National Audit Office presented an overview of the agreement for rail connection development to the Riigikogu

Toomas Mattson | 5/24/2017 | 12:00 AM

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TALLINN, 24 May 2017– Auditor General Alar Karis send an overview, which focuses on the agreement for the development of the Rail Baltic rail connection entered into between Estonia, Lithuania and Latvia and currently pending ratification by the parliament, to the members of the Riigikogu today. The National Audit Office highlights the most significant risks that the parliament can manage, and the overview also includes a legal opinion and a chronology of events.

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National Audit Office’s overview of the agreement for the development of the Rail Baltic rail connection entered into by Estonia, Lithuania and Latvia

Summary of overview

By ratifying the agreement for the development of the Rail Baltic (RB) rail connection entered into by the Government of the Republic of Estonia, the Government of the Republic of Lithuania and the Government of the Republic of Latvia (hereinafter the international agreement or the agreement), the Riigikogu decides to take for the state of Estonia the obligation to build a new rail line with the European track gauge, where trains can travel at the speed of up to 240 km/h, in the territory of Estonia by 2025. Latvia and Lithuania make the same promise about their countries.

The estimated cost of construction of Rail Baltic is ca 5.79 billion euros, and the total cost of building the railway section located in Estonia according to initial calculations is ca 1.35 billion. According to current expectations, 85% or ca 1.07 billion of this should come as European Union (EU) support and the state of Estonia will have to pay at least 268 million. The expenses the state will have to incur in order to complete the construction of Rail Baltic may increase if the amount of financing to be provided by the EU decreased and/or the cost of construction increased.

Assuming significant financial obligations for the state with an international contract requires the approval of the Riigikogu. The Riigikogu has the right and obligation to plan state budget revenue and expenditure, and decide on the state’s financial obligations. In order to perform the aforementioned tasks in the context of an international agreement, it is important for the Riigikogu to have the answers to at least the following questions:

  • How big is the financial obligation assumed for the state?
  • How will be project be financed?
  • Has a clear decision-making mechanism been agreed in case the project ends up costing more than planned, is not completed by the deadline or there are changes in financing?

The analysis prepared by the National Audit Office indicated that no clear answers to the above questions can be found in the international agreement or the explanatory memorandum to the draft act for its ratification. It is important for the parliament to have adequate information in order to obtain reassurance and make an informed decision. In the opinion of the National Audit Office, it is also important that, if the Riigikogu decides to ratify the agreement, the parliament can be active in respect of such an important and expensive project, receive regular and relevant information about the implementation of the project and inspect the use of the money.

The most important observations of the National Audit Office about the aspects not adequately covered by the international agreement or the explanatory memorandum to the draft ratification, and about which the Riigikogu should be given additional information to ensure that they are fully informed, are as follows:

  • Neither the agreement not its explanatory memorandum have clearly specified the size of the financial obligation assumed for the state. The size of the financial obligation the Riigikogu will authorise the Government to assume is therefore unknown, and neither is it known when and how much does the state intend to spend on the construction of Rail Baltic, from which sources will the necessary funds be obtained and how will the Riigikogu be guaranteed the appropriate possibilities to intervene in issues concerning the further financing decisions during the performance of the international agreement.
  • The international agreement or its explanatory memorandum do not describe the manner in which Estonia, Latvia and Lithuania will finance the project. The states only assume the obligation to apply for EU support according to the highest permitted EU co-financing rate. It is not known how the project would be financed if the EU support to the project were to decrease and/or the cost of construction were to increase and/or the Rail Baltic project proved to be less profitable than expected.
  • Withdrawal from the international agreement and its consequences have not been unambiguously worded in the agreement. The liability of the participating states in the case of a breach of agreement has not been regulated in the agreement and the procedure for resolution of disputes has not been appropriately determined. According to the agreement, any disputes arising from the interpretation or application of the agreement will be resolved by way of negotiations and consultations between the parties, but no further mechanism for resolving disputes has been agreed in case such negotiations fail. The agreement includes no separate provisions about liability.
  • The substantive role of the Riigikogu and its involvement in the decisions concerning the Rail Baltic project is unclear. The materials submitted to the Riigikogu and the explanations given to the National Audit Office indicate that after the ratification of the international agreement, the Riigikogu will not have to make any more decisions about Rail Baltic other than its participation in the state budget process. The document of the draft does not specify whether and in which cases the Government should ask for the approval of the Riigikogu before making any decisions or performing any acts related to the Rail Baltic project.

