Privatisation in Estonia: future perspectives

Vaino Sarnet
Director-General, The Estonian Privatisation Agency

The privatisation of companies in the manufacturing and service sectors began in 1991. The process is now almost complete, and we are turning our attention to other sectors.

The most important companies to be prepared for privatisation are Estonian Energy, oil-shale mining company Eesti Polevkivi and Estonian Railways; we are also preparing land privatisation. Estonia faces a challenging task in forming appropriate policies for the development of key infrastructure sectors. Continuing state ownership of these companies is likely to be an unaffordable burden on the state budget, given that a balanced budget is a legally binding requirement.

There is considerable consensus among Estonian political parties that it is necessary to attract private investment in infrastructure sectors. But opinions about timing, scope and methods differ. The Governmental Privatisation Programme for 1996 envisaged extensive preparations for all remaining state-owned infrastructure companies. The list included Estonian Energy, the Port of Tallinn, Estonian Railways, Estonian Telecoms and Eesti Polevkivi.

Privatisation guidelines

The main guidelines for infrastructure privatisation are:
  • to separate true natural monopolies from those which have or can have domestic or foreign competitors;
  • to prepare legislation to regulate natural monopolies before privatisation;
  • to restructure natural monopolies before privatisation with the aim of creating necessary competition where possible;
  • to work out privatisation methods which attract the maximum new capital and expertise into the company before selling the state-owned shares via international or domestic public offering.

In April 1996 committees were formed from the representatives of several ministries and the Estonian Privatisation Agency. The consultancy, headed by Credit Commercial de France under the framework of the EU's PHARE programme, helped the committees to prepare privatisation plans for all five infrastructure companies. The restructuring schemes for Estonian Energy and Eesti Polevkivi were presented to the Government by 1 November 1996; schemes for Estonian Telecoms, Estonian Railways and the Port of Tallinn were to be presented on 1 January 1997.

Estonian Railways

The privatisation strategy for Estonian Railways involved changing it into a joint stock company, initially with all stock owned by the Government. A Railway Administration under the Ministry of Transport and Communications will be formed. The railway network will be split into different viable companies. At the same time, the Railway Law will be updated to meet European directives.

At the end of August the Board of the EPA permitted Estonian Railways to form a joint stock company with Koehne GmbH of Germany. Estonian Railways put its technical equipment as share capital into the company; the German company is to make the required monetary investment. The resulting company will be guaranteed half the state's rail maintenance orders.

Estonian Energy

At present Estonian Energy is a 100 per cent state-owned company with 15 subsidiaries. The energy supply system is working below capacity and energy prices are regulated by the state. Estonian Energy has a centralised system for planning and financing the generation and distribution of electricity.

According to the privatisation plan, a concern will be formed from Estonian Energy. In the process of restructuring it is planned to form a body of control independent from the enterprise. The main goal is to separate the production, transmission and distribution networks.

Eesti Polevkivi

The goals of the privatisation of Eesti Polevkivi are:
  • to modernise the oil-shale industry;
  • to secure additional capital and know-how;
  • to demonopolise the oil-shale industry and create competition;
  • to form enterprises which are attractive to investors;
  • to raise the economic efficiency of the oil-shale industry.

Privatisation success

The privatisation process has aimed to create a rapid transition to a market economy; this has been achieved.

The priority of the process has been to promote the development and the viability of companies. This has been completed successfully.

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