EC Endorses Estonia's €953M Modified Recovery & Resilience Plan

Source: 5/12/2023, Location: Europe

Today, the European Commission has given a positive assessment of Estonia's modified recovery and resilience plan, which includes a REPowerEU chapter. The plan is now worth €953 million in grants and covers 17 reforms and 28 investments.

Estonia has added five additional investments to its original plan: the construction of a health centre in Viljandi, the boosting of offshore wind farms development, support to companies to increase energy security, the construction of viaducts for Rail Baltica – a greenfield rail transport infrastructure project to integrate the Baltic states in the European rail network – and a hydrogen-powered ship to prevent pollution in the sea. At the same time, Estonia has removed four investments from the original plan. These concern Tallinn's hospital, multipurpose helicopters, a Rail Baltica terminal and the Westbound railway. Estonia has also modified 13 measures which were already included in the original plan. In addition, the modified RRP submitted by Estonia rectifies clerical errors in one measure.

Estonia's changes to the original plan are based on the need to factor in:
• very high inflation experienced in 2022 (the highest in the Eurozone);
• supply chain disruptions caused by Russia's war of aggression against Ukraine, which have made investments more expensive and caused delays; and
• the downward revision of its maximum RRF grant allocation, from €969 million to €863 million. This downward revision is a result of the June 2022 update to the RRF grants allocation key and reflects Estonia's comparatively better economic outcome in 2020 and 2021 than initially foreseen.

Importantly, Estonia has added a REPowerEU chapter to its plan, foreseeing a reform and two investments to deliver on the REPowerEU Plan's objectives to make Europe independent from Russian fossil fuels well before 2030, in light of Russia's invasion of Ukraine. These three measures aim at accelerating the take-up of renewable energy, by streamlining permitting procedures, strengthening the domestic electricity grid, and facilitating the development of sustainable biogas and sustainable biomethane.

To finance the increased ambition of its plan, Estonia has requested to transfer to the plan its share of the Brexit Adjustment Reserve (BAR), in line with the REPowerEU Regulation, amounting to €6.6 million. These funds, added to Estonia's REPowerEU grants allocation of €83.4 million, make the approved modified plan worth €953 million.

An additional boost to Estonia's green transition
The modified plan has a significantly stronger focus on the green transition, devoting 59% (up from 41.5% in the original plan) of the available funds to measures that support climate objectives.

The reform and two investments included in the REPowerEU chapter strongly contribute to the green transition. The reform will define suitable areas for wind energy, streamline the permitting framework and thus free up capacity within permitting authorities. The two investments will facilitate the absorption of renewable energy in the country's distribution network and increase the production and uptake of sustainable biomethane.

In addition to the REPowerEU chapter, the modified plan includes the aforementioned new measures supporting companies to move away from fossil fuels, an investment in a pollution-prevention ship, measures alleviating barriers on offshore wind deployment and investments to advance with the Rail Baltica project. The reforms and investments in the area of energy incentivise the uptake of renewable energy and improve energy efficiency. These measures have been scaled up in the modified plan.

The plan maintains support for the development of innovative green technologies, such as green hydrogen, for upgrading green skills, and for facilitating the green transition in enterprises while also improving access to green finance for SMEs. Measures in the transport sector include the levelling up of the infrastructure of Tallinn capital region's common public transport system, developing the Tallinn Old Port tramline and cycling paths in municipalities.

Reinforcing Estonia's digital preparedness and social resilience
Estonia's plan's digital ambition remains unchanged, though the addition of the REPowerEU measures has nominally pushed up the overall proportion of digital measures. The plan now devotes 24% (as opposed to the previous 21.5%) of its total allocation to support the digital transition.

The modified plan's social dimension remains very ambitious, with the health and social reforms remaining largely unchanged. The investment in a medical campus in Tallinn was replaced with an investment in a new health centre, consisting of a hospital and primary health care centre in Viljandi, Central Estonia, thereby increasing the plan's local and regional impact.

Next steps
The Council will now have, as a rule, four weeks to endorse the Commission's assessment.

The Council's endorsement would allow Estonia to present its first payment request under the RRF and a request for €18 million in pre-financing of the REPowerEU funds. Under the RRF, Estonia has so far received €126 million in pre-financing in December 2021.

The Commission will authorise further disbursements based on the satisfactory fulfilment of the milestones and targets outlined in Estonia's recovery and resilience plan, reflecting progress on the implementation of the investments and reforms.?

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