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The northeast of Estonia is usually associated with a whole range of problems. It’s an industrial region bordering Russia and populated predominantly by Russians, where businesses close, Estonian is hardly spoken, unemployment is high, and where young people tend to leave as soon as possible, either to the capital or abroad.
Once, Ida-Virumaa was one of the major Soviet industrial centers; not only shale was mined here, but also, for example, uranium was enriched (the secret plant № 7, closed in 1990, now NPM Silmet metallurgical plant),which was planned to be used in the creation of the first Soviet atomic bomb. After the collapse of the USSR, many enterprises ceased to exist, but the region remained the center of the Estonian chemical industry and energy. Now, Ida-Virumaa, population 131.800, of whom 81.5% non-Estonians, is the region with the highest registered unemployment rate, 12.1%.
That is why the green revolution and the emergence of a new, maximally environmentally neutral industry are especially acute for the Estonian northeast. On the one hand, climate warming requires a reduction in the polluting oil shale industry; on the other hand, it is not so easy to do this in a not very socially prosperous region, whose Russian-speaking population is already not enthusiastic about the actions of the central government
To soften the process of moving away from the polluting industry and diversify the regional economy, a so-called Just Transition Fund was created to help businesses become climate neutral. The fund is funded by the EU and has a total volume of 340 million euros, plus the so-called "technical assistance", which includes administration costs. The fund is valid until the end of 2029, but 72% of all benefits must be paid by 2026.
European money comes bundled with bureaucracy
The problem, however, is that despite the keen interest of enterprises, so far only two projects have received support from the fund. Enterprises and local governments themselves complain about the European bureaucracy, because of which not every company manages to get financing. In this regard, they sent a letter to the Prime Minister, pointing out that more than a third of the allocated funds may not be used at all, and calling for speeding up the process.
According to Ivan Sergeev, Just Transition Coordinator for Ida-Virumaa under the Ministry of Finance, a few projects received support for several reasons. First of all, not all state support measures are yet available, and as they become available, more and more projects will be heard. "Enterprises have different opportunities and plans: someone is going to build factories, someone just wants to optimize their processes, and someone plans to move into completely new areas and start developing new technologies. All these are quite specific activities, and for all these purposes we have the necessary support measures," explains Ivan Sergeev for Veridica.
A measure supporting large investments was launched last year. At the beginning of July, the application round for the measure aimed at small businesses began, and in mid-July, the measure to support knowledge-intensive projects was launched.
"So the process is underway; it’s just that not everything is immediately visible to the naked eye. On the other hand, we can only speak publicly about those projects that have passed all stages of evaluation; some projects are in active development," says Sergeev. According to him, it is also important that we are talking about a European fund where the level of support is measured in millions, so there is a very careful selection of projects.
The biggest magnets plant and rare earth metals deposit, at Russian border
One of those who did manage to get government funding is the permanent magnet plant of the Canadian company Neo Performance Materials, whose construction was solemnly launched in Narva at the end of June.
The Permanent Magnets Plant received about 19 million euros from the Just Transition Fund. The total investment amounted to about 100 million. The start of its construction took place in a rather pretentious atmosphere: the symbolic beginning of a just transition was welcomed with the help of a video not only by Estonian President Alar Karis but also by the head of the European Commission, Ursula von der Leyen. No wonder, because the launch of the plant is strategically important not only for the Estonian region but also for Europe as a whole. Its products are also planned to be exported to North America.
NPM's Narva plant will process rare earth metals mined in neighboring Sillamäe (NPM Silmet is the largest producer of rare metals and rare earth metals in Europe, it belongs to the Neo Performace Materials Group, headquartered in Canada), which are needed, for example, in the production of electric vehicles, wind turbines, mobile phones, and computers. Whereas until now raw materials mined in Estonia were exported to China, where they were used to produce magnets, which were then resold back to Europe, now the supply chain will become much simpler and strategically safer.
According to the plans, the first stage of the plant, which will be built by the end of 2024, will cover 14% of the demand for permanent magnets throughout Europe. The second phase could increase this share to 30%, although optimists like the mayor of Narva, Katri Raik, suggest that in the future the plant could even cover half of all European demand. For the Estonian northeast, this will mean hundreds of new jobs, not to mention the role the plant will play in the green transition and clean energy production.
