TALLIN - Tension in Estonia's railway sector ratcheted up last week, with the group of international investors in control of Eesti Raudtee (Estonian Railway) accusing the government of violating agreements and threatening to take legal action.
Three foreign-based companies that control the company 's Emerging Europe Infrastructure Fund from the Netherlands and U.S.-based Rail World Estonia and Railroad Development Corporation 's have sent the government a notice of dispute citing four specific areas in which the government has breached existing bilateral investment treaties.
Edward Burkhardt, chairman of the supervisory board of Baltic Rail Services, the firm that unites the three companies' interests and owns a controlling stake in Estonian Railway, said that the violations pertain to agreements and understandings dating back to the rail company's privatization, internationally accepted accounting rules, formation of utility rates and the rule of law both in Estonia and the European Union.
Baltic Rail Services shareholders said the Railway Inspectorate's actions have cast doubts over the sustainability of investments made into Estonian Railway.
"The track access charges promulgated by the Railway Inspectorate are far below the sustainable long-term costs of accommodating passenger and freight traffic," the company's letter to the government reads.
The notice asked for "prompt consultations and negotiations" to resolve the disputes and stated that investors, if unsuccessful in negotiations, would seek arbitration under the respective treaties by the International Center for the Settlement of Investment Disputes.
No response was forthcoming from state officials.
Burkhardt said that it was unfortunate that relations between Estonian Railway and the government had deteriorated to the point that BRS' shareholders felt they had to resort to international arbitration to prevent their investment from being expropriated.
"But since the change in government, [Estonian Railway] has been deliberately and systematically discriminated against and denied due process under the laws of Estonia and the European Union," said Burkhardt.
"I am particularly disappointed in this turn of events occurring in a country where much progress has been made in the last 15 years in adopting international standards of protection of private property, free markets and liberal economic institutions, and in elimination of corruption," he said.
Minister of Economy and Communications Edgar Savisaar, who just recently assumed the post, has been outspoken about his disapproval of the decision to sell the railroad several years ago.
Estonian Railway is 66 percent owned by Baltic Rail Services and 34 by the state.
Burkhardt said he hopes that the government would be as protective of investors who are seeking an honest return on their assets as they are in providing subsidized access to the Estonian Railway network for other transit operators.
Management is particularly aggravated with government interference in a recent row with Spacecom, a privately owned operator whose access to Estonia's rails was blocked at the end of May after it failed to sign a new contract on use of rail infrastructure, which Estonian Railway controls. The Ministry of Economy and Communications signed an order demanding that Spacecom be given access to the rails despite the lack of a contract between the two operators.
In April Estonian Railway said it would contest the Railway Inspectorate's new system of infrastructure fees, which it claimed are far too low. In its letter to the state, management said that the annual shortfall in infrastructure access charges amounts to more than 722 million kroons (49.3 million euros) per year.
Meanwhile, the Railway Inspectorate has accepted the applications of five freight and three passenger carriers for track access in the 2006-07 period 's Coal Terminal Trans, Estonian Railway, Russian-Estonian Rail Services, Spacecom and Westgate Transport.
The inspectorate did not consider the application of Sillamae Sadam (Sillamae Port), as the company failed to submit the necessary papers on time.
In some sections of the country's railway system the applications for access surpass the maximum capacity indicated in Estonian Railway's track report. As a result, the access distribution commission must find out whether wear-and-tear of the capacity is real or artificial. Commission Chairman Raigo Uukkivi said that the committee was studying whether the applicants were capable of making maximum use of the capacity indicated in their applications.
