TALLINN - Under a separation plan that has already been signed, Estonian Railroad will be split into two sectors: cargo shipping, which can use private investors, and infrastructure, which will use EU support money.
The management of Estonian Railroad signed the separation plan July 30. Under the mother company, AS Estonian Railroad, will be two companies: EVR Infra and EVR Cargo.
EVR Infra will be responsible rail-building, and rail maintenance. EVR Cargo will handle cargo shipping, expedition and everything that goes along with it.
The point of the split is to fully avoid cross-subsidizing. Currently, Estonian Railroad does not pay anything to cargo shipping from infrastructure and both sides are separated, but making them different companies clarifies the separation.
"The directives of the European Union say that for greater clarity of income and outcome, cargo shipping 's in other words, the commercial side 's and infrastructure must be separated," Estonian Railroad spokesperson Urmas Glase told TBT.
The plan was in the air already in the October last year, when Minister of Economy and Communications Juhan Part presented it to the government. In Parts' opinion, it would clarify the company's finances. He also said it was indirectly wanted by EU.
"With that kind of restructuring plan will come more clarity of sharing the profit and smaller financial risks," explained Juhan Parts then.
Parts pointed out that on the downside, a greater amount of bureaucracy and scattering of responsibility is possible.
"The managing might be in some way more bureaucratic and clumsier, because decisions are made slower than inside one establishment," said Glause.
He said that it doesn't mean losing control over these two companies. Estonian Railroad will set council for Infra and Cargo, councils will set boards.
The new system could help attract private investors. Investments are sorely needed to diversify and update the railcar fleet.
"Politicians in government will discuss whether to privatize state-owned companies or not, and Estonian Railroad is one of them. It is possible, but there are no sure decisions yet," said Glase.
The railcar must be diversified, because the amount of container shipping is rising and it isn't possible to ship with crude oil tanks.
"Globally, more and more goods are shipped with container cars [and] obviously there's a bigger need for container platforms, and it's reasonable for us to invest in them. But our own resources are not enough," said Glase.
So one option for solving the problem would be through selling assets or broadening assets capital. Another option is that both establishments will be 100-percent Estonian Railroad subsidiaries and nothing changes besides the corporate structure.
Privatizing the establishment that manages the infrastructure of the railroad is less likely to happen. The more private money flows into the establishment, the less likely it will receive funding from the EU.
Both companies will be independent from January 1, 2009.
