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The Finnish state is an investor or owner in over 70 companies. We discuss with Minister Anders Adlercreutz the state’s role as a shareholder, lessons learned from the Fortum-Uniper deal, challenges with subsidies, and more.

3 takeaways from the conversation with Anders Adlercreutz

1. Balancing State Ownership and Market Competition

Anders shared the challenges of overseeing companies that serve different purposes and compete under varying market conditions. He emphasized the importance of maintaining a clear distinction between political considerations and ownership responsibilities to ensure the success and value of these companies. A fascinating aspect of this discussion was the state’s approach to companies like Finnair, which faces unique challenges due to geopolitical changes, such as the inability to fly over Russia.

2. The Role of State Aid and European Competitiveness

A significant portion of our discussion focused on state aid and subsidies. Anders critically examined the implications of generous subsidies in Europe, particularly in light of the U.S. Inflation Reduction Act. He highlighted the need for Europe to strengthen its single market and invest in research and development rather than engaging in short-term competitive subsidies. This strategic vision aims to bolster long-term European competitiveness.

3. Lessons from the Fortum-Uniper Deal

Reflecting on past decisions, Anders provided insights into the controversial Fortum-Uniper deal. He discussed the inherent risks of engaging with authoritarian regimes and the importance of being mindful of political dependencies. This segment offered valuable lessons on the complexities of international investments and the need for prudent risk management.

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Podcast transcript

Josua: [00:00:00] Anders thank you. Thank you so much for joining me. Yeah. Thanks for having me yourself. We had some technical issues, so really excited to get started and hopefully it works. As I was preparing for this interview, I was one thing that stood out to me was that the kind of the breadth, [00:00:15] the scope of the government sort of state owned portfolio of companies, both publicly listed and completely privately held completely owned by the government.

Josua: I’d be curious to know just how you as the minister in charge of it and how your team is working on [00:00:30] managing this portfolio and defining the ownership strategies for each each company or asset. 

Anders: Yeah. As you said it’s a very wide portfolio and the companies are very different.

Anders: Some are publicly listed companies [00:00:45] where the state holds a share from a 6 percent to 57 percent companies that compete. On the market that have other owners, which, of course, creates for a totally different situation compared to a [00:01:00] company that has a special purpose that might not compete on the market with other private companies and where the.

Anders: The state owns the whole company, so the situation is quite different. It calls for a different approach. Of [00:01:15] course, to some extent, the legislation is similar, but but but there are, of course, also different considerations to be to it. That needs to be taken into account. And there are several people, of course, working at the at my department, and they all have.[00:01:30] 

Anders: They all are responsible for a few companies. So meaning that they focus on those, they follow how the company’s performing, how, how it’s managed how faires on the market or how it manages to fulfill the special [00:01:45] purpose that we have assigned to that company. Whether it’s providing.

Anders: Icebreaking services or helping people to fly from Helsinki to Berlin, for example, quite different [00:02:00] purposes. And then, of course, we there’s a strategy for each company and that strategy, of course, it’s evaluated constantly. And here I think 1 new consideration is, it’s being [00:02:15] aware of how the world changes around you.

Anders: I think it’s safe to say that the way we looked at, for example, Finnair five years ago is probably quite different compared to how we look at it today. When the whole possibility to fly or fly over [00:02:30] Russia has suddenly evaporated and a Finland’s, even though Finland’s geographical situation is still the same, our accessibility has suddenly changed totally.

Anders: So several things have to be taken into consideration. 

Josua: Got it. Do you [00:02:45] think, is there when it comes to the public illicit companies is there typically like a tension between, let’s say Finnair as an example, the government wants to guarantee a certain accessibility for Finns to the rest of the world, Finland also, Finnair also has, other commercial interests.

Josua: So is [00:03:00] there typically, or ever like a tension between what the government wants and what the company competing on free market terms would want to achieve? 

Anders: Yeah that is of course, one, one, one of the challenges when when you have the government as an [00:03:15] owner and of course, government, it also means easily politics and political considerations might be different from what a totally private owned company might want to do.

