You have been among the architects of Estonia's transport policy for a very long time. Looking at what is happening with airBaltic from the sidelines, could all of this end the same way it did with Estonian Air in 2015?

"Architect of transport policy" is putting it a bit strongly — I worked on transport issues for five or six years when I was the ministry's deputy secretary general for transport. Transport is no longer under our ministry, but I still follow the topic with interest and mainly read about it in the media.

AirBaltic is extremely important to us. They control roughly one-third of our aviation market.

I think that if airBaltic disappeared from the market, at least initially we would only be able to fly to hub airports. Apart from low-cost carriers, we would no longer have airlines here offering direct flights.

The Latvians' business plan still has not really started working. Airlines are a bit like agricultural companies — there is always a crop failure. That applies to the entire aviation sector, except for a few major players. Ryanair, for example, has a different business model. But everyone else always has some problem, whether it is a financial crisis, Russia's war or the coronavirus pandemic. Now the war involving Iran and disruptions to shipping in the Persian Gulf have been added to the list.

The engine saga has not made life any easier for airBaltic either. The development of Pratt & Whitney engines was not fully completed when they were introduced and they tended to require maintenance very quickly.

As a result, they had more than 10 aircraft out of service at the same time last year, which meant they once again had to buy in services from outside providers.

It is somewhat analogous to Nordica — after the pandemic, Nordica was squeezed by a labor shortage and when aircraft had to be leased in from outside, costs became extraordinarily high.

But the key question for airBaltic is what to do about their debt. Heavy debt drags down the company's value, but perhaps someone sees that their underlying business model works and that they have a large market. Maybe a compromise will be reached in which some of the debt is written off.

Interest costs definitely need to be reduced because a company with €400 million in debt is essentially paying consumer-loan interest rates — that is not sustainable. Whether a new investor comes in and they manage to negotiate lower interest rates and extend the repayment period, something has to be done.

Reportedly, the engines are now more reliable, the market is large and the Latvian state has always managed to pull a rabbit out of the hat. I hope they will figure out this time as well how the company can continue operating.

Those crises have always provided a legal opportunity to inject more money into airlines — we also put more money into Nordica. The Latvian government has managed this very skillfully. If we had acted the same way and had not allowed Estonian Air to go bankrupt in the manner of an honest Lutheran peasant, perhaps we would now be talking about Estonian Air still existing?

Estonian Air was too small to survive. It is clear that in aviation, the companies that perform well are those with scale. AirBaltic is no longer that small, although they also started out small. Today they have around 50 aircraft, but their strategy is to grow to 100.

In aviation, size simply matters. There are economies of scale even in aircraft procurement. I remember that at one point Ryanair acquired aircraft at such low prices that when they sold them a few years later, they practically had no capital costs at all.

If airBaltic covers the entire Baltic region and local purchasing power continues to grow, then they definitely have a place here. Over the past 20 years, people have started flying significantly more.

As secretary general of the Ministry of Economic Affairs and Communications, are you saying that the Estonian state should not invest money in airBaltic because the situation is too unclear?

Yes, of course. Money has been put into the company over the past 15 years with mixed success. Today, the business model could probably work, but as you yourself mentioned, during the coronavirus period money could only be injected temporarily. That money could not remain there forever — it had to be repaid.

Most of it has in fact been repaid, which is where the refinancing through bonds came from. I do not think Estonia needs to invest in airBaltic today.

On the one hand, it is understandable that we operate within the European Union's single market and that the rules must be the same for everyone. On the other hand, when looking at airlines that have been created and gone bankrupt in our region, it is clear that this is a small peripheral market where the population is also less wealthy compared with richer countries. We are not allowed to subsidize them, but there seems to be a flaw in that logic because the market does not really function — without subsidies, we would have significantly fewer connections...

There are different ways to provide support. One method that is used is to keep airport fees low. That can be done if no dividends are taken out of the airport and fees are not raised excessively by exploiting a monopoly position. It is also possible to provide route subsidies, although those are more commercially based.

