroons in on small and medium-size enterprises that should win July and 29.385 billion kroons in the first seven months the most in the development of the next few years. of the year. Production in the manufacturing sector Trigon Capital has offices in Warsaw, Tallinn, grew one percent over the preceding month, according Riga,Vilnius and St Petersburg. Trigon manages the to seasonally adjusted figures. The increase was 26 Trigon Baltic Share Fund and the Trigon Central and percent in mining, while electricity output was East-European Fund. unchanged from June. The growth in manufacturing The number of online clients of Estonian banks was mostly due to an increase in the output of the food, grew during July by 12,956 to 765,696 and that of metal and construction materials branches. In year-on- telephone bank clients, by 3,178 to 230,707. year terms the output of electricity grew 14 percent, 7 May/June, 2003

mostly owing to bigger exports. Nine percent less mln) for the first half of 2003, a decline of 21.6 percent thermal energy was produced during the same period. from the same period a year ago. The output of electricity totaled 663 gigawatt-hours in The Tartu, South Estonia-based Baltcoach July and 5,782 GWh in the first seven months of 2003. company has increased output and is now the only Thermal power production was 237 GWh last month facility making buses of Scania's Omniline range. The and 5,472 GWh in the January-July period. Scania group subsidiary Omni Katrineholm has closed Vest-Wood Eesti, a wood processing company its plant in Denmark and the manufacture and based on Danish capital, plans to expand its production technology of the Omniline intercity buses has been facility in Rakvere, northern Estonia by 6,000 square fully transferred to Tartu. The changed business plan meters and launch towards the end of the year a plant to takes buses made by Baltcoach to the European Union produce 5,000 panel doors a week. Vest-Wood currently market, first and foremost to Scandinavia. produces in Estonia gluelam panels, timber, doorframes The Tallinn-based furniture maker AS Standard and outer doors, the company said. The yearly turnover earned a profit of 3.5 million kroons (EUR 0.22 mln) on of the Estonian branch of Europe's largest door sales of 72.1 million kroons during the first six months manufacturer Vest-Wood Group is 250 million kroons of 2003 compared with respectively 1.6 million and 57.6 (EUR 15.97 mln). million kroons in the same period a year ago. "An Estonia's largest shale oil producer, the Viru increase in the share of export is one of the main Keemia Grupp (Viru Chemical Group, VKG) based in the reasons behind Standard's growth," said Priit Tamm, northeastern city of Kohtla-Jarve, plans to develop a marketing and sales director of Standard. "These are the new mine that would give work to 600-700 miners in first fruits of the export-oriented strategy launched one the Ida-Virumaa region. and a half years ago," Tamm said. Export turnover in The Kohtla-Jarve, northeastern Estonia-based the six months was 23.4 million kroons, largely as much chemical factory Nitrofert that was at a standstill for as in the entire 2002. In exports, the share of hotel more than a year has resumed production and in the furniture has increased. territory of the factory loading of ammonia and liquid NE Estonia to get EUR 17.25 mln rail car plant nitrogen into railway cars is in progress. Nitrofert has The cornerstone will be laid in Ahtme, northeastern started producing urea as well but in smaller amounts Estonia, Friday for a rail car assembly factory costing up than expected as the system requires some more fine- to 270 million kroons (EUR 17.25 mln). The project has tuning, the regional newspaper Pohjarannik been financed with own funds so far but in the future reports. additional money is planned to be received from In connection with a low ebb of the market, Estonian banks, which already have displayed interest Estonia's Silmet Group has closed for three months its toward the project, spokespeople for the AS UVZ & rare-earth metals plant and is hoping to reopen AVR company that stands behind the project said. The it in October. Silmet Group board chairman Tiit Vahi plant would have an assembly capacity of up to 3,000 oil Monday said that there was a low ebb currently in the tank cars per year. In addition, it would be able to repair market segment of Silmet's output, and it also affected and service about 2,000 tank cars used on Baltic Silmet's work. "We must work in accordance with railways. market demand," Vahi said to justify the closure. Battery recycling plant in NE Estonia to be Eesti Polevkivi (Estonian Oil Shale), a subsidiary of launched in September A plant for recycling used car the public power utility Eesti Energia (Estonian and other batteries will start working at full capacity in Energy), made 268.6 million kroons (EUR 17.16 mln) the northeast Estonian town of Sillamae in the