Anders: And here, I think it’s important that we keep [00:03:30] politics out of. The ownership steering, and that’s why the ownership steering has to a large extent being concentrated under my ministry. Whereas we have the ministry of communications that basically takes care of the [00:03:45] regulation around traveling and flying.

Anders: And that’s a separate ministry and I take care of the ownership of the company, meaning that I, my ownership should be totally detached from the political considerations. And that, of course, also [00:04:00] means that it’s important that we, as a state owner, make it clear to all the other shareholders that we are a shareholder just as anybody else, that it’s not politics that that define how we [00:04:15] Look at the company, but a concern for the company’s success.

Anders: It’s value. It’s shareholder value. Meaning also that we, of course, have to abide by all the good government’s rules. We [00:04:30] can’t be aware of more than any other shareholder can be aware of. We don’t have a special line of communication with the board. We communicate just as any other shareholder would 

Josua: got it.

Josua: Okay. What do you think? Should there more [00:04:45] of the companies that owned that are currently private and completely held or largely held by the Finnish government? Should they be publicly listed? I’m thinking about like Gossum. They are posted those kind of companies. Do you think that would be beneficial for the companies if they had a little broader base and maybe some of the [00:05:00] scrutiny, maybe that comes with public being publicly listed?

Anders: No, I think it’s something that has to be under constant consideration. And I think that is a thing that has that we, of course, continuously evaluate is this ownership base ideal [00:05:15] for the company? Considering the purpose of the company has the. The expectations that the government has towards the company and here, as times change, these considerations also change [00:05:30] when you, we know that, for example, the market where Bosti.

Anders: In the mail office is today. It’s totally different compared to what it was 20, 30 or 40 years ago in Finland. We suddenly have lots of competitors [00:05:45] international providers of of postal services and so it’s not the monopoly anymore. And then, of course, you could think that, okay, so is it such a function that it needs to be 100 percent owned by the government or not?

Anders: And that’s [00:06:00] why, for example, the government did consider uh, taking positive to the to, to the market as did actually Marines government too. And it might very well be that this government was also considered it but as of today, there are no such processes [00:06:15] ongoing.

Anders: I’m just saying that, there is a, I think these are things that we, of course, constantly evaluate and I think in many ways. It’s it’s prudent to be conservative with the ownership in the sense that that if we, [00:06:30] if there isn’t an obvious need for the state to be involved in the market, then it’s probably better to get out of the market and in many cases it’s better to steer these functions through regulation.

Anders: Then maybe ownership. [00:06:45] 

Josua: Yeah, that makes a lot of sense. I think that’s, guess that’s been the trend or long term trend for the Finnish government. I want to just go back to the steering, because I think Maybe it’s important to qualify to, to just point out some of the things that maybe people have, at least I had some, [00:07:00] my, my understanding of it was a bit unclear.

Josua: So let’s take NIST as an example where I think government owns, sorry, state owns 40 percent or something like that, but it’s not the case. Like you said. You abide by normal government governance. It’s not the case that when the minister gets upset [00:07:15] with something that Nesta does, you call up the CEO and tell them hey, back off.

Josua: What is, what does that kind of relationship look like? Yeah. In practice. 

Anders: Yes.

Anders: I’ll tell you an anecdote first. [00:07:30] At the end of the governmental negotiations in June and in May and June last year, I was I was offered the portfolio of European affairs and ownership steering. And I also got the question. So if you want to get rid of ownership [00:07:45] steering, we can maybe think about something else because it’s considered to be a fairly difficult portfolio.

Anders: And it usually explodes in the hand of the minister causing an early exit out of government. Because just because [00:08:00] of that, that you mentioned that there is always there might be a feeling that you need to intervene, that you need to go in and mess with the with the running matters of the company.

Anders: And and I think that’s why. It’s, you need to have a clear [00:08:15] philosophy and a clear distance between the operative issues of the company and what is really the domain of the ownership steering. Of course, I want to be informed as any other stockholder of big, important things but my [00:08:30] communication happens.

