Ministry prepares to buy back rail company

The Baltic Times, TALLINN
By Kairi Kurm
Jan 25, 2006

The Ministry of Economy and Communications announced that it was preparing a proposal for the government to purchase 66 percent of the capital stock in Estonian Railway from the U.S. and Estonian investors who bought the company in 2000.

Economy Minister Edgar Savisaar was quoted by the Eesti Paevaleht daily this week as saying there was “a great probability that the Economy Ministry has come to the position that we support repurchase.”

“There are debates underway over the price and the terms and on whether the government or Tallinna Sadam (Port of Tallinn) will purchase it,” he said.

The 66 percent stake is owned by Baltic Rail Services, while the Estonian government owns 34 percent. The company was privatized when the government was run by a three party coalition government chaired by Mart Laar – Pro Patria Union, the Reform Party and the Moderates (now Social Democrats).

The current government consists of the Reformists, the Center Party and the People’s Union. None is against the purchase of the shares, but have said the current 3 billion kroons (192 million euros) being asked for by Baltic Rail Services is irrational.

BRS paid about 1 billion kroons with the obligation to invest hundreds of millions of kroons.

“I want to know why the price has tripled in the meantime,” said Meelis Atonen, former economy minister who also sat on the council of Estonian Railway for half a year. “It is clearly too much. We should not pay for the unbeneficial investments like American locomotives that are not suitable and good enough for Estonian Railway.”

What’s more, investment obligations set out in the contract have not been fully met due to various reasons.

“What are we going to use for money?” Edward Burkhardt, CEO of Baltic Rail Services, told The Baltic Times in a recent interview. He said he and other investors have lost about 800 million kroons in revenues due to the low infrastructure fees set by the government that BRS can charge competitors.

“Dividends or development – they decided on the dividends. Then there is certainly not enough (money),” said Atonen.

Some parties, such as the People’s Union, want to see the government regain control of infrastructure, while leaving cargo-handling to the private sector. But even if the government is only interested in the infrastructure, it will also have to purchase BRS’s operating services as well.

As Atonen explained, currently it is difficult to say what the exact cost of infrastructure alone is since BRS does not keep accounting separate. He claims this is done deliberately to mask the true operating numbers from competitors.

Nor does Atonen agree with Burkhardt that infrastructure fees are artificially low. He said that fees depend largely on the amount invested in the infrastructure. The larger the investment, the higher the fees, he explained.

And then there is the Russian question. Some politicians claim the government should purchase back the railway to prevent it from getting into the hands of Russian transit interests.

As MP Robert Lepikson from the People’s Union recently told The Baltic Times, “As a businessman, I find that it costs more [for Russians] to start a war than to just buy everything. We ourselves have created a wonderful opportunity for this while privatizing infrastructure objects such as Estonian Railway, which can be purchased by any company from any country. This can be done by a hostile adjoining state for example.”

Margus Tsahkna, spokesman for Pro Patria Union, said, “The foreign policy of Russia in year 2000 to take neighboring economies under its control makes us anxious.”

Burkhardt said he himself held the same opinion at one time, but now he no longer cares. “So far as I am concerned, if Russians come along and say, ‘We want to buy these shares,’ we will talk to them. Why not? There is no interest in working with us in Estonia, so why not? I am trying to be rational. We try to run a business here. Every time we turn around we have another problem from this government,” said Burkhardt.

In recent a letter to the Wall Street Journal he accused Estonia’s present government of attacking privatizations. He wrote that Estonia’s economy was not as liberal as described in the previous issue.

“Unfortunately, the picture has changed since then, as successive left-wing governments dominated by former communist politicians have attacked privatizations and other reforms instituted,” Burkhardt wrote. In his words, the beneficiaries of these policies are interests involved in Russian oil transit via Baltic ports who have paid heavily for political support from the current ruling coalition.

Atonen shot back. “It is sad that his business plan does not work, and he has started to blame the Estonian government for that. It is especially harmful for the Estonian Railway,” he said, adding that railways are not in private hands in the European Union but cargo was still open to competition.

“I do not understand their PR. They blame communism for everything. In this case they should blame the European Union.”


