Baltic energy magnates
Baltic Energy Tycoon
An Estonian sold his Latvian petrol station business in order to start handling oil products in Scandinavia. He is now ready for the next challenge – Heiti Hal is planning to build a liquefied gas terminal.
When entering in the modest and about ten square meters large office, it appears as if a manager of a rather small company is working here. A thought comes into my mind – is this the right place even and is it the most prominent owner of an Estonian oil and gas company working here? The only thing standing out on the rest of the background is the lynx rug laying right in front of the door. It set everything into place later on. “Are you a hunter?” I asked. “No, it’s just that just any proper business office must have a president’s portrait. And this is mine,” Heiti says. He is interested in everything energy related but in no business whatsoever which depends on the state or local authorities; he is particularly critical about politicians.
Heiti Hal (51) began focusing on business at the time when the first cooperatives appeared; at the end of the 80’s he began manufacturing trailers for cars. “Everyone wanted to sell something and obviously there was a demand for transport that could carry these goods. I had heard that in Estonia the demand could have had been around 2000 trailers per year but as I remembered only 78 trailers from the Soviet Union were granted to Estonia“, Hals says. It seemed to him that he could have obtained good profit from it and so he did – the company is still working to this day and has annual production of 15,000 trailers that are exported to Finland, Belarus and Russia. “Heiti is a very creative person and he bursts ideas like a fountain.
He is not afraid to take risks and unfortunately sometimes the risk is too great. He works a lot; Such people are driving the world forward“, as profoundly spoken by Oleg Osinovsky, one of the richest people in Estonia who also partnered Hals’s business in mid last decade.
Aivars Risalu a friend from college years currently a member of the Estonian parliament – offered to Heiti to start a joint fuel retail business in 1992. They bought the first petrol station (services) in 1993. “At that time the fuel was a deficit but Aivars had business connections with Russia which could ensure the fuel supply. What a great business that was! We bought fuel for a ruble and we sold it for a dollar here”, Heiti Hals says. Risalu owned 48% of the business and the rest 52% were owned by Heiti and his son. Business grew really fast. They borrowed money for the construction of the services and in five years there were 44 petrol stations in Estonia called Alexela. However in 1998 when the company was no longer able to pay back the debt due to the crisis in Russia the bank forced Hals to sell part of his business to settle up accounts. “Banks possess such an attribute – when it is sunny they offer an umbrella but when it starts to rain they demand to have it back”, Hals compares.
The petrol stations that were located in the best places (24 in total) were bought by Statoil. The expansion of the Scandinavian fuel dealers Statoil and Neste in Estonia was significant – both were willing to pay an utterly cosmic price for the plots of land where they would later build services. “At the time of the rise of new capitalism I did not understand why someone would want to overpay for a plot of land. Practically speaking the Scandinavians were willing to pay any price to just get the piece land,“ Hals remembers. Only later he realized that such investments greatly paid off. In modern times, Alexela now owns 59 services across Estonia and is the largest chain of petrol stations. Their competitors Statoil and Neste have 52 stations each but they are in better locations. Neste earns almost three times more while Statoil exceeds Alexela Oil trade by and amount greater than twice the size having a turnover of 133 million euros.
In 2006 Heiti’s friend became a shareholder of Alexela Oil – Oleg Osinovsky who is one of the wealthiest people in Estonia, he now owns 44% of the shares. Heiti also tried to go abroad with the services business but he did not succeed. During the flourishing period before the financial crisis in 2009 Alexela also owned 22 services in Lithuania and seven in Latvia which they obtained by purchasing petrol stations from Hydro Texaco. “However our business was too small to be effective. We can even say that – we realized that financially we cannot afford to invest such an amount that would make this services network efficient”, Hals explains. Later he sold his Latvian services to Lukoil and Lithuanian to Neste.
Heiti Hal is determined to build a liquefied gas terminal in Estonia
HEITI HAL
It was year 2011 when Heiti was having dinner in celebration of his deal with Neste, the representatives of this Scandinavian company offered Heiti Hal to spend newly acquired revenues on this Estonian company – Reola Gas which deals with gas trade. Happy is not the right description of Heiti in this case- he was ecstatic over being able to buy the largest gas trade company because he planned to trade gas anyway.
