The Great Train Car Deal

Posted by Jew from Jersey
29 August 2021

In the late 1990s, the once great Latvian train car manufacturer RVR was on the verge of bankruptcy. For forty years, it had been the primary source of trains for all Soviet rail. But following the demise of the Soviet Union, RVR’s market collapsed. Its yards, sprawling over large swaths of the northern half of the capital city of Riga, lay idle. Its tens of thousands of workers were redundant, a painful economic blow to the city of a million and a half people in the newly independent country of only two and half million.

At the same time, the infrastructure of the Islamic Republic of Iran lay in ruins, a casualty of the horrific Iran-Iraq war of the 1980s and the continuing near total lack of foreign investment. The economy remained heavily dependent on oil sales. Iran’s other natural resources remained woefully underutilized while unemployment remained stuck in double digits. Technology was bought piecemeal from other counties, paid for with petrodollars. Train cars had to be imported by sea, mostly from China.

It was around this time that stories began to appear in the Latvian press that a consortium from Iran was looking to buy RVR. Workers would be going back to work! The yards would be humming again! Who would buy the plant’s product amid a complete lack of demand for Latvian train cars in Europe? That would be the new owners’ problem... At the same time, stories in the Iranian press told of a small country in Europe which would sell Iran a fully functional modern train car manufacturing facility. This would allow Iran to produce all of its train cars locally, using Iranian steel and employing Iranian workers, and also lowering domestic transportation costs. How would the plant be transported to Iran? That would be the seller’s problem... And the Latvians were only asking a few million dollars, far less than the assets alone were worth. In actual fact, they probably would have “sold” RVR for nothing just to get it operating again at full capacity. And the Iranians surely would have been willing to pay far more than the asking price, seeing as they apparently expected this to include the relocation of the entire plant to Iran and its reassembly there.

After months of excited news stories in both countries, and several visits to Latvia of Iranian delegations of rail representatives and experts, the two sides sat to down to hammer out the details of the contract. At this point everyone realized that regardless of price, their expectations were mutually exclusive, and the deal fell through.

Note how mutual excitement about the deal’s benefits, described in similar terms by both sides, did not guarantee the deal’s success.