The golden age of transit is gone for good

My first question is very simple but perhaps also very complicated. What happened that 11 years after the Bronze Night carriage of goods is not growing in Estonia in volumes similar to Latvia and Lithuania?

First of all, your data is inaccurate. Transit volumes have fallen also on the Latvian railroad.

Things are fine in Lithuania; perhaps there is even a little growth. However, these are goods from Belarus.

Generally speaking, railroad volumes are not growing in the Baltic region.

Why?

There is a host of reasons.

The first is of course that the nature of goods has changed. Oil is increasingly being moved using pipelines, whereas it used to be one of the main articles of transit for the Baltics. So, there is simply less of that sort of transit.

Secondly, Russia has built for itself major ports that have major terminals both in the south and here, on the banks of the Baltic Sea, and they can move their own goods to ports and transship them quite successfully.

Thirdly, goods do not come our way because they are held back on the administrative level. The restrictions of Russian railways are tied to protecting the interests of Russian ports. It is probable they wouldn’t exist without the ports. Yes, their ports are a little bit more expensive and not as orderly, but they exist. And therefore, regulation of prices and freight volumes has created a situation where Estonia is not seeing recent transit volumes.

If your question is why Estonia finds itself worse off than its neighbors, the answer is once again complicated.

Lithuania is a separate phenomenon as they have transit to Kaliningrad that gives Lithuania a lever that Russia uses against Estonia. Should something happen, or should things not go according to plan, it is very easy for Lithuania to affect prices, stop and reopen transit etc. They have that option.

Rather we have reason to compare Estonian rail transit to that of Latvia. Latvia used to have Umaganis (former head of Latvian Railways Ugis Maganis – A. R.) who had connections and everything else that was needed. This meant that Latvia got what it wanted. We were left with the things they didn’t want. Now, that he is no longer in office, transit volumes have plummeted. Because relationships… relationships are very important in business.

Some people who have had ties to Estonian Railways have told me that one reason for falling transit volumes and lackluster growth is poor communication between the heads of the two countries’ railway companies.

Personal relationships are very important in business. All this talk of the usefulness of mathematics and Excel spreadsheets… It doesn’t work like that.

I will be blunt: have the heads of Estonian Railways not communicated enough with Russian railroad executives?

You have it all mixed up. Estonian Railways is simply selling its tracks – that’s it. That and safe train traffic.

Relationships need to be created by the transit operator, like EVR Cargo, as they are the ones moving the goods. Or if Estonian Railways is moving goods. Or whoever. In that sense, Estonian Railways represents the Republic of Estonia. However, they don’t really care. They charge a fixed price for use of their infrastructure, and they do not really care whether one or one hundred tons of goods are moved. It is the carrier that is interested in goods.

Was it the right decision to separate Estonian Railways and EVR Cargo? I understand it was done following a European requirement?

We (the Estonian government – A. R.) took that step but did not finish it. Estonia had a number of railroad transit companies, but EVR Cargo killed them all. It is no longer really living itself and will likely be bankrupt soon.

We, private businessmen, paid for our competitor’s activity through taxes. It is absurd when the state enters the market using budget revenue a part of which comes from taxes paid by competing entrepreneurs! EVR Cargo should have been closed?

Closed how?

Ended, annulled, liquidated, sold, merged… It doesn’t matter!

There is no competition when there is a state company on the market. It will simply try to suffocate everyone else, and it will succeed. And now we are left with a problem: the separation was the right thing to do, while competition was not created. I would say that we now have a disabled monopoly market lacking a monopoly. It is harebrained.

But no minister is willing to make decisions. It is clear now that centrist will never sell anything. Because they are leftists and want everything to belong to the state. This attitude can end badly.

Railroad goods should be [EVR Cargo’s] business. But the state pays them, they have a guarantee and are not interested.

They’re not interested?

Not in the slightest. Why should a state company bother? It is difficult and complicated. What for?

Estonian Railways has nothing to do with it, looking at legislation and EU directives. Their function is to maintain and sell infrastructure. That’s it.

I’ve gathered that the longer the trains on the railroad, the more money ER makes.

Their income is limited. They do not control their own income, they only control railroad usage fees. Fewer trains also means lower costs for them – repairs etc. At the same time, more goods would give them more opportunities for making money.

Alas, the logic there is that they get their money either way – money to maintain infrastructure, cover costs, and even turn a profit. They can never make a loss.

To what extend does the revenue of Estonian Railways depend on length of trains?

Estonian Railways’ costs do not depend on length of trains. Moving a train with 60 cars is the same as moving one with 30 cars. The length of the train is important to the carrier, not Estonian Railways. They must maintain their tracks and dispatcher either way.

