Henry Posner's remarks at Russian Railways Conference, Moscow, Feb. 2004

SPEECH DIRECTORY: Background on RDC RDC Businesses USA Argentina Guatemala Peru Malawi / Mozambique Estonia Investment Parameters Why Estonia chose to privatize How Estonia was restructured Results to date Differences between Former Soviet railways and other continents Differences between Estonian Railways and Russian Railways Estonian Railways' market position Estonian Railways' strategy Suggestions for Russia Q & A Session	PRINT THIS SPEECH (202K PDF)
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	I would like to clarify the name of this presentation: “First Privatization of a Former Soviet Railway”. I was asked earlier, “Why are you talking about a Former Soviet Railway when you are in Estonia?” It is very important to point out that while Estonia is a European country, Estonian Railways is a railway that goes to Moscow, not to Brussels. My agenda is to provide some quick background on our company, and then get into the specifics of Estonia; in particular, why Estonia chose to privatize and how Estonia was restructured. This is very interesting because we are not discussing theories but rather discussing one of Russia’s neighboring countries where this was actually done, over two years ago. I will then highlight the differences between Estonia and Russia, including some very fundamental differences; and finally I will presume to make some suggestions for Russia, given the importance of the railways to the Russian economy. Background on RDC - General RDC is a railway investment and management company. Everything we do is with Joint Venture partners; as a small company this is our way of making our capital work very hard. Background on RDC - Businesses In the USA our Flagship is the Iowa Interstate Railroad that was part of the bankrupt Rock Island Railroad, which not only went into financial bankruptcy but actually closed. In the late 1970s twenty-five percent of the railway mileage in the USA was in bankruptcy; the railways in the United States were in the process of going out of business. The U.S. government had subsidized highways as a matter of national policy, but basically the railways were told that they had to solve their own problems themselves because there was no government money for them. However, the railways were given the tools of deregulation and as a result many small railways were created from the ashes of what was left of the big railway systems; the Iowa Interstate is one example.
	On the Iowa Interstate I am very proud to say that we are the safest railroad of our size in North America because in the year 2003, we had No Personal Injuries. As I said, the Iowa Interstate is our flagship; we bring people from all over the world to see how 6 million tons can be moved with only 185 employees. RDC now owns 100 percent of the Iowa Interstate as of January 2004. We operate (map) from Chicago and Peoria to Omaha. It is interesting to note that the locomotive shown was built in approximately 1960. So if you think you have old locomotives operating in Russia, come to the USA and see how old the locomotives are on some of our smaller railroad lines.
	In Argentina, RDC is a minority partner in two of the railway concessions, ALL-Central (map) and ALL-Mesopotámica (map); the railways were almost abandoned there in 1991. This was really the first major experimentation with railway privatization and since then it has breathed life into a substantial rail network that had been given up for dead; it was the first international privatization as it’s known today. These are much bigger systems than the Iowa Interstate. The two lines are each several thousand kilometers long; one line goes to Brazil, Paraguay and Uruguay and the other line goes to Chile.
	In Guatemala we have the most extreme example of rail privatization. This national railway system was completely abandoned and shut down in 1996. A portion of it was brought back from the dead in 1999 (operating as Ferrovías Guatemala). The map depicts a black line where Ferrovías Guatemala is operating, but there is also a dotted line which is the half of the system that we have not been able to open because we have found it impossible to finance. One comment about this railway — by European standards this system is a monopoly. It is the only railway in Guatemala. The problem with this “monopoly” however, is that because the railway was shut down for several years, it was of course impossible to monopolize anyone since we had no customers. With regard to separation of infrastructure from operations, for a railway that runs one train a day and only moves 100 thousand tons per year, imagine the cost of setting up two separate administrations–one for infrastructure and one for operations. I’m sure the cost of administering two separate organizations would be higher than the freight revenue that the company would generate.	Top
	In Peru we are also partners in the World’s Highest Railway, the Central Andino. This railway goes to an altitude of 5 thousand meters in the Andes (map).
	In Malawi and Mozambique, RDC is a partner in the former Malawi Railways (now operating as Central East African Railways) which was privatized in 1999. This railway (map) goes only to Mozambique and its only connection to the outside world is through the Port of Nacala. Next month we will be taking over the Mozambique side of this railway. This will be the first privatization of a combined port and railway for general cargo. It is very unusual for railways and ports to be integrated, but because these are so dependent on each another, the decision was made to privatize the railway and the port at the same time. These are very difficult businesses and RDC has gone out of its way to enter into them with local partners for this reason; all of these are Joint Ventures. So I am clearly not trying to brag about how big we are, but rather I am clarifying how small we are and how we nonetheless get things done.

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