Pan-Baltic Infrastructure Summit

Tallinn, Estonia | 3 October, 2019

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11 OCTOBER 2018

RIGA, LATVIA

NEWS

11.08.2019

Arto Räty

Arto Räty is the Senior Vice President of Corporate Affairs and Communications at Fortum, a leading Nordic clean-energy company. We had a fascinating conversation with him about the challenges we face. Especially, how climate change impacts the Nordics and why the Nordics have to set an example to the rest of the world by moving towards a system that is affordable and sustainable.

The impacts of climate change are already apparent in Nordic countries, not to mention Africa or the Arctic. As Räty pointed out, many of the issues in the world are actually follow-ups from developments done by western societies. So, as developed countries, the Nordics have a responsibility to take action globally and set new standards for the rest of the world by combining the knowledge, potential and resources.

Fortum is the leading charging station operator for electric vehicles (EV) in the Nordics. Their charging network consists of about 2,500 chargers and last November Fortum opened a high-power charging corridor between Oslo and Helsinki, where each HPC station allows to charge EVs for 125 km in about 10 minutes. And this is only one example of how Fortum contributes to transforming the energy industry.

The Nordic Energy Report explores ways to move Nordic countries towards a low-carbon green economy that is necessary to tackle climate change. A slightly provocative question to start: isn’t climate change a good thing from the viewpoint of the Nordics?

If you think about the so called extended heat waves that have scorched much of Europe this summer, conventional power plants may have to ramp down production elsewhere in Europe and wind production volumes can remain low when the temperature is very high. This means the cost of electricity doesn’t increase only in the center of Europe, it also affects Nordic countries because we are more and more interconnected.

Another point is that Nordic countries are not isolated from the rest of the world. If climate change has negative implications as it has had on the living conditions in Africa, it impacts Europe too. We see the impacts of climate change up here in the north as well. Extreme weather is no longer “something out there”. Heat waves and storms are more and more frequent in the Nordics as well. From a biodiversity point of view, the Nordic region is very sensitive to changes in average temperatures. The ecosystem has been built according to the weather conditions, so the ecosystem has to change according to weather and that takes time. 

The Nordics are all very developed countries with developed economies and societies. Do you think that the Nordics should set an example for other parts of the world to demonstrate that a low-carbon economy is actually possible? 

I will always underline that we are not an isolated area. We cannot close the door and say that we are in a safe haven, let the others take care of themselves. As developed countries we have to bare our responsibilities, considering that many of the issues in the world are actually follow-ups/outcomes from development done by western societies.Therefore we need individual countries in the European Union to influence the policy of the European Union. Also, we have to take actions globally, as we have access to the global arena and the systems in the global arena. We cannot change the climate or stop the warming of the globe by doing things only in our individual countries.

Speaking about the potential shift towards a low-carbon economy in the Nordics, are there any specific findings in this report that show a direction where should the countries and the enterprises in these countries head to?

The report highlighted the world's smartest low-carbon energy system which has to be based on three pillars. Number one is affordability. We need to build a system that doesn’t make our energy bills too high. Number two is the security of supply, which means that we can keep the systems running in all conditions, even when the sun doesn’t shine and the wind doesn’t blow. Number three is sustainability. The system has to be built in a sustainable way – carbon neutrality as the goal. So affordability, security of supply and sustainability are three aspects that need to be taken care of in a balanced manner.

Which obstacles or hurdles do you see in tackling climate change? Are these more related to political obstacles or something else?

The leading theme of the report was that we need more cooperation and coordination between policy makers in the Nordics and Baltics. We have so much knowledge, innovation and potential in this region. Combining forces could allow us to be much bigger and more powerful in setting the standards for the rest of Europe and even beyond. The key elements in tackling climate change are cooperation, coordination and harmonisation.

Each country is too small on its own to create a meaningful test bed for smart technologies and solutions. We need more harmonisation and a level playing field to support the development of innovative companies. We are able to cooperate in defense and do a lot regarding the issues in defense area. So why on earth are we not able to do the same in energy business? 

