OREANDA-NEWS. January 14, 2010. Ministry of economic affairs has filed a claim in Harju County Court against state-owned rail freight carrier Estonian Railways.

Ohtuleht reported that the ministry is claiming 36.2 million kroons of EU PHARE project funds that Estonian Railways did not use fully in total project volume.

The state reclaims EU aid funds from Estonian Railways based on the PHARE project financing memorandum signed between the European Commission and the Estonian state.

In the framework of the project, EU aid was made available to Estonian Railways for acquiring rail sleepers for the Tallinn-Narva railway line.

Since Estonian Railways as the aid recipient amended the proejct implementation without obtaining prior approval of the European Commission, the latter filed a reclaim to the state for partial amount.

The state paid the fine itself to Brussels in 2006 after EU auditors proved that Estonian Railways did not use EU aid funds according to its purpose. Since the Estonian state was responsible for the project- the European Union reclaimed the funds from the state.

According to an EU auditing report, Estonian Railways was late in installing the sleepers purchased for 52 million kroons in EU aid and some sleepers were installed in tracks that were not included in the project.

The ministry claims that the contract was breached by Estonian Railways since direct control of the project was out of state hands. The ministry also says that the company did not inform the ministry nor the European Commission of its plans to use the sleepers purchased for EU aid funds on other tracks.

Estonian Railways claims that the company has done nothing wrong and that it was the state that neglected its obligations. "When the contract was transferred to Estonian Railways, the responsibilites for project execution were not clearly specified," the company said in 2006.

A representative of the ministry of finance has said that the fine could have been avoided if Estonia had taken the right steps at the right time. "The only thing that was required was an application that Estonia wishes to change the location of the rails purchased for the EU aid. I believe such an application would have been approved," said a high-ranking ministry official, adding that the application should have been made by Estonian Railways to the ministry of economic affairs who would have forwarded it to the ministry of finance and the latter to the European Commission.

The Estonian state sold the majority holding in Estonian Railways to private US, UK and Estonian investors for about a billion kroons in 2000. The state consequently re-purchased the stake for 2.3 billion kroons at the end of 2006, a few months before the Bronze Soldier removal that practically ended the Russian oil transit by rail to Estonia.

Estonian Railways ended 2008 with the turnover of 1.65 billion kroons and the net profit of 70 million kroons. The company invested 460 million kroons during the year and its owner's equity amounted to 2.05 billion kroons. Last year, 26.07 million tons of freight was carried on rails owned by Estonian Railways.