International Best Practice Takes Root in Europe
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Privatisation in ESTONIA International best practice takes root in Europe The first privatisation of a former Soviet railway sees the Baltic Rail Services Consortium bringing international experience and best practice to Estonia. Investment and Ed Burkhardt and management changes are transforming the outlook for Henry Posner III* Estonian Railways’ transit freight business IG-TIME RAILROADING has long been the name of the game in Estonia, but privati- sation and competition Bpromise to make it more efficient. On August 31 2001 Baltic Rail Services closed a deal to take over Estonian Railways (Eesti Raudtee, EVR), a tiny part of the former Soviet rail network that once extended over 145 000 route-km. It was a strategic and significant move, for this is the first vertically-integrated privatisation of a national railway in Europe. In their heyday the railways of the former Soviet Union handled around Recent growth in the Russian oil in the Tallinn area, especially at the Two former Soviet half the world’s rail freight traffic. trade has offset the decline of smoke- new Muuga port, to handle the diesel locos head a Despite the economic collapse affect- stack industry, and EVR now enjoys transit business. Virtually all of this westbound oil train ing the region, rail continues to enjoy traffic levels almost equivalent to moves by rail; EVR’s main competi- at Tapa a market share estimated at around those handled in Soviet times. tors are not lorries, but rival railways All photos: Railroad 80%. This means that about 25% of Like its railway, Estonia is a small moving goods to and from competing Development Corp the planet’s rail traffic can still be country and one of its main business- ports in Russia, Latvia and Lithuania. found on the 1 520 mm gauge. es is transit traffic, for the most part The intensely competitive nature of EVR has benefited from its location moving from Russian origins to the this business, and its importance to on an ice-free zone of the Baltic Sea Baltic for movement beyond by sea. the Estonian economy, was a major close to major sources of Russian oil. Significant investment has been made reason why the government of Estonia decided to privatise EVR. Left: The first of 74 C36-7 diesel locos The sale process previously used in Beginning in 1999, a privatisation the USA will be structure was put together with the shipped to Estonia help of international consultants. in April There were four key characteristics: Drawing: GE Trans- • Sale of stock, as opposed to sale or portation Systems concessioning of the assets; • A vertically-integrated structure, 0 40 km with no requirement to operate passenger services; Tallinn Kunda Narva Paldiski Muuga • Government retention of one-third Jöhvi St Petersburg of the stock, with an option to sell * Ed Burkhardt Tapa N it to the buyer of the other two- (right of photo) is RUSSIA thirds; President of Rail Rapla • Open access for passenger and World Inc and Haapsalu ESTONIA freight operators, at a price allow- Chairman of the ing EVR to make a profit. Supervisory Boards Türi Jögeva Eesti Raudtee EVR electrified This led to three bids being submitted of Eesti Raudtee Edelaraudtee at the end of 2000. and Baltic Rail Parnu Services. Henry Tartu Haapsalu raudtee A US-based group, which claimed Viljandi Other railways to include a succession of North Posner III is Moisakula American Class I railways, each, in Chairman of Gulf of Riga turn denying involvement, presented Railroad the highest bid. This charade consti- Development Corp tuted a national scandal which and Iowa Interstate Aloja Vöru Petseri continued for around six months. Railroad and a LATVIA Valga Pskov In the end the government termi- board member of nated discussions and offered the Estonian Railways Railway Gazette International March 2002 www.railwaygazette.com 143 Privatisation in ESTONIA Above and right: An transaction to the second highest freight railway that provides access to tonnes a year, which by US standards open access Link bidder, Baltic Rail Services. BRS suburban passenger operator Elektri- would rank it at the top of the Oil train arrives at accepted the offer, and the deal was raudtee, inter-city passenger operator Class II railways or a small Class I. Narva yard in closed on August 31 2001, in cash Edelaraudtee and international EVR’s 695 km of main lines consist November 2001 and at BRS’ original offering price of passenger operator EVR Ekspress, of a mixture of double and single 1 billion kroons (US$57m) for the which is 49% owned by EVR. track, some controlled by CTC. two-thirds interest offered, to the There are also Eight-axle tank relief of all concerned. certain European wagons are used to BRS’ shareholding breaks down characteristics, convey export oil along strategic lines and consists of US such as the traffic from Russia operators Rail World Inc and Railroad presence of a to Estonian ports Development Corp, UK infrastructure