Best bidder comes to light in rail privatization

  • 2000-12-21
  • Aleksei Gunter
TALLINN - Rail Estonia has won the Estonian railway privatization tender with a 1.71 million kroon ($96 million) bid. It beat bids from rival companies, but these are unlikely to protest against the decision.

Katrin Kivi, a specialist from the Estonian Privatization Agency, said that the main reason for awarding the "grand prix" to a particular company was that its bid verified enough the existence of a strategic investor.

"Theoretically, it is possible to appeal against the EPA decision," said Kivi. "But the court cannot approve any bid."

The EPA board set additional conditions for the bids concerning technical and financial parts of the business plans presented. Kivi said that the sum of the privatization offer was not crucial.

"In fact, the board assessed the investment strategy and practicality of the business plans and bidder's experience in the railway field," said Kivi.

The other two companies contesting for 66 percent of the Estonian railway's shares were the Baltic Rail Service, with 1 billion kroons, and RER with 865 million kroons.

Rain Tamm, the president of RER, which unites the Swedish state railway SJ International and major Estonian businessmen, has previously stated that RER will appeal against the EPA's decision if his competitor Rail Estonia became the preferred bidder.

Tamm said that Rail Estonia is in need of strategic investors, as the two rail companies, CSX Corp. and Rail America, together hold only 10 percent of Rail Estonia's shares. Ninety percent of Rail Estonia belongs to the international consulting company Kingsley Group.

In the Saturday issue of Estonia's daily Eesti Paevaleht , Toivo Jurgenson, minister for transport and communications, wrote that the share a strategic investor is holding was not crucial.

"We see three strong North American rail companies behind Rail Estonia, and two of them are officially mentioned in the business plan as investors." Jurgenson also wrote that the Rail Estonia offer should change by the date for signing the actual contract, March 2001.

"But if the promises are not kept there will be no contract," he added.

A spokesperson at Rail Estonia, Vallo Toomet, said that in today's context Kingsley Group may be seen as a strategic investor as well. Toomet refuted the information published in Eesti Paevaleht that CSX Transportation and Rail America as well as a third possible investor, Canadian Pacific Railway, are planning not to participate in the privatization.

The Estonian political opposition has reacted negatively to Rail Estonia becoming the preferred bidder. Edgar Savisaar, chairman of the Center Party, told Baltic News Service that the government that carried through the railway privatization competition regardless of the opposition of the majority of the people is facing a deepening crisis of confidence.

As Savisaar sees it, the government has systematically ousted domestic entrepreneurs by resorting to obscure and dishonest methods in the privatization process and ignored the country's long-range economic interests.

Estonia is the first Baltic country to privatize its railway, and it will take time to see whether the deal is a success. In the meantime, in Great Britain, where the world's first passenger rail service was lau`nched 175 years ago, a steaming public demands a change of trains after decades of neglect and bad privatization, Newsweek reported last week. In the mid-1990s a Conservative government pushed through the sale of the entire subsidy-guzzling rail network. Operating franchises were parceled out among private companies and a separate firm was awarded ownership of the tracks and stations. Today surveys show that travelers believe privatization is one of the reasons for the railway's failures. They ask whether the pursuit of profits is compatible with guaranteeing safety. Worse, splitting the network between companies has made coordination nearly impossible. So, the British government has decided to invest an extra 10 billion pounds over the next 10 years, partly through higher subsidies to the private companies.