second net profit at 1.74 billion kroon sales in the financial year half of September. Construction works have finished ending March. The year before the group's consolidated and testing is now going on at the facilities, Tonis net sales totaled 1.6 billion kroons, the company Kaasik, council chairman of the plant's owner Ecometal, reported. told BNS. The German building industry firm Henkel will The Galvex steel terminal facility at Muuga near Friday take over from Finland's YIT Construction Ltd. Tallinn is operating normally and the stops reported by the production of Makroflex in Finland and Estonia. the media have been planned maintenance stops, said According to an earlier report, the price of the deal is 36 Daniel Bain, the manager and one of the owners of million euros or 563 million kroons. The activity of Galvex Estonia. Bain dismissed as incorrect the report Makroflex will in the future be coordinated by Henkel published in the Aripaev business daily last week that Central Eastern Europe with headquarters in Vienna. work at the plant had stopped due to technical The Northern European operations will be steered by problems. "There are no major technical problems at Henkel Norden Group. Makroflex develops, produces the plant and all recent stops in production have been and markets polyurethane sealing compounds that are planned in advance," Bain said. He said the plant mainly used in construction. regularly has planned maintenance stops, whereas The Estonian paint maker ES Sadolin has otherwise it runs 24 hours a day, seven days a week. posted a pretax profit of 47 million kroons (EUR 3.0 Bain said that the prime production yield has been incredibly good for a plant in operation for less than a 8 May/June, 2003

year. The quality of the product is excellent and Estonia's second biggest meatpacker, Valga Lihatoostus continues to improve, and customers are very happy AS (Valga Meat-Packer), posted sales of 143.6 million with the quality, he said. kroons (EUR 9.2 mln) in H1, 103.2 percent more than AS Eesti Polevkivi (Estonian Oil Shale) earned a in the same period last year. Export accounted for 13.3 profit of 46.5 million kroons in the first quarter of the million kroons in H1, up 120 percent year-on-year, financial year starting April 1, an increase of 29 million Valga Meat-Packer head accountant Urve Kartau told kroons (EUR 1.85 mln) over the same three months a BNS. The firm made a profit of 2.5 million kroons in year earlier. the six months, 90 percent more than in H1 2002. The garment making group AS Klementi The January-June operating profit and sales of suffered a net loss of 19 million kroons (EUR 1.21 mln) AS Tartu Olletehas (Tartu Brewery) were smaller than last on net sales of 54.8 million kroons in the first six year as a result of the bad weather in spring and the months of 2003, according to unaudited consolidated early part of summer, the Finnish Olvi group figures. Loss in the same period last year had amounted announced on Thursday. Sales of the Tartu, south to 18.7 million kroons on sales of 57.3 million kroons. Estonia-based beverage maker during the first six The Swedish textile company Boras Wafveri on months of the year declined to 12.52 million euros from Wednesday handed layoff notices to 80 of its 180 staff 13.01 million euros in the same period a year ago. Tartu at Boras, Sweden, because of the transfer of a part of Olletehas earned a solid operating profit, yet the figure operations to its holding in Estonia's Narva. A report by remained smaller than in the same time last year, Olvi the Estonian service of Radio Sweden said only the said in its interim report, without giving the exact figure. manufacture of highly profitable products requiring very The Olvi group that controls Tartu Olletehas skilled labor will remain at Boras. Since production costs (Tartu Brewery) in Estonia, Cesu Alus in Latvia and in Estonia are very different from those in Sweden, Ragutis in Lithuania has looked at the prospect of taking production of simpler products such as curtains and bed more of its beermaking operations to the Baltic states, sheets will be transferred to Narva, Boras Wafveri Finland's Turun Sanomat daily reported. Insufficient managing director Mats Skogman said. reduction of the alcohol excise tax in inland may lead to a loss of jobs as companies would transfer more of their FOOD INDUSTRY production to the Baltic states, the newspaper reported, The market share of the Estonian sweets maker AS saying that Olvi, for instance, has weighed such Kalev was 54.5 percent by volume at the end of January alternative. 