significant open and refineries company Jarvis plc, and Estonian access freight investor group Ganiger Invest. At the operator, Link end of 2001 the BRS group was Oil, based in St expanded to include the AIG Emerging Petersburg. Make Europe Infrastructure Fund. no mistake, EVR’s principal however – this locomotive mainte- EVR today may be a nance works is In terms of its structure, EVR most European rail- located at the key closely resembles a North American way, but it is a junction of Tapa railway. It is a vertically-integrated railway that goes to Moscow, not Brussels. Future prospects Freight operations bear a strong EVR’s future prospects and those of resemblance to North American Estonia’s ports are inextricably practice. Block trains predominate, linked. The company’s first objective primarily export oil products, and is continuous improvement in its these make up around 50% of EVR’s already-good safety record, and the tonnage, including traffic handled by second is to protect and expand Link Oil. This is supplemented by Estonia’s role in the Russian transit export fertiliser and domestic oil shale business. This is being accomplished movements for the power generation through more intensive use of assets industry. and a programme of selective invest- There is also significant wagonload ments in capacity, namely in locomo- traffic such as timber and cement for tives and infrastructure. the domestic market and metals for With regard to locomotives, the export. EVR hauls around 40 million similarity between Soviet and North La pratique internationale s’implante en Internationale Praktiken fassen Fuss in Europa Las prácticas internacionales echan raíces en Europe Die erste Privatisierung eines Teils des Europa La première privatisation d’une partie de früheren sowjetischen Netzes hat zur Folge, La primera privatización de parte de la antigua l’ancien réseau soviétique a vu le Baltic Rail dass mit dem Baltic Rail Services-Konsortium red ferroviaria soviética ha visto como el Baltic Services Consortium apporter en Estonie internationale Erfahrungen und Praktiken nach Rail Services Consortium ha aportado las l’expérience et la pratique internationale. Les Estland kommen. Investitionen in Ersatz von experiencias y las prácticas internationales a investissements dans le renouvellement du Lokomotiven und Infrastrukturverbesserungen Estonia. Las inversiones en nuevas locomo- parc de locomotives ainsi que dans l’améliora- verändern die Aussichten für das estnische toras y la modernización de las infraestructuras tion de l’infrastructure sont en voie de trans- Transitgütergeschäft unter dem Wohlwollen ferroviarias están transformando las perspecti- former la physionomie de l’activité fret en von Kunden und Finanzmärkten. Die Estnischen vas del transporte de cargas en tránsito por transit de l’Estonie, avec une réaction positive Eisenbahnen verbleiben Besitzer der Bahn- Estonia, y los clientes y mercados financieros des clients et des marchés financiers. Les Infrastruktur, aber die Konkurrenz entsteht están respondiendo favorablemente. Los Chemins de fer estoniens restent propriétaires durch einem Open-Access-Betreiber sowie von ferrocarriles estonios siguen siendo los propi- de l’infrastructure ferroviaire, mais la concur- den Häfen in den Nachbarländern etarios de las infraestructuras ferroviarias, rence vient d’un opérateur arrivé avec la pero la competencia se consigue con la libéralisation, ainsi que des ports des pays presencia de un operador de libre acceso y voisins gracias a los puertos de los países vecinos 144 www.railwaygazette.com Railway Gazette International March 2002 Privatisation in ESTONIA American practice allows the intro- accommodate this change. Were the Estonian investor group, is Deputy Left. A domestic duction of used locomotives from railway not vertically integrated, it is Chairman. Burkhardt was the founder inter-city passen- North America. We have chosen a doubtful if the axleload issue would of Wisconsin Central Transportation ger train run by fleet of GE-built C36-7s that are have been dealt with successfully. Co in the USA, and served as the first Edelaraudtee being re-gauged and equipped with Management plans include the Chairman & CEO of English Welsh stands at Varga Russian-style couplers and cab establishment of a single customer & Scottish Railway in the UK. Board signalling. The aim is to replace service centre and the concurrent member Henry Posner also has Above: An EVR completely EVR’s existing Russian elimination of many manned stations extensive experience in managing Ekspress interna- and Ukrainian-built locomotive fleet in the field. EVR has worked with the international railway operations, tional train arrives with C36-7s. The first of 74 units will trade unions and government to serving as Chairman of both Iowa at Tallinn, where reach Estonia in April, and deliveries establish an enhanced redundancy plan Interstate Railroad and Ferrovías commuter trains will continue through the rest of the to cushion the effect on the labour Guatemala.