Re-nationalization: views across the spectrum

The Baltic Times, TALLINN
By Kairi Kurm
Jan 25, 2006

Agu Uudelepp, communications manager of the People’s UnionThe council of the People’s Union took an official standpoint that it supports the purchase of Estonian Railway shares for a fair price. It has to be a reasonable price, and it will be decided during negotiations. We were against the privatization in 2000 and collected 163,000 signatures against it. Nobody forces them to sell the shares – it is their own will.

Having a private business is taking a risk. It does not work this way that you privatize then your business plan does not work and someone else has to pay for it.

Toomas Raag, spokesman for the Center Party

In the Center Party’s opinion, the government should buy the shares but should not pay for this too high price. It is up to the specialists and the ministry of economics to decide the price the government is willing to pay. The final price will be set at the negotiations.

The privatization of Estonian Railway was bad for the Estonian government. It is bad that the owners of Estonian Railway have not been able to properly fulfill the obligations set in the privatization contract. It has been harmful for the state so far. Otherwise, Estonian Railway would not have been a problem.

Meelis Atonen, Reform Party (former minister of economic affairs, MP)

The current situation is such that the owners of the Estonian Railway have put the company on sale. The government should act according to what the price of the deal is. Three billion is clearly too much to ask. If the offer is lower, why not purchase the shares? The current owners have problems with developing the infrastructure. It is not right to talk about nationalization, which means purchasing the shares against the owner’s will.

The privatization was carried out by the privatization agency. They did not weigh all the aspects. The legislation should have been finalized before the privatization was started. I would not have privatized infrastructure, but would have separated operating services and privatized this only.

Burkhardt says that there are communists in power. I do not know what he means. All five ministers of various parties have followed the same principles. The railway legislation was adopted a few years ago. He has confused something and tries to cover up his failed business plan. Foreign investors can bravely invest in Estonia. It is clear that legislation has to be followed. Estonian legislation differs largely from that in America, that is probably the key point here.

Heido Vitsur, adviser to the minister of economics and communications

I do not want to comment on whether the railway should be privatized and what the fair price is. There are two kinds of opinions regarding privatization. A majority thought that it should not be privatized.

He (Burkhardt) is very emotional and his pronouncements are not true. The current government has nothing to do with it. The legislation was adopted about three years ago; the regulation of tariffs was last year.

Besides, there is no Estonian transit without Russian transit. Our position is that railway belongs to the government. That is why we intended to buy the shares. Even if it belonged to Russian capital, the company would still have to follow Estonian legislation.

Margus Tsahkna, spokesman for the Pro Patria Union

This (privatization) does not have to be the primary step. On the other had, the government and ministry of economics have started to pressure the railway and have made it difficult to manage the railway and have chopped the useful infrastructure. We have to carefully see that it does not get under the Russian capital as a result. We hope that government in the future would benefit from transit and not give it away.

We can say that capital has no nationality. The foreign policy of Russia of year 2000 to take neighboring economies under its control makes us anxious. I do not know if the new owner is better than the current one.

Heiki Nestor, Social Democratic Party, MP

We do not have a clear standpoint whether or not the government should purchase the shares. We do not know the price. We are in opposition. The government does not certainly have to buy the shares, but may do it if it is beneficial. It all depends on price and the perspectives.

Was it reasonable to privatize the railway? In this context it was. The privatization was announced in 1998. The preparation works had already been done when we got in power. In 1999 there was a big minus in the budget, and we could not see any opportunities to place more money in railway.

Prior to privatization, the government had to support the railway heavily. Here in 2001 it was already possible to take out proper dividends. The government has purposely made it difficult to manage Estonian Railway and is splitting the effective system. If they had not pressured the company during this last half year, I doubt there would have been a desire to sell the company. (Edgar) Savisaar acts according to influences coming from the East.

It does not matter which capital it belongs to. It is important that our government has the control over infrastructure. It can be a Swiss company purchasing the shares that actually may belong to Russian investors. It is certainly not necessary that our neighbor receive such a huge power over our economy.


New regulation brings in more cars from America

The Baltic Times, TALLINN
By Kairi Kurm
Jan 11, 2006

A new regulation that may come into effect in February will enable car importers to bring in models from the U.S. market that are already rolling off European assembly lines. This, in turn, could bring down current prices of luxurious cars by about 10 percent, though the downside is that discipline on the car market may deteriorate since U.S. car manufacturers’ guarantees may not always apply in Estonia.

