State backs down from litigation threat

  • 2006-01-18
  • Staff and wire reports

NATIONAL SPIRIT: Villu Reiljan, head of the People's Union, wants the tracks back in state hands.

TALLINN - The Ministry for Economic Affairs and Communica-tions said it would prefer negotiations to litigation in settling the issue of a possible buyback for a 66 percent stake in Eesti Raudtee (Estonian Railway) from current owner Baltic Rail Services, while a leading coalition minister backed the idea of renationalizing the rail infrastructure.

"Going to court is no doubt the worst option," Heido Vitsur, adviser to Economy Minister Edgar Savisaar, told the daily Postimees. "It will not bring any good for the state, the railway or the Estonian economy, and no doubt to BRS either."

The ministry had hinted earlier that it would consider nullifying the privatization agreement with Baltic Rail Service if breaches in investment obligations were uncovered during a subsequent investigation.

Vitsur said that any attempt to terminate the privatization contract ahead of the deadline would certainly mean litigation, which would drag out and incur prohibitive expenses. What's more, the ultimate results of a suit would be unpredictable.

"Litigation would be damaging to both sides, because they wouldn't be able to act freely, and the parties' images would be tarnished," said Vitsur, whose boss Savisaar has been an outspoken critic of the privatization, which took place five years ago.

Also, the government would find it difficult to prove in court that Baltic Rail Service violated the agreement, and its demand concerning certain investment obligations could in some cases be legally postponed. Thus, Estonian Railway is entitled to apply for a reduction of investment obligations by a few years if this is clearly justified and in line with the company's interests, Vitsur explained.

Meanwhile, the policy board of the People's Union, one of the three parties in the ruling coalition, supported the idea of renationalizing the country's rail infrastructure.

"The People's Union has always maintained that the infrastructure should belong to the state. The rolling stock may be sold, but the track must be in state ownership," Villu Reiljan, party chairman and environment minister, said.

He added that the state made a big mistake in privatizing Estonian Railway, and now the mistake would have to be corrected.

Reiljan declined to say what the fair price for the railway company would be.

The Center Party, which is led by Savisaar, also supports renationalization.

Baltic Railway bought the stake for 1 billion kroons (64 million euros) in 2001 and reportedly made the government an offer to buy back the shares in December. The weekly Eesti Ekspress reported that businessmen Juri Kao and Guido Sammelselg, meeting with Savisaar just before Christmas, offered to sell the government the 66 percent stake for 3 billion kroons. In addition, the company, which is owned by a group of U.S. and Estonian individuals, reportedly wants the government to take over Estonian Railway's financial obligations of 90 million euros.

Kao refused a comment on the issue to the paper, referring to an agreement of confidentiality. "We are capable of conducting the rail business ourselves, but we also have a buyer ready to pay more than Savisaar," Sammelselg said.

Spacecom, a rail operator owned by Russia's Severstaltrans group, said it would like to acquire a 20 percent stake in Estonian Railway. CEO Oleg Ossinovsky said neither Spacecom nor Severstaltrans was interested in acquiring a controlling interest in Estonian Railway, since there is no point in taking over infrastructure that is "falling to pieces" and in which "double the amount of money" would have to be invested.

Ganiger Invest, one of the partners in Estonian Railway, has offered its holding in BRS to state-owned Tallinna Sadam (Port of Tallinn).

The government owns 34 percent of Estonian Railway. Relations between the government and BRS deteriorated after the new Cabinet came to power in the beginning of last year. In the opinion of BRS executives, the government has failed to cooperate in allowing the company to re-evaluate its assets and charge market prices to competitors, particularly Spacecom, for use of railroad infrastructure, which Estonian Railway owns.