Court cancels results of railway privatization

  • 2001-04-19
  • TBT staff
TALLINN - The Tallinn Administrative Court on April 16 canceled a decision of the supervisory council of the Estonian Privatization Agency from Dec. 13 on the line-up of winners in the state railway company Eesti Raudtee privatization tender. The agency appealed the decision the same day.

Under the court's ruling, the decision from December 2000 which recognized a bid by Rail Estonia for 66 percent of shares in Eesti Raudtee as the winner and a bid by Baltic Rail Services as the runner-up is void.

Katrin Kivi, a specialist from the privatization agency said that it is still possible to continue talks with Baltic Rail Services, because the court's decision considers only Rail Estonia.

The panel of judges, headed by Karin Kalmiste, ruled that the privatization agency must review the matter again and make a new decision.

A complaint over the privatization agency council's decision which picked Rail Estonia as the winning bidder and Baltic Rail Services as the runner-up was filed by RER, the third bidder in the tender.

Although RER later sought to partly withdraw its lawsuit to leave out the complaint against the ruling as regards the ranking of BRS, the court found that the decision of the privatization agency council must be regarded, and that there could be no second best bid without a winner.

Rain Tamm, chairman of RER, said his company is purely satisfied with the decision of the court. "It (the decision) only proves that we were right from the very beginning and that Rail Estonia cannot become the preferred bidder," Tamm told The Baltic Times.

Tamm added that if the privatization agency continues talks with BRS while the decision of April 16 is being reconsidered in the court of a higher degree, it may only make the privatization process a nonsense, because RER is sure any court would come to the same conclusion as the Tallinn Administrative Court did.

BRS representatives have a different opinion. Mark Rosner, privatization talks project manager for BRS and vice president for operations in the Chicago-based company Rail World, said it is really hard to predict anything. "But our lawyers advised us to continue the talks with the privatization agency and we will do that," said Rosner.

Kivi said the new privatization process would not begin and that the agency will continue talks to the second best bidder, BRS.

In considering the dispute – whether a strategic investor had to be involved in a bid for majority shares in Eesti Raudtee – the court found that the requirement for a strategic investor was a substantial condition of the tender.

Although the invitation to tender and the additional conditions added to it didn't indicate the relative weight of a strategic investor in evaluating the bids, the requirement for a strategic investor was subject to unconditional fulfilment, the court found. As the court's decision stated, the strategic investor ought to be realistically evaluated.

"Regardless of how one's bid was built up, the requirement for a strategic investor was a requirement and was subject to fulfilment and evaluation," the court said.

The court also found that the entire privatization concept didn't presume preference of a financial investor and that neither could the purchase price be decisive, substitutive or equal to it in value.

By Nov. 20 of last year, final bids had to be submitted regarding the purchase price and additional conditions, and the bid could not be conditional. By the same deadline data about investment guarantees had to be presented, the court said.

The court found that the privatization agency changed the conditions of Eesti Raudtee privatization tender midway in the course of the tender by extending the deadline for submitting the guarantees until the time the bidder that was declared as best is invited to negotiations.

The court further said the minutes of the Dec. 13 meeting of the privatization agency's council fail to reveal the basis of the council's choice.

The court decision could've been appealed with the Tallinn District Court within 30 days, and the privatization agency used that opportunity. According to Kivi, Ander Suik, the lawyer that represents the agency, filed the appeal on April 16.

According to privatization agency regulations, the privatization of the Estonian railway will be considered a failure if the privatization agreement is not signed by April 30.