The state is generally not a good owner of a company — you need to have your own skin in the game. Poland's airline has struggled, Slovenia's went bankrupt. At the same time, privately owned Wizz Air, based in Hungary, is operating successfully, even though Malev went bankrupt. Private capital will certainly think through what a modern airline model should look like and how to survive and make a profit.

Looking at other sectors, do you agree with the claim that since the coronavirus crisis, Europe has built an economic model based on subsidies? The latest example comes from Luunja where Estonia's largest cucumber-grower announced that it unexpectedly did not qualify for renewable energy support and may have to close doors. We seem to have a growing problem where the market favors those who are better at negotiating subsidies.

That problem is not new and did not emerge during the coronavirus period — it already existed before that. I was hearing this talk about subsidies 15 years ago. Even the forestry industry started saying that it needed support. The question is: who will be the last person to turn off the lights? In the end, more money should be coming in than going out, not the other way around.

Support can be justified if it is forward-looking. We also try to design our subsidies in a way that ultimately brings more money back to the state and creates change — for example, encouraging companies to adopt more IT solutions or innovation.

On the other hand, we also have to look at our neighbors. A lot is said about Lithuania, but we should also look at Germany, which is putting hundreds of millions into certain sectors. We need to respond in some way so that everyone chasing subsidies does not relocate there. But it has to be done in a way that works in an Excel spreadsheet — meaning that it ultimately brings money back to the state.

Can you name any major investment that has come to Estonia in recent years without the state having to contribute additional money?

If you look at the main foreign investors in Estonia, they are in the financial sector, telecommunications, logistics and real estate — they have not received any subsidies. But in industry, yes, support is generally requested. Since we do have industrial support measures, we want companies to be able to operate on equal terms.

In some cases, support is not a bad thing. One area we have been working on for more than 20 years is research and development. It is a long-term process. The trend has been moving upward for some time now and last year research and development expenditure in Estonia reached 2 percent of GDP. For comparison, Latvia and Lithuania are at around 1 percent.

That points to the future — whether companies are thinking about new technologies and are capable of making a pivot, to use startup terminology. It is not possible to continue indefinitely with the old mass-production model. I think that has been a sensible investment and contribution.

As a journalist, I can see from the sidelines the struggle over public opinion. Sandor Liive can only build his nuclear power plant if he manages to convince both society and you that the plant will need support during periods of cheap electricity. Renewable energy developers operate in much the same way. In this building, you are in the middle of all of this. How does it look from your perspective?

It is a bit like a circular economy: one party wants subsidies, someone has to pay for them, those high costs then reach industry and industry in turn needs subsidies again. The entire cycle requires support if input costs become too expensive.

We introduced renewable energy fee relief for major energy consumers precisely so that large industries would remain in Estonia and preserve jobs. It is a complicated world.

When you meet with investors, how big of a concern is it really that we are located next to Russia? In the West, there is a widespread perception that Narva is next and because of that we are missing out on many important investments.

That concern is layered, like an onion. For Finland and Sweden, it is not really an issue. Even Ericsson's decision not to make a major investment in Estonia was reportedly more related to broader geopolitical concerns — what the United States will do and how its tax system may change.

Then there is the next layer, for example the Netherlands, which has so far been quite a strong investor in Estonia. But those who are farther away, whether in North or South America, do not really understand exactly where Estonia is located. They tend to see the Ukraine-Estonia region as one area and that certainly makes committing more difficult for them.

It seems to me that the Estonian state has not done enough to break down this negative image. This is not criticism of your ministry, but perhaps we should look at the Ministry of Foreign Affairs instead. Do we have a national plan for clearly changing that perception?

I know that the foreign ministry is concerned about this as well. At the very least, Secretary General Jonathan Vseviov is concerned.

These are two different worlds. On the one hand, we constantly have to talk about the war in Ukraine in order to keep attention on the region and on the issue posed by Russia. But that obviously conflicts with the narrative we use to attract foreign investment. These are two extremes and we cannot simply neglect the first one and talk only about how everything is wonderful and there is no danger.

Right now, together with the foreign ministry, we are updating our messaging. Estonia's image should be based on facts: we have ranked first in the tax competitiveness index for 10 years and in terms of research and development investment we have reached the Nordic level. The volume of foreign investment in Estonia is the same as in Lithuania, even though Lithuania has twice the population.