2003, 6.2 percent bigger than in the previous period, a The Estonian brewer Saku Olletehas earned a net survey by AC Nielsen indicates. Kalev's market share by profit of 16,448 million kroons in H1 this year, 9.7 volume in the chocolate confectionery group grew 2.8 million kroons (EUR 620,000) less than in the percent to 58.4 percent. Total confectionery sales by same period last year. Compared with the same period Kalev grew about two percent over the previous in 2002, Saku's net sales declined by 5 percent to 353.9 comparable period to 7,130.3 tons in the financial year million kroons. In H1 2002, the company made a profit ending June 30, 2003, Kalev said. With Kalev moving to of 26.1 million kroons on 372.3 million kroons of sales. Juri outside Tallinn, a situation has developed where the Saku Olletehas board chairman Cardo Remmel said the firm's boxed chocolates have run out in stores and new company had nevertheless kept its leading market products are only expected in October. Kalev public position in conditions of a contracting beer market, as relations officer Ruth Roht was unable to say when well as an operating profit of nearly 25 million kroons, production would be resumed in the new factory. She only 1.09 million kroons below last year's level. said the caramel unit was still in operation in the old Saku Olletehas is hoping to achieve a share of seven house and some sweets were being imported from percent of the docmestic market with its kvas beverage Kaliningrad. that is produced and bottled by BBH's breweries in The sales of Estonia's biggest poultry producer, Lithuania and Latvia. Saku Brewery marketing director AS Tallegg, increased in H1 while its profit declined Kristy Villems SAID that the kvas under the brandname from last year by 10 million kroons (EUR 640,000) or Paikese Kali (Sund Kvas) was sold in 0.5 and 1.5 liter 45 percent. Tallegg earned 12.3 million kroons of profit plastic flasks. Villems said Saku Brewery's aim was to at 258.1 million kroons of sales in H1 against 245.8 achieve a 7-percent share on the kvas market in half a million kroons sales and 22.3 million kroons of profit in year. the same period last year, the company reported. The net profit of Estonia's Rakvere ENERGY Lihakombinaat (RLK, Rakvere Meat-Packer) totaled 13.6 Estonian Economic Affairs Minister Meelis Atonen mln kroons (EUR 869,000) at 559 million kroons of said potential acquisition by the Eesti Energia sales in H1 2003, with both the sales and the profit (Estonian Energy) power utility of an electricity figure falling. Sales of the Rakvere Lihakombinaat group grid in Lithuania would benefit also Estonian fell by 5 percent or 29.4 million kroons year on year, consumers as sale of Estonian electricity in and the profit figure was less than half of the 28.3 Lithaunia would make Estonian power plants more million kroons of H1 2002. efficient . Expansion of operations to Lithuania would 9 May/June, 2003

make Eesti Energia a more vigorous company and add one that hit the Eastern Seaboard of the United States value to it, Atonen said. The possible acquisition of the and a large part of Canada would certainly effect also Lithuanian grid cannot be done at the expense of consumers in Estonia. "Respective preparations have Estonian consumers. "Instead, the expected extension been made in Estonia to reduce the effect of such a and rise of the market could bring a bonus to our potential breakdown, so if a serious breakdown should consumers," the minister said. Atonen said Eesti occur in the Russian power system, leading to the loss Energia should not remain an Estonian-centered of a large proportion of generating power and fall in company alone as in a globalizing market it could be frequency, there are respective automatic installations in defeated in terms of competitiveness by firms entering the Estonian power system to separate the Estonian the Estonian market. power system and leave it working independently," Eesti Energia earned a net profit of 56 million Allika said. kroons (EUR 3.58 mln) on net sales of 1.283 billion Lithuania's Mazeikiu Nafta is seeking to further kroons in the first quarter of the financial year that boost market share in Estonia The Mazeikiu Nafta oil began on April 1. Net sales of the group increased 18 refinery is launching a wholesale subsidiary in Estonia percent over the same period last year. The group had that is expected to help to further increase the finished the first quarter of the 2002/2003 financial year Lithuanian refinery's market share here. Mazeikiu with a loss of 27 million kroons. The increase in sales Nafta's market share on the Estonian motor fuel market was mostly the result of bigger sale of electricity, CFO is now about 80 percent in gasoline and about 11 Sandor Liive said. Eesti Energia sold 1,232 gigawatt- percent in diesel. hours of electric energy in Estonia during April-June, an increase of 23 percent over the same period last year. CONSTRUCTIONS Eesti Gaas (Estonian Gas) sold a total of 433 million cubic meters of natural gas in H1 2003, 77 Rapid growth on Estonian construction market million cubic meters or 21.6 percent more than in the continued in Q2 The total production of Estonia's same period last year. Estonian Gas sales director Raul construction sector both at home and abroad grew Kotov