The design and land acquisition of Rail Baltica is years behind schedule

10/15/2021 | 12:00 AM

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TALLINN, 15 October 2021 – Both the design and acquisition of land necessary for the Rail Baltica railway line has fallen behind the initial deadline by years. Compared to the original schedule for land acquisition, the time lag has increased to five years. As at the second quarter of this year, just over a quarter of all the necessary land had been acquired, and only six percent in Harju County where land is more expensive. In its interim review of the implementation of Rail Baltica, the National Audit Office of Estonia is also pointing out that the delay in the master designs postpones the final deadline of the entire project and the budgets of the activities of the Rail Baltica project have changed significantly.

According to the data of the second quarter of 2021, 28% of all known immovables have been acquired, the lag in the acquisition of land in the Estonian section of the entire project is already five years behind the original deadline. The Land Board, who organises the acquisition of land, is the least advanced in Harju County, where 6% of all known land required for the railway has been acquired.

This is worrying both in terms of the schedule and budget because the price level of real estate in Harju County is higher than in Rapla or Pärnu County, and it is necessary to acquire plots of land which may be more difficult than average to acquire for the state. So far, the Land Board has primarily acquired immovables where the railway line is mostly planned through forests and fields and where few commercial and residential lands are situated. The situation in Harju County is different. In addition, the data of the Land Board indicate that the cost of land transactions in Pärnu, Rapla and Harju County had increased by more than 50% by 2020 compared to 2014 when the budget was planned. The total budget of CEF 1 and CEF 6 financing agreements of the Connecting Europe Facility for the acquisition of immovables is 29.1 million euros (incl. self-financing), of which only 11% has been used so far.

Determining the immovables to be acquired takes longer than originally thought, and the process of acquiring immovables is also slow. The Land Board, the organiser of immovable property acquisition procedures, has cases where the determination of the price of an immovable and negotiations with landowners have taken longer than permitted by law because the valuation task is complicated or the owners do not accept the initial offer. Landowners must take into account that the initiated acquisition may last, on average, at least 13 months.

The recently adopted law does not help to treat owners equally in determining the value of land necessary for the railway. In practice, a workable solution that ensures the equal treatment of landowners has been found, but in the opinion of the National Audit Office, it is not in line with the applicable law. The Acquisition of Immovables in Public Interest Act that entered into force in 2018 may cause unequal treatment because owners of similar immovables may be offered different amounts of compensation depending on the choice of methodology. In order to bring the current practice of the Land Board in line with the applicable law, the Ministry of Economic Affairs and Communications must initiate an amendment of the law in order to establish the methodology for assessing the value of compensation.

It is not entirely clear how many and which plots of land need to be acquired because the preparation of planning documents is delayed. The Ministry of Economic Affairs and Communications does not have a complete overview of how many and which lands need to be acquired for the construction of Rail Baltica because the master designs are in progress, the completion of which largely depends on the designer and on RB Rail AS, partially make changes to the railway line planned so far. In addition, the county plan serving as the basis for the preliminary design in Pärnu County has been partially repealed, and the master design in the repealed part will not be completed before 2023.

The National Audit Office points out that in light of the delays in master designs and land acquisition, the schedule of the activities of the Estonian section of the entire project should be reviewed. Despite numerous indications that the project is significantly behind schedule, the plan at the time of the audit activities was, according to the Ministry of Economic Affairs and Communications, to still complete the railway by 2026. As one solution, the participants of the project presented to the National Audit Office the plan to commission the railway in 2026 in stages, for example in the Tallinn-Pärnu section. However, in the interview of 1 October 2021 with the Estonian Public Broadcasting, the Minister of Economic Affairs and Infrastructure admitted that the entire project would not be completed by then.

As the budget of the Estonian section of Rail Baltica has not been planned by years up to the completion of the Rail Baltica project, it is also not possible to assess whether or not the budget has been exceeded. However, there are significant changes in the budgets for activities. The budget of the Estonian section of Rail Budget was last updated in 2018. The forecast of Rail Baltic Estonia OÜ indicates an increase in the cost of the construction of the civil engineering works under their responsibility compared to both the initial financing agreement and the updated budget drawn up later based on the preliminary design.

The budget has been inflated by the expansion of project activities and the general price increase. For example, local stations that increase the cost by an estimated ca 16 million euros and the expansion of Pärnu and Ülemiste passenger terminals that are expected to increase the cost by 49 million euros have been added. However, the Ministry of Economic Affairs and Communications pointed out during the audit that where some activity of the project might exceed the budget, another activity can be implemented with a saving.

The National Audit Office points out that since the Ministry of Economic Affairs and Communications is not updating the budget of the Rail Baltica project as information about the project is specified, it is difficult to foresee if and when there will be a need to receive additional funds from the state budget. In an interview with the Estonian Public Broadcasting (1 October 2021), the Minister of Economic Affairs and Infrastructure has estimated that the budget deficit for the Estonian section of the project may be 300–500 million euros until the year 2030. The National Audit Office recommended the Minister to update the budget of Rail Baltica in respect of the railway section in Estonia until the likely completion of construction. The Minister replied, however, that the new revised cost estimate is planned to be prepared only until 2026, although it is clear that the project will not be completed by then.

Background:

The purpose of the audit ‘Interim review of the implementation of Rail Baltica’ was to assess whether the state will acquire the correct immovables necessary for the Rail Baltica project by the agreed deadline, have the costs of acquiring immovables been determined, and how well has the implementation of the project stayed within the schedule and budget in the last few years. In addition, the aim was to examine which activities have been undertaken since the publication of the 2019 audit report of the National Audit Office.

Rail Baltica is the largest infrastructure project in the Republic of Estonia since the restoration of independence, both in terms of cost and scale. The total length of the railway running from Tallinn to the Lithuanian-Polish border is planned to be 870 kilometres, 213 kilometres of which will be in the territory of Estonia. Nearly 1,000 immovables need to be allocated for the construction of Rail Baltica in Estonia, 863 of which are private or municipal property.

The implementation of the Rail Baltica project costs 5.79 billion euros according to the cost-benefit analysis prepared in 2017. According to the data of 2018, 1.58 billion of this will be spent on building the railway in Estonia. In 2017, the three Baltic States signed an agreement committing to complete the Rail Baltica railway by 2025 and ensure its serviceability by 2026. Up to 85% of the project is financed by the European Union, the rest must be paid by Estonia, Latvia and Lithuania.

Previous audits of the National Audit Office in the field of railways:

7 December 2020 – Overview of the funding and development of public railways
17 December 2019 – Implementation of the Rail Baltica project. Joint audit by the Estonian National Audit Office, Latvian National Audit office and Lithuanian National Audit Office
4 December 2019 – Funding and implementation of the Rail Baltica project in Estonia in 2014–2019
24 May 2017 – National Audit Office’s overview of the agreement for the development of the Rail Baltica rail connection between the governments of Estonia, Latvia and Lithuania

Priit Simson
Head of Communications of the National Audit Office of Estonia
+372 640 0102
+372 5615 0280
priit.simson@riigikontroll.ee
press@riigikontroll.ee
http://www.riigikontroll.ee/

  • Posted: 10/15/2021 12:00 AM
  • Last Update: 10/14/2021 10:25 PM
  • Last Review: 10/14/2021 10:25 PM

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