End of privatization of Estonian Railways

On 17th of November, the government of Estonia and Baltic Rail Services (BRS), the owner of 66 per cent of Estonian Railways, have signed the agreement that enables to terminate the privatization of Estonian Railways and start the transfer of ownership of the company to the Estonian government with the price of 150 million euros and settlement of all ongoing disputes between the parties. The final transfer of shares is also subject to parliamentary approval and budget allocation.

Previously the BRS has sued the Government of Estonia before the International Centre for Settling Investment Disputes in Washington and in the Stockholm Arbitration court. The governement of Estonia has sued BRS in the Stockholm Arbitration court.According to the minister of Economy and Communication, Edgar Savisaar, neither the state nor the private owners of Estonian Railways were happy with the piling of disputes and the non-cooperative atmosphere that had developed during the recent years. He told that mostly the differences were fueled by disagreement on infrastructure access charges and other provisions covering open access operators.

“Divorce was inevitable,” the minister said, adding that the confrontation did not allow normal development of Estonian Railways. “We absolutely could not agree to BRS´s interpretation of the privatization agreement, their understanding of tariffs, investment principles and many other issues,” said Savisaar.

The minister pointed out that the government has plans to put more emphasis on passenger transport. “We believe that human  transport on railways is as important as freight transport and we believe that both can be developed so that neither comes on the expence of the other,”
said he, pointing out that passenger traffic was not so much the issue of conflict between the government and BRS but a new priority that the government wants to achieve once it has regained control over Estonian Railways.

The chairman of the supervisory board of BRS, Edward Burkhardt said that the settlement was a rational choice that was made possible by thorough and difficult but professional negotiations between the private owners and the government. “We had major differences in our views on legal requirements, but rather than continue to pursue costly and lengthy lawsuits and arbitration, which was having a detrimental impact on the railway, we mutually decided to reach a negotiated settlement to settle all disputes by returning the railway to the State,” he said.

“We are not happy with this result, and the sale price is much lower than the inherent company’s value, but in the circumstances this was a rational way to go,” remarked Burkhardt. He added that BRS is handing over a company that is in a good shape.

 66 per cent of the shares of Estonian Railways were privatized by the government of Estonia in March 2001 to Baltic Rail Services, representing several well known international railway companies and businessmen. The relations between the government and the new owners became tense after the application of new Railway Act in 2003, certain provision of which were seen by BRS as a breach of privatization agreement. Also, the parties had significant differences in interpreting the terms of privatization contract and in corporate governance , resulting in numerous legal actions.

Source: Ministry of Economic Affairs and Communications
Read also: Ministry of Economic Affairs and Communications and BRS reached and agreement on reacquisition of Estonian Railways at http://www.mkm.ee/index.php?id=76885