Government discusses bundling transport firms under single holding company

Photo: Eero Vabamägi

Today, government of Estonia discusses consolidation of infrastructure enterprises i.e. whether firms providing port, railway and airport services could be united under one holding company. The plan is to provide a solid partner for the transit sector and boost control over state enterprises.

The single holding company would consolidate Port of Tallinn, Estonian Railways, EVR Cargo, Estonian Pilot, Saarte Liinid, Tallinn Airport, and Estonian Maritime Administration’s ship traffic management department, says the plan. On top of that economy and communication ministry (MKM) ponders an intermediary company possessing holdings of Estonian Railways and EVR Cargo and representing Estonian Railways in talks with Russia.

The holdings would be managed the way a parent company manages a group i.e. having power of decision in one or several other subsidiaries. The holding company would employ CEO, finance director, bookkeeper and a couple of economists; also, internal audit departments of port, railway, airport and EVR Cargo would be subjected to it. It should also be analysed if it would be prudent to grant the holding company such functions as sales, marketing and other support functions.

The ministry thinks such consolidation of holdings would allow separation of business management and political management. MKM says management should happen through a professional council the members of which are elected in a transparent manner. The unit would be a link between political and business management.

The holding company’s estimated yearly management costs would be €700,000. At initial MKM assessment, €900,000 would be saved by joint support services, joint procurements, and better price of borrowing, thus covering the additional costs of establishing the company.

The ministry calculates the initial contracts and preparation of decisions would take five months, amendments of legal regulations eight months, and the creation of the company up to six months.

LHV Group head and Eesti Energia chairman Erkki Raasuke who two years ago developed for the state a public enterprises strategy is optimistic regarding the plan but says it is not enough.

«The main thing is understanding why this is being done. If we simply consolidate the transport sector companies but continue manning them the same way, the problem will grow worse,» Mr Raasuke said at a debate at BNS yesterday.

He underlined that the larger and the more complex an enterprise, the greater the need for deeper and more mature management ability. «if you are really afraid you will fail not make it with management or that something goes wrong, the best way is to run your entire business as small companies, as one will die and another will take its place – nothing can go fundamentally wrong. But the larger you make a company, the greater the impact of bad decisions,» he explained.

Mr Raasuke says management needs a qualitative leap and that takes maturity. «We’d need to take a look in the mirror and ask whether we have the maturity level. If they still want «own boys» in there (the state enterprise councils – edit) then there’s no maturity and the thing will backfire again,» he said. Even so, he said that with sufficient maturity he’d shine the green light.

To this agrees former politician and state enterprise Elering chief Taavi Veskimägi. «This is tremendous responsibility, if you put together ten people who are responsible for the entire state portfolio. I don’t think we are ready for that yet. In a way it is good to have this domain-based pilot programme to get the feeling,» said Mr Veskimägi.

Mr Raasuke said all should begin with transparency. It would be enough that a minister would add a description of experience of a person appointed to a council, complete with the expectations regarding his position – failing to meet these, they could be called back.  

Mr Veskimägi thinks it is not totally wrong for politicians to sit at state enterprise councils as they are often the best to put owner’s expectations towards enterprise into words. Mr Raasuke thinks the expectations should rather reach enterprises via ministries where all kinds of development plans and the like have been produced. While deeply doubtful regarding active politicians belonging to councils, Mr Raasuke thinks the councils should surely contain individuals with public sector or political experience.