Risky train car business given green light

Photo: TASS / Scanpix

Even though the supervisory board of state-owned rail infrastructure company EVR Cargo approved the company’s now infamous Russian railcar deal yesterday, chairman Neeme Jõgi emphasizes that the decision was conditional. He still finds the business to sport a high level of risk that will in the future be on Minister of Economic Affairs and Infrastructure Kadri Simson.

Postimees shed light on EVR Cargo’s ambitious business project in July: to take out a loan and procure €35 million worth of railcars from Russian plants to be rented out to major Russian companies suffering from a corresponding shortage. The idea was met with a lot of attention and criticism as it was the first major Estonian state investment to Russia.

The first stage of the project is already underway, meaning that EVR Cargo has spent nearly €18 million on 500 cars. The company had taken delivery of 85 cars by Friday last.

If the previous supervisory board of the company, headed by now Finance Minister Toomas Tõniste, approved the Russia project, the new board, under Neeme Jõgi, applied the brakes regarding the second part of the plan after finding it controversial and risky.

A month later, Jõgi is still convinced risks are considerable. “It is a business project that goes beyond the regular activities of a state company, sports a very high level of risk, and does not correspond to  the owner’s, which is to say the state’s, principles of conservative business,” Jõgi said.

If, weeks ago, Jõgi said the management board and CEO Raul Toomsalu’s railcar rental business plan was lacking, things have improved by today.  At the same time, the supervisory board’s estimate of the profitability of the business plan falls well short of the initial forecast of the management.

Jõgi did not wish to analyze the risks of the business via the press but said they are first and foremost tied to CIS countries like Russia, Belarus, and Kazakhstan investing in which entails dangers. He added that the state company’s foreign investment is too dependent on the fluctuations of the global transit sector and circumstances that cannot be controlled from Estonia.

That is why the supervisory board chairman suggested the company put the second stage of the plan on hold at least until the business, using the first 500 cars, has had time to justify itself.

Why did the supervisory board decide to green-light it? “Unfortunately, my proposal of holding off did not find enough support,” the chairman said. He added that now responsibility will transfer to Economy Minister Kadri Simson.

Jõgi said that as the owner the state is free to do with its property as it will. “The owner is free to trade its shares for well-ironed candy wrappers or whatever. We cannot make that decision for the owner in the supervisory board,” he said, and added that the best the board could do was to point out the risks and shortcomings of the business plan. From there it is in the minister’s hands.

Jõgi was reluctant to comment when asked whether the management board, owner, or other members of the supervisory board tried to pressure him. Will Jõgi be responsible for the deal going belly up? “Legally I am not responsible as we are executing the owner’s will. We would be responsible if we had given our consent without the owner’s decision. That is something I would not have done,” he explained.

EVR Cargo’s Russian railcars business ambitions have been defended by CEO Raul Toomsalu and Kadri Simson.

Toomsalu has previously told Postimees that EVR Cargo’s advantages in Russia are access to cheap loan money and necessary business know-how. Risks are allegedly managed through entering into contracts with European subsidiaries of Russian companies so transactions would be made in euros. “Our transaction does not sport a high level of business risk. It is impossible for our assets to disappear,” Toomsalu said.

Minister Simson has pointed out that EVR Cargo would continue operating in loss were it not to expand its business. “As concerns the firm’s railcar rental plans, it is not a new business. The rental service was available last year under a reformist minister,” Simson said. The investment is also not in contrast with the West’s sanctions against Russia.