THE ACRIMONIOUS dispute between Baltic Rail Services, the majority shareholder in Eesti Raudtee, and the Estonian government has escalated to the highest level, with Prime Minister Andrus Ansip being asked last month to answer questions on the subject in Parliament.

BRS is seeking damages from the government, accusing it of breaking agreements to which it had signed up when the Estonian railways were privatised in 2001. The trouble began in 2003 and grew into a serious row last year (RG 8.05 p470). It centred on access issues, first over a change in the law obliging EVR to make 100% of line capacity available to third-party operators, other than that needed for passenger services. This was followed a year ago by the Estonian Railway Inspectorate cutting access charges to a level which EVR said would not allow it to cover its costs. The charges applied to third-party operators competing directly with EVR.

BRS was next accused of failing to meet its investment obligations, leading to the Finance Ministry imposing a 15m kroon fine. BRS resolved to fight this, in the courts if necessary.

BRS decided to review its options, and discussions began last year about a possible sale of its stake back to the state, or to the state-owned Port of Tallinn. No agreement could be reached on an acceptable price, and the talks went nowhere. Since then speculation has surfaced about other purchasers - Germany's Railion, VR in Finland and Russian investment company PromInvestors in partnership with consultants Transcare have all been mentioned.

Lurking behind all this is an apparent attempt by the Russian Severstaltrans Group, which has a transport subsidiary in Estonia called Spacecom, to secure lower charges for shipping freight through to Estonian ports. The group has invested heavily in Estonia and is reported to have close links with Russian President Putin. BRS Chairman Ed Burkhardt said last month that Andrei Filatov, Director-General of Severstaltrans, had tried to persuade BRS to sell its 66% stake back to the state, but Burkhardt had responded that the price on offer was too low, noting that it was 'interesting' that Spacecom was not interested in buying shares in EVR.

Allegations that the Russian company has high-level support in the Estonian government appear well founded. In early March Filatov had met Economics Minister Edgar Savisaar, who was fiercely opposed to privatisation of the railway even before he was appointed Economics Minister in April 2005. And a consultancy that had earlier partnered with Severstaltrans had been used to advise the government on purchase of shares in EVR.

What had started out as a serious attempt to bring modern management and efficient operations to a railway in the former Soviet empire has been holed on the rocks of political dogma. Whatever happens, you can be sure that the BRS ship will not go down without a fight.