Parts armed with private business insider information

Photo: Peeter Langovits

Why is economy minister Juhan Parts so sure the state would save millions of euros a year, by taking over ferry traffic? For a surprisingly simple reason.

We have got confidential information. We know these figures. I do not want to tell [you] the figures as I have given [my] signature I would not tell them.

These are words uttered by Mr Parts in ETV programme Foorum, aired in mid-January.

A large part of the viewers never noticed the talk. Or, if they did, they never asked how and why does the honourable minister possess secret information regarding private owned ferry business.  

The reason is simple. To obtain delicate ferry business information, Mr Parts needed not to send in industrial spies – like the Chinese did, for instance, with Eesti Energia oil plant. Neither was this a repeat of the Enron scheme, where business secrets were revealed to state powers by a law-abiding whistle blower.

The minister got the entire information much more easily: out of his free will, ship-owner handed it over. The minister received a folder, the front cover boasting bold red letters: CONFIDENTIAL.

Based on that information Mr Parts has hopes that, as master of the ferries, the state will save six to eight million euros a tear. Contrary to Estonian folk wisdom, he wants to prove that the state would be more economical than private owner.

In shipping, by happenstance

Contrary to popular belief, the ferries connecting West-Estonia’s islands with mainland belong not to Vjatšeslav Leedo. Indeed, he has organised berry traffic for 20 years; even so, he only owns the operator i.e. the one keeping the ferries going, organising catering and selling tickets.

The ships, however, belong to Olav Miil. The man who, at the start of capitalist Estonia made a breakthrough in real estate business – even now, he is building a 30 storey high-rise in Tallinn’s Stockmann quarters – and got stinking rich.

Mr Miil is a discreet person, not one to press into Kroonika [the society magazine – edit], keeps a low profile. On the maiden voyage of the first new ferryboat, photographers never thought to shoot a picture of him caressing the ship, shining white, like his own baby. The public limelight kept shining on the ferry king – Mr Leedo – and his entourage. 

Mr Parts comes across as fearless. One day, he tackles Prime Minister Andrus Ansip about the LNG terminal thing; then, he jokes about the Lithuanians regarding Rail Baltica; then again, he fights for rearrangement of passenger train administration. Never chickens out.

Mr Miil is different. Not one to praise the generals doing fancy manoeuvres in war; rather, admiring the ones who avoid conflict.

Mr Miil loves the sea, he loves sailing; nevertheless, he was not keen at all to own a ferry fleet. That just... happened.

Years ago, Mr Leedo promised the state that he would bring a new ship unto the lines; even so, he ordered three. He had not money enough; building the ferries was undertaken by a quartet known to him, who founded the real estate company Arco Vara. During boom, these guys did well, riding Bentleys, making millions by listing the company.

When crisis hit, the Arco Vara bunch quarrelled amongst themselves, and the money run out. Swedbank refused to lend money. The contracts had been signed, however, and the ships needed to be built.

Now, Mr Miil was asked to come help. From a distance, the deal didn’t look too bad: one invests some money, takes on some extra loans, the ships will be built, and then one resells them to German pension funds. Still, easy gains proved evasive.

At a certain moment in time, after €15m had been poured into the project, Mr Miil was deep in trouble, as close to €70m extra was needed – over a billion «old» Estonian kroons. At the same time, crisis was raging in Estonia with some fearful entrepreneurs predicting blood in the streets should unemployment keep rising.

Few had cash to spare, then. Luckily, Marcel Vichmann had some. The man being a person involved by Mr Miil in is real estate development biz, once upon a time.

Lion’s share of the financing was assumed by Norwegian state agency Eksportfinans. The Norwegians entered as the ship hulls were built in Klaipėda, the insides coming from Ålesund area. Later, the loans were assumed by the Norwegian bank DVB, which has also financed Tallink.

Archives of Postimees contain pictures of Mr Leedo, with Mr Parts and Mr Vichmann, attending keel laying ceremony, in Klaipėda. The men look satisfied. There’s also the photos of visit to Norway by Lithuanian President Dalia Grybauskaitė. By King Harald V, the Lithuanian lady was taken on board of a ferry yet to be finished – this being Lithuanian-Norwegian joint effort. And then the photos of an Isle of Hiiumaa maiden breaks a bottle of champagne against the ship bow and christens it Hiiumaa: «Luck be with you on high seas, mercy from all winds and ice!»

Behind the glossy pictures, a battle raged. Business partners Mr Miil and Mr Vichmann quarrelled, the conflict leading to a major «divorce case» in Estonian business history. As the assets were split up, Mr Miil got the ships.

However, Mr Miil’s troubles were not limited to Mr Vichmann alone. His relations with Mr Leedo weren’t the best either. Again and again the issue arose: is Mr Leedo, as charterer of the ferries, paying the agreed money, or not. Insecurity increased and finally, in October of 2011, Mr Miil was headed to Mr Parts, with the aforementioned folder containing the confidential papers.

