Estonia's big businessmen vie for railroad

Jul 20, 2000
Laura Bailey TALLINN

Railway Privatization People's Ltd. entered the first round of bidding in the privatization of the country's freight railway on July 17 with the aim of pooling Estonian capital to keep the railway out of foreign oil industry competitors.

On the list of RER's shareholders is Aadu Luukas, CEO of the oil transit company Pakterminal, which is one of Eesti Raudtee's largest clients, as well as several other executives from port industries that are clients of the rail service.

"We consider this an advantage, having among the shareholders people who know Russia and who know how to hold contacts there. It's very important for Eesti Raudtee," said Rain Tamm, chief director of the group that will gain control of Estonia's oil transit line from Russia, if it is successful in the bidding.

Tamm said a conflict of interest is not possible as the shareholder's agreement prevents any party from owning more than a 10 percent of the shares. Each investor, Tamm explained, is investing as a private citizen and will only be allowed to participate through shareholders meetings.

The 25 million kroons ($1.5 million) that the group has pooled so far, explained Tamm, is divided between 31 shareholders, and the company expects stakes to be diluted further when more investors join.

Investors must also wait a minimum of three years before they can sell their shares, explained Tamm. "For these shareholders it's a long-term project, not a way to sell the company further," he said.

Concern that the country's oil transit business will lose money if the railway goes into foreign hands arose when the Finnish rail company VR Yhtyma showed interest in the privatization last April, shortly after the government had announced the tender. Some politicians and Eesti Raudtee officials expressed fear that the Finnish state-owned company would seek to shut down the Estonian railway in order to strengthen Finland's oil transit business, with which Estonia is a main competitor.

The absence of a pipeline in Estonia and the country's position between Russia and the Baltic Sea has made Tallinn the second largest oil exporting port in the Baltics and a major transporter of Russian oil.

"It is really a concern since we are competitors in the market," said Eesti Raudtee communications director, Andrus Kuusman, about the possibility of a Finnish company winning the tender and gaining control of Estonia's sole oil transit operator.

Conditions set by the Estonian Privatization Agency require that Estonian bidders team up with an experienced foreign rail partner for consulting purposes, but Tamm said the Estonian shareholders would not give out total control to foreign partners.

"We think that it's possible to regulate it by the shareholders' agreement, so that the general control will be held by Estonian capital and the foreign partner can have its say in infrastructure management and cargo operations," explained Tamm.

Balti Cresco Investment Group and Lohmus, Haavel and Viisemann, are currently consulting the company which submitted its business plans for development of Eesti Raudtee to the privatization agency as part of the first round of bidding. Share prices will not be discussed until qualified bidders are selected in August.

Also in the bidding is the American railway firm CSX Transportation, and Baltic Rail Service, a consortium of investors from Estonia, Great Britain, and the United States.

The Estonian Privatization Agency would not offer an official reaction to RER's announcement, but the chief specialist of infrastructure privatization at EPA, Katrin Kivi, commented on the development in a positive light.

"All potential bidders are welcome and we will not make any problems for any of them," she said, adding an unofficial opinion, "I think it's positive for Estonian businessmen to do something positive for the Estonian economy."

Kivi said the privatization agency expects to make a final decision by the end of the year.

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