Ministry prepares to buy back rail company

  • 2006-01-25
  • By Kairi Kurm
TALLINN - The Ministry of Economy and Communications announced that it was preparing a proposal for the government to purchase 66 percent of the capital stock in Estonian Railway from the U.S. and Estonian investors who bought the company in 2000.

Economy Minister Edgar Savisaar was quoted by the Eesti Paevaleht daily this week as saying there was "a great probability that the Economy Ministry has come to the position that we support repurchase."

"There are debates underway over the price and the terms and on whether the government or Tallinna Sadam (Port of Tallinn) will purchase it," he said.

The 66 percent stake is owned by Baltic Rail Services, while the Estonian government owns 34 percent. The company was privatized when the government was run by a three party coalition government chaired by Mart Laar 's Pro Patria Union, the Reform Party and the Moderates (now Social Democrats).

The current government consists of the Reformists, the Center Party and the People's Union. None is against the purchase of the shares, but have said the current 3 billion kroons (192 million euros) being asked for by Baltic Rail Services is irrational.

BRS paid about 1 billion kroons with the obligation to invest hundreds of millions of kroons.

"I want to know why the price has tripled in the meantime," said Meelis Atonen, former economy minister who also sat on the council of Estonian Railway for half a year. "It is clearly too much. We should not pay for the unbeneficial investments like American locomotives that are not suitable and good enough for Estonian Railway."

What's more, investment obligations set out in the contract have not been fully met due to various reasons.

"What are we going to use for money?" Edward Burkhardt, CEO of Baltic Rail Services, told The Baltic Times in a recent interview. He said he and other investors have lost about 800 million kroons in revenues due to the low infrastructure fees set by the government that BRS can charge competitors.

"Dividends or development 's they decided on the dividends. Then there is certainly not enough (money)," said Atonen.

Some parties, such as the People's Union, want to see the government regain control of infrastructure, while leaving cargo-handling to the private sector. But even if the government is only interested in the infrastructure, it will also have to purchase BRS's operating services as well.

As Atonen explained, currently it is difficult to say what the exact cost of infrastructure alone is since BRS does not keep accounting separate. He claims this is done deliberately to mask the true operating numbers from competitors.

Nor does Atonen agree with Burkhardt that infrastructure fees are artificially low. He said that fees depend largely on the amount invested in the infrastructure. The larger the investment, the higher the fees, he explained.

And then there is the Russian question. Some politicians claim the government should purchase back the railway to prevent it from getting into the hands of Russian transit interests.

As MP Robert Lepikson from the People's Union recently told The Baltic Times, "As a businessman, I find that it costs more [for Russians] to start a war than to just buy everything. We ourselves have created a wonderful opportunity for this while privatizing infrastructure objects such as Estonian Railway, which can be purchased by any company from any country. This can be done by a hostile adjoining state for example."

Margus Tsahkna, spokesman for Pro Patria Union, said, "The foreign policy of Russia in year 2000 to take neighboring economies under its control makes us anxious."

Burkhardt said he himself held the same opinion at one time, but now he no longer cares. "So far as I am concerned, if Russians come along and say, 'We want to buy these shares,' we will talk to them. Why not? There is no interest in working with us in Estonia, so why not? I am trying to be rational. We try to run a business here. Every time we turn around we have another problem from this government," said Burkhardt.

In recent a letter to the Wall Street Journal he accused Estonia's present government of attacking privatizations. He wrote that Estonia's economy was not as liberal as described in the previous issue.

"Unfortunately, the picture has changed since then, as successive left-wing governments dominated by former communist politicians have attacked privatizations and other reforms instituted," Burkhardt wrote. In his words, the beneficiaries of these policies are interests involved in Russian oil transit via Baltic ports who have paid heavily for political support from the current ruling coalition.

Atonen shot back. "It is sad that his business plan does not work, and he has started to blame the Estonian government for that. It is especially harmful for the Estonian Railway," he said, adding that railways are not in private hands in the European Union but cargo was still open to competition.

"I do not understand their PR. They blame communism for everything. In this case they should blame the European Union."