Estonian railway privatized at last

TALLINN - Baltic Rail Services and the Estonian Privatization Agency signed an agreement on the privatization of the Estonian railway company Eesti Raudtee on April 30, the final day the privatization could be concluded. BRS acquired 66 percent of the shares of the national railway monopoly for 1 billion kroons ($57.5 million).

According to the contract, BRS must immediately deposit 100 million kroons as a collateral on the deal, and the rest of the sum will be paid in the next few months by BRS and a syndicate of Estonian and international banks financing the deal. Hansapank and Swedbank lead the syndicate.

In the opinion of BRS shareholders and its advisers the consortium has no legal or other obstacle to the signing of the Eest Raudtee privatization agreement.

The agreement was signed despite the decision of a Tallinn administrative court that suspended the privatization on April 16. BRS, however, stated that the ruling on April 16 did not ban the conclusion of the privatization contract.

Katrin Kivi, spokeswoman for the privatization agency, said there is no need to start the privatization tender all over again, and that the privatization agency has fulfilled its main task – Eesti Raudtee is now privatized.

The Estonian railway company owns the facilities – the railway tracks, the engines and some warehouses. Several companies like Edelaraudtee maintain passenger transportation.

The conditions for passenger and cargo transportation are likely to improve, according to BRS. The company plans to replace all engines within one year and further develop the Tallinn-Narva transit line, which provides the most transit income.

As to the rest of contenders, RER Ltd. (Raudtee Erastamise Rahva AS) is quitting. "RER will apparently refuse further actions. Although our board meeting will take place later this week, I see subsequent activities on appealing the agreement unreasonable," said Rain Tamm, the chairman of RER.

Baltic Rail Services unites Jarvis International of Great Britain with 25.5 percent of the shares, the U.S. rail operator Rail World Inc (25.5 percent), Railroad Development Corporation of the United States (5 percent). The rest, 44 percent, are owned by Ganinger Invest, which belongs to Estonian businessmen.

The parliamentary faction of the People's Union, the second largest Estonian opposition party, addressed the government and the legal chancellor to cancel the privatization tender.

"The government and the legal chancellor should interfere at once and cancel the privatization contest of Eesti Raudtee in order to prevent illegality," said the faction in a written statement released immediately after BRS signed the contract.

The privatization process is now at a dead-end, says the statement, which also mentioned that 163,000 signed a petition against the privatization. The People's Party faction considers it impossible to sign the agreement despite the court ruling and the laws.

One of the main arguments toward the positive sides of the privatization is that part of the money Estonia gets for Eesti Raudtee shares goes to financing of regional programs, according to the Estonian government. One-fourth of the money – 250 million kroons – will be spent on improving governmental cooperation at the county level, the Setomaa regional program and the cross-border cooperation program.

Estonian regions will not be the only entities benefiting from the privatization. The Estonian Privatization Agency and the British consultancy GIBB have agreed that the final size of the fee for advisership in the privatization of Eesti Raudtee is 3 million British pounds or 75.1 million kroons, the agency said on April 27. The sum mentioned by the privatization agency earlier was only 40 million kroons.

Kivi told the Baltic News Service that the sum was final. Thus the adviser won't get a performance bonus set out in the consultancy agreement.