In the last weeks, Finland’s public sector has announced a number of transactions that appear to be made because of idealogical reasons and not for hard logical or hard financial reasons.
The second example is the sale of VR Track to a Norwegian company called NCR Group. VR Track will continue operations under a new name and the Finnish Government will become, through VR Group, the state-owned railway company, a 18.3% shareholder in NCR Group and become it largest shareholder.
VR Track describes itself as the biggest rail builder and one of the largest infrastructure construction and engineering companies in Finland. It was owned 100% by the state-owned railway company called the VR Group.
Here the question is what is happening?
- Does the Finnish government want to sell off the company completely to create more competition for track construction and maintenance, or
- Does the government want to be a minority shareholder in a Norwegian company that may be awarded contracts or not for such work, or
- Does the government think that they can make sure that NCR Group gets lucrative long-term contracts?
In both of the last 2 cases there is no logic behind having VR Group as a shareholder since VR Group must, as a public entity, adhere to public procurement laws and regulations.
In Case B. VR Group will be open to court cases from other big companies if it awards NCR Group contracts. These could be costly even if VR Group is careful in such awards.
In Case C. VR Group will want to get the best deal with the lowest costs, and the best guarantees that the works will be handled to the highest required standards. They will not be allowed to favour NCR Group just because it is a shareholder…
… and these 2 cases explain the logic why they would want to sell off VR Track in the first place…
… but perhaps we are missing something here?
The CEO of NCR Group has said that the size of a company is significant when dealing with this type of heavy infrastructure. This could have been true many years ago, but in today’s markets, these companies employ wide eco-systems of subcontractors who compete on price and standards, which means that his arguments of size are not exactly meaningful.
Looking at the largest construction companies here in Finland and Sweden, we regularly read stories of how they are shoddy in constructing new apartment blocks and offices. The larger the company the harder it is to get them to do repairs on time of new buildings – so size does not guarantee standards and judging by the high prices of new buildings and apartments, one can perhaps draw the conclusion that “size” is just another word for cutting corners at the expense of ordinary home-buyers and taxpayers! In other words shareholder profits and management bonuses take priority…