TALLINN - One of the most acerbic public-private confrontations in recent Baltic memory erupted in the waning days of December as the government and the private owners of Eesti Raudtee (Estonian Railway) exchanged bitter words, with the Cabinet going so far as to slap the company with a 1 million euro penalty.
Estonian Railway CEO Edward A. Burkhardt was quoted as saying that the group of individuals who own 66 percent of the company (the state owns the rest) were considering bailing out after five years spent restructuring and modernizing the company due to government interference and bureaucratic insouciance.
"I have to admit that we are all faced with the government's program to undermine our venture," Burkhardt told the Postimees. "In this negative situation the shareholders have to decide whether it is better to remain a shareholder or to sell. Particularly now when we have a company losing money as a result of the government's activity," he said.
The government shot back the following day, Dec. 23, by hitting the company with a penalty of 15 million kroons (958,000 euros) for breach of contract. The Economy Ministry said the company had one month to eliminate shortcomings or pay the penalty. The ministry said that according to the report submitted by Baltic Rail Service the infrastructure investment has not been met.
By the end of 2004 investment obligations in infrastructure were nearly 200 million kroons (12.8 million euros) short of target and had not been made, the ministry said. "The state has been a very patient and tolerant contractual partner in the hope that BRS takes the obligations stipulated in the privatization contract seriously," the ministry said.
The news elicited rancor from Estonian Railway officials.
"I have never seen such corruption, dishonesty and incompetence in government," Burkhardt told the Baltic News Service on Dec. 23. "I feel badly for the Estonian people who have to live under such a system and who in the end are paying for the politicians' actions."
One private owner, Ganiger Invest, announced that it wanted to sell its stake in Baltic Rail Services, which directly owns the 66 percent stake.
Juri Kao, who represents Ganiger, said Baltic Rail Service would take the penalty to court. Commenting the timing of the Cabinet's decision, he said that in the Christian world one wouldn't do such a thing immediately before Christmas.
Burkhardt said he had sent a message to the state-owned Tallinna Sadam (Port of Tallinn), saying that the port could be given an opportunity to acquire part of Baltic Rail Services. He told the Baltic News Service that his letter was a reaction to the Port of Tallinn's stated interest in acquiring Ganiger's holding in BRS.
Burkhardt, a U.S. citizen, represents Railworld Estonia LLC, one of the owners of BRS. Burkhardt said that in connection with Ganiger Invest's desire to sell, as well as the appearance of potential buyers, Railworld also intended to consider offers.
Burkhardt stressed the dismantling of Baltic Rail Service began with the accession of the present government in the beginning of 2005. He said that, among other things, the government was forcing Estonian Railway to give Russian companies inftrastructure use rates "at practically half of what they should be paying."
"But this does not bring in enough money to maintain the railway and for the owners to earn something. This boils down to destruction, and I believe this is intentional in order to buy back the railway at a low price," he said.
The CEO said that, being an international investor, it was of no consequence to him whether the BRS holding could be bought by Russian companies. "It seems to me that Russians are already ruling Estonia. They are behind the destruction of our venture. We know that Russians control the Center Party, and we could even say who the Russians are," Burkhardt said.
The Center Party is controlled by Economy Minister Edgar Savisaar, who has been a leading critic of Baltic Rail Service and the privatization of Estonian Railway.
"According to my vision, there are politicians in Estonia that are ready to sell Eesti Raudtee to the Russians right away," said Burkhardt. "Why should it interest us to whom to sell it? But I daresay there were times when it did matter to me."
Prime Minister Andrus Ansip rejected the assertion that Estonia was controlled by Russian business interests.
"The Russian influence is a myth. About 58.5 percent of all direct investments in Estonia's economy have been made by Swedes, then come Finns, with approximately 20 percent," he told the Postimees.
"Combined, [they] have nearly 80 percent. The remaining 20 are divided between very many countries 's the United States, Norway, Denmark... The share of Germany is only 1.8 percent," he said, adding Russian investment only comprised 1.2 percent of the total.
"In our economy Russian investments are virtually nonexistent, they are concentrated in the transit business," Ansip, a member of the Reform Party, said.
It was unclear where the conflict was headed when The Baltic Times went to press on Jan. 3. Burkhardt has said that BRS could have made a good investment out of its purchase of Estonian Railway. "We believed Estonia had a democratic government supporting a free market economy, but we were mistaken. Instead, Estonia has a government that has private interests. And they are not our private interests," Burkhardt said.
"We should make the best out of the railway, but we have to spend all our time in courts and on arguments with the government," he said.
Although Ganiger has made an offer for the purchase of the railway to the state-owned Tallinna Sadam (Port of Tallinn), Burkhardt admitted that it would still be much better for Estonia if the railway remained in private hands.
"I believe in the free market. I am not a socialist and do not believe the state could be a good owner of means of production or businesses," he said.
"I personally have a very bad taste in my mouth after investing in Estonia," he said when asked whether he would consider reinvesting in Estonia. He said that he had been connected with railways in 10 countries across the world but nowhere had the situation been as bad as in Estonia.