Anders: I communicate with the chairman of the board that, of course, can communicate with any other shareholder of the company. And then, of course, at times I have discussions with [00:08:45] the CEO, but I’m in corporate governments. The general rules are, of course they are relevant as relevant to me as to any other shareholder.

Anders: And I think it’s clear that we also clearly communicate to other shareholders that. That [00:09:00] government isn’t a special shareholder. It’s a shareholder that, of course, has a bigger share than any other 1. But still, the same things apply to us as to the rest. Then, of course, in the shareholders meeting, of course, our [00:09:15] vote carries.

Anders: The weight of our shares. So in in in in estates around 30 percent in in Finnair and Fortum slightly above 50, meaning that what we say carries a considerable [00:09:30] weight, but it doesn’t give us any special rights. 

Josua: Got it. And I’m guessing that kind of Scott communication really helps the company because it gives reassurance to other owners.

Josua: Which may increase demand for the stock and increase stock [00:09:45] price and so on. 

Anders: Yes, and of course, a common concern is that does a government company does it. Is it a negative incentive for others to invest in it? Yeah. Are they afraid that politics [00:10:00] will meddle with the company’s affairs in a way that isn’t beneficial to the company and to the shareholder value of the company.

Anders: That’s why it’s important that we, communicate that we, of course, abide by these rules and that we are not a [00:10:15] special case, even though, of course, our weight through our number of shares is considerable. 

Josua: One thing that I’d be really interested to get your take on is the topic of state aid and subsidies.

Josua: You wrote an article earlier in the [00:10:30] spring related to Northvolt, which was the Swedish battery manufacturing manufacturer. They were going to open a plant in the North United States. Germany, the German government gave it, gave them a 900 million aid package, 700 million direct [00:10:45] and 200 million guarantee to open the factory in Germany instead.

Josua: And you wrote it, you wrote in your article, you were a bit critical of this and maybe highlighted some fears as it relates to Finland. So what’s the issue with with us making sure that. This [00:11:00] critical infrastructure and knowledge is stays within Europe, as opposed to being attracted to the United States.

Anders: Yeah, I think that’s a, this is a big concern for Finland and for Sweden, actually. And as we are recording this, I had I had a text in who was just lauded and buzz about it [00:11:15] today, together with Jessica Roosevelt the EU minister of Sweden, where we discussed actually this very issue stated in general and European competitiveness.

Anders: In Finland, according to Elinkeinoelämän keskusliitto [00:11:30] the the central organization for businesses, freely translated there is an investment potential, or let’s say potential, like announced investment ideas of around 260 billion in the green transition alone. And those investments are coming to Finland, and [00:11:45] because of the fact that we have pretty much the best electrical grid in the world, I would say.

Anders: Any given day the percentage of fossil electricity in our network is countable in the single digit [00:12:00] as long as there is some wind somewhere. And this transition has happened without government intervention, essentially, private companies have invested in renewable energy production, and this gives Finland a tremendous competitive advantage.[00:12:15] 

Anders: Many companies want to be fossil free. They want to invest in the green transition and Finland and Sweden, both actually provide for a really good platform to do those investments at the same time in central Europe. These investments [00:12:30] have not been made Germany, Poland, they are still very reliant on coal and fossil energy.

Anders: And now we are in a situation in Europe where. On the one hand we have IRA in the [00:12:45] us the Inflation Reduction Act heavy subsidy package of anything between 400 billion and 1 trillion dollars. And and then on the other hand. A loosening of the state age rules on a European level, something that we did [00:13:00] in order to get out of the cobit cobit crisis.

Anders: But that has been a system since that Finland has wanted us to return to the so called normal state having strict stated rules again, but Germany [00:13:15] and France want the present exemptions to be and this has led them to an inter European competition between governments, between countries, where we, through very [00:13:30] generous national aid, try to leverage investments from one country to the other.

