Company buys majority stake in Estonian railway

TALLINN - After much battling in court the Estonian Privatization Agency finally concluded the sell-off of a 66 percent stake in Eesti Raudtee - the freight arm of the Estonian rail system - to the Baltic Rail Services company on Aug. 31. The company earlier transferred the 1 billion kroon ($59 million) purchase price to the agency's bank account.

Besides the purchase price the company also submitted a 50 million kroon completion guarantee, which was underwritten by Hansapank.

Opposition political parties and the state audit office condemned the deal.

Center Party Chairman Edgar Savisaar, speaking to the Baltic News Service, said that on attaining power the party would review the deal, both in terms of its lawfulness and its value to Estonia.

State auditor Juhan Parts said the state had given unjustifiable guarantees of support for the company. Questions remained about the status of Baltic Rail Services and its promises to invest in Eesti Raudtee, he said. He added that the privatization agency's supervisory council had failed to respond to such criticisms, which he had put to it in writing.

Liina Tonisson, a member both of the supervisory council and of the Center Party fraction, said that Parts' dissatisfaction was justified because the council had not met to discuss the matter.

"Some members of the council found they had more important things to deal with,"said Tonisson.

"I cannot back this deal because I know nothing about it. The railway was sold behind our backs apparently by the minister of economics and the director of the privatization agency."

Ignar Fjuk, a member of both the supervisory council and the ruling Reform Party, pointed out that under the privatization agreement BRS was obliged to find an investor to underwrite investments plans by Aug. 31. Instead, it had promised to find one by November. "With this contract an investor in Eesti Raudtee has not been found and we have no reason to believe one ever will,"he said. "And because the council never met we have had no opportunity to check the origin of this latest payment."

The investment guarantee is expected to cover 10 percent of the 2.5 billion kroons which must be invested over the next five years.

At a short news conference, Eesti Raudtee's new owners said they were not planning to make any big changes to the company.

"The railway works well and profitably today. BRS is planning no dramatic changes. We will bring in some new ideas, but the practical things work well enough,"said Guido Sammelselg, a member of Eesti Raudtee's supervisory board.

Edward Burkhardt, chairman of Baltic Rail Services, said the company intended to increase the profitability of Eesti Raudtee's oil transit operations. "We hope to see more business coming through the ports of Tallinn and Muuga and make these ports more competitive,"he said. "We will strongly support the transit business, which is very important to the Estonian economy. There is business out there that Eesti Raudtee could be handling but is not. This deal means more jobs and money for this country."

The rail workers' trade union believes Baltic Rail Services will cut half of all jobs at Eesti Raudtee, meaning the loss of 2,000 jobs. Buckhardt's response was non-committal.

"Employment will fall over time. In some areas we will have some growth and in others we will make reductions in employment, as more productive equipment is introduced,"he said.

Baltic Rail Services also plans to replace Russian-made locomotives with American ones, selling the present engines back to Russia in about six months. Sammelselg said that the state railway administration would check the General Motors-made locomotives before they were shipped from the United States. The low price of U.S. locomotives made the deal a favorable one, he added. The current locomotives should be sold to Russia before prices fell further, he said.

Juri Kao, a member of Eesti Raudtee's supervisory board, said that given Estonian wariness of Russian-made cars or planes he was amazed at the level of Estonian support for the idea of purchasing Russian-made locomotives.

As far as changes in the management of Eesti Raudtee are concerned, the number of seats on its supervisory board will be increased from six to eight. Baltic Rail Services will be represented by Burkhardt, of Rail World, Andrew Smith from Rail International, Sammelselg and Juri Kao from Ganiger Invest and Henry Posner from the Railroad Development Corporation. The Estonian state will be left with three representatives.

The privatization agency originally signed a contract with Baltic Rail Services on April 30, 2001, after supplanting a bid by the Rail Estonia consortium.