Priit Vene, director of the road and railways department at the Ministry of Economic Affairs and Communications, said the regulation aims to broaden the choice of cars available to Estonian consumers.

According to a regulation currently on the books since March 2004, imports of cars from the United States were banned if the same models – the so-called “same family” cars – were also manufactured in Europe. Other types, however, could be imported.

Car dealers who do not hold exclusive rights are happy about the new regulation. For Autonova, one such dealership, the regulation will allow the company to import more American cars to Estonia. The company already has a number of such cars in a Finnish warehouse on their way to Russia.

“A customer can choose between a car with a full guarantee from Europe or a less expensive car from America. The imports would not be massive in my opinion. The market is small and dealers have to hold their every customer,” said Harry Reimers of Autonova, which offers a one-year guarantee on cars imported from the United States.

Not everyone is thrilled about the change. Jaak Uudla, chairman of the board of the Union of Estonian Car Sales and Service Enterprises, is against the new amendment.

“It does not make any sense and is not in the interest of consumers,” said Uudla. “Cars imported from America, China or India might not fit in Nordic countries. There are no guarantees. Repair work opportunities are questionable. European car parts and details might not fit in U.S. cars. Cars used in Africa and China might not have the heating system required in our cold climate.”

Uudla said that, because of the aforementioned risks, it was the policy of car manufacturers to sell cars in certain regions only.

Currently the same restrictions apply in Lithuania, while Latvians can still import any U.S. car if it passes the test.

“It is not a catastrophe. We are not talking about this in a fear of losing a market,” Uudla stressed. “As a customer, I would prefer to buy a car from a representation that offers guarantees.”

Cars imported from the U.S.A. will have to be tested in Finland or Belgium for a certificate of conformity, since such tests are not done in Estonia. This costs some 1,500 – 2,000 euros. The car importer will have to pay the 10 percent EU duty, and then 1,000 euros for transportation and another 1,500 euros for a noise test. These tests will have to be made regardless of whether such American cars have previously been registered in Estonia or not.

For this reason, Uudla says, “I do not think [imports of cars from the United States] will be massive.”

Jurgen Vester, chairman of the council of Premium Motors Grupp, which is a sole distributor of Hummer jeeps in Estonia, is optimistic. He knows that there are 30 cars waiting in a warehouse for the ban to be lifted.

“We have a free market economy, and things have to be free,” said Vester. “The European regulations set standards on pollution and noise. Cars from Arab countries have a high CO2 emission and may not, of course, be imported. If Germany can import Mercedes, Porsches and BMWs manufactured in America, why can’t we?”

Vester predicted that the new regulation would halt the sales of cars manufactured in Germany, since these are more expensive than ones produced in America.

As a result, the sole distributor of Porsche cars may suffer, he said.

Andrus Lint, manager of Baltijas Sporta Auto Eesti, which is a German company distributing Porsche cars in the Baltic states, said that they might lose quite a significant number of customers.

“I doubt someone wants to deal with sports cars, but there might be interest in importing a parcel of Porsche Cayenne jeeps,” said Lint. “If the manufacturer of Porsches does not defend the Estonian market, then a question arises – why should we buy from a European manufacturer for a higher price?”

Baltijas Sporta Auto Eesti, unlike others, cannot buy Porsches from the U.S. market.

In America, cars are cheaper and the market is big. The difference in prices is about 25 percent, Lint said.

“Official companies have exclusive distribution rights. They have invested here, and they have contracts. It does not look good if intermediaries will deteriorate the market. The manufacturer may step in between here. The American distributor cannot sell Porsches in Estonia, where we have the sole rights. It is also not beneficial for the government. Dealers’ business might not have always been official and by the books. They could import new cars as used cars,” said Lint.


A bed worth coming home to

The Baltic Times, TALLINN
By Kairi Kurm
Jan 04, 2006

Oksana was about eight when a social worker took her away from her drug addicted mother and placed her in a Tallinn home for at-risk children. But for her 16-year-old-sister, fate was less kind: she was placed in one of Estonia’s inhospitable orphanages.
Erki Korp, manager of the Tallinn Center for Children at Risk, says Oksana’s humble abode, in which her bed is one of 16, is far better than the alternatives. Importantly, the children who live there now agree. As a result, youngsters who for whatever reason can no longer stay with their parents often turn to this shelter.

