Bell tolls for Saaremaa Laevakompanii monopoly

Photo: Saaremaa Laevakompanii

Ministry of Economic Affairs intends to propose that government procure four state ships sailing to Saaremaa and Hiiumaa.

At long last, the state is taking steps to end the ferryboat monopoly of Vjatšeslav Leedo: this fall, Ministry of Economic Affairs presents government a proposition to purchase four ferries wherewith to operate the Saaremaa and Hiiumaa lines.

In essence, the state is repeating the Elektriraudtee scheme, where state acquires the infrastructure (in this case: the ships) and follows through with a procurement to find a company to operate these. Should the plan work, Vjatšeslav Leedo’s long-time ferryboat monopoly ends as of 2016.

High time, indeed. Even though the Leedo-contract has three more years to go, ships are no piece of cake one may order at any time. Whether the state decides to build brand new ships, buy used ones or rent some, it all takes time.

As revealed by a brief excursus into history, ten years ago the then economy minister Meelis Atonen was fighting the same fight. Mr Atonen became minister in April 2003, the contract with Mr Leedo, however, was due to be up in September 2004 already. The minister wanting to change the order of things, time just wan not enough. «There was not enough time to build anything, anymore; and there were not too many vacant ferries available. I hit a rough spot,» recalls Mr Atonen. And so the story went. They tried to arrange a procurement, Mr Leedo sent in shadow companies and the procurement fell flat.

«In essence, Leedo ridiculed the state. We could have given ground on everything, but I did not consider that to be right,» says Mr Atonen, adding a word of wisdom: «If nothing happens in the next six months, history will repeat itself.» It remains to be seen whether minister of economy Juhan Parts, having had much more time on his hands, will be able to find a solution for ferryboat traffic dispute and settle the old problem once and for all.

In a way, repeated signals have been sent, over these past years, that the state could indeed be the owner of the boats going to the islands; generally, this has been mere hot air. Slowly, very slowly, over the past six months wheels have begun to get into motion.

Ministry of economy has hatched up a draft transport bill. While, in its initial rough versions, only phrases like «ferryboat traffic volumes need to be maintained», then the document signed by Juhan Parts, at the end of June, also includes the following sentence: «At that, boats are considered to part of the infrastructure needed to provide the service, owned by the state and given into operation on basis of public service contract.»

To the knowledge of Postimees, the talk in the ministry has now become a bit more definite. Probably, the state will task a public enterprise with procuring four vessels for the Rohuküla-Heltermaa and Virtsu-Kuivastu lines. The enterprise has not yet been selected; even so, Estonian Pilot has been considered. The next step, the ships being procured, would be another competition to find operator for the trips, provided that the state ships are used.

The precise timeline is not in place, but economy ministry folks say that the plan goes to government this fall and, immediately after its approval, the procurement follows. By the way: it cannot at all be excluded that the state will buy, from Mr Leedo and his partners, the very same ferries frequenting the isles right now.

The current state of affairs bothers the ministry; officials and politicians alike frame phrases à la«Leedo’s minions» or «extortion». From the start, a conflict is coded into the scheme – this, in essence, amounting to two monopolies, the state and Mr Leedo’s companies, doing the disputing.

Pursuant to the current contract, the state supports ferry traffic; the deal basically being that if Mr Leedo’s costs are x and ticket sales earn him y, the state is obliged to cough up the difference. Over the past eight years, the state has poured over €86.4m into ferry connection, this year’s estimate of €15.3m included. In addition to that, over the past five years, about €22m has been invested into berths and harbours. Admittedly, €18m of that has been the so-called euromoney.

For the sake of the truth, it must immediately be added that as, according to contract, the state pays the ticket income and costs difference, the subsidies also linked to ticket prices as well. As the politicians have been in the habit of offering benefits to inhabitants of Saaremaa (lowering ticket prices) the ticket income dropped, automatically raising the subsidies payable to Mr Leedo. Not that we could accuse the latter... agreed as it was.

Even so, from the state’s point of view, the problem is obvious. The subsidies being meant to pay up the difference in ferry traffic costs and ticket income, and costs being controlled by Mr Leedo, the state is nagged by constant doubts whether the costs shown by Mr Leedo are honest and according to market prices. To this, Juhan Parts himself hinted in a ERR radio interview, suggesting that ferry operator Väinamere Liinid cut such costs that enter the pockets of intermediaries between the operator and ship-owners.

Last year, for instance, Väinamere Liinid paid its parent company Saaremaa Laevakompanii (the sole holder of which is Mr Leedo) €18.8m in ship rental money. Väinamere Liinid chief Urmas Treiel attempts to explain that, in the contract used to calculate state subsidies, a bunch of formulas is listed (how to calculate fuel price rise or labour costs increase; how to consider consumer price index) on how to make yearly changes in subsidy sizes, but the state is still a little bit in the dark regarding how fair the costs are and whether they correspond to market price.

As expressed by a ministry of economy official: we cannot board the ships to check whether some generator needs to be amortized or how the paint peeling off the hull impacts the cost of the vessel, can we? Still, all such nuances provide for accounting opportunities to exaggerate expenses and losses of a company. And even though the ferry-operating Väinamere Liinid has been in the red, these past two years, their partner – the subsidy-paying Estonian state – has doubts that even with one company making losses, the overall boss Vjatšeslav Leedo has ways of taking his money out at other places. Firstly – of course – via these aforementioned ship rental fees.

And then, there are the other companies owned by Mr Leedo, spinning their business around ferry traffic. Companies like Väinamere Teenindus, offering snacks and drinks on board the ferries; or LLC Tuule Piletikeskus selling ferry tickets. All told, these would be small money compared to the ship rental costs; even so, money does flow.

Basically, Mr Parts – here supported by one-time economy minister Mr Atonen – would wish to get that very costs aspect into his own hands, to see what is really going on so the state could make better judgements.

To be fair, it cannot be claimed, of course, that Saaremaa Laevakompanii and Väinamere Liinid have just been sitting idle all these years, collecting taxpayer money and letting everything fall apart. Actually, the services have indeed been constantly improving, new ships have entered the lines, the passengers have a more comfortable time. Like a colleague of mine, from the isle of Muhu, says: ships sail straight as ever, timetables stick, the times of vessels being stuck in ice for hours or unable to land due to some surprise winds are history.

The more so, it came across as a slap in the face when, last week, Väinamere Liinid announced that as agreement was not reached with the state regarding timetable, the old Regula will be brought in as main ship between Virtsu and Kuivastu. This being a good workhorse; even so, it is nothing compared to the new ships – takes less vehicles, cannot stick to timetable.

Now, economy ministry demands the removal of Regula and the bringing in of a new ferry. No reply yet, from Väinamere Liinid. «We are not yet commenting on our next move,» adds Urmas Treiel.

Replies like this are a well worn tactic. Last fall, it was the same (old) story. Back then, all politicians and lobbyists linked to Saaremaa ganged up and Riigikogu ended up paying €600,000 extra. A year has passed, autumn is at the door. Time, again, to ask for extra euros. All of this being just a symptom; the sickness – the Leedo monopoly – is still not cured.