Infringing EU Competition rules? Selling off Estonia’s public forests at under-market prices
18 September 2024
A recent report by Estonia’s Court of Auditors has raised questions about the meteoric growth of Europe’s largest producer of wood pellets, Graanul Invest (GI). Biomass subsidies from the EU and its Member States were thought to be a major factor; it now appears, however, that the company also enjoyed secretive public support in the form of long-term government timber contracts worth millions of Euros – distorting the national market while destroying Estonia’s forests.
Founded in 2003 by businessman Raul Kirjanen, GI grew extremely quickly, exporting wood pellets in particular to the United Kingdom, Denmark, The Netherlands, Sweden, and Italy, and purchasing other pellet companies in Latvia. GI also operates combined power plants fuelled by its pellets in Estonia and Lativia and, with the help of EU research funding, is slowly switching to higher value-added products such as biochemistry. The EU’s renewable energy policy, which views energy from wood burning as ‘renewable’ and therefore encourages Member States to financially support energy companies burning woody biomass, catalysed GI’s growth.
The Court’s report indicates that GI obtained favourable contractual arrangements with the State Forest Management Centre, Estonia’s public forests administration, for the period 2017-2022 (the report refers to a “5-year agreement”), and at least one secretive contract since 2014. Under this contract, the company bought timber from Estonia’s state forests at below-market prices (up to 30% lower) while other companies competing to access the same wood quality (principally pulp and paper) had to pay the market price. One particularly powerful graph shows that in 2019, for instance, GI paid less than half what another company paid.
But such preferential treatment is forbidden by both EU competition law (article 107 TFEU) and Estonian law. The Court flags that “this practice brings about the risk of corruption and prohibited state aid, as well as the possible decrease in profitability [for the State]”.
More specifically, under the revised EU Renewable Energy Directive (REDIII), which Member States must transpose by May 2025, Member States must stop granting direct financial support to energy produced from “industrial grade roundwood”, except for that which is “unsuitable for industrial use as defined and duly justified by Member States according to the relevant forest and market conditions”.
Here, the argument cannot be made that the wood in question was unsuitable for other uses, as the contract was specifically for pulpwood-quality wood and would otherwise have been sold to pulp and paper mills in the region (Estonia, Sweden, Finland, Germany). As it likely meets the detailed definition of Industrial Grade Roundwood, again, energy companies burning GI’s pellets made from that wood should no longer be able to receive government financial support after REDIII has been transposed.
In addition to alerting to possible violations of competition law, the auditors’ report raises serious questions about the best use of Estonia’s public forests. Fern would argue that policies surrounding sales of state forest timber could support sustainable goals. They could be instrumental in incentivising industries that support more ecological forestry and greater rural resilience, while eliminating incentives for bioenergy. They could more clearly articulate the principle of cascading use. Finally, there is no justification for secret contracts of wood sales from public forests: such sales must be public and transparent, rather than unearthed in the course of a public audit.
Categories: News, Forest Watch, Bioenergy, European forests