told BNS that the grow th in sales was mainly at 5.5 percent in the second quarter of 2003 over the the expense of cold weather in the first three months of same period a year ago. The increase in Estonia was the year. 9.2 percent. The production value of construction Estonia's AS Narva Elektrijaaamad (Narva Power amounted to 3.6 billion kroons (EUR 230 mln) in April- Plants) made 495 million kroons (EUR 31.63 mln) of June. The growth in construction volumes was mostly profit at 3.4 billion kroons of sales in the 2002/2003 the result of an increase in the construction of non- financial year. Net sales totaled 3,401 million kroons in residential buildings in Estonia. Turnover from the financial year, up 783 million kroons or 30 percent. construction activities totaled 5.3 billion kroons, half of The supervisory board of the company Monday decided which was received from repair and maintenance works. to retain the net profit of 495 million kroons. AS Eesti Ehitus (Estonian Construction) and AS Estonian wind energy producers are Sillamae Sadam (Sillamae Port) Wednesday signed the campaigning for higher price. During a meeting with prime contract for the construction of Phase One of the Economy Minister Meelis Atonen the board chairman port, the hydrotechnical part of the breakwater. Eesti of the Estonian Wind Energy Association Jaan Tepp Ehitus will build a 640 meter limestone and granite said the association is about to submit an application for breakwater that will be covered with tetrapod blocks to raising the price of wind energy. The association wants protect it against wave action. Besides, Eesti Ehitus will the coefficient by which the price paid for sustainable lay the necessary communications for the electricity and energy is higher than the price of electricity produced at water supply of the future wharf. Phase One of the the oil shale burning power plants to be increased from Sillamae Port must be completed in summer 2004. The the present 1.8 to 2.21. The higher coefficient would port that is being developed by Silmet group should in take the price paid to the producer to 6.2 euro cents per the future handle oil and other chemical products, kilowatt-hour, which is about as much as in Lithuania timber, metal and industrial goods. but less than in Latvia. By way of comparison, the price The consolidated unaudited net profit of the paid for renewable energy in Germany and France is AS Merko Ehitus (Merko Construction) group in the first about nine euro cents per kWh. six months of 2003 was 74.8 million kroons (EUR 4.8 Mart Allika, head of the despacher sector at the mln) compared with 42.7 million kroons (EUR 2.7 mln) Eesti Energia (Estonian Energy) control center, in the same period a year ago. Net sales during the admitted that Estonia and the other Baltic countries are period amounted to 1.08 billion kroons (EUR 69.2 mln), not protected against a blackout such as yesterday hit up from 668.6 million kroons (EUR 42.7 mln) in the the Eastern Seaboard of the United States and Canada. year before, Merko announced on Tuesday. The first Allika said that such a situation could occur in Estonia half-year net sales of the group's subsidiary AS Merko or widely speaking in the Baltic region, as the Baltic and Ehitus totaled 573.97 million kroons. Russian electricity systems function synchronously. A breakdown in the Russian power system similar to the 10 May/June, 2003

The winning bidder in a public procurement tender and thus there would be only one 3G service provider in Tallinna Sadam (Port of Tallinn) arranged for building Estonia. new wharves at the container terminal of its According to the report Ericsson's Estonian Muuga port was Skanska EMV with an offer of 320 operation presented to the businesses register, the firm million kroons (EUR 20.45 mln). Other bidders netted last year 19.1 million kroons (EUR 1.22 mln), a alongside Skanska were three Estonian and two foreign growth of 95 percent from 2001. Net sales declined 23 firms with bids ranging from 324 to 338 million kroons. percent year-on-year to 297.6 million kroons. The two wharves to be built in the port of Muuga and a The Estonian Siemens company earned in the basin to be dug between them will serve container and business year that ended in September 2002 a net profit ro-ro ships. of 36.6 million kroons (EUR 2.34 mln), down by 1.2 million kroons from the previous business year. Sales REAL ESTATE declined five percent to 428.7 million kroons. Information technology and telecommunications Ober-Haus Kinnisvara (Ober-Haus Real Estate) plans to accounted for 308 million kroons, power grids 79 expand besides the Baltic states and Poland into Russia million, medical equipment 14 million and industrial and the Czech Republic, with representations to open in automatic devices 28 million kroons of total sales. those countries in the first half of the next year. Ober- Out of Estonia's three mobile communication Haus said the firm's