Bids made for Estonian railway

TALLINN - The final bids for 66 percent of the shares in Estonian railway were made on Nov. 20, thus moving to the end the controversial privatization process of one of the state monopolies.

The Estonian Privatization Agency chose three contenders for the final bidding - Rail Estonia, Baltic Rail Service and the consortium of Raudtee Erastamise Rahva AS , the Swedish company SJ and Serco Ltd. of the UK.

BRS and RER declared they have raised their bids in the third and final round. None of the bidders, however, revealed the exact sum of the purchase offer. During the first two rounds the sums ranged from 0.8 billion ($ 43.5 million) to 2 billion kroons.

Apart from the sum a company is ready to pay for the shares, a bid includes a business plan for the railway.

Agency supervisors will consider the offers and decide the fate of railway on Dec. 13.

The railway's privatization was approved by the parliament in February, 2000 and since that time has caused many political and public rows. The opposition, lead by the Center Party, even boycotted a Parliament session in order to attract public opinion to the privatization.

Heido Vitsur, the Center Party's economical adviser, told The Baltic Times that Estonia's experience of privatization of monopolies is depressing.

"Remember the privatization of Eesti Telekom and rise of telecommunication tariffs? We are sure that Estonia is not ready for successful privatization of any monopoly enterprise," said Vitsur.

Nevertheless, it is the coalition who rules. The coalition agreement, consisting of the Pro Patria Union, the Moderates and the Reform Party, argues that for greater competitiveness, the coalition would privatize infrastructure and increase supervision over natural monopolies, and establish conditions for including private capital in the development of the Estonian railroad.

One of the bidders, BRS, commented on the general condition of Estonian Railway.

"ER's Russian transit operation has been profitable, but local business service has not been a priority," said Edward A. Burkhardt, one of the supervisors of BRS.

BRS specializes in privatizing state railway companies' and has been studying ER for two years.

According to their calculations, Estonian Railway needs about five billion kroons during the next eight or 10 years. RER stated the investments could reach seven billion.

Thomas Tancula, a technical expert with BRS, said the locomotives now used by Estonian Railway are worn out, not powerful enough and environmentally unfriendly. "They use too much oil," he said.

BRS sees replacing locomotives for Russian and Ukrainian lines and improving of the Tallinn-Narva track as the primary tasks for the preferred bidder.

"Estonia is flexible and can change policy very quickly, which is (important) for the success of a small country. It also has a terrific future as a transit corridor from Russia to Europe," said Burkhardt.

However, the ports should improve their capacity to secure a bright future for the Estonian economy. Guido Sammelselg, Burkhardt's partner from Estonia, said that the undeveloped port of Paldiski is one of the biggest faults in the Estonian economy.

Sammelselg and Burkhardt declined to comment on the BRS bid and admitted they know practically nothing about the other bidders.

Russian transit has been shrinking since August due to Russian political leaders' efforts to redirect freight into native ports, particularly Novorossiisk, according to Estonian Railway president Parbo Juchnewitsch. As of the first week of November, the amount of transit decreased twice in comparison with this summer.

At a seminar carried out on Nov. 16 and dedicated to Estonian-Russian business, Juchnewitsch said if the Russian ports were managed correctly the transit decline would be even more evident.

Primorski port, situated to the north of St. Petersburg, will start working next year and may become a significant competitor of the Baltic ports.

Burkhardt has an opposite opinion. "As to the port being built in St. Petersburg, it will sell raw oil but not refined oil, which is the major issue of Estonian-Russian transit."

"To be realistic, we see the trends in Russia as favorable due to the improved political situation. Russia badly needs commodity exchange," added Burkhardt.

The officials are keen to make the game open and fair. The special agreement between the Road Administration and the preferred bidder will set the rights of the new master of the railway. According to the agreement, the land under railway facilities can only be used for railway purposes.

As to passenger transportation, nothing will change after privatization, according to Aap Tanav, spokesman for the Road Administration.

"State-owned Elektriraudtee (Electric Railway) will carry out passenger transportation regardless of the privatization contest winner," said Tanav. Electric Railway had been a part of ER until Nov. 15, when ER and the Road Administration signed a contract whereby ER passed to the state 100 percent of Electric Railway's shares free of charge.

"The state did it in order to let the investor of ER focus on commodity transportation," said Tanav. The Road Administration foresees the privatization of Electric Railway as well but has no actual plan for that.