Railway privatization underway

TALLINN - The Estonian Privatization Agency announced on April 17 the sale of 66 percent of the state's shares in Eesti Raudtee, initiating the two-phase bidding process that will eventually lead to the long-awaited privatization of the national railway.

The railway sell-off has been criticized by potential investors and observers as dragging on because of its longer than three year negotiation process. A March 1999 election promise by the ruling coalition to privatize Eesti Raudtee by the end of May, however, jump-started the process again and put it on the top of the government's agenda.

Economics Minister Mihkel Parnoja said the EPA would most likely decide the outcome of the first round of bidding in August and the second round in October, meaning by the end of this year, the sale should be complete.

Investors interested in the tender must submit a business plan to the privatization agency by July 17. According to the competition announcement, the first round documents should outline the interested parties' future strategies with regard to the railway, but should not disclose the possible share purchase price or any other financial commitments.

Parnoja has also said that the business plan should focus on freight operations.

Companies from Britain, Germany, Finland, Sweden and the United States have all shown interest in the privatization of the railway.

Ardo Ojasalu, council chairman at Eesti Raudtee, told the business daily Aripaev that the possible sell-off of the railway to the Finnish state-owned rail company, VR Yhtyma, could decrease Estonia's competitiveness on the transit market from Russia.

He claims that because Estonia and Finland compete for transit flows from neighboring Russia, if the Finnish company buys the Estonian railway, operations will be diverted away from Estonia and into Finland.

"I very much hope that the organizers of the privatization have enough common sense to turn down the Finn's offer," Ojasalu told Aripaev.

Vladimir Prokofyev, general director of the St. Petersburg-based BaltTransServis, added in the same article that awarding the tender to VR Yhtyma would hurt the Estonian transit business if, in fact, the Finnish firm took traffic away from Estonia.

"We don't ship much freight through Helsinki as compared with Estonia," he said. "The Finnish railway works very inefficiently and has very high tariffs."

As privatization negotiations are just starting for the interested investors, VR Yhtyma said it is premature to comment.

"There's no point speculating on this topic," said Veikko Vaikkinene, VR Yhtyma's finance director.

Turnover for Eesti Raudtee was 1.4 billion kroons ($85.6 million) in 1999. The railway handled 37.2 million tons of goods that year, up by 18 percent from the previous year.

In January and February, Eesti Raudtee carried a record 6.6 million tons of good, an increase of 26 percent year-on-year.