EC awaits solution to Latvian-Spanish rail deal

  • 2012-09-19
  • From wire reports

RIGA - In order to avoid possible litigation over the new train procurement contract, Latvian passenger train operator Pasazieru Vilciens’ lawyers propose establishing a subsidiary that could announce a new tender, reports LETA.
TV3 television’s broadcast Neka personiga reports that, under the new tender, Pasazieru Vilciens will buy fewer trains than currently planned, and the remaining funds could be spent on renovation of platforms and power lines. Train maintenance would also be excluded from the new contract, as Pasazieru Vilciens itself would be responsible for the maintenance of the new trains.

Hoping that there will be no litigation and a new tender will be announced, previous bidders - Swiss companies Stadler and Alstom and Germany’s Siemens - have resumed talks with the Transport Ministry and Pasazieru Vilciens. The board of Pasazieru Vilciens will have meetings with representatives of all three companies in one of Western Europe’s capitals later this week.

Shuffling the deck
In the meantime, no one is likely to be held responsible for violations committed so far regarding the largest procurement contract in the history of Latvia, which may cause serious financial consequences for the State: former Pasazieru Vilciens CEO Nils Freivalds, who signed the contract with the Spanish company Construcciones y Auxiliares de Ferrocariles (CAF) and then stepped down, now works as an expert on development affairs at the company Zasulauks, a company partly owned by Pasazieru Vilciens.

CAF, however, is doing active work behind the scenes, for instance, via Rigas vagonbuves rupnica railcar factory’s consultant, former Saeima member Andris Berzins, who arranged CAF representatives’ meetings with Saeima groups.
A week ago, the Spanish company established a subsidiary called CAF Latvia, which has already borrowed 17 million euros from Danske Bank for renovation of a train depot.

The European Commission is concerned about the protracted procurement of new trains in Latvia, because the funds meant for the project are not being used, Inna Steinbuka, head of the European Commission’s representation in Latvia, said in an interview with the LNT television on Sept. 12.
The Commission wants the funds allotted for the project to be spent efficiently, and it is not of much importance whether the money is spent on the project of Pasazieru Vilciens or some other important goal of Latvia, stressed Steinbuka.
The Commission representative hopes that Latvia will not lose these funds - Latvia still has a couple of years to absorb the funding, added Steinbuka.

The total cost of new 34 electric trains and seven diesel trains that Pasazieru Vilciens wishes to buy is 144 million lats (205.7 million euros), of which 100 million lats will be covered with funds from the Commission’s Cohesion Fund, whereas Pasazieru Vilciens co-financing will be 44 million lats. Together with the train maintenance cost, the contract amount may reach 610.7 million euros, and the new trains must be manufactured by August 2015.
Pasazieru Vilciens would like Spanish company CAF to show more understanding of the European Union’s public procurement procedures, Pasazieru Vilciens board member Aigars Stokenbergs said to the business portal. “They are not even trying to agree with the EU’s stance,” he stressed.

Furthermore, the Spanish company’s representatives are avoiding meeting with the Pasazieru Vilciens board. “We have twice offered CAF to meet, and they did not reply. The last meeting took place on July 24,” explained Stokenbergs.
However, Pasazieru Vilciens will continue negotiations with CAF. Time will tell if the contract may be signed by Oct. 2, said Stokenbergs.

Asked to comment on the possibility that Pasazieru Vilciens and CAF might agree on establishing a joint venture, Stokenbergs said he did not comment on speculation and rumors.
Jesus Esnaola Altuna, head of the international business department at CAF, which has won the right to ship new trains worth 600 million euros to Pasazieru Vilciens, had a meeting with Transport Minister Aivis Ronis and several Saeima members in Riga to discuss the planned deal, reported the daily Diena on Sept. 6.
“We will continue cooperation with Latvia,” Altuna said after the meeting with Ronis, telling Diena that CAF hoped to finally conclude the contract talks with Latvia. The Transport Ministry had no comment after the meeting.

Strange behavior at the Transport Ministry
The newspaper writes that the evasiveness of the Transport Ministry is rather strange, because another participant in the meeting, CAF subcontractor Rigas Vagonbuves rupnica (Riga Railcar Manufacture) CEO Valerijs Igaunis said that the meeting had been “very positive.” He said it appeared that CAF and the Latvian government had solved some of their disagreements. In the meantime, Pasazieru Vilciens says it only found out about the meeting from newspapers.

Diena has information that the Spaniards met with Saeima Economy Committee head Vjaceslavs Dombrovskis (Reform Pary), Unity’s Saeima group chairman Dzintars Zakis, All for Latvia-For Fatherland and Freedom/LNNK Saeima group chairman Einars Cilinskis, independent MP Viktors Valainis and Foreign Investors Council head Girts Greiskalns.
Most probably, Altuna and his team visited Riga to see firsthand what were the chances of not losing the contract.

“CAF is trying to explain its position to Latvian politicians, and I had the impression that the Spaniards are interested in a compromise because, as the CAF representative put it, they want to build rail cars, not hire lawyers,” Zakis said after the meeting. Cilinskis also said that it seemed CAF was prepared to cooperate and eliminate what shortcomings there are.
“The CAF representative said that they have timely informed the other contractual party about things that should be corrected in the contract. Now two scenarios are possible: either an altered version of the contract is signed, or no contract is signed and a new tender is announced,” said Dombrovskis.