Sales scheme ever altered

Mr Miil made a simple offer. Once the contract with Mr Leedo expires, Estonian state may lease the ferries. For no less than 30 years. Mr Miil was willing to lower the chartering fee nearly two times – true: starting 2023, as the bank loan gets paid.

«A wonderful idea,» thought the economy minister.

His staff searched the data, did the math. They noticed that Mr Miil’s company takes too much for the ships. Should Estonian state assume the loan, instead of a private businessman, the conditions would be more favourable. The state could save a lot of money. The talk was of over €4,000 a day, per ship.

Mr Parts proposed to Mr Miil that the state not lease his ferries, but buy them. In January 2012, the men signed a protocol of common intent, granting state representatives access to sensitive information, including knowledge of chartering prices of ferries.

With each ferry, several companies are involved. There are the chartering contracts, and the re-chartering contracts; contracts for vessels with and without a crew.

Mr Parts and Mr Miil were to shake hands in March of 2012. Never happened, as Mr Miil wanted compensation till the end of contract with Mr Leedo.

This was several million euros for each ship. State officials started to doubt, and lay additional conditions on Mr Miil. From the state’s point of view, the talks were the more complicated as the sales scheme for the ships kept constantly changing.

Meanwhile, Mr Miil’s relationship with Mr Leedo improved, his need for speed disappeared. His charter contract with Mr Leedo lasts till 2026, and Mr Parts knows that.

In February, last year, Mr Miil took a month long journey to Antarctica. To his lawyer, he left powers to sign the contract. As he returned, the picture was as bleak.

Now, 17 long months have passed. Mr Miil had enough, and announced and of talks. 

«In the West, companies costing several billion dollars are purchased in half a year; our officials, however, couldn’t handle a thing multiple times smaller. No-goods! The one responsible should be sawn into shims,» vents an informed state official.

Even so, Mr Parts was not fazed. Possessing valuable insider information, he opted to use it – as befitting to him.

Last September, the government approved proposal by Mr Parts that the state buy the ferries. Should the state fail to get the boats for reasonable price, they’ll build new ferries.

The deadline id October 2016, as the contract with Mr Leedo’s company expires.

The government decision caused quite a stir. Majority of thinking people will remember, how, about a decade ago, then economy minister Meelis Atonen tried to break the ferry monopoly and filed. Mr Parts’ turn now? 

Mr Parts, however, is charging confidently ahead, believing he is doing the right thing. Saving the taxpayer money, enough to build one new schoolhouse a year.

At the abovementioned government meeting, economy ministry vice chancellor Merike Saks presented a PowerPoint file revealing, among other things, that the state is paying more and more extra to keep the ferries going. As recently as in 2008, the subsidy was €8.7m; in 2012, it was over €14m. (Never mentioning that, at the same time, the same ministry had for political reasons lowered ferry ticket process, which increased subsidies.)

Contest entrance sought

This January, when presenting the state-ferry-fleet idea at Riigikogu, Mr Parts assured: «We want to do this in cooperation with the current new ship owners.»

Mr Miil, however, is sensing danger for his biz, about to be taken over by Mr Parts. The minister has ordered Port of Tallinn that its subsidiary organise public tender to acquire ferries and, in fall of 2016, lease these out by competition.

Or, in other words: at the competition, state’s ships can participate, not Mr Miil’s ones (who has a contract with Mr Leedo till 2026, as both knew a new contest was coming in two years).

Mr Leedo’s lawyers compiled a memorandum regarding the decision by sole shareholder of Port of Tallinn (read: Mr Parts), wherein they also warn that as the existing contract expires, Mr Miil may take his ships abroad and ferry-traffic with the islands will be cut off. 

«I have never threatened the state,» says Mr Miil. «I am ready to talk with the state, ready to invest in a new ship. I want a chance to participate at the competition.»

The question being: how serious are the dangers? And, will they be heeded?

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Strengths and weaknesses of state ferry business

Strengths

Claims by economy ministry

•    With the three ferries owned by state, charter fee is about twice as low as it currently stands. That makes for over six million euros saved, yearly.

•    Lifetime of new ships is 30 years, minimum.

•    Owning the ferries will allow for stronger control over use of taxpayer money.

•    Ship owner’s equity yields about 30 percent a year, and will increase.

•    Should things remain as they are, only entrepreneurs Olav Miil would participate at the contest, as local ferry lines require specific ships (low draught, ice class etc) and the initial investment of close to €120m would scare off competitors.

Weaknesses

Claims by Vjatšeslav Leedo’s camp

•    Building new ships plus preparation of the project takes four years. The date, October 2016, is therefore unrealistic.

•    If entrepreneur Olav Miil takes his ships to some other sea, as the contract expires, the state has trouble finding a crew fitting the three vessels, experienced in navigating hard icy conditions, in shallow water and having enough command of the Estonian language.

•    Order by economy minister Juhan Parts issued to Port of Tallinn, to buy ships, may be interpreted as forbidden state aid.

•    With only state ships allowed to the future competition, this would equal restriction of competition. This is forbidden.

•    Profitability of ferry owner and operator currently stands at ten percent a year: this is the usual market profitability rate.