ninth office in Poland opened in operators, Radiolinja Estonia (RLE) and EMT have Poznan on Monday and in October the firm will open already paid the state the 70 million kroon (EUR 4.47 another office in Wroclaw. In the first half of 2004 mln) third generation mobile communication (UMTS) Ober-Haus plans to expand to new markets and open license fee and approximately 700,000 kroons state representations in Moscow and Prague. Besides the duties. Communication Board press officer Ave newly-launched Poznan office, Ober-Haus has Reinson said the board approved on Friday the issue of representations in Warsaw, Gdynia, Gdansk, Krakow the licenses and will issue them within thre workdays. and Katowice in Poland. The Polish offices employ Besides Radiolinja and EMT, the Communications more than 80 Board will issue third generation mobile communication brokers. licenses also to the third Estonian mobile communication operator,Tele2. The fourth issue will be COMMUNICATIONS issued in the course of a public tender. The Q2 net profit of the Eesti Telekom group, the Leaders of more than thirty major Estonian biggest communications firm in Estonia, was 404 information technology and telecommunication million kroons (EUR 25.8 mln) at 1,187 million kroons firms made a joint statement expressing support to (EUR 75.8 mln) incomes; Telekom's pre-depreciation Estonia's accession to the European Union. The operating profit (EBITDA) was 563 million kroons. business leaders are appealing to their colleagues and Eesti Telekom reported that of the group's subsidiaries, Estonians in general to turn out for the referendum and Eesti Telefon, by its new name Elion Ettevotted AS to vote for accesion to the European Union. "We are (Elion Enterprises), posted operating income of 631 faced with a question today whether we want to go on million kroons, EBITDA of 230 million and net profit sustainable and comptetitive in the world top league, or of 156 million to take the choice that would be easier for us and take a kroons. comfortoble position in the next league that will always The mobile operator Radiolinja Eesti posted be following those going ahead? We understand that earnings before interest and taxes (EBIT) of 24 million accession to the EU will toughen competition, but it will kroons (EUR 1.53 mln) for the second quarter of also increase our opportunities to take part in it," the IT 2003, with sales growing to 233 million kroons from the and telecommunication firms said. Among others, the first quarter's 213 million kroons. statement was signed by companies in the Estonian Eesti Post (Estonian Post) will launch a pilot Telecom group, MicroLink, Radiolinja and Helmes as project this fall whereby it will introduce bar codes on well as Estonian subisidiaries of numerous foreign IT letters instead of postal stamps. The project will cost and communications firms. 876,000 kroons (EUR 56,000) and involve some 50 Estonian operators could build a common Estonian companies. About 70 million ordinary letters third-generation mobile communication network, are sent in Estonia every year, six percent of which are manager of Radiolinja's Estonian branch Sami Seppanen private letters. Postal stamps are used on just 2.5 finds; he said his idea is supported by Tele2 while EMT percent of the ordinary letters. The bar code is valid is ready to develop the network both on its own and during three days. It suits well those people who have an together with the competitors. In Seppanen's estimate, Internet connection but for whom buying of stamps is covering only Tallinn with a 3G network would pay inconvenient for some reason. only if all subscribers in the city began paying twice as big bills as at present, and because of that Radiolinja TRANSPORT wants to build the network jointly with other operators 11 May/June, 2003

The freight volume in trade between Helsinki and In all, the changes would compel about thirty people to Tallinn is growing fast, and shipping lines are move to Estonia. increasing the capacity of regular routes before The national carrier AS Estonian Air posted Estonia's expected accession to the European sales of 403 million kroons and net profit of 16.7 Union, the Finnish business daily Kauppalehti reported. million kroons (EUR 1.07) in H1 2003. The company Some 3.133 million tons of goods and reported that year-on-year its profit increased by 6 commodities passed through the ports of Tallinna million kroons or 56 percent. In January-July this year Sadam (Port of Tallinn) in August, spokespeople for the Estonian Air carried 204,123 passengers on its regular state-owned port company said. In the January-August flights, 24 percent more than in the same period in period the ports handled 25.299 million tons of freight, 2002. Besides, the company carried 11,446 passengers an increase of 0.4 percent over the same period a year on chartered flights. ago. Goods in transit dropped 1.7 percent to 19.437 Aero Airlines, a carrier