The talks with the winner of the tender, Rail Estonia, were canceled as the bidder failed to provide a strategic investor and financial guarantees for privatizing Eesti Raudtee in the scheduled time, the Estonian privatization officials said.
The privatization agency is ready to sign a privatization contract at once, but BRS would definitely need time to take a look at the Eesti Raudtee documents that were confidential before, said Katrin Kivi, senior specialist at the privatization agency.
BRS was ready to pay 1 billion kroons ($58.82 million) for the majority holding in Eesti Raudtee, while the Rail Estonia consortium, which was declared the winner of a tender in December of last year, offered to pay more than 1.71 billion kroons.
BRS is jointly owned by Britain's Jarvis International, the American. companies Rail World and Rail Development Corporation, and Ganiger, a firm which is managed by prominent Estonian businessmen Juri Kao and Guido Sammelselg. Rail Estonia is 90 percent owned by the international consultancy Kingsley Group, with two U.S. railway firms, CSX Corporation and Rail America, represented by 5 percent each.
The privatization of Eesti Raudtee was preliminary hindered by a lawsuit filed by Raudtee Erastamis Rahva AS, the third ranked bidder in the failed talks. RER stopped the privatization process because it didn't agree with the tender results. However, in February RER recalled its ban concerning the second bidder, so the privatization agency was free to start talks with BRS.
"The privatization agency has finished negotiations with Rail Estonia and is beginning talks with BRS because the restrictions on dealing with BRS have been withdrawn from the appeal," said Kivi. "We hope to conclude a contract with BRS in the near future."
The privatization agency was undoubtedly happy to point out the formal reason for breaking off talks with Rail Estonia in the wake of a major scandal, with influential local lobbyists, international swindlers and dubious Russian capital emerging behind the winning bidder.
At first, the Estonian government was embarrassed when local media reported that Rail Estonia's project leader, Tony Massei, was on the run from U.S. authorities after being convicted on money laundering and swindling charges in California in 1995 under the name of Antonio Angotti.
Facing a rejection of its winning bid, Rail Estonia made a last-minute attempt to bring in a Sicilian financial investor mediating Russian capital instead of the required strategic investor.
Estonia's ETV public television broadcast an interview with Giovanni Sposato, an Italian who in his own words heads a fund that was ready to invest 12 billion kroons annually in Estonia.
The 29-year-old Italian who resides in Moscow and Colombia, made no secret of the fact that the money was of Russian origin. Starting Feb. 5 Sposato became a member of the Rail Estonia board.
"I'm offering 150 million dollars for 66 percent of the shares in Eesti Raudtee and I'm leaving a blank check to purchase the remaining 34 percent over the next year," Sposato said. Police in Belgium reportedly would like to see Sposato over a fraud case.
On Feb. 27, Tallinn Mayor Juri Mois unexpectedly flew to London for one day, making an eleven-hour attempt to save the business plan of Rail Estonia. The unscheduled trip was reportedly undertaken at the request of Mois' old friend, Hannes Tamjarv. Mois' party members from the ruling Pro Patria Union demanded an explanation.
The previous looser, RER, also wants to participate in the new bidding. RER believes that the British privatization adviser GIBB chose Rail Estonia as the best bidder because its bidding was the largest and the company would have earned the biggest fee from its sale.
The state is now trying to get back at least a part of its 40 million kroons paid to the adviser and the opposition is planning to submit a no-confidence motion in Toivo Jurgenson, the minister of road and communications, who is to be held responsible for the failure of the railway privatization.
"The privatization agency has to make a new decision," said RER Chairman Rain Tamm. "It has to choose between two bids. We are striving for the possibility to take part in the privatization process. We are asking the agency to look through its decision before the court ruling."
He said that although BRS offers a better price, RER is promising more investments into the project. Tamm said that BRS offered 1 billion kroons for Eesti Raudtee, while RER offered 865 million kroons. He said that RER is additionally planning to invest 7 billion kroons in 10 years, 2.2 billion kroons of which are guaranteed in the first 5 years.
BRS is planning to invest 4.7 billion kroons in 10 years and pay 4.2 billion kroon dividends to the state. For the remaining part of Eesti Raudtee BRS is willing to pay 515 million kroons.
"The experiences of our strategic investor, Swedish Green Cargo, in operating goods transport is undoubtedly bigger than that of Rail World, the partner of BRS," said Tamm. "We are planning to invest more in the Tartu direction while BRS is focusing on the Narva route."
Tamm said that the railway privatization had been organized very badly. "The advisers have not done their work properly. The whole process has been moving on too fast and the deadlines are too short," Tamm complained. "I hope the agency will make a new decision before the formal hearing regarding our lawsuit opens on March 14."
Estonia is several years ahead of neighboring Latvia and Lithuania in its railway privatization. Under Estonia's restructuring of its railway sector, Eesti Raudtee owns the track infrastructure, while cargo and passenger traffic operations have been given to other companies.