Latvian Railways to split

  • 2008-08-27
  • By Talis Saule Archdeacon

ONE BECOMES TWO: The state railway is to split, at least half will go into private ownership.

RIGA - The Latvian government has endorsed a 13 million-lat (18.5 million euro) plan to split the state-owned Latvijas Dzelzcels (Latvian Railways) into two separate companies as part of an effort to maintain control over the country's transport services.
The plan envisages transforming Pasazieru Vilciens (Passenger Train), currently fully controlled by Latvijas Dzelzcels, into an independent company. Once independent, however, Pasazieru Vilciens would still be fully owned by the Transport Ministry.

"The Transport Ministry will be allowed to buy Pasazieru Vilciens shares and sign contracts with Latvijas Dzelzcels. After contracts have been signed they can organize payment about Pasazieru Vilciens shares and secure about 13 million lats," Transport Ministry representative Elina Balgalve told The Baltic Times.
"With this commission, the Transport Ministry also gets appointed as a state capital shareholder with the Pasazieru Vilciens after the rest of the shares become state domain," the spokeswoman said.

The announcement that the company would be splitting came alongside comments from Transport Minister Ainars Slesers that only new or reconstructed trains would grace Latvian rails by 2011.
In an Aug. 22 interview with People of Action, the transport minister said that the plan to renovate Latvian trains was set to enter its second phase 's the first was completed earlier this year 's and that all of the trains will be replaced by 2010.
New trains, meanwhile, would not be introduced into the system until the end of 2010 or the beginning of 2011.

The minister claimed that the move would double the current passenger capacity on railways. He said that making this a priority would also help to fight traffic congestion on the country's roads. 
According to Latvian law, the right to provide public transportation services is normally granted for a 15-year period. Legislation stipulates, however, that the same right is granted for a 30-year period if the operator launches entirely new transport vehicles to provide its services.
Thus, the government's plan to coincide a buyout of Pasazieru Vilciens with preparations to go through a massive series of purchases and renovations of the nation's trains would double the length of time that the Transport Ministry holds full control of passenger transport services.

The buyout deal itself is relatively simple. The Transport Ministry will directly buy out 100 percent of Pasazieru Vilciens' shares for 13.29 million lats. That money, which amounts to a little over 65 percent of Latvijas Dzelzcels' profit in 2007, will go directly into the state budget.
Once the deal has been concluded, the Transport Ministry will still maintain complete control over both Pasazieru Vilciens and Latvijas Dzelzcels.

Pasazieru Vilciens, a subsidiary of the state-run Latvijas Dzelzcels (Latvian Railway), which focuses on passenger transport, carried 10.57 million passengers during the first five months of this year, down 2 percent from the same period last year. Passenger trains carried 26.98 million passengers in 2007.
Currently Pasazieru Vilciens runs 23 electric trains and 17 diesel trains.
Latvijas Dzelzcels closed 2007 with 262.5 million lats in net turnover, 28.6 percent more than the year before. Net profits amounted to 28.9 million lats, a full 10 times more than in 2006.