Sharp criticism for EVR Cargo’s plan to invest €35 million in Russia

State-owned railway freight company EVR Cargo is planning to pick up a loan and invest €35 million in freight cars in Russia. The cars would be bought from a Russian manufacturer, and leased to Russian companies. No risk, says the company—Russian roulette, say critics.

According to the plan, EVR Cargo would buy 600 container flatcars and 400 open wagons from a Russian company. A Russian subsidiary still to be founded would then lease the cars to large local companies, daily Postimees reported on Monday. The investment period the company is looking at is 15 years.

EVR Cargo’s CEO, Raul Toomsalu, sees little to no risk. “In terms of business, this transaction doesn’t come with any greater risks. That we lose our assets there is impossible,” Toomsalu told the paper.

Others disagree.

Former minister of economic affairs, the Reform Party’s Kristen Michal, said that when he left office in November 2016 EVR Cargo did not have this kind of plan. “If someone had asked me about the idea to invest in the Russian transit business for 15 years, I most likely would have thrown them out of my office,” Michal said.

According to Michal, the economic climate in Russia is entirely unpredictable. There was no way to tell what rules would apply just two years from now.

Fuel importer Alexela’s CEO, Andreas Laane, said that investing the taxpayer’s money in the Russian transit sector was an unprecedented step. As Laane, who has years of experience doing business in this sector, pointed out, this plan would only create jobs and mean more money for Russian factories, terminals, and railway companies.

“They clearly win. But the Estonian taxpayer carries all the risks, which are similar to those of playing the lotto or going to the casino,” Laane said.

Supporters: Unique opening in Russian market

As EVR Cargo’s Raul Toomsalu points out, the company has recently struggled with ever shrinking transit and other cargo volumes from Russia. New business directions needed to be found. Toomsalu also points out that it’s now or never: Russia introduced a measure last year that forces freight cars that are older than 22 years out of the market.

This led to the number of available cars shrinking by 200,000, which again drove up leasing prices for dearly needed rolling stock. If EVR Cargo wants to profit from this opening, it will have to be quick.

While the plan’s critics point out the volatile nature of Russia’s economy, Toomsalu is convinced that the growth forecasts for Russia will realize, and that the business will be a success.

The responsible deputy secretary general at the Ministry of Economic Affairs and Communications, Ahti Kuningas, agrees, and the company’s supervisory board, until April led by Minister of Finance Toomas Tõniste (IRL), has signed off on the plan.

Most likely not against sanctions

According to Jüri Seilenthal, director of the Ministry of Foreign Affairs’ external economic and development cooperation Department, EVR Cargo’s planned investment most likely didn’t go against the sanctions imposed by the European Union against Russia.

At the same time, Estonian companies were currently coming back from Russia rather than going there, and a lot of them had made losses.

The situation was difficult, and given the strategic importance of Russia’s railways, there were plenty of people involved in that specific business that had close connections to the Russian state and government.

Russia hadn’t hesitated to redirect its cargo flows away from Estonia and towards its own ports. There was no reason to think that the railway business was immune to similar steps taken in the interest of domestic companies, Seilenthal said.
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