Hundimägi: Nationalize the Ferry Business

Photo: Postimees/Scanpix
9/11/2013 9:02 AM
Category: Opinion

The following piece by Aivar Hundimägi, deputy editor in chief of Äripäev, is a weekly commentary from Vikerraadio.

The Ministry of Economic Affairs recently said the state itself should own the ferry boats carrying passengers between the islands and mainland, and should rent them out to private companies, which would manage daily vessel traffic. It's a good idea and it is high time for the state to begin implementing it, because the current contract with Saaremaa Laevakompanii's subsidiary Väinamere Liinid ends in 2016.

The last attempt to fend off Saaremaa Laevakompanii owner Vjatšeslav Leedo from the ferry business ended as former economy minister Meelis Atonen left office. One reason was that the state was late with its preparation at the time.

The state currently pays over 15 million euros per year of support to Väinamere Liinid for the operation of the ferry connections. But despite the state subsidies, the company is operating at a loss and based on economic reports is in danger of bankruptcy. It is difficult to evaluate, however, whether Väinamere Liinid is truly in a tough financial situation, because the costs associated with ferrying are not transparent.

It is understandable that Leedo and his business partner, real estate businessman Olav Miil, do not want to cast the ferry operating as a lucrative business, since the state might then reduce subsidies. But looking at Leedo's and Miil's business chain, it can be claimed that it is not possible to make money with the island ferries.

Leedo and Miil have created a chain, in which one end is well-off and the other is sickly. Since 2010, three new ferries were brought into service to transport passengers, costing 90 million euros to build. These ferries belong to three foreign companies owned by Miil. The three foreign companies rent the ferries to three Estonian companies, which are owned by Miil, Leedo and a lawyer who probably represents the business interests of Richard Tomingas, one of the founders of Arco Vara. In turn, these three firms rent the ferries to Leedo's Saaremaa Laevakompanii, which has given them to its subsidiary Väinamere Liinid.

Väinamere Liinid is indeed in the red, but the intermediate companies' cash flow is positive, because the payments for the loans to build the ferries are noticeably smaller than the revenue earned from renting the ferries.

Looking at this business chain, it is justifiable to have the suspicion that Väinamere Liinid and Saaremaa Laevakompanii pay too generous a price for the ferries and that could be an explanation for the bad financial position of Väinamere Liinid.

Surely the state or state-owned companies can get a loan to build or buy new ferries just as cheaply as Miil did for the construction of three new ferries. If the state's goal is not to earn from the renting out the ferries, then one could assume that the costs attached to the ferry connection could decline, subsidies could be reduced and the state could use part of the money for other purposes.

Of course that is all just conjecture. In order to ensure a smooth transition after the current contract ends in 2016, the state needs to start searching for different solutions now. Among other things, it needs to clarify how much it would cost the state to build new ferries; maybe it would be wiser to buy the current ferries from their owners or maybe it should extend the current contract with more favorable conditions, if the alternatives are too expensive. A swift decision from the state would be fair to its current partners because if the services are no longer needed after 2016, then Leedo and Miil can begin seeking a new use for their ferries.

From the current partnership, it seems that the terms have been dictated by a private firm and the state has had to obediently nod its head and increasingly burden the taxpayers' wallets. The situation is the result of a job poorly done by officials of the Ministry of Economic Affairs, because the state has not previously sought more serious alternatives to Leedo. That is also why the state has had to dance to the music of Vjatšeslav Leedo.



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