But he still isn’t selling his chain of services because he believes that electric cars don’t have a future unless they finally learn how to generate electricity for themselves. According to EU directives CO2 emissions should be reduced so gas in his opinion is the best solution. Apparently Hal has not heard anything about the OsCar eO car built by a Latvian engineer Andris Dambis with an internal combustion engine that not only produces electricity itself but has already taken part in a rally. Even though Hal does not believe in the electric cars he did not pass the opportunity to join the open electricity market by creating his own company called Elektrimuugi.
In 2012 he decided to try out another niche – waste management business. When Veolia left the boring Baltic market it sold the Latvian company to Guntars Kokorevics, while the Lithuanian and Estonian counterparts were bought by Heiti Hal … and sold half a year later. He once again confirmed to himself that deals with the municipality are not good and no business can be practiced if he is not the decision maker yourself. Practically Veolia sold all set: in Lithuania – waste manager, in Estonia – waste base, landfill and individual company who owned part of the waste collection transport. The only thing of interest to Hal was the waste base in Estonia (since energy can be produced from the waste which is his primary business). However nothing went as it was intended – it turned out that the municipality of Tallinn which owned a part of the waste bases had a veto right to choose a buyer and Heiti Hall did not excite them. He didn’t get the most important asset so he decided to sell the rest. “You cannot make decisions yourself and you are dependant on the state or the local parish. The municipality announces a purhcase. If you win you will be getting small income for four years and if you lose well then you get nothing. In addition, winning in tender can be done with the lowest price which means that you will have no earnings,” Hal explains why the waste business does not interest him. The retail business of the services is similar but Heiti does not sell it for several reasons: it still provides 15% of the total turnover of the group, he’s waiting for the bloom of the auto gas era and it also serves as a PR project. Every day seeing the sign Alexela neither the customers nor the partners forget about him.
However during the Russian crisis Hal sold half of his own gas stations to the rivals. With the money earned he could start an oil transshipment business in Paldiski port in 1998. In 2002 his client Igor Bidilo became his partner in this business but in 2004 one of the world’s largest oil traders Trafigura joined the team and became a co-owner of Alexela Logistics. Trafigura’s global turnover is $ 126 billion (2014). The construction of the terminal took four years. Then over the next five years the terminal was expanded five times. But it turned out that it was still not enough and in 2007 another terminal was built by Alexela at Sillamäe Port. They also bought a Vest Tank terminal in Norway which is now renamed Alexela Slovag. The Alexela entry into the Norwegian market wasn’t the greatest.
According to information provided by the NRK’s which is the largest media agency owned by the Norwegian State the terminal acquired by Alexela was known for selling really low-quality fuel. Supervising authorities rather superficially controlled Vest Tank which had just entered into an agreement with Trafigura. The company was selling fuel with high sulfur content from Mexico and aimed at refining the fuel for further use in auto transport. Vest Tank used to pump fuel into their tanks and added a large amount of corrosive soda and water remove sulfur before the fuel was used further. Consequently a large amount of sulfur and sodium bicarbonate was detected at the Vest Tank terminal – there was an increased level of pollution.
POLLUTION EXPANDED TO THE NEARBY RESIDENTAL DISTRICTS. INHABITANTS IN THESE AREAS FELL ILL DUE TO THIS FACTOR.
It turned out that Trafigura and Vest Tank being unable to achieve their goal were experimenting with various variations, mixing high-quality fuel with poor quality etc. In addition it was found that the Norwegian Pollution Control Services never authorized such activities. Ships containing this unpurified fuel eventually landed at Paldiski port but failed to sell it in European Union countries because in Europe it is forbidden to trade fuel with high sulfur content. The ships were therefore diverted to West African countries. For comparison, in Europe, the maximum permitted sulfur level in fuel is 50 ppm (parts per million), while in West Africa the permitted norm is 5000 ppm.
Due to experiments carried out by Trafigura, Vest Tank was negotiating with the Norwegian supervisory authorities for over a year and eventually Alexela Logistics one of whose owners was Trafigura, bought the terminal back from the previous owners. But the story did not end there. A day after the transaction came into power an explosion occurred in the terminal. Pollution which was previously detected in the terminal and in the water was now spreading to nearby residential areas. Residents in these areas massively fell ill with diseases that were caused by chemical pollution. Alexela appealed to the court against the former owners of the terminal and the Norwegian court stood on the side of the new owner. Heiti Hal proved that he did not know what was in the terminal tanks, meaning that they contained substances volatile to Alexela’s products that were being loaded. The court ruled that former owners would have to pay NOK 160 million (EUR 18.2 million) to cover the cost of cleaning the tanks, repairing the terminal and eliminating consequences after the explosion. Now Alexela handles six million tons of oil products per year which is one third of the total volume of liquid cargo transported in Estonia.