Anders: And when this happens, it means that we somehow we don’t do the investments in the basic infrastructure that we should. We don’t do the investments in [00:13:45] research and development that we should, but we somehow try to compensate for not doing that and then give subsidies to production or investments.

Anders: And that might help in the short term, but I’m really sure that it doesn’t help European [00:14:00] competitiveness in the long term. And that’s why I really hope that we can go back to a normal state. And instead, if needed, create mechanism that incentivize investments in research and development and general investment infrastructure.

Anders: [00:14:15] And I think that’s the only way for us to be competitive in the long term. You mentioned Norfolk is a prime example of what this. This present state might lead to unless we are careful, the German government gave Norfolk a 900M [00:14:30] subsidy. The criteria for that project doesn’t meet European standards and the level of the subsidy isn’t even determined within Europe.

Anders: It’s based on matching a supposed American investment [00:14:45] subsidy, meaning that we somehow let others decide for ourselves both what we subsidize. How much the subsidy is, and for a country like Finland this is an impossible race to win. We are a small country. We have [00:15:00] done our homework, but if the game is competing with American subsidies, then we are we are in trouble.

Anders: I really hope that we’ll, revise our policies and focus on making the single market stronger. And through that [00:15:15] play through our strengths, which is being the biggest single market in the world with uniform rules and and while having that as a point of departure then we invest in research and development and raise competitiveness through that.

Anders: Sorry for the long [00:15:30] run. 

Josua: That was pretty good. Very well put. I buy that argument. I just want to highlight something you said to that. You said there’s been 260 billion euros. Announced investments in green transition in Finland, planned announced [00:15:45] investments. So that’s like the pipeline that we have essentially.

Anders: That’s the pipeline. And of course, all of those will not be will not be completed. There’s quite a lot of wind power there. And we, in the short term, we don’t need that much wind power and so on, [00:16:00] but it it gives us a scope of the possibility that we have. 

Josua: Yeah, it’s enormous. And like you said, it’s been achieved.

Josua: This competitiveness has been achieved without large subsidies. It’s essentially like finishing innovation and ingenuity and hard work. [00:16:15] We have a running a little bit low on time, unfortunately but I so I want to ask a couple of maybe a shorter, a couple of shorter questions to get your takes on a few specific things.

Josua: One thing that’s been in the news a lot is of course the Fortum Univer deal. Scandal, one might call it, [00:16:30] and you were one of the few, I think, in a minority of MPs who are critical of this back in 2017. For issues related to fossil fuels and Russia and so on. So you were critical then, but you also wrote an article in, or you were [00:16:45] interviewed last, end of last year, saying that you don’t believe that the parliament could have done, would have done any different and made a different decision, even if they had the ability to do so what do you think, if any, are the lessons that we can learn? [00:17:00] From the Uniper saga,

Anders: I think 1 lesson is that that we can’t close our eyes to the risk that doing business with authoritarian states. Leave to in it 16 or [00:17:15] 17? When you do the pair deal was announced. I think it was 17. we were, as you said, just a handful of parliamentarians that thought there was a problem at that point.

Anders: We knew that Europe has as ambitious climate goes, [00:17:30] but we also knew that Russia uses. As leverage, Russia uses energy as a weapon. So I think it was evident that Fortum in this case put itself at risk at political risk with regards [00:17:45] to Russia for the same reason. I. I, together with Elina Valtonen and Antero Vartija, a year earlier, we made a written question to the government about the security policy aspects of the Nord [00:18:00] Stream 2 pipeline, a project that we also thought was was risky for exactly the same reasons.

Anders: It made Europe more dependent on Russia as a provider of energy in a situation where Russia. [00:18:15] Pretty obviously was fully prepared to use energy as a weapon. If it thought it was relevant way of driving its own political interests. I think a democratic, a liberal democracy, like the E.

