Estonian national rail operator Operail has announced a new business strategy that involves full privatisation. The privatisation is a necessary step to find additional financial sources. According to the company, privatisation will also enable the expansion of operations into foreign markets.
Operail has been struggling financially after the implementation of sanctions against Russia and Belarus. In 2023, freight volumes in Estonia dropped by 43 per cent as passenger transportation overtook freight. Whereas 9,5 million tonnes of freight were transported in Estonia in 2021, only 2,1 million tonnes remained in 2023.
As a result, the Estonian rail operator has become dependent on state support. Operail received 31 million euros in government funding during the past year and will continue to receive up to 40 million euros over the next couple of years.
Profitability
Operail’s future was uncertain as the company presented a number of business strategies to the Estonian government. Options included business closure, continuing business as usual or finding alternative financing sources. It was the latter option that the government ultimately agreed on.
Privatisation allows for additional sources of investment but also enables the company to expand into foreign markets. According to the company, Estonia is located at a geographically disadvantageous position at the endpoint of the railway network. This hinders profitability when limited to the Estonian market.
Operail’s plans for international expansion follow similar plans from other Baltic rail operators. Much like the Estonian rail operator, both Latvian LDZ Cargo and Lithuanian LTG Cargo struggle with financial difficulties due to a decline in freight volumes. They also decided to expand their operations internationally to find new sources of revenue.
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