Finnair established in million tons. Import grew 9.1 percent to 2.574 million Estonia last year, carried nearly 84,000 passengers on tons and export was up 11.7 percent at 3.177 million the Tallinn-Helsinki route in January-June tons. The company earned a net profit of 73.4 million this year. Aero Airlines land operations director Ulle kroons in the first six months of 2003, which is 200 Lepist Thursday told BNS that the number of million kroons (EUR 12.8 mln) less than in the same passegners on the route had increased by 3 percent year- period a year ago. The size of the profit was affected by on-year in the six months. Aero Airlines was launched at the one-off or extraordinary nature of mayor outlays the end of March, before that the mother company and legislative changes that introduced taxation of Finnair operated on the route. Lepist confirmed that as dividends with the income tax. before, Aero Airlines was planning to launch flights also Edelaraudtee (SW Railway), a firm operating on Finland's domestic routes, but it depended on when passenger and freight traffic on state infrastucture on the respective licences would be issued by the Finnish Estonian domestic routes, invested in 2002 100 million authorities. "We are waiting for accession to the kroons, of this 27.8 million kroons (EUR 1.8 mln) to European Union. This would make it simpler for us to acquire EVR Ekspress, operator of international rail operate in Finland," she said. "But we hope we can get passenger traffic. The SW Railway group invested 21.7 busy in Finland as of this fall; we have received no million krooons into railway infrastructure last year and denials yet, although there is no permissions either." 47.9 million kroons into the overhall of its rolling stock. The supervisory council of the oil transit SW Railway is planning to invest 100 million kroons company Pakterminal confirmed at the end of June last into the maintenance and rolling stock also this year. year's economic results showing an operating profit of SW acquired all shares in EVR Ekspress from Tiit 566.1 million kroons (EUR 36.17 mln). Pakterminal's Pruuli's firm Best Marketing and Estonian Railway last sales turnover reached almost 817 million kroons in year. 2002, the company said. A year earlier the firm reported According to preliminary information, Eesti a profit of 720 million kroons on turnover of 926 Raudtee (Estonian Railway) earned 190.6 million kroons million kroons. (EUR 12.2 mln) of pre-tax profit in H1 2003, 17.6 The Estonian E.O.S. oil transit firm will this percent less than in the same period last year. Eesti year and partly early next year invest nearly 300 million Raudtee's net sales increased in the six months by less kroons (EUR 19.17 mln) into raising the efficiency of its than one percent to 892.7 million kroons, the company operations, resulting in an increase of the storage reported. The rail company's profit before depreciation capacity of its terminal from 165,000 to 255,000 tons. was 298.4 million kroons in H1, 1.7 percent lower than Three new tanks will be added in the course of last year. expansion to the Termoil terminal in Maardu outside Finland's Copterline, which, among other Tallinn.In all, E.O.S will have 31 tanks with a total operations, maintains helicopter traffic between Tallinn capacity of 255,000 tons by the end of Q2 next year. and Helsinki, is considering transfer of operations to Estonian Shipping Company (ESCO) owned by the Estonia and will make the respective decision in May. Norwegian Tschudi & Eitzen group sold Friday its "There have been thoughts in that direction," Copterline daughter company ESCO Eurolines OU to the British Estonia CEO Tonis Lepp said. For the time being, transport company Mann & Son Holdings, Ltd. The however, it is not the transfer of Copterline's actual transfer of the company and its activities to Mann headquarters but more realistically of the call center and & Son Holdings Ltd. takes place on July 31, the helicopter maintenance that will come on the agenda. In company said. ESCO Eurolines operates a ro-ro service that case the company should find a place to set up the with two vessels, connecting Estonia with Germany and maintenance depot, as there is no room for it in the Denmark. Tallinn airfield. "One option would be to have the depot in the Amari airfield, but this would mean talks AGRICULTURE with the Defense Ministry," Lepp said. Neither is it clear Estonian pork producers and processers say the whether Copterline will set up new subsidiaries south of customs duties established on the import of Polish the Gulf or extend the operations of Copterline Estonia. pork have failed to have a noticeable positive effect. 12 May/June, 2003

