Railway privatization gaining more steam

  • 1999-10-21
  • By Brooke Donald
TALLINN - More than a dozen companies are vying for one of two spots to advise the process of turning over the state-owned railway company into private hands.

Last week, 13 companies from Estonia and abroad submitted materials to the Estonian Privatization Agency indicating their interest in the advisory role, said Airi Hammalov, a lawyer representing Estonian Railway.

The EPA will select one of the companies by Dec. 1, Hammalov said. Another contest to choose the second adviser will be held by the European Bank for Reconstruction and Development.

Companies interested in winning the advisory role include Suprema Investments, KPMG, Pricewaterhouse Coopers and Lohmus, Haavel and Viiseman.

One criteria for competitors in this contest is that they must have international experience in privatizing companies in the infrastructure sector - such as other transportation and communications companies or public utilities - and in the issuing or sale of shares of these companies, Hammalov said.

For companies without previous experience - mainly Estonian bidders - potential subcontractors with the necessary resume qualify.

"We thought it necessary that each company had an equal opportunity to become an adviser," said Andres Suik, a lawyer representing the EPA.

The companies, including investment agencies, consulting firms, auditing firms and other private business, will submit their respective annual reports, registration certificates and documents confirming their would be no conflict of interest if they were to win the advisory role to the EPA for review.

The deadline for entries in the first stage bidding is Nov. 1. The deadline for the second round of the tender is Nov. 26.

The bidders also have to submit a ëconceptualization of privatization' describing the company's plan in aiding the railway privatization process, as well as materials estimating the adviser's fee for services.

Suik predicted the fee for the adviser would probably be a "seven figure number."

All criteria will be weighed equally when it comes time to make a decision, but each company's proposal of how it would privatize the railway is probably the most important aspect of the process, Hammalov said.

Rain Tamm, board member at the investment agency Lohmus, Haavel and Viiseman, said that for the state, a beneficial adviser would be a large international investment firm working in close cooperation with a local investment agency.

The tasks of the adviser include working out how much of the rail company's shares will be sold to private investors, and whether the land will be sold with the railroad or if the owner should have the right to build on the land while it remains state-owned.

The adviser will see through the entire privatization process that is slated to run until May 2000. During privatization, the adviser will be responsible for negotiating with bidders, evaluating Estonian Railway's market value and setting bidding conditions.

Part of the negotiations with potential advisers in the coming weeks will be to determine the specific duties of the adviser, Suik said.

The advisory role is attractive to businesses because of its money-making ability as well as the opportunity for Estonians to be involved in an important business deal.

"It is a very interesting deal," Tamm said. "It would be great to be part of the preparation and implementation of by far the largest deal in the near future in Estonia and maybe the Baltic states. To be part of that team would be very interesting."