BRS cancels protocol with state, looks for investors

  • 2006-02-08
  • Staff and wire reports
TALLINN - Baltic Rail Services, the majority owner of Estonian Railway, announced that it tore up a protocol of intent with the state over the sale of a controlling interest in the railroad operator. The decision was made after the two sides failed to agree on a price.
The term of the protocol ended on Feb. 3, when the state was supposed to have informed the company whether it would acquire a 66 percent stake. As the government did not reply, BRS terminated the protocol.

Media reports indicated that BRS, which bought the stake in 2000, was willing to sell for 2.5 billion kroons (160 million euros), but officials in the Economy Ministry ascertained that the asset was worth 2.1 's 2.2 billion kroons.

BRS executives said the company would continue talks with several different international investors, adding that it did not rule out further negotiations with the government. However, Juri Kao, a member of BRS' supervisory council, clarified that, while the state, which owns 34 percent of Estonian Railway, still had a chance, "its exclusive status has expired."

Kao also said he remains sceptical about the government purchasing the stake, since any such deal would entail a complicated series of formalities for the government and politicians lack experience in the acquisition of companies.

Eva Vanamb, head of the legal department at the Ministry for Economic Affairs and Communications, said talks between the ministry and BRS would continue despite the protocol's termination and the reluctance of private shareholders.

"We have been aware from the start that BRS is holding talks with others," Vanamb said. "We hope that BRS will continue talks with us."

The commission set up to analyze the acquisition met once again on Feb. 3, studying the report Minister Edgar Savisaar submitted to the government the previous day. Vanamb said the commission had practically completed its work, and that the government would now have to make a political decision on the deal.

That decision will likely be based on price. According to the Eesti Paevaleht daily, the Estonian ministry appraised the value of the asset at 2.1 's 2.2 billion kroons, while BRS allegedly lowered its asking price from 2.6 to 2.5 billion kroons. The difference 's 300 - 400 million kroons 's would appear to be what divides the two sides.

The government is keen to renationalize Estonian Railway in order to take over infrastructure and is tepid about the company's cargo operations. Government officials have said that freight handling should remain in the private sector and the infrastructure in state hands. But with Baltic Rail Service, it's all or nothing.

Not surprisingly, a report surfaced last week that a group of Estonian businessmen want to buy shares in Estonian Railway in order to split the company and then resell it in individual units. According to the weekly Eesti Ekspress, the main proponent behind this scheme is Rain Lohmus, who controls the LHV investment bank.

But both Lohmus and LHV managing director Rain Tamm hinted that there was ground for the rumors, but "we have agreed that we will give no comment on the issue," Lohmus told the paper.

The paper also claimed that Hillar Teder, a trade and banking entrepreneur, as well as Juri Mois, who deals in railway wagons, are connected with the scheme.

Present owners Kao and Guido Sammelselg have signed preliminary contracts on joining the group, the paper wrote. The two are hoping to earn more money through Lohmus' scheme than from dealing directly with the government, the paper reported.

But Kao said on Feb. 6 that BRS was hoping to seal a preliminary agreement with an investor within a month. "No specific deadline has been set for the sale of the stake, but we want to conclude a binding agreement with a potential buyer soon. This could happen within one month," he told the Baltic News Service.

None of the potential investors have so far been named.

Finally, Heido Vitsur, an adviser to Savisaar, who has been the most outspoken critic of Estonian Railway's privatization, said the state was the rightful owner and not Tallinna Sadam (Port of Tallinn), as reports in the media would indicate.

"It is a little strange if Estonian Railway, an important strategic company, becomes a subsidiary of a state-owned company," Vitsur said, referring to the Tallinn port, the largest in the Baltics.

Vitsur said that the problem boiled down to ownership of the railway by one port, as Estonian Railway is not a company intended to serve just the Port of Tallinn.

Vitsur said the commission that analayzed the renationalization of Estonian Railway highlighted the advantages and shortcomings of any deal involving both the state-owned Port of Tallinn as well as by the government.