We have one of the highest numbers of unicorns per capita in the world — comparable to Switzerland or Japan. and that in absolute figures, not just proportionally. In addition, we have strong AI adoption.

In reality, we are an exciting and progressive country and we are trying to reset those messages in order to balance out the rhetoric driven by fears of war.

In recent weeks, there have been a series of reports about major billion-euro hydrogen and ethanol projects in Pärnu County and a data center in Lääne County. Why are they coming here? Are these "real projects" or are we once again in a situation where it later turns out to be little more than hot air?

These are mostly very new projects and it is difficult to assess them, with the exception of the Singapore-backed project at Pärnu Airport, which is about a year old.

In my view, developers are looking at three things. First, wind farms — large-scale developments do not pay off on their own right now because energy prices are highly volatile: at one moment electricity is free and at another it is very expensive. The question is how to make use of electricity when prices fall to zero.

Second, the pan-European hydrogen pipeline initiative. We currently have a national spatial plan underway and if everything goes well, the pipeline should be completed by 2033.

Third, there are European support measures, such as the Innovation Fund and the Renewable Energy Bank. So we come back again to subsidies (smiles).

Many are preparing for a future in which heavy industry and shipping switch to hydrogen and methanol, so they want the infrastructure ready. They are developing these projects either to expand them further themselves in the future or to sell them on.

Personally, I believe green energy is making a comeback. It is no longer only ideological — the security crisis is also acting as a catalyst. If you look at China, they have long been preparing for such a crisis. Their green technology developments were not undertaken solely to save the world, but also to ensure resilience in times of crisis.

Geographically speaking, these projects are ending up in Pärnu and Lääne counties because sooner or later the Rail Baltica railway will be completed, putting them in a better logistical position. But in Southeastern Estonia there is complete silence. Is it a concern for the state that Estonia is increasingly tilting toward the north and west?

The railway will certainly give businesses an advantage. Hydrogen will most likely be transported by pipeline, like gas, because it is a bulk commodity. In the United States and Europe, there is a tenfold difference in gas prices precisely because of transportation — pipelines make it cheaper. Southeastern Estonia is definitely an issue and we need to think about how to connect the region better.

Has the final route for the hydrogen pipeline not yet been selected? One option was supposed to go near Valga, wasn't it?

Another option is currently being considered as well — whether it should run along the seabed instead. In that case, it would come from Finland into the Baltic Sea, run past our islands and could be supplied by Baltic Sea wind farms. However, our base project is still the route that runs across the mainland and also fits with those projects in the Pärnu area.

Who is backing the seabed option?

A Norwegian-German consortium. But at the moment, it is really just lobbying activity. We are planning for the overland route, but we always listen to different stakeholders. In the end, it has to work commercially — we will see which option makes more sense.

We already touched on the railway. In the coming years, we will probably have to accept that traveling by high-speed train from Tallinn to downtown Riga may only become possible around 2040. The line through the three countries will likely be completed earlier, but we will have the "fortunate" opportunity to change trains near Salaspils. From the outside, all of this looks pretty bad...

I now read those reports in the newspaper just like everyone else. Back in the day, I sat on the supervisory board of the Rail Baltica joint venture and Latvia's problems were already becoming apparent then. Estonia has actually done very good work — compared with the original forecasts, Estonia is the closest to schedule. Lithuania's project has become significantly more expensive, while Latvia is in an entirely different category.

Even at that time, Latvia's problems were visible and together with the European Commission we tried to push back against them. They wanted to use Rail Baltica funding to complete the entire Riga railway hub, including two lines: one serving the airport and another running directly through the city center.

At the time, we proposed a compromise under which only one of the two lines would initially be built. The Estonian section should reach construction readiness by 2026 and at present the promise is that the railway will be completed by 2030.

Latvia relies very heavily on European Union funding. Although the European Union said a few years ago that no more money would come from that source during the next funding period, financiers will probably realize that you cannot simply leave a half-finished railway hanging in the air.

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