State-owned freight rail company Operail has sold off all its rental rolling stock, and wound up that aspect of the business, in the wake of Russia's invasion of Ukraine. Russia had been one of the service's main customers, while the wagon rental aspect of the business had been by far the most profitable activity for Operail, during the years 2017-2022.
Rolling stock rental is not a strategically important activity for the state, Operail adds, while the private sector is capable of providing services.
The policy dates back prior to the 2022 full-scale invasion of Ukraine, though after the 2014 annexation of Ukraine and start of insurgency warfare in eastern Ukraine.
The 2016 coalition agreement signed by the Center Party, Isamaa and the Social Democrats (SDE) included provisions for winding up Operail's wagon rental business, albeit via privatization, with this becoming a practical reality in spring 2021, Operail says.
The February 2022 invasion prompted a switch from privatization of AS Operail Leasing, to the full-scale sell-off of its assets.
AS Operail Board Chair Raul Toomsalu stressed that the business had originally been set up to reduce dependency on Russian fireight rail transit, saying: "The media has given the impression that the wagon rental is the 'Russian business' of Operail. This is not true, the business was started for the opposite reason – to reduce dependence on the transport of goods in transit from Russia."
Merle Kurvits, management board member at Operail and Executive Director of Operail Leasing said of the development that: "Overall, the detailed sales process and its result can be considered a success for Operail, although it turned out to be longer than originally planned due to the war in Ukraine.
"It is a pleasure to note that the negotiation process with the companies that qualified as buyers in the final round went well and the quality was high. I would also like to express special thanks to the Operail Leasing team, who handled the difficult sales process well," Kurvits went on, quoted in an Operail press release.
"From our perspective the sale of all rental wagons means that the Operail Leasing wagon rental business can be considered finished," she went on.
The sale comprised 1,036 wagons sold for a total of €22.7 million in February and March this year, sold to six Estonian companies and one company from Kazakhstan.
This took place in three stages: In December 2022, 522 wagons located in Ukraine were sold at a price of €6.51 million .
Phase two, lasting from December to January year, saw Operail conclude sales contracts with two buyers, who purchased, 807 wagons at a price of €22.1 million
Most recently, the remaining rolling stock was sold.
The rental of rolling stock had proven profitable, the most profitable aspect of Operail's business in fact, earning a return on equity of 21 percent per year in the period 2017–2022, 38 percent more than foreseen in the initial business plan, and totaling €68 million in income.
In fact, 99 percent of Operail's profits during that period were sourced from the rolling stock rental market.
Raul Toomsalu said: "The reason for expanding the business was that after the events of the Bronze Night [Kremlin-orchestrated, large-scale riots in Tallinn in April 2007 in which one died, following the relocation of a statue around 2km away from its original site], Russian transit through Estonia fell significantly and freight transport separately was no longer self-sustaining."
"Since freight transport is strategically important for the country, finding ways to remain economically viable was needed. We were looking for alternative income until freight transport in Estonia could be optimized and reformed," he went on.
Twenty private sector companies took part in the auction of rolling stock, from over 40 notified of the event.
Operail first started renting rolling stock in 2001, when the company was still part of AS Eesti Raudtee, later hiving this off to a separate company EVR Cargo (later Operail) in 2009.
In 2017, the business was expanded and more rolling stock acquired. In the summer of 2021, the rental of wagons was concentrated in the subsidiary Operail Leasing (see above).
Rolling stock was leased to European firms using the 1,520 mm gauge.
Editor: Andrew Whyte