Dear reader!

For the company, 2022 began with a new wave of COVID cases, with up to a third of our employees on sick-leave during the worst of it. All that was very important until 24 February 2022 when Russia started a war against Ukraine. On the backdrop of the humanitarian catastrophe and human tragedy of the war, COVID became secondary and in the end disappeared from focus. The war put our environment into an entirely new context, testing our values and forcing us to adapt to the changing situation.

2022 will go down in history as a year of war, although it could also be named an energy crisis year or the year in which the risks of the policy of reducing the competitiveness of the European industry sector materialised. The weaknesses of the uncontrollable carbon trade system and the electricity market could be seen already at the end of 2021, but they fully materialised as a result of the war. The tenfold increase in electricity prices, problems with supply chains, the exploded prices of raw materials and inflation struck a wound in the Estonian economy, recovering from which will take time.

The rapidly changing regulative and economic environment is the everyday reality for VKG. A strong financial standing, fast decision-making processes, and a constant assessment and mitigation of risks have been our strengths which served us well also in 2022. At the peak of the raw material and supply chain crisis, we were able to reconstruct the Petroter I plant and continue with all the previously planned activities unchanged. We also commenced construction work on the aboveground infrastructure of the Uus-Kiviõli Mine with the aim to ensure the smooth transition of oil shale extraction from the depleting supply of the Ojamaa Mine in 2025–2028.

As we are working on the commodities exchange, a low production cost of the end product is of the greatest importance for VKG in terms of competitiveness. The best result is achieved with the stable and coordinated functioning of production units, towards which we make our best efforts. Following the reconstruction of the Petroter I plant, we expect a new production record in 2023, after which we shall focus all of our attention on the prevention of production disruptions. We believe that our long years of experience allow us to find the right balance for making work reliability investments.

In strategic terms, VKG acts on the assumption that the tightening of the Green Transition regulations at the EU level will continue regardless of the energy crisis caused by the EU itself. We are therefore very careful in making development investments related to oil shale processing and are actively planning new development directions in parallel to the valorisation of oil shale. The production of bioproducts and the waste plastic pyrolysis projects are reaching their next stage of development in 2023. In addition, we are more broadly analysing VKG’s options in developing the manufacturing industry in Estonia, with particular focus on Ida-Viru County.

As a strategically important initiative, we started the restructuration of the Group at the end of 2022 in a way that would best allow us to finance the opening of the Uus-Kiviõli Mine and the new CO₂ emission development projects. The Green Transition has made engaging foreign capital in the valorisation of fossil raw material basically impossible in Estonia. Russia’s war in Ukraine made Estonia a neighbour to an aggressor state, which has scared away possible investors. We have therefore decided to establish a representation for the company in Western Europe in order to be closer to shale oil customers and expand our possibilities of engaging foreign funders.

Changes happen very quickly in economy and society. By the moment of writing this Chairman’s letter, Estonia has got a new government, the effects of the oil embargo on Russia have reached Estonia through an increase inf freight prices and railway tariffs, inflation has risen to 20% and the economic decline is 4%. The above does not change VKG’s plans, for we are well prepared for changes. We are expecting a record year in production and making our best efforts to prove the possibility of a large-scale manufacturing industry in Estonia with our development projects.