However Heiti Hal did not stop at the transshipment of oil products– he was looking at things from a broader perspective namely he became involved when Latvia, Lithuania and Estonia started talking about the needing to build liquefied gas terminals among themselves in order to reduce their dependence on Russia. So far no agreement has been reached but Lithuania has already built a terminal in Klaipeda and this year it went in operation. Heiti Hal wanted to build such a terminal In Estonia in 2009 and even set up a target company Baltii Gaas. The project was moving forward very slowly because Hal was simply waiting for what the national leaders would decide on a political level. “If all three Baltic States would have agreed I would have lost interest in the terminal because it is not profitable for me as private business entrepreneur to compete with a project for public sector with EU funding,” Heiti says. But no agreement was reached and Heiti is committed to building the terminal himself. He is allowed to do so only under certain conditions though.
In mid last year the Alexela Group which contains 13 companies operating in metal processing, petroleum products, energy, and real estate areas, was owned by several shareholders. Heiti Hal’s partner Igor Bidilo and his brother Jevgeny owned 43.8 percent. Bidilo is a Russian businessman of Kazakhstan origin. He owns 48% of the oil trading company Atek in Russia, with a turnover of around a billion euros per year. A small part of shares were owned by Russian citizens Alexander Grigoriev, Dmitry Kiselev, Gennady Gritsun, Vladimir Anisimov and Ilya Trahtman from Estonia – together their shares accounted for 50 percent. The other half of the Alexela group was owned by Heiti Hal (36.9%), his son Marti Hal (5.9%), managing director Arto Eiprem (5.9%) and bellow one percent Juhan Parm and Ainam Kusik. They own one more company Kadaka Varahalduse which also bought shares from Igor Bidilo. Although the transaction amount remains undisclosed according to Sorainen data it is about 35 million euros. Thereby Heiti Hall became the largest owner of the Alexela Group – one of the most prominent companies in Estonia. The company trades almost 300 million euros a year, and half of its turnover still comes from fuel wholesale and retail.
The deal although did not come easily. Firstly, just a year ago Heiti did not plan to spend 35 million euros. Secondly, Estonian security institutions contributed to this decision to redeem shares from his Russian partner.
The Security Police invited Hal to a cup of coffee and explained that with such ownership structure Alexela will not be allowed to build its dream project – liquefied gas terminal because it is a questionable situation when the purpose of the project is to reduce the dependence of gas from Russia, strategically the most important object is owned by the Russian businessman. In addition the brothers Bidilo have an indirect link with the Russian giant Gazprom – they use services provided by the same company registered in Cyprus. The company didn’t disclose information about the situation, but according to Heiti’s words, “we did not have a peace of mind, we both realized that changes would have to be made”. It took half a year for Heiti to come up with an offer to the partners but the deal itself took place quickly – it took less than two weeks and just because it was necessary to obtain a permit from the Competition Council. Another thing, the transaction and the work ethic of the company was previously characterized by the incompatibility of the management style of both shareholders. Heiti chooses a Western or Scandinavian management model and believes that partners and employees need to be trusted, when they are recruited and each has to fulfil their tasks. But Bidilo, as a Russian businessman, had different views. “It seems to him that absolutely everyone wants to fool him and that he can trust no one. Seeing what’s going on in Russia I believe that maybe it is the case back there but in Estonia such attitude becomes problematic“, Hal says.
It seems that the main trait of Heiti Hal in business is not to be meticulous and look at things from a larger prespective maybe even globally. He also thoroughly evaluates everything and only takes on partners who can make a real contribution to his business, not only in terms of money but also in terms of status and connections. It is clear that it was Trafigura who helped him to get the terminal in Norway, although at the moment the company does not own shares in Alexela group. And the Bidilo brothers particularly helped him obtain clients in the neighbouring country and possibly also a terminal in Murmansk. All Hals deals regarding purchase and sales of petrol stations since the 1990s are related to Neste, Statoil, and Lukoil, and not for example to the local Olerex. He also bought a waste business company from which he can learn a lot – French Veolia. What business idea Hall will have next?
Immediately after the retrieving of the shares held by his partner his dream project has started moving forward – Hal has already received all necessary permissions, including construction permits for the construction of the terminal. He promises to start construction at the end of this year or within next year, and in 2018 Estonia will already have its own terminal. Only Latvia is still waiting for something … Maybe Estonians will build a terminal for Latvians as well?