OU Estonia board chairman Peeter Kibe said the pork of Chloramphenicol had been discovered from a duties had not alleviated the situation of the producers consignment of Lithuanian whey powder. at all. He said the biggest problem w as still import of cheap MDM, which is used in sausage-making. He said TOURISM subsidized meat was still imported from countries such According to a survey carried out by Enterprise as Hungary, Finland and Norway. At the beginning of Estonia, demand for Estonia as a tourist the year, OU Estonia had 10,000 pigs, but the number destination is growing in European Union has now been brought down to half. Rakvere countries. Surveys Enterprise Estonia carried out in Lihakombinaat (Rakvere Meatpacker) press officer Finland, Sweden and Germany showed that Estonia is Madlene Vettik said no changes had been made in the regarded as one of the safest tourist destinations outside meat pruchase prices, as offer was higher than demand the European Union. Ninety-one percent of German on the market. Vettik said market protection measures tour operators forecast that tours to Estonia would had brought no alleviation to producers. treble in the next few years. More than half the tourists But Ene Maadvere, head of the Agriculture Ministry arrive in Estonia on passenger ferries either from trade office, said the customs duties against exports Finland or Sweden. Besides, 248 cruise ships with more from Poland had done their trick as pork import from than 250,000 passengers will call at Tallinn this year. Poland had declined by more than 95 percent against The Estonian border city Narva, which doesn't April. have any major accommodation facilities to this point, is As of Monday the Estonian Veterinary and about to get a three-star hotel before the end of this Food Board demands an additional lab certificate at the year. The company that stands behind the hotel project import of consignments of Lithuanian milk, skim milk is OU Sanesi, whose largest owner is the regional and whey powder to prove that they contain no building materials maker and seller AS Silbet. The hotel Chloramphenicol. Acting general director of the will make use of the building of the former Narva hotel Veterinary and Food Board Ago Partel told BNS that that has stood empty in the city center for about a such a limitation was established in connection with decade. reports from Germany of June 25 and July 1 that traces

FOREIGN ECONOMIC RELATIONS

The International Monetary Fund (IMF) will A delegation of the Latvian Tax Board dissolve as of November 1 its European II visited Estonia to get a better idea of the test Department (EU2), set up in 1992 with the task of version of the European Union's value-added tax assisting the Baltics, Russia and other countries of information exchange system VIES now being the former Soviet Union with integration into the developed in Estonia and wishes to buy it for use in global economy. Given the progress of the transition Latvia. At the meeting in Tallinn, the Latvian side process and the prospect of European Union accession admitted effectiveness of the system and made a for a number of transition economies, EU2 will be proposal to start preparations for transfer of the dissolved, reducing the number of area departments solution. The recommendation to use the Estonian from six to five," IMF reported. Seven countries in solution had been given to Latvia buy the European EU2 -- Estonia, Latvia, Lithuania,Russia, Ukraine, Commission's technical monitoring mission. Moldova and Belarus -- will move to the European I Meelis Atonen, Estonian Economic Affairs Department, which will be renamed the European and Communications Minister, said after Department (EUR). meeting with Finnish Trade and Industry Minister Estonian Prime Minister Juhan Parts met Mauri Pekkarinen that the decision concerning an with managing director of the World Bank, Estonian-Finnish sea power cable would be made Shengman Zhang, who acknowledged Estonia's in the next few months. Atonen said that there were rapid economic development. Zhang was scheduled no longer any technical obstacles to the construction of during his brief stay in Estonia to also visit the Tartu the Estlink cable and its construction did not depend University biomedical center that was completed with on what the firms participating in the project would World Bank funding. decide. The situation of the market shows that the Tanel Ross, head of the Bank of Estonia decision concerning construction of the cable is born division for international and public relations, will in the near future, he added. The Finnish minister said take up the post of adviser to the director of the the sea cable would become an important part in the Nordic-Baltic Constituency of the International future common electricity market of the Nordic and Monetary Fund (IMF) in August. Bank of Estonia Baltic countries in which Finland is very much public relations adviser Janno Toots said this would be interested. The firms taking part in the Estlink project the first time for an Estonian to take the post. Ross' are Eesti Energia, Latvenergo, Pohjolan Voima and term of office will last for two years. Helsingin Energia.