Energy is still the key and core element of society, its survival and its operations. When I listen to the politicians in our countries, it seems that they have fully understood the problem. Now we need a strong commitment from our politicians to pursue this road forward and deal with difficult issues and let the market function. If the conditions are set in a proper way, the markets will handle this. If a level playing field is established in the Nordics, then we can push change forward. The transition has to be done in an affordable and sustainable way, the security of supply must always be kept in mind. It has to be well planned and executed.

And in terms of affordability, the transition can’t be significantly more expensive because otherwise it will not be implemented, right?

Yes. And that's where we also need cooperation also between politicians and industries. For some politicians the industry seems to be like an enemy and for some politicians industry is a partner – and a partner it should be because this definitely is a joint effort. And if you look at the major industries today, they have seen that if they don't change, they will not survive. 

You mentioned the three pillars, so I'd ask that in terms of affordability, sustainability and security of supply, which energy sources should be used in the Nordics in order to decrease carbon emissions in the future? 

We need a full mix of CO2-free energy sources and they should be all treated equally. For me the only preference when it comes to CO2-free energy sources is that we need to achieve climate neutrality. That's why we need all the sources, starting from nuclear, hydro, wind, solar and bio. 

And the best tool to guide this kind of development is the EU emission trading system. As you have seen, the emission price has been climbing up. Three years ago we talked about 3-5 euros. Now it's close to 30 euros. When the price goes high enough, it automatically guides the industries and operators to choose low-CO2 sources, like switching from coal to gas in power production. And we don't have to force anything. It happens automatically. Of course, there are also legal measures to do that. In Finland we have implemented the law so that the use of coal will be phased out by May, 2029.

In terms of nuclear power, there have been some predictions that the fourth generation nuclear power plants should be ready for implementation in about 10 years. Could this new technology emerge a nuclear revolution in the Nordic region?

That is something to be seen. When somebody says that the new generation is ready in 10 years, it's a statement today, but we have seen how long it really takes to develop new technologies. There is an ongoing development process to build so called mini nuclear power plants, but we all know it's going to be very long development phase and there are still a lot of open questions. In Fortum we carefully follow new developments. We would like to see what are the possibilities in the future, so let's wait and see what comes out.

What change should be considered by Nordic countries in terms of infrastructural developments in relation with climate change? More bike roads? Something else?

The cities need to become smarter as a whole. The way we move people, the way we construct, renovate and live in our buildings and how we use energy has to become smarter. Cities have the possibility to lead the way to a more circular economy which is also one of Fortum´s business areas. One of our business divisions is the City Solutions – heating, cooling and waste solutions in the same package. And we all know that the bigger the city is, the more demanding it is. Since the cities are not that huge in the Nordics and we are pretty well-developed, I think we are in a good path at the moment but a lot more can and should be done. 

To continue with the infrastructure, Fortum has built an impressive charging network for electric cars around Europe. There's over a hundred charging stations in Helsinki. What future do you see for this business in the Baltic states?

When it comes to our business plans, I can’t give any comments. But of course we are always keeping our eyes open for business development opportunities that are aligned with our strategy. So let's see what happens. 

Fortum recently disclosed the consideration of selling the business you have in the Baltic States. Why is that?

We continuously review our business in order to create value through portfolio optimization. We are assessing different kinds of strategic options including divestment, but no decisions have been made yet. There are different options for us. The first option is to maintain the current ownership with no changes. The second is to divest the whole business. And the third option is to do something in-between. Based on the initial assessments, the district heating and cooling business in Estonia has been identified as an operation that could potentially benefit from a different ownership structure. So we're not thinking about closing the business, but maybe under a different ownership the business could flourish even better. So to sum up, companies are looking at new opportunities all the time and trying to optimize their portfolios.

