Estonian railway privatization threatened

  • 2001-07-19
  • Kairi Kurm
TALLINN - The Riigikontroll, the Estonian state audit office, announced on July 16 that the Estonian Privatization Agency had brought unlawful financial obligations on the state with the sale of the Estonian railway Eesti Raudtee to Baltic Rail Services.

The privatization contract may generate over 1 billion kroons ($55 million) of additional costs to the state, the office announced. The privatization agency does not have the authority to sign such contracts, said Sven Soiver, spokesman for the audit office.

"The most likely sum the state may have to pay additionally is around 200 million-300 million kroons," said Soiver. "We don't know how big the environmental claims will be for the possible damages the company may have caused when it was state-owned."

The privatization agency had promised to compensate Baltic Rail Services most of the losses that had been caused by the company's activities until Aug. 31, 2001. It includes claims by employees and former management as well as guarantees contained in the contract on the sale of shares in the railway Eesti Raudtee.

Besides the above-mentioned claims that the state is to compensate the buyer with, the losses the Estonian railway has sustained on giving up purchased locomotives have to be compensated, too.

"The clause on locomotives, where the state has to keep 50 million kroons in a bank account, is the most curious one. The privatization law foresees that the money has to be transferred from the account within 10 days," said Soiver.

Soiver said that the state audit office would forward its opinion to the prosecutor's office. "It's a complicated issue. We want to have a penal law interpretation on it," said Soiver.

"The agency could not explain why the privatization was carried out under such conditions. Their only aim was to 'privatize, privatize and privatize.' Where did they get these terms? Neither the privatization agency, the government nor the Parliament has approved them. It was the personal decision of the management, which held the negotiations."

According to Soiver, Parliament has to approve the deals that are related to the state budget.

Soiver said that they were surprised to see the reaction of the official from the privatization agency, who claimed that the audit office had exceeded the authority given to it by law.

"Katrin Kivi told us we could not inspect the privatization contract. We were amazed. How can an official interpret our rights this way? We asked the Ministry of Economy for his comments," said Soiver.

Kivi said that the general director of the privatization agency signed the privatization contract with the authority given to him by law.

"The privatization agency finds that the contract is effective. The effect of the contract may be debated only by a court or a court of arbitration," she added.

"Most of the obligations have already been dropped. The state office was exaggerating in its public letter. I can't comment the privatization contract because it's confidential. The probable additional costs are considerably smaller, I should say," said Kivi.

The privatization agency signed a contract with Baltic Rail Services for the privatization of 66 percent of shares in Eesti Raudtee on April 30, after it was revealed that the representatives of Rail Estonia, the first bidder, had a questionable background. Baltic Rail Services offered 1 billion kroons for the railway and promised to invest 4.7 billion kroons in 10 years and pay 4.2 billion kroons in dividends to the state. For the rest of the railway, Baltic Rail Services was willing to pay 515 million kroons.

Kivi said that the privatization would be closed on Aug. 30 or earlier if Baltic Rail Services paid for the shares and fulfilled other obligations.