In a situation where, in general, investors are not very willing to invest their money in projects located near the Russian border, the significance of this project can hardly be overestimated. It not only demonstrates that Ida-Virumaa is no longer an economically and socially depressed region but also sends a signal that doing business on the eastern border of Estonia is still promising and safe.
Wind, solar and green revolution in the north
The second successful applicant for a EUR 2.6 million grant from the Just Transition Fund was Freen, Estonia's largest wind turbine and solar panel plant, located in the northeastern city of Kohtla-Järve. It should reach full capacity next year, which will create several hundred more jobs.
"This funding will enable us to expand our existing factory, increase production capacity, and continue the manufacture of our proprietary wind turbine models. Additionally, we aim to offer our production facilities as an outsourcing resource for other wind turbine manufacturers in Estonia. This investment will facilitate the creation of several high-value jobs in the Ida-Viru region, a significant step towards our commitment to sustainable economic growth," the company said.
And these are just a few of the large industrial enterprises that are planned to be opened in the region in the coming years. In 2025, it was planned, in particular, to open the Aquaphor plant for the production of filters and water purification systems. Investment in this project is estimated at 250 million euros; in the future, it should create about 700 jobs, although it is already known that its implementation is delayed. The opening of the second Enefit 280 oil production plant is also planned for 2024, for which investments in total should amount to about 300 million euros and which promises several hundred more vacancies in Ida-Virumaa.
From planned soviet economy to european industrial park
Most of the large industrial projects that are planned to be launched in the coming years, in one way or another, serve the environmental goals that Estonia sets for itself. Some of them are related to the disposal of already existing waste from the oil shale industry.
For example, the waste management and recycling company Ragn-Sells is going to process oil shale ash generated by the Narva power plants into more environmentally friendly raw materials for the chemical industry. The launch of the project is scheduled for 2028 if large-scale investments are guaranteed; initially, it was said that it was necessary to attract 250 million euros. According to Alar Saluste, project manager of the company, the plant will begin to solve the raw materials and environmental crises, which are becoming more acute.
"We are working to ensure that our industrial parks develop faster so that there are more and more new production enterprises in Ida-Virumaa. Unfortunately, not everything depends only on the level of competence of our team, our hard work and dedication," says Vadim Orlov, head of Narva Industrial Park (IVIA).
He recalls that over the 13 years of industrial park development, there have been at least four serious crises. In 2014, there was a crisis related to the annexation of Crimea; in 2018, there was a banking crisis when banks closed the accounts of non-residents and firms owned by non-residents; in 2020, there was a coronavirus crisis; and in 2022, the war in Ukraine began. "In order for the development of industrial parks not to stop, every time we completely review our strategy for attracting new production companies in Ida-Virumaa. After each crisis, we managed to find a unique selling point and remain attractive to international and local manufacturing companies," says Orlov.
He admits that convincing investors to finance in the Estonian northeast, while they have the opportunity to choose any other place in the world for this purpose, is a very difficult task. "At different times, there were different reasons that hindered the flow of investment in our region. Once, the reason was the allegedly increased crime rate in Ida-Virumaa. Our location on the border before the start of the war in Ukraine was our competitive advantage; now it is alarming some investors," Orlov notes.
At the same time, from his point of view, the region and local industrial parks have other advantages, which ultimately play a decisive role in deciding on the location of future production companies. Funds from the Just Transition Fund play a role in this; one of the attractive factors is the ability to compensate up to 45% of the total investment with a grant.
But the main advantage is the speed with which investors can build their new plant on the territory of IVIA industrial parks. "The last example with the NEO Performance Materials magnet plant showed once again that the speed of decision-making and the level of preparation of the technical infrastructure in the place where the new enterprise will be built were important for the investor," states the head of the industrial park. "The entire technical infrastructure for the magnet plant on the territory of our industrial park was ready, and the building permit was issued in a month."
As for new projects, the second stage of development of Neo Performance Materials and the possibility of attracting its partners and suppliers to Narva to create a cluster are already being discussed. "We want the rapidly developing magnet factory in Narva to become a magnet for factories. This example will help us attract new investors from among those who are confident that Estonia, as a NATO member, is reliably protected," Vadim Orlov expressed hope.
