Caruna’s Electric Distribution Scandal, Explained
People across the nation are furious because the largest electric distribution company in Finland, Caruna, will raise its transfer prices with an average of 30 per cent from the beginning of March. The company has about 650,000 clients across the nation. “Due to the large investment projects improving the reliability of our electricity network, we are raising our electricity distribution fees,” Caruna states in a bulletin.
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In public, Caruna is acting according to the new Electricity Market Act, which came into force in September 2013. The Act, among others, requires securing the grid to avoid blackouts in the future.
Caruna is largely owned by foreign companies. It has a monopoly over the electric distribution network in Finland, after the state-owned energy company Fortum sold the network to Caruna in 2014 because Fortum wanted to invest in renewable energy.
Caruna is also accused of avoiding taxes. Here’s the process at its core: the company in Finland secures a loan from its shareholders. From the loan, the company will pay only interests. The interests can be deducted in taxation.
[alert type=white]Caruna is also accused of avoiding taxes. Here’s the process at its core: the company in Finland secures a loan from its shareholders. From the loan, the company will pay only interests. The interests can be deducted in taxation.[/alert]
In result, Caruna paid only 1.6 per cent taxes to Finland from their profit of over 50 million euros in 2014. The levies equal about 800.000 euros. “In my opinion, the company is using its monopoly status wrong,” said Pekka Haavisto, the former minister for international development. Haavisto was one of the ministers who prepared the deal of selling the network to Caruna. “The prevailing understanding of the price development at the time was different.”
Prime minister Juha Sipilä called the tax gimmickry “repulsive.” “My standpoint is that the taxes are paid there where the results are made. This should be the standpoint with everybody,” Sipilä said.
In the beginning of February, Sipilä ordered the minister of economic affairs, Olli Rehn, to investigate, whether there is anything to be done to combat the sudden price increase. Rehn asked for a report from the Energy Authority, responsible for monitoring the energy market.
The report was published on Wednesday, and in 12 pages it suggests that the law could be amended to limit the maximum percentage in the raise of the distribution fees during a single payment.
In addition, a minimum time should be set for the frequency of increasing the fees.
Thirdly, the Energy Authority suggests a roof to a single payment of tranches for the shareholders.
Meanwhile, people in social media and discussion forums have been looking for the scapegoat with the longest beard. They found one from Brussels: the former prime minister, Jyrki Katainen, present day European Commission vice president for jobs, growth, investment and competitiveness.
There are countless shares of an article where then prime minister Katainen and the former minister of economic affairs, Jan Vapaavuori, ponder the sale of Fortum’s electric network. The article is conducted by the Finnish news agency STT in December 2013.
The article states that “according to Katainen, the deal [Fortum selling the network to Caruna] will not increase the electricity distribution fee for customers, because the distribution of electricity and the pricing of it are monitored carefully.”
Looks pretty solid, but there is one but. Katainen’s “statement” is not written in quote marks – a point he highlights on Facebook – which implies that he didn’t directly say so. The statement is rather a summary of the journalist’s perception. But people were not buying it.
“Your explanation sounds like an explanation, which I hear from the mouth of my own four-year-old daughter, when I catch her doing bad things,” one commentator said on Facebook. “First you deny and when you are busted, you refer to commas and apostrophes.”
[alert type=white ]“Your explanation sounds like an explanation, which I hear from the mouth of my own four-year-old daughter, when I catch her doing bad things,” one commentator said on Facebook. [/alert]
Katainen also said that Fortum was only partly state-owned, which enables the power company to make their own business decisions.
While it’s easy to point fingers, one look at an advertising video from one of Caruna’s main owners gives us a glimpse of their true agenda. The biggest owners are First State Investments, the largest financial institution in Australia, and Borealis Infrastructure, a Canadian investment management business, aiming for global markets. The remaining 20 per cent of the company are owned by the Finnish pension agencies Keva and Elo.
Peter Meany, head of Global Listed Infrastructure (part of First State Investments), looks in the camera with a sly smile. After a brief introduction to the concept of infrastructure he says: “We want capital intensive infrastructure assets with a legislated or natural monopoly position.” “Think about an electric transmission group that runs across the entire country. That’s never going to be replicated,” he adds and continues, “secondly, think about pricing power. Infrastructure assets tend to have the ability to consistently increase the price of their services over time.”
After the video started spreading in articles across the internet, the rage of citizens infuriated as if a teased beast had been let out of the cage. On Thursday, Caruna issued an apology to its customers: “Caruna regrets the distress caused to its customers after having to come to a solution on price increases, due to the large-scale requirement for improvement.” However, the “price increases are required, because the network undergoing renewal is extensive.” A commentator on a discussion forum pretty much nailed the public opinion of the apology: “News like this from Caruna ridicule its customers.”