“They provide food, clothes and opportunities to wash. Why shouldn’t these children want to come here?” says Alo, who has been at the center for a year.

After the center, Alo will go to the SOS-type children orphanage in Tallinn’s Maarjamae area, part of the city’s system of orphanages. Alo says he will live with a family with six other children from similar walks of life. One will be a friend from the Tallinn center.

Alo was a victim of an untimely family death. After his father died, his mother could not cope with raising five children. Deprived of parental supervision and a sense of family, Alo decided to go all the way and live life utterly free of restrictions and negativity.

“I did not want to go to school. I went to parties and stayed with my friends. There were three brothers [in my family], who had to go to school. It was not about money. She [mother] could not handle us all,” he said. Alo’s two sisters (younger) are now in an orphanage on Hiiumaa Island, and his two older brothers live in Tallinn (neither with their mother). He sees his brothers in Tallinn sometimes and communicates with them by e-mail. His mother used to visit him periodically at the beginning of his “independence stint,” but she eventually understood that it was better not to meet and let things run their course.

He says he likes the center; a much better place than an orphanage, he claims. The regimen is tough, which is exactly what he needs.

Although he has spent his last year at the center with about 10 younger children running around, the 16-year-old is doing well at school and planning to continue his studies at the university. When he turns 18, the city will give him a flat to live in and 400 kroons (27 euros) in monthly support. Even though the government is providing housing and a small income, Alo says he plans to work hard in order to depend on no one.

Alo says he would like to be a history teacher or a lawyer some day.

The center’s primary aim is to get the children back home. (A full-time psychologist works with the children, their parents and the school.) About two-thirds do return, and about one-fifth end up in orphanages. The Tallinn Center for Children at Risk has provided shelter to about 2,000 children since it began operating in 1993. The year 1998 was the busiest, when 24 kids would sometimes be accommodated in a single day. Some children were brought in from the streets, examined by a medical nurse and then dispatched to appropriate places the next day.

Usually children stay in a center for a day, but some as many as two months. Sixty percent of the children leave within a week. Some of the children are brought by the police, some by child protection or social workers. Yet some come by themselves. Ten-year-old Oksana has been here twice, and both times she was led by a social worker. Her parents are divorced, and her mother, who took drugs, now lives in London. Oksana has not seen her for three years.

As Korp explains, “There are no street children in Estonia.” About 20 out of the 50 children seen on the street are runaways from children’s homes, he says. The main reason why children end up in his center is because their parents are dead, or they have become alcoholics, drug addicts or unable to take care of their children.

“There was a case when a family abandoned their daughter because she had received a grade in school that was unsatisfactory. The police found the girl on the street and brought her here,” said Korp.

The Tallinn Center for Children at Risk is not just a place where children are given the basic needs of living – it is also a place where children are given emotional support in various forms of intrinsic and extrinsic motivation. Aside from having a warm place to sleep at night, clean clothes to wear and a caring community to rely upon, children also have tutors and other employees with educational experience in their presence most hours of the week.

Korp says, “Many of the children have started to receive better grades after they were brought to the center.” One former resident even graduated from school with a silver medal.

Korp also manages a center for drug addicted children. Tallinn Center for Children at Risk/Drug Rehabilitation has been operating for over five years now. It is a closed building for 30 children, where they stay some 10 – 12 months.

The budget for the two centers, which has 57 employees and 46 spaces, is 8.5 million kroons (540,000 euros), 7 million of which goes to salaries. Foster families receive 900 kroons each month for each individual child. In Korp’s opinion, the latter amount is not enough to cope.

“The problem is that we are taking only children from the Tallinn area, and others are not getting help. This is state responsibility, according to the children rights perspective,” he said.

In Korp’s opinion, the drug unit should be accommodating 300 children rather than the current 30. Many in need are sent home as soon as they promise to improve; however, Korp says action should be taken during the very first stage of the problem.

The center for children without parental care is located at Paldiski mnt 51, and the special regimen center at Nomme tee 99.