Entering into the international agreement is important for requesting further EU support for the project. The probability that the Rail Baltic project will not be completed will increase if the international agreement is not ratified. This may bring about the legal consequences related to the failure to complete the project and perform the obligations assumed with the financing agreements up to the obligation to repay the EU support already received.

Based on the above, the National Audit Office advises the Riigikogu to:

  • also develop the regulation for the implementation of the international agreement, which would require the Government to request the Riigikogu’s decision before assuming or planning additional obligations that exceed the authorisation received from the Riigikogu in the annual state budget act and determine the obligation of the Government to inform the Riigikogu regularly and in the agreed cases extraordinarily about the status of the development of the Rail Baltic project;
  • have the Government submit an analysis and action plan to the parliament in case the state’s expenses on the Rail Baltic project increase due to a decrease in the rate of EU co-financing or an increase in the cost of construction, or if the economic performance of Rail Baltic differ from expectations.

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In this overview, the National Audit Office has explained the obligations Estonia has before the ratification of the international agreement, the obligations the state will have upon the ratification of the RB agreement and the consequences that non-ratification of the agreement would have. It also lists the decisions that the Riigikogu and the Government would have to make in order to implement the RB project.

In order to prepare the overview, the National Audit Office analysed the documents concerning the RB project, incl. EU and national policy documents, legislation, international declarations and joint declarations, surveys, plans, materials of the strategic environmental assessment, the contracts related to the development of the RB, etc.

The National Audit Office also commissioned a legal opinion of the international RB agreement and the most important EU legislation, and prepared a chronological overview of the most significant decisions made for the development of RB so far. The overview was prepared on the basis of this legal opinion.

Assessing the necessity of the Rail Baltic project agreed between the three Baltic States and the European Union as such, its route, track gauge and technical feasibility are outside the competency of the National Audit Office. The National Audit Office also finds that duplicating the specific surveys and analyses carried out by other institutions would not be reasonable. In its choices, the National Audit Office also considered the fact that geopolitical considerations have been a determining factor in the case of Rail Baltic from the very beginning and calculations that relate specifically to economic profitability that are based on the best current knowledge can have a supporting and helping role as far as the project is concerning, and also provide some background information.

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Introduction by Auditor General Alar Karis to the National Audit Office’s overview of the agreement for the development of the Rail Baltic rail connection entered into by Estonia, Lithuania and Latvia

Dear readers,

“So far, the biggest obstacle to the direct connection between Estonia and Europe was the bad condition of Latvian and also Lithuanian railways, as well as the fact that the train basically turned into a ‘milk train’ after leaving the territory of Estonia – it started stopping at every bigger station. This is the reason why the Baltic Express needs four hours to travel 275 km in Estonia, but more than six hours to cover 240 km in Latvia. It also needs six hours to drive less than 300 km in Lithuania. This matters to people travelling from Tallinn to Berlin, as the journey in the opposite direction is even worse and extremely cumbersome: it takes 25 hours to travel from Tallinn to Berlin, but 36 hours to reach Tallinn from Berlin... The Latvians and Lithuanians have been the problem until now. If they agree to increase the speed of trains in their territory (which they have been opposed to, claiming that high speed and fewer stops would reduce the number of passengers and consequently make rail transport unprofitable), it will mean that the representatives of Estonia have finally managed to get their opinions across, which they have been expressing for a long time and even taken to Montreux. It should then be possible to travel from Tallinn to Berlin in 20 hours.”

These lines are from the daily Päevaleht, which covered the development trends discussed at the international rail conference held in Switzerland. The year was 1936.

Almost 60 years later, in 1994, the governments of Baltic Sea countries, including Estonia, Latvia and Lithuania, prepared a vision of what this region could be like in 2010 in terms of various transport connections. The connection Tallinn – [Pärnu] – Riga – Kaunas – Warsaw – Berlin – Hamburg was mentioned among other main high-speed railways in this vision document. The ministers responsible for spatial planning and development of the Baltic Sea region discussed the vision document at the meeting held in Tallinn in early December 1994 and approved it. It is perhaps symbolic that the negotiations of the association agreement between Estonia and many other Eastern European countries and the European Union started a week later.