22.07.2019

We took a moment with Infrasummit’s speaker Martins Lazdovskis to speak about the largest road construction PPP project ever made in the Baltic States. We are talking about Kekava Bypass, a 4-lane highway that starts at Riga downtown, runs south past Kekava and ends north from Iecava. Martins Lazdovskis is a board member at Latvian State Roads.

The people driving out south from Riga presently spend up to 40 minutes each day in traffic jams in order to drive less than 10 kilometers from Riga to Kekava. The public discussions to solve this problem started already in 2005, but the state was struggling to find a solution that could be financed. 

According to Lazdovskis, it would have been extremely difficult for the politicians to give good reason to the voters for spending 100 million euros to build one road instead of raising the wages of doctors, teachers or policemen. That’s how PPP became a solution for the problem that has been salient for over a decade. 

Could you tell a bit more about Kekava Bypass?

We’ve started the project already. Initial project designing and discussions started already in 2005, but the active work on the project started four years ago. We are now on the procurement stage and the first price breakdowns are soon to come. We are going to evaluate the calculations and hope to get a contract by May-June next year. Then it takes three years for design and construction works. If we are keeping to this schedule then we can open the road in 2023.

What will the Bypass actually change? Perhaps you could describe the difference. For instance, how long does it take presently to get out from Riga downtown and how long will it take after the bypass is ready?

Actually, the general need is coming from historical and practical reasons. Historically, the entire Baltics’road network was built when we were a part of the Soviet Union. Back then, the road between Riga and Vilnius wasn’t important at all. That is why all the main roads coming outside of Riga are 4-lane roads, except the one going to Lithuania and connecting later on with Via Baltica. But today’s situation has changed a lot as our intrinsic transport flows is used by citizens, for transit and by heavy vehicles that go towards Via Baltica and later on to Vilnius and the rest of Europe. So the transportation patterns and traffic density have changed. 

Another reason is the growth of agglomeration. In Soviet era Kekava was a small village. Now it is one of the most popular living areas for people working in Riga. As a result, the traffic density has reached 17,000 cars per day. The road wasn’t designed for such a density and that is why people are sitting in traffic jams up to 40 minutes in the early morning hours and late afternoon. So our calculations show that after the completion of the project it will take about 10-20 minutes to get outside of Riga and already to be on the A7 road crossing Riga ring road.

Is it true, that the drivers will be able to drive at 120km/h at the Bypass? 

Yes, that’s true. Not throughout the entire road, but coming out of Riga until after the existing Riga bypass on the 4-lane road the speed will be 120 km/h.

Why did you decide to build Kekava Bypass as a PPP project? Why is it more beneficial for the state to build the Bypass thanks as a PPP in comparison with funding the new road from own funds?

It’s a combination of several reasons which led towards finding a solution. To understand it you have to understand how roads in Latvia were built and renovated in the past. Firstly, one part of the investment came from European funds. At the moment the future distribution and availability of European funds for road construction is uncertain. Secondly, if our own country’s budget for road construction is 100 million euros per year, then it is evident that we cannot afford to build a road that costs 100 million euros. If we were to spend half of the 2 years’ budget just on this one road, it would not be acceptable for the society. And the third issue is the budgetary discipline rules. For example, we could easily borrow money from the State treasury for building the road. But then we are stuck with these budgetary discipline requirements. Let’s say hypothetically that our government can make extra expenditures of about 200-300 million euros per year. Can you imagine a situation when the politicians say that half of this money will be given just for this one road, but not for hospitals, teachers or policemen? For the state budget we have to take care of every territory’s need in our republic.So if we add to these problems also the situation when the Juncker’s plan on EFSI money is still available for private investments and we consider that the price of money is still the cheapest we can ever get, we naturally land to this possibility that big investments in roads sector can be done via PPP.

Only a few PPP projects have been executed in the Baltic States. In your opinion, why has this financial instrument been relatively unpopular in the Baltics?

