Rail runner-up prepares to win

  • 2001-04-05
  • Aleksei Gunter
TALLINN - As it continues its effort to win the privatization tender for 66 percent ownership of Eesti Raudtee (state-owned Estonian railway), the second-biggest bidder Baltic Railway Services is busy looking for new strategic partners.

Meanwhile, Rail Estonia, the officially declared winner, cannot enjoy its victory due to a legal suit filed by another competitor, Raudtee Erastamise Rahva AS.

BRS demonstrated the seriousness of its intention to lay its hands on the majority stake on March 29. All its shareholders, namely Rail World Inc. from the United States, Jarvis International Ltd. and the Railroad Development Corporation from the U.K., and Ganiger Invest from Estonia, agreed to beef up the company's capital from the minimum 40,000 kroons ($2,280) required to set up a company in Estonia, to 440 million kroons.

According to the rules of the privatization tender, if the winner cannot sign the privatization agreement due to equity or legal problems – as happened with Rail Estonia – the second-place company will take its place.

Another clause in the privatization rules says that the Estonian Privatization Agency will have to declare the privatization null and void if no accord is signed before the end of April.

Although the privatization talks have been suspended by the courts, BRS hopes to sign the privatization accord with the agency before that deadline.

Tonu Pekk, chief of Estonia's Hansapank Markets, said that BRS has basically given the mandate to arrange the financing and long-term investment plan to Hansapank Markets and Sweden's Swedbank.

Guido Sammelselg, the vice-chairman of BRS, said the company will meet the new investors on April 6.

Pekk added that the talks with BRS started back in November.

Hansapank Markets plans to arrange the financing via an international syndicate and invited four banks including Hansapank to fund the deal. The others are Swedbank and two German banks – LB Kiel and Hypo-Vereinsbank. The latter two are still considering Hansapank Markets' offer.

One of the potential investors in Rail Estonia, Giovanni Sposato, an Italian businessman who resides in Russia and Colombia, was arrested directly after a March 20 press conference dedicated to his participation in funding Rail Estonia's bid.

Estonia's state-owned television channel ETV broadcast an interview with Sposato, 29, a week earlier, in which he stated that he supported Rail Estonia's bid and could deliver it to the privatization agency in cash if necessary.

However, at the press conference before the arrest, he said he represented an investment enterprise ready to fund the bids of both RER and BRS.

Ed Burkhardt, the chair of BRS, said Sposato has absolutely nothing to do with BRS.

The police charged Sposato with a criminal offense apparently related to the parents of his Estonian ex-fiancee, who opposed their marriage. Sposato will remain under arrest until April 20 and could face up to 10 years in jail if convicted, according to Tallinn City Court.

On March 29, Sposato admitted he paid $5,000 to men who burnt two cars belonging to his ex-fiancee's parents. They also set fire to the door of their house. The total damage amounted to 163,000 kroons.

A business plan announced by Baltic Rail Services on April 2 focuses on heavy investment in rolling stock, infrastructure and information technologies, which it expects to result in the growth in railway traffic.

The plan provides for the total replacement within one year of the existing Russian-made locomotive fleet with 74 rebuilt and gauge-converted locomotives from North America.

BRS also plans to further develop the Narva-Tapa-Tallinn line by enhancing the line capacity between Narva and Tapa, extending crossing loops and providing additional sections of double track.

The firm also intends to install centralized traffic control signaling.

On the Petseri-Tapa line track upgrading will be undertaken too, and, in time, BRS will evaluate the need to upgrade the signal and traffic control systems between Tartu and Petseri.

The railway privatization scheme was approved by the Estonian Parliament in February 2000, and since then it has caused many political and public rows. The final bids for the shares in Eesti Raudtee were made Nov. 20, 2000.