Now, in 2017, when Estonia, Latvia, Lithuania and Poland have been members of the European Union for 13 years, the three Baltic States have signed an agreement whose goal is to first build a railway, called Rail Baltic, which will run through all three countries. The ultimate goal is to have a modern railway taking us via Poland to Germany, connecting us with the heart of Europe.

This vision of a railway to Europe that dates back to the early 1990s and has been developed further in one way or another by all Estonian governments and parliaments after the restoration of independence has finally reached the state where actual money, construction, obligations and liability are discussed. The vision, which has become increasingly more specific over the years, has come close to actually becoming sleepers and tracks. However, before this happens, the agreement for the construction of the railway must first be approved by the parliament, at least in Estonia, because the state will assume financial and national obligations to the states of Latvia and Lithuania with this international agreement. It will also assume a notional obligation to the taxpayers of other European countries whose money will mainly be used to build the railway.

This overview by the National Audit Office has been prepared to help the general public gain a better understanding of the broader context of the Rail Baltic project, but also to help members of the Riigikogu rely on information that is as diverse as possible when they decide on the ratification of the agreement, making its own contribution to the material prepared by different institutions and organisations over the years. Some of these documents accessible to the parliament cover the possible economic and socioeconomic impact, others focus on the appropriate route of the railway, the various technical aspects or financing. Each analysis and overview adds a piece and an angle to the big picture without claiming to have the monopoly of truth or be all-encompassing.

The National Audit Office has tried to avoid duplicating the topics already covered by others or in which clear agreements have been reached in international cooperation.

The overview focuses on the agreement to be ratified and in the format of questions and answers highlights the main risks that the Riigikogu should acknowledge and manage as well as possible in the opinion of the state’s supreme audit institution. Risks can never be reduced to zero, especially in the case of major projects with many variables and unknowns, but they can be made tolerable. The National Audit Office has some recommendations to the Riigikogu about this.

The development of the idea to build a railway that connects all three Baltic States over the decades can be seen on the timeline, which is an annex to this overview. In order to ensure that members of the parliament have the data that explain the agreement in the context of European law, the National Audit Office commissioned a legal analysis that is also an annex to the overview. The Chancellor of Justice will give her opinion of the agreement and its ratification from the aspect of compliance with the Constitution to the Riigikogu.

The members of the Riigikogu are the ones that have the right and the obligation to make the decision about the ratification of the Rail Baltic agreement. And the members of the Riigikogu are also responsible for making the decision according to their inner conviction, which they can shape by assessing the materials accessible to the parliament as a set. The parliament can always request additional information from the executive power if necessary. For example, the size of the financial obligation the Riigikogu will authorise the Government to assume, where the money will come from if the European Union reduced the amount of its support, etc. And why not ask whether the train journey from Tallinn to Berlin in 2026 would be any shorter on Rail Baltic than 90 years ago and by how many hours.

Maybe it would also be practical to think about the vision depicting the future of the Baltic Sea countries in 2010, which was prepared in 1994 and summarised by Hommikuleht on 9 December under the heading ‘Tallinn will still be overshadowed by Helsinki in 2010’ and the sub-heading ‘Tallinn will remain a Baltic city, Riga will reach Europe’.

If the Riigikogu approves the agreement made between the governments of Estonia, Latvia and Lithuania and the Rail Baltic project will actually go ahead, the National Audit Office is prepared to offer the parliament an independent view of the course of the project. The National Audit Office can also mediate a view from Latvia and Lithuania to the Estonian parliament, as the entire construction of Rail Baltic will be monitored by the supreme audit institutions of the three Baltic States, who are planning to carry our joint audits. The supreme audit institutions of Finland and Poland have expressed their wish to be involved in the information field of the cooperation project of the national audit offices of the Baltic States.

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Toomas Mattson
Communication Manager
+372 640 0777
+372 513 4900
toomas.mattson@riigikontroll.ee
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  • Posted: 5/24/2017 12:00 AM
  • Last Update: 5/24/2017 10:59 AM
  • Last Review: 5/24/2017 10:59 AM

Rail Baltic is an international rail connection that will connect Estonia with Central and Western Europe and its neighbours.

Rail Baltic

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