13 May/June, 2003

Finnish Trade and Industry Minister and uniform system will be maintained after Estonia's Mauri Pekkarinen said on a visit to Tallinn that accession to the European Union Estonian officials the Finnish government hopes Finnish companies said the system is to be preserved at least until 2009, as will not move their headquarters to Estonia but is set out in Estonia's Accession Treaty. The meeting with not planning to obstruct that process. Pekkarinen the 27-member Japanese business delegation at the said that the Finnish government would be glad to see Enterprise Estonia Foundation was not meant to Finland as the country where headquarters of Finnish produce any concrete cooperation plan or accord, companies are located. However, Finland will set no being an event for the Japanese businessmen to get restrictions concerning the location of the headquarters familiar with the situation in Estonia, the spokesperson but must compete with Estonia in that respect. said. Pekkarinen said that to the best of his knowledge no The Estonian AS Baltika garments maker Finnish company has decided to move its head office Friday signed a protocol of intent to establish a to Estonia yet, although this could happen one day. joint venture in Russia. According to the protocol of Commenting on the Finnish business climate, intent, a joint venture will be established by Baltika and Pekkarinen said that Finland is planning to lower the its long-time franchise partner with Baltika holding level of its taxes, although it would not start competing 50.1 percent and the Russian partmner 49.9 percent of with Estonia's low taxes. Taxation of corporate labor the shares. Baltika did not mention the name of the would decline by a total of one billion euros in 2004 partner in its press release. Baltika public ralations and also taxation of profits would be lowered in the officer Urmas Valjaots said that the partner is future, the minister said. Pekkarinen said it was the low constituted by a group of private persons, owners of level of corporate taxes that had supported the the present franchise partner. investment climate in Estonia. He added that fast As Russia has not kept its promise to build development of the Estonian economy was favorable a border checkpoint at the Starozhinets Port in to Estonia as it was a challenge to Finland. At the same Pskov by mid-June, it is possible traffic on the time, developing Estonia made it possible for Finnish Tartu-Pskov shipping line will not be restored this companies to extend their markets. navigation season. The Russian delay will torpedo the The brewing industry in Finland is not satisfied plans of companies interested in freight traffic between with the government's proposal to cut the beer excise Russia and Estonia and of tourism agencies interested tax by 32 percent, arguing that the new price level in tours to Pskov. Shipping could only be restored after would be still too high to compete with prices in both the sides have built border checkpoints and the Estonia that is about to join the European Union next Estonian and Russian Foreign Ministers have year. With the borders open, Finns will be massively exchanged respective notes. On the Estonian side buying cheap beer made in Estonia, Latvia and everything was completed by May 18, when a floating Lithuania, which will lead to the extinction of the border checkpoint was opened at Praaga in the domestic beer industry. Emajogi estuary. Russia's Pskov Region deputy Estonian Finance Minister Tonis Palts governor Dmitri Kakhov, who took part in the promised to raise the issue of attempts to tax opening, promised that the Starozhinets checkpoint incomes of Finnish companies' Estonian would be opened by the deadline, June 16. A month subsidiaries during his meeting with the Finnish later, the Russia side no longer dares mention the time finance minister on September 5. "Finnish when the checkpoint could be completed. businessmen have invested so much into Estonia that The Irish-British consumer foods producer we are very much interested in reaching a result to Kerry Foods is looking for workers in Estonia, satisfy both the parties." Palts said, adding that the offering people here 225 jobs in Ireland. Kerry issue under discussion shows that Estonia has a better Foods is looking for 140 seasonal workers and offering business environment. "We are being seen as a 85 permanent jobs in Ireland, the Labor Market Board competitor. By all means, Estonia has the best tax reports. The Irish government backs giving jobs in environment in Europe," he said. Finland and Estonia Ireland to Estonians and people going to work there in have signed an agreement on the prevention of double the framework of the cooperation project will be taxation. Under the agreement, corporate income is granted work permits under a simplified procedure. taxed only in the country where it was earned. But the Kerry Foods supports relocation and will help Estonian Finance Ministry finds Finland is not Estonian workers find accommodation, the board violating the agreement. observes. Ireland is Estonia's partner in the European A delegation of Japanese business people Commission-initiated program of bilateral cooperation visiting Estonia heard a presentation at the of labor market institutions. The goal of the program is Enterprise Estonia Foundation about the reasons to ensure candidate countries every possible support in why it is good to make investments in Estonia and joining the European Union. about the country's tax system. Members of the business delegation showed particular interest in the Estonian tax system and inquired whether the simple 14