by Alexander Smotrov



Only eight trains a day come to the Tartu railway station on their way to Tallin or Valga. The old station-building is open now 5 hours every day. The Estonian railways are no longer popular among the people, and the state didnТt want to run the railway system any more. Estonia became the first country in Europe which privatized all the national railways.

It is only one example of privatization in Estonia which began in 1991 just after Estonia proclaimed its re-independence. According to the Estonian Privatization Agency, during 1991-95 almost all small businesses (approximately 1 200 companies) held by the state were sold in auctions. Privatization process sped up when Estonia applied for membership in the European Union. The first Copenhagen criterion for candidate countries provides the existence of a functioning market economy. And privatization is an inseparable part in this framework.


Plus privatization of the whole country

The European Commission stated in its 2000 Regular report on EstoniaТs towards accession that Уall small and medium sized enterprises are privately owned, while only a very small number of large companies have yet to be privatized.Ф In November 2000 Estonian Justice Minister Mart Rask proclaimed that during 2001 the government will carry out an experiment on the privatization of prisons. Estonia decided to follow the experience of Sweden, Great Britain and the USA where there are a number of private prisons and their owners spend 10-15 per cent less money than the state to run them.

Experts and analysts describe the Estonian way of privatization as very balanced and successful. Karsten Stæhr, Ph.D., Lecturer in Economics at the Eurofaculty of Tartu University, said that Estonia chose Уthe smartest model of privatization in Europe.Ф Estonia has followed three main privatization methods: tender with preliminary negotiations, public auction and public offering of shares.

The privatization was a good means to increase foreign, especially Finnish, Swedish and American, investments into Estonia and to make this money work. Market analysts say that new owners will be able to run former state-owned enterprises work very much more efficient.

However, as in any other case privatization in Estonia has not only good, but also bad sides. Despite the fact that Estonia is regarded to be the least corrupted among all former Soviet republics, there were a number of abuses, especially during the privatization of key industries and branches. Some companies which wanted to win the tender tried to use dirty deals and give bribes to the authorities responsible for the privatization.


Who has power in the power industry

In 2000 the Estonian government signed a treaty with the the American company NRG Energy about the sale of the majority of stocks (49 per cent) of the two power plants in Narva which produce 98 per cent of all energy in Estonia. This decision caused a strong public criticism in Estonia. The two major concerns among the people were the probable increase of the prices for electricity and the growth of foreign capital in Estonia.

Andrus Saar, the head of the public opinion research agency Saar Poll, explains the change of public opinion about the foreign investments by fear of dependence on the foreign money after the total privatization. The expert Veikko Maripuu points out that the government in any case should continue privatization because it needs money for the social reforms and payments. The economic analyst Indrek Jakobson describes the conditions of privatization as Уunprofitable for the Estonian peopleФ. As for the treaty with NRG, he underlined that the government shouldnТt carry out it in contradiction with the principles of the EU free energy market.

The famous Estonian economist Rein Otsason pointed out that there is a disproportion in the figures. The NRG was to pay $54.5 million (EEK 640 million) for 49 per cent of their stocks. So, itТs easy to count that the total price of the whole installation is EEK 1.8 billion while the book value of it is EEK 3.8 billion. In accordance with the treaty, NRG Уshould invest up to $440 millionФ, but it is not necessary that it will do it, Otsason reminds.

Moreover, the deal provides the fixed prices for energy during next 15 years after privatization that contradicts the EU demands. Aksel Ers, the deputy mayor of Narva, said in the interview to the local newspaper that the $5 million provided by NRG for social guarantees for people fired during the power plants reconstruction are not enough.

Meanwhile, the Narva trade unions leader Vladimir Alexeev welcomes the new ownersТ plans. He doubts that the Estonian business elite is able to reconstruct the energy system and hopes that the American capitals will give a chance to develop the branch, to create new vacancies and to earn money.

The public debate resumed in August 2001 when Estonian president Lennart Meri accused the government of many mistakes made during the privatization of the Narva power plants. He asked the parliament to revise the results of the privatization on the extraordinary session. Lennart Meri demanded that the parliament should discuss the accordance of the treaty and the Maastricht, Rome and other European agreements about the open market and competitiveness.

Estonian pro-privatization prime-minister Mart Laar told in his speech in the parliament that the refusal to sell stocks to the American company NRG Energy can threat EstoniaТs joining to NATO. After the discussion in the government it was decided to continue negotiations with the NRG despite the resistance from the public and academic circles.


Runaway train

УEven 10 years ago we had very good railway station in Tartu, but not now,Ф says Lea, one of the few passengers waiting for the train to Valga. She worked for the railways until 1995 and saw everything by her own eyes: a lot of passenger trains passing by, new carriages waiting for people to come and go, railway station full of people. Her mother was almost forced to retire with EEK 18,000 severance pay because the Estonian railways were to cut their budget to survive. During several years the passenger traffic in Tartu was closed at all and it was reopened only in September this year, just after the privatization of the railways completed.

But it was not because of privatization. The new owner of the Estonian railways company Eesti Raudtee Ц Baltic Rail Service (BRS) Ц is not interested in the development of passenger traffic. It purchased the railways to make them profitable, but it is much easier to make money on cargo trains which go one after another through Estonia, carrying Russian oil and petrol to the West.

All the process of privatization was surrounded with scandals. The most embarrassing thing happened in August when an administrative court in Tallin concluded that the Estonian Privatization Agency had acted illegally in choosing an initial bidder unable to find cash backing for its offer.

Another tricky moment was concerned with the winner of the tender Ц Rail Estonia. It turned out that one of the key officials in this company was wanted on money laundering charges in the United States. After it was decided to hand over the right of the privatization to the British-American-Estonian consortium BRS that presented the second best plan of the privatization. The deal was complete after BRS paid EEK 1 billion to the Estonian government on August 30, 2001.

Now BRS owns all the infrastructure of Eesti Raudtee and can allow other companies to use the rails for their purposes. There are three different companies operating passenger traffic in Estonia. ItТs up to them to open new passenger lines or not. And it is not appropriate for the common people who need to go, for example, to their summer houses in the Estonian countryside. As for trip to Tallin, it is cheaper and faster to go by bus than by train.

Another problem after privatization is unemployment. Aap Tänav, the press-secretary of the Estonian Transport Ministry refused to reveal the exact figures but indicated that about 1500-1800 people of 4500 would be laid off by the new owners. But otherwise he said that the privatization should make the railways more efficient and competitive because Уthe Estonian government didnТt have enough money for development of railways.Ф

Mr.Tänav didnТt hear any EU reaction on the Estonian experiment about the total privatization of the railways, but he hopes that Уthis initiative if succeeds will be very welcomed in the Europe where there are a lot of problems with the state-owned railways.Ф He told about the EU directives and rules concerning the railways and assured that Уthere shouldnТt be any terrible difficulties in this field after Estonian joining the EU.Ф

Katrin Kivi, an Estonian Privatization Agency spokeswoman, told in the interview that the railways deal Уwas the last big privatization. After this, we can say EstoniaТs privatization process is mostly finished.Ф


Questions left

In its efforts to get rid of the Soviet heritage and to fulfill all EU demands about market economy, Estonia tried to privatize as many objects as possible. There are opinions that EstoniaТs economic policies are so open that it will have to increase state regulation to join the EU.

Privatization in Estonia is almost complete but questions are still left. How will it function? What impact will it have on common people? Will the workers dismissed from the railways after its privatization believe in the positive goals of this process?

LetТs seeЕ