FIRST PRIVATIZATION OF A FORMER SOVIET RAILWAY:  
Bringing International Experience and Best Practice to Estonia

Question-and-Answer Session

How will the future of Estonia as a transit country be impacted by not only the increasing number of port facilities in Russia but also the tariff policy of Russian Railways?

My response is that it is very much as I stated in my presentation. We do not control Russia’s tariff policy; and we are in an extremely competitive business. Estonian Railways has to work very hard to stay ahead of the game, working with the Estonian ports to make Estonia as competitive as possible given that there is a big piece of the pie that we do not control. What we hope to do in Estonia is to convince customers that they are best served by routing their traffic through Estonian ports because we have the capacity and the user-friendliness available right now to meet their needs. We hope this will result in increased utilization of Estonian Railways and ports as well as increased investment in Estonian Railways and ports. In other words, we are making the best case we can to have as much of that traffic and that investment working through Estonia given that we compete with Russian ports, Latvian ports, Lithuanian ports, etc.

What aspects of the privatization process in Estonia would you have done differently? And, will you be taking on Russian partners given your stated dependence on Russia?

I would like to respond to both questions. First of all, in terms of mistakes that were made, I can’t really say that there was anything we would have done differently. I think we would have preferred that during the privatization process that the original much higher bid by a competing consortium, which turned out to be bogus, was not accepted by the government; it basically delayed the privatization of the railway for about 6 months and caused a lot of embarrassment and lost opportunity for everybody. But in general I think it has worked out quite well by every measure—traffic, profitability, safety, etc.

With regard to bringing Russian partners into the business, for the time being it is difficult to say how things will evolve, but it would be very early to be selling off our interest or diluting our interest; we have made a commitment to the government of Estonia that we are who we are, and to sell off our interest for a short-term profit would send the wrong messages. Fundamentally, the fact that almost all of our customers are Russian would be an indication that we want to have a close relationship with Russia in terms of both traffic and investment, and it is just a question of what form that takes and what the timetable is.  For example, another possibility is Estonian investment in Russian Railways. So, this is another interesting possibility and who knows where that might lead. I would just like to put that on the table as a possible alternative scenario in the future as well.

Do you agree with the earlier presentation that it is “not possible to make money on passengers”?

I could not help but think about the question as to where suburban railways make money. There is one example and that is Japan. The reasons are because there is such a high population density and the people are so wealthy. When you put the two of them together, it makes for a very viable business. But the third piece of that is that many of the suburban railways in Japan are also in other businesses. For example, one would own a department store or a baseball stadium into which the suburban railway operates and that is an additional generator of traffic.  Japanese railways are a very interesting model of how to run a profitable passenger service.

Top

In Russia it is very difficult to justify purchase of wagons by customers when our tariffs do not provide much of an economic incentive to do so. Could you comment on this?

This is another example of how countries can learn from what has happened elsewhere. This type of discussion is not unusual in North America where we have customers who tell the railways that they would be happy to invest in equipment if only they would get a lower rate. Usually those discussions result in some sort of negotiation and as long as it is a benefit to both parties, quite often the rate will be adjusted and the customer will have the economic justification to invest in equipment. It is very much a back-and-forth process and I can tell you that 20 years after deregulation we’re still feeling our own way and handling these one-on-one types of discussions, as opposed to relying on centralized regulatory dictates from Washington.

Thank you.

[END]

[<<] PREVIOUS     PAGE    1      2      3      4

Position Papers Main Index     |     Top of Page

Company Overview   |   RDC Management Team   |   Operating Entities

News   |   Photo Gallery   |  Contact Us