The railroad is for hauling heavy goods. Light goods are moved using trucks and planes.

However, the railroad is the cheapest way to move goods?

Depends on what you’re moving. If you’re moving computers, it is faster and safer to use road transport. Coal cannot be loaded onto trucks. The railroad is for heavy and generally cheap goods, not expensive and light ones. The railroad mainly moves raw materials.

There are containers, but they are few compared to other goods. Container transit is good, but it yields little economic benefit.

Would we simply need more goods for our transit to blossom?

I believe that the golden age of Estonian transit is over for good.

Forever?

Forever.

The structure of carriage of goods has changed. The railroad is no longer the most important link, it is the port terminal. Today, there is competition between ports and terminals.

A million things have changed in the world. Detroit used to build cars. No longer. Things are always changing, and there is no sense in looking for last winter’s snow. We will never see such transit volumes again.

What is your new business plan, and will things improve or deteriorate?

I believe things will get worse.

That said, Skinest Group is active in 15 countries; we manufacture, repair, rent, and sell locomotives. We manufacture, repair, and rent train cars. We move goods and construct and renovate railroads. Our area stretches from Croatia to Mongolia.

Things are unfortunate in Estonia today, we lost a part of our business; however, it is not a collapse. We have never set our sights on Estonia alone – it is too small.

Perhaps I have it wrong, but you tend to look eastward or to countries with historical ties to the east in your business?

No. I did not mention Norway, Sweden, Finland, Germany, Poland, Czech Republic, Hungary, Croatia, Slovenia. We only have 14 percent of our total turnover in the “east”, in Russia.

Do you have any plans for the Estonian real estate market?

Skinest Group is also involved in energy. We construct power plants, sell electricity, and we have a holding in a fuel company. We are developing real estate in Georgia.

Why build a golf course in Georgia? For whom?

For Georgians. Estonians. The world. It is business.

It is not serious business!

How so? Building a golf course and an entire district next to it is very serious business.

Perhaps 2 percent of the population can afford to play golf in Georgia.

Two percent of four and a half million people is not bad at all.

We have also built an entire district. We can see Georgia developing, and there are more golf players every day. We are looking toward Georgia with great hope.

The capital Tbilisi has a district for wealthy citizens and foreign embassies called Vake. Are you building a new Vake?

This is our concept: sell your apartment in Vake and use the money to buy a house in the Tbilisi Hills (the development in question – A. R.). We have fresh air and a favorable location – downtown is just ten minutes away. You cannot get to Vake from the city center, if only because of traffic jams. We have a golf course, we have woods, we have grand views. And we’re offering you a house, not an apartment.

Therefore, people who live in apartments in Vake today will move to Tbilisi Hills. We have invested more than €30 million, while the cost of the entire project is around €1 billion. (Georgia’s estimated GNP for this year is €13 billion – A. R.)

I know Estonian entrepreneurs who invested in Georgia after the Rose Revolution in 2003 but came back pretty soon and said they had been hustled.

I have an opposite example. Mr. [Marcel] Vichmann is selling an apartment a day in Tbilisi. Every day! With great success. There are different examples.

Estonian entrepreneurs didn’t do so well in Azerbaijan.

I do not work in Azerbaijan. We maintain an office there, but I try to operate in countries that have a judicial system and where you can take investment risks. We have some work there, but we don’t invest in Azerbaijan.

Do you believe in Rail Baltic?

Yes, I think it is a good project that needs to be realized. At the same time, I’m very critical of its technical side as we are planning a railroad of the past. The day before yesterday. Trains moved 380 kilometers per hour in France back in 1983. We are planning a railroad for 2025 that would have trains doing 240 kilometers per hour. A speed of 400 kph is entirely feasible for a train.

The logic in Estonia is that we don’t need such speeds. That is doesn’t matter whether you go from Tallinn to Tartu in half an hour or an hour. And that there will be few passengers anyway. However, it does make a difference whether the train takes an hour or 90 minutes to get from Tallinn to Riga.

Why would you restrict speeds to 240 kph on the new railroad? It is just as absurd as paying good money to have proper roads and then having a speed limit of 90 kph. It is money wasted, invested into nothing. You can go 90 kph on a gravel backroad cutting through the woods. If we invest in new roads, we should raise the speed limit, to 150 kph if we have to.

If we build that railroad to have fast trains and exchange trucks for trains, the project makes sense. We will not be taking the railroad to Berlin, or even Warsaw, of course – it is faster to fly. But we will take it to Riga. And citizens of Riga will take it to Vilnius. And the latter will in turn take the train to Warsaw. It is common sense. And the railroad will also transport goods.