Anders: [00:18:30] You we afraid with a lots of lots of countries and we can’t always choose the system that those countries are governed by, but whenever we deal with the authoritarian states, we should.[00:18:45] 

Anders: Aware of where we are not, the stronger partner or the one that, that can make the choices but rather a weaker partner with less leverage. We should be aware of these dependencies and and account for [00:19:00] them account for the risk. 

Josua: Got it. That, that, that makes a lot of sense.

Josua: Another thing that was in the news earlier in this this year was the SSA SSAB investment. So they were deciding between the steel [00:19:15] manufacturing deciding between 4. 5 billion investment between Sweden and Finland went to Sweden, the investment, and there’s, there were some reasons for that. But what do you think did the political strikes that we had in the spring, in the beginning of the year.[00:19:30] 

Josua: And is that impacting potential billion, billion dollar, billion euro investments in Finland in the future? 

Anders: Yeah it certainly didn’t help, but it’s fair to say that when I discussed with the company with [00:19:45] SSAB they denied that it. It would have had an impact. I think that you could say that it didn’t help, but but I also think, and I think if we want to make Finland, a more viable country for investments, it’s really important that we pass the [00:20:00] legislation that was discussed at that point.

Anders: But the main reason behind it was maybe paradoxically the fact that. Rahe was more competitive in its present state than Luleå, meaning that for [00:20:15] SSAB, it was more viable, or it made sense to first invest in the worst performing plant, Luleå, compared to the better performing plant, Rahe. [00:20:30] Paradoxically being competitive in this case, lent to Rahe having to wait for this investment, but I’m quite sure that the investment will come eventually.

Anders: And it’s important also for Finland’s climate goes the factory Rahe by [00:20:45] itself accounts for around 7 percent of Finland’s CO2 emissions. So it’s a considerable source of emissions. And also from that point of view, it’s important that the project, um. Will come to fruition event eventually, [00:21:00] and I’m quite sure it will.

Anders: And when it does it’s a great opportunity for Finland. This is a booming market and a really huge technological step forward. 

Josua: Yeah, let’s hope that it comes sooner rather than [00:21:15] later. One final question for you. Anderson, then you have to run when there’s a kind of a very broad one. So you can answer it however you want.

Josua: But when we look West, we have the Norwegians with their, the biggest sovereign wealth fund in the world, 1. 4 trillion [00:21:30] us dollars in assets, the biggest investor in the world. Then we have some of the Gulf countries, other countries, I think, like Singapore, they’re using their wealth funds, hundreds of billions to make strategic investments around the world to position themselves well for the future.

Josua: So the question is there. [00:21:45] Should we, as Finland, be more ambitious when it comes to our state owned activities of investing and ownership?

Anders: I think we very well should be more ambitious. We, of course compared to Norway, we don’t have oil. So there is less [00:22:00] of a, let’s say we have less tools to use in order for, to build a fund like that. But I think it’s worth to, to plan for the long term and to some extent, Finland has done it when you compare our, for example, a pension system, it’s it’s much more viable than the [00:22:15] pension system in many countries.

Anders: It comes straight out of the budget, whereas we have a considerable funds behind it. In that sense, it’s much less than Norway and it’s not comparable, but to some extent, we have a similar structures. [00:22:30] But of course, I’d be very happy if we had if we had had oil for a few decades and would have a fund like that.

Anders: And it’s now it’s worthwhile looking at new oil countries like Guyana, for example, [00:22:45] that suddenly found oil and actually are looking at Norway’s example. And actually I talked with the minister from Guyana a few days ago. And he said they are setting up a fund like that. So Norway’s example is a good example to follow [00:23:00] for many countries.

Josua: Yeah. The best decision would have been to have a lot of oil for a lot of decades, as you said. 

Anders: Yes. 

Josua: Yeah. Anders thank you so much for being generous and taking the time to come on the show. Also, huge thanks for for all the [00:23:15] hard work that you and your team are doing on behalf of all of us. Fin all of us Finns, much appreciated.

Josua: And yeah, best of luck with with everything that you’ve got going on. 

Anders: Yeah, thank you. So for having me, I really enjoyed our [00:23:30] discussion.

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