Yes that’s true. I only know one, Palanga Bypass which was comparably a small PPP project, but haven’t heard of any projects in Estonia. I believe the problem is that we don’t have any success stories to show. The first ones are always the most difficult. So it’s not easy for us at all. Such projects are time consuming and complicated, considering the need of highly detailed documentation and contracts. And of course, we have to convince the politicians and society that PPP is a possibility. Sometimes people think that if the treasury can potentially provide a cheaper loan, why should we talk to the private investors who give loans with higher margins. But why are we buying houses using loans? Why aren’t we saving for it? Although this comparison may seem a bit primitive, it’s a good one. And if you take a look at other countries like Spain, France, Germany, Slovak Republic, Poland, the bulk of big investments in the transport sector are done with the help of private investments.

Have you also executed an environmental analysis for the Bypass project? Do you see, that the cars will emit less CO2 in case the road is built?

The extent of the positive impact on the ecosystem was the key factor to start discussions for institutional funding from EIB and EBRD. Having such an environmental impact assessment was one of the preconditions. The reduction of CO2 emissions is evident, because driving quickly through the bypass makes cars to pollute less as they idle less in traffic jams.

As a board member of the Latvian State Roads, what do you think about the Baltic road infrastructure in general? Where do you see potential for development?

I believe we have to initiate a conversation with the government. All Baltic countries have to discuss the Via Baltica corridor development. In case this project is successful in Latvia, then we could go on with Via Baltica development to build a bypass of Bauska and Iecava down to Lituanian border also using PPP as an instrument. These are the challenges in Latvia.As far as I know, the Lithuanians are building a 4-lane road up to the Polish border and then they will construct a 2+1 lane road until the Latvian border. In general, because of the uncertainty and potential decrease of investments from the European Union, the biggest challenge is finding finances for the roads. These investments need to be replaced somehow either with state resources or some private investments. And this is what we could discuss in October in Tallinn.

Agenda

Infrastructure and Environment – Friends or Foes?

The Baltic States share a common history, we’ve been together in good times and in bad. Despite the efforts to put behind the past and become better and smarter, then some stories from the past will continue to live on. We do remember the pseudo-scientific agricultural ideas labelled as Lysenkoism, but also the attempts to reverse the flow of the rivers in Siberia that remain resilient as narratives within the common memory of our societies.

Those stories are great to alarm the society in case someone attempts to harm the environment. But such narratives might easily trigger false alarms spoiling projects necessary for the economy and the environment. Although building a road through a forest will cause harvest, we do consume more fuel driving slowly on gravel instead driving faster on highways. The longer we wait with the development of reasonable projects, the later we taste the ripe fruits benefiting our environment and the society.

The focus of the conference will be on infrastructural projects that are or could be completed with the cooperation of the public and private sector (PPP) and also the development of a climate neutral energy sector. The following subjects will be covered among others:

• Fortum’s vice president Arto Räty: “Report of the Nordics’ energy market”. The report led by Jorma Ollila was first introduced in Helsinki in June. It was funded by companies such as Danfoss, Fortum, Gasum, Stora Enso, SSAB, Statkraft, Virta and Wärtsilä. According to the report, it is important for economies with a low CO2 emission to achieve balance between the affordability, security of supply and the sustainability of energy supplies. It is only by considering these factors that the transition can happen in a manner that the Nordics will be a role model for the world.

• The board member of Latvian State Roads Martins Lazdovskis: “Kekava bypass”. Latvia has decided to build the Kekava bypass with the cooperation of the public and private sector. As the result of the project, Latvians will be able to exit Riga’s city centre to the south in less than 20 minutes. The project’s negotiations started in 2005, but the state had difficulties with funding the project. The solution was a PPP instrument and it will be the biggest road building project in the Baltics to be performed in cooperation of the public and private sector.

• The mayor of Fjell, M. S. Bjorøy: “The Sotra connection’s impact to society”. The idea of the bridge of Saaremaa is not new, but there has been a lack of reference projects in the past. The closest example in the Nordics is from Norway, where a project named the Sotra Connection is in progress. An investment of 1 billion euros will guarantee the 40 000 people living in Fjell, Sund and Øygarden a steady connection to the regional centre Bergen. The mayor of Fjell, M. S. Bjorøy will talk about the project’s presumable socio-economic impacts.

