The government approved the sale of state road maintenance company Eesti Teed on Thursday – a plan that has been in the works since the time of Reform Party economy minister Kristen Michal.
The proposal by the Ministry of Economic Affairs and Communications will see the company go up for auction in October. “The privatization should be considered in the most beneficial way, which is why we propose a public auction aiming for the company’s book value of €14 million that is higher than the previous expert valuation from November,” the ministry’s document reads.
CEO of Eesti Teed Andres Agukas said the process of preparing the company for sale started in 2015 when the ministry was still run by Kristen Michal. “That is when we dropped non-market price road maintenance contracts [with the Road Administration] as they made it impossible to sell the company and took to the market in all road maintenance regions – all of these steps have been taken,” Agukas said.
The company won road administration tenders in Võru County, West Viru County, Saare County, the city of Keila and as a subcontractor also in Tartu County. The contracts are valid until 2022. Eesti Teed made a loss of €650,000 at a turnover of €28.5 million last year.
Agukas said he welcomes the government’s decision as uncertainty in terms of the future is not good for development.
Minister of Finance Martin Helme (EKRE) said during the government’s press conference yesterday that reduced competition and price advance are the risks associated with the sale.
“The general attitude is that if we cannot get a fair price or perceive some kind of dangers, we will not sell,” the finance minister said. “A situation where we have reason to believe a market participant is simply planning to acquire their competitor and take it off the market, we might have to reconsider the sale,” Helme said.
The minister added that dividends will be taken from Eesti Teed before the company goes up for auction. While our original expectation in terms of price was around €15 million, the paying of dividends will probably change that,” Helme emphasized.
Road construction companies welcome the government’s decision because there is no reason for the company to remain in state hands in the conditions of a free market.
CEO of Trev-2 Sven Pertens could not say whether his company is interested in acquiring Eesti Teed for the price in question. “Rather, the question is whether market participants or prospective buyers see the same logic behind price formation. While we are interested [in buying the company], the decision will come down to whether we find the price acceptable, and that is something I cannot tell you without seeing the books,” Pertens said.
CEO of Nordicon subsidiary Tariston Kaspar Kaldjärv said they need to analyze what it is the state is selling in terms of assets and contracts portfolio. “Our potential interest is cooled by the fact that Eesti Teed is a very big company the acquisition of which needs to be economically sound and sustainable after state road maintenance contracts expire.”
He said that to get the most out of privatization, the state should split Eesti Teed into separate companies in different regions the company services and give buyers a five-year contract in each of these.
Kaldjärv sees Eesti Teed’s 30-percent market share in state highway maintenance as the most valuable part of the company. “We cannot underestimate the recent service provider’s advantage going into tenders – they already have the necessary staff and resources. As concerns everything else, the volume of remaining assets is rather a problem in this fiercely competitive field as the company lacks necessary flexibility and ability to make quick decisions concerning resources,” he said.
The economy ministry is also planning to privatize Operail and Nordica. The state is also considering postponing several planned investments. Minister of Finance Martin Helme said the government will have to go over its plan for the development of the eastern border and its cost.