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Viewing cable 06TALLINN634, ESTONIA: RAILWAY DEADLOCK UNNERVING GOE
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Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
06TALLINN634 | 2006-07-10 09:24 | 2011-08-30 01:44 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Tallinn |
VZCZCXYZ0000
RR RUEHWEB
DE RUEHTL #0634/01 1910924
ZNR UUUUU ZZH
R 100924Z JUL 06
FM AMEMBASSY TALLINN
TO SECSTATE WASHDC 8812
UNCLAS TALLINN 000634
SIPDIS
SENSITIVE
SIPDIS
DEPARTMENT FOR EUR/NB, EUR/ERA, EB/CBA, EB/IFD/OIA FOR
MTRACTION AND NHATCHER
E.O. 12958: N/A
TAGS: ECON PREL ETRD EN
SUBJECT: ESTONIA: RAILWAY DEADLOCK UNNERVING GOE
REF A) TALLINN 00437 B) STATE 72713 and previous
¶1. (SBU) Summary. On June 22, Baltic Rail Service
(BRS) sent an official response to the Estonian
government's letter of April 27 alleging that BRS had
violated the terms of the Estonian Railways
privatization agreement and threatening to revoke that
agreement. In its letter, BRS categorically rejected
all the government's allegations. On June 30 the
Ambassador met with Minister of Economy Edgar Savisaar
to discuss BRS' reply. The meeting was at the behest
of Savisaar, and unlike the last meeting (Ref A), his
mood was far more conciliatory. At our Fourth of July
event a day earlier, both Prime Minister Andrus Ansip
and Minister of Foreign Affairs Urmas Paet told the
Ambassador they would be pressing Savisaar to return
to the negotiating table. However, as mistrust
remains high on both sides, it is uncertain if either
party will initiate a resumption of negotiations. End
Summary.
BRS RESPONDS
------------
¶2. (SBU) In its June 22 letter, BRS forcefully
rejected all of the GOE's four principal accusations
of alleged violations as grounds for the termination
of the Privatization Agreement. First, BRS denied the
Shareholders Agreement (SA) gave the GOE any right to
transfer the value of the rails acquired under the
1998 Foreign Aid Agreement. Second, BRS argued that
it fully met and exceeded its investment obligation
under the SA (approximately $207 million). Third, BRS
denied the GOE's assertion that it never gave its
prior consent to BRS to pledge six percent of the
shares for securing the performance guarantee. BRS
said that although prior consent was given BRS has now
terminated the pledge of shares. Finally, BRS
continued to maintain that the government's golden
share is invalid under EU law and violates BRS' right
for redress through the courts. BRS ended its letter
by completely rejecting the GOE's reasons for wanting
to terminate the Privatization Agreement and
speculating that the GOE's real motivation may be
nothing less than the hindrance of the free movement
of capital.
A GESTURE FROM SAVISAAR?
------------------------
¶3. (SBU) On June 30, the Ambassador met with Minister
of Economy Edgar Savisaar, at his request, to discuss
the railway issue. Unlike previous meetings with
Savisaar, where he confidently defended the GOE's
actions and attempted to draw us into the details of
the negotiations, Savisaar took a more conciliatory
approach this time. While briefly outlining BRS' four
chief responses to the GOE's allegations and defending
the GOE's actions, Savisaar spent most of his time
asking us for advice on how he should respond to BRS'
letter. We reiterated Ref B points, and encouraged
both the GOE and BRS to return to the negotiation
table in good faith rather than continue their
acrimonious dispute publicly through the press.
¶4. (SBU) Savisaar seemed genuinely concerned over how
to affect a rapprochement with BRS. In contrast to
the confidence displayed in his past public comments
about the GOE's actions, Savisaar made a surprising
admission, saying that "Our lawyers are confident that
if this goes to court we will win, but I'm sure BRS'
lawyers are telling them the same thing...and in the
end, who knows who'll win." Savisaar was clearly
unnerved by the forcefulness of BRS' response and
resistance. He repeatedly complained of the lack of
"give-and-take" in BRS' letter that would allow the
sides to work towards a compromise. However, Savisaar
stressed that his door was always open to negotiate
further.
DIVISIONS WITHIN THE GOE?
-------------------------
¶5. (SBU) At our Fourth of July event on June 29, PM
Ansip and FM Paet approached the Ambassador to discuss
her upcoming meeting with Savisaar. They assured her
that they wanted a speedy resolution and would be
pressing Savisaar to negotiate. Whereas at our
previous meeting with Ansip on the railway issue he
stood shoulder-to-shoulder with Savisaar, it now seems
cracks are beginning to emerge within the GOE on this
issue. It was clear to us that neither Ansip nor Paet
were being kept in the loop by Savisaar.
BRS SKEPTICAL AND PREPARES FOR THE LONG FIGHT
---------------------------------------------
¶6. (SBU) In our discussions with BRS, both CEO of
Estonian Railways Chris Aadnesen and Chairman of the
Supervisory Board Edward Burkhardt expressed their
suspicions over Savisaar's conciliatory gesture.
Burkhardt said that he would not be surprised if
Savisaar was laying some sort of trap. While
Burkhardt said BRS was always willing to negotiate,
his legal team was already preparing its case for
arbitration.
¶7. (SBU) BRS is confident that its efforts through the
Estonia media and lobbying in Brussels to apply
pressure on the GOE are working. Burkhardt said that
on June 29 at the funeral of former Estonian
Ambassador to Finland Priit Kolbre, Ansip spoke with
BRS Deputy Managing Director Riivo Sinijarv for over
twenty minutes trying to persuade BRS to show some
flexibility. Unfortunately, Burkhardt believes that
"gap between what the GOE can realistically offer
politically and what BRS would accept has grown too
large." Burkhardt was still confident that BRS would
"win hands-down in court."
¶8. (SBU) Comment. Having threatened to revoke the
railway's privatization agreement, the GOE now seems
to be uncertain about whether or not to act on that
threat. Savisaar's conciliatory tone seems to
indicate that the window of opportunity for
negotiations is still open. However, the level of
mistrust between the parties has made both BRS and the
GOE leery of taking the initiative to restart
negotiations. End Comment.
WOS