• The discussion for creating a regulatory framework for PPP projects in Estonia. The framework will guide partners from the public and private sector through the whole process, ensuring a structured managing and completing of the project. The goal of the framework is to describe the procedures and decisions step by step to all the parties. This way the existence of the framework will guarantee a purposeful and transparent use of public resources.

Third Edition
About

Third Edition

Third Edition

The Pan-Baltic Infrastructure Summit will take place for the third time on October 3, 2019 in Tallinn, Estonia. The conference is designed to explore Baltic infrastructure and trends in its future development. INFRA 2019 will bring together policy makers, senior experts, investors, lenders, developers and infrastructure asset owners from Baltic states for interactive discussion and networking. Infrasummit 2019 will concentrate on trends and opportunities of infrastructure yet unchallenged in Estonia.

The Clutch for Renewable Energy in Estonia. The National Development Plan of the Energy Sector until 2030 (NDPES) states that renewables will account for 50% of domestic final electricity consumption in Estonia in 2018. Although Estonia positions itself as an environmentally thinking digital society, presently the proportion of renewable sources in domestic electricity consumption is only 17%. This means that the servers, computers, electric cars, trains, trams and all the other infrastructure is mostly powered by shale oil. But how to proceed from here? Do we see our future in wind, nuclear, solar and biomass – or something else?

The Construction of Infrastructure to decrease CO2. Although building roads and bridges for vehicles might seem like conducing traffic, it needs to be emphasised that having a network of gravel roads would be the most anti-environmental option of all. Vehicles spend less energy and emit less CO2 when the friction and distance are as low as possible. Having a road network with a continuous variation of speed limits is also not in the best interests of the environment nor the mental health of the passengers as it conduces acceleration, which burns energy. The same might apply for the ferries carrying myriads of cars for 8 kilometers forth and back. How can we do better?

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INFRA 2019 is organized by BaltCap, the largest private equity and venture capital fund manager in the Baltics, in partnership with law firm COBALT.

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Tallinn, Noblessner Foundry
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Tallinn, Noblessner Foundry

Tallinn, Noblessner Foundry

The future of infrastructure of the Baltic States will be discussed in a former submarine factory. All together, twelve bars-class submarines were built here in between 1913-1917, nine of those were incorporated to the The Baltic Fleet and three to the Pacific Fleet of the Russian Empire.

The foundry is presently under renovation and will open its doors in August 2019. The address is 10 Peetri, Tallinn, Estonia.

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Nordic Hotel Forum

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Nordic Hotel Forum is a modern four-star superior business and conference hotel in the very heart of Tallinn, at the a prominent location on the edge of the picturesque Tallinn Old Town, a UNESCO World Heritage site. Nordic Hotel Forum has a variety of spacious and elegantly furnished rooms that will meet the expectations of even the most discerning guest. All rooms have all the necessities for a comfortable stay.

Nordic Hotel Forum is located right at the city centre and is well connected to all parts of Tallinn.

Rooms can be booked here.

L'Ermitage Hotel

The 4-star L’Ermitage Hotel’s interior design is inspired by timeless elegance of the North, mixed with the hottest contemporary design trends. In addition to comfortable and quiet guest rooms, the hotel also features two restaurants – L’Ermitage and Katze – an all-new contemporary conference hall, and a private sauna with a Jacuzzi. The old Town and Town Hall Square are approximately a ten-minute walk away. Tallinn’s most creatively and quickly developing Kalamaja (Fish House) sub district is a fifteen minute walk away, inviting visitors to the Seaplane Harbor (Lennusadam), Tallinn Creative Hub (Kultuurikatel), Telliskivi Creative City (Telliskivi loomelinnak), numerous cafes, restaurants, and small markets.

The hotel is well connected via public transport to all parts of Tallinn.

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