NEL sells Estlink 1 to Fingrid and Elering

On November 27, Nordic Energy Link (“NEL”) concluded an agreement with transmission system operators Fingrid and Elering for the sale of Estlink 1, 350 MW submarine power cable between Estonia and Finland. Sponsors of NEL are Eesti Energia (39.9% shareholding), Latvenergo (25%), Lietuvos Energijos Gamyba (25%) and Finestlink (joint venture of Pohjolan Voima and Helsingin Energia, shareholding of 10.1%).

Estlink 1 was opened in late 2006 to facilitate the convergence of Nordic and Baltic power markets and initially allow main project sponsors access to Nord Pool Spot Finnish price area. Since 2010, capacity of Estlink 1 has been leased out to transmission system operators (“TSO”s) for the operations of Nord Pool Spot and the sponsors have received bottleneck fee from the difference between Nord Pool Spot Estonian and Finnish price areas to continue to cover the costs of the cable and project loan amortisations.

Divergence between Estonian and Finnish prices has reduced over time, amounting to 6 EUR/MWh in 2011, 2.6 EUR/MWh in 2012, and 2 EUR/MWh in 9m´2013. The divergence is expected to reduce further in 2014 as EstLink2 starts operations and increases capacity between Estonia and Finland almost threefold to 1000 MW. Eesti Energia has utilised the access to Finnish price area to hedge its power generation portfolio. Group has received bottleneck fees (net of cable costs) of EUR 4.6 million in 2012 and EUR 0.3 million in 9m´2013.

Disposal of Estlink 1 in 2013 to TSOs was already envisaged at project launch. The consent to construction of cable included an exception to the regulation that allowed sponsors to benefit from the cable until the end of 2013. NEL will sell Estlink 1 assets for the total consideration of 77.6 million euros. NEL also expects to prepay its loans to NIB and SEB in December 2013 (current outstanding balance is 48.4 million euros).

Transaction will close on or about 30 December 2013, subject to the clearance from Estonian Competition Authority.