Private money saves railway deal

TALLINN - Baltic Rail Services, the privatizing agent for 66 percent of the freight arm of the Estonian railway Eesti Raudtee, which failed in its attempt to borrow the required 1 billion kroon ($57.11 million) purchase price from the banks, announced that it would pay the sum from its own reserves. According to the privatization agreement signed between BRS and the privatization agency, BRS has until Aug. 31, 2001 to come up with the cash. BRS initially planned to borrow the money from banks, but Hansapank and Swedbank decided to withdraw from the bank syndicate on July 24, and the European Bank for Reconstruction and Development announced it would postpone the approval of the loan in order to get more detailed information about it. Some observers believe BRS was influenced by the announcement from the state audit office, which has called the deal illegal. In addition to the 1 billion kroons, BRS must also present guarantees for investments it has to make in the future. BRS's business plan foresees investing 2.5 billion kroons over the next five years.

According to BRS Board Deputy Chairman Guido Sammelselg, the company is negotiating with several international financial institutions and there is intense interest for the long-term financing of the Estonian railway. Sammelselg said that all current company shareholders are participating in the financing of the purchase price, proportionate to their share holdings, and new shareholders would not be involved. BRS shareholders include the U.S. rail operators Rail World Inc. (25.5 percent) and Railroad Development Corporation (5 percent), a subsidiary of the British infrastructure group Jarvis International (25.5 percent) and Ganiger Invest (44 percent), which is led by Estonian businessmen Juri Kao and Guido Sammelselg.

Rail World Inc. is a railway investment and management company, which belongs to the well known U.S. entrepreneur Edward Burkhardt, who's BRS's chairman of the board of. In 1999 he received the title of best U.S. railroad operator. Burkhardt is about to receive over 1 billion kroons from the sale of shares in the U.S. rail company Wisconsin Central Transportation Corporation to another North American operator. The privatization agency signed a contract on April 30, 2001 with BRS to manage the privatization of 66 percent of the shares in the Estonian railway Eesti Raudtee, after it surfaced that the representatives of Rail Estonia, the initial bidder, had a shady background.