The official goal of the Rail Baltic project is not realistic and the realistic goal is not official, says Auditor General Janar Holm.

On the penultimate day of May, Magda Kopczyńska, the Director-General of the Directorate-General for Mobility and Transport at the European Commission, who was visiting Estonia, was given a symbolic train ticket for the first Rail Baltic train to Warsaw, which according to the ticket should depart in December 2030. Just eight days after the ticket was presented, it became clear that if the unfortunate guests believed the promise made on the ticket, she and her luggage would be left waiting on the crisp, wintery Ülemiste station platform in 2030.

Namely, Anvar Salomets, CEO Rail Baltic Estonia OÜ, explained in the interview given to the daily Postimees (“Rail Baltic’s Completion Date Postponed Again”, 7 June 2024) that the official deadline for the completion of the railway is still 2030, but it’s actually possible to complete it in the third quarter of 2031.

In eight days, the construction period of the railway increased by three quarters of a year. In the commentary given exactly five days later, the construction period of the railway decreased again by three quarters of a year. The project is like an accordion – it is compressed and expanded as required at the given moment.

In April 2021, the project-managing company Rail Baltic Estonia OÜ presented the design of the future fast train. Among other things, they said that traffic on the railway will start in 2026, and announced the prices and the timetable. This was at the same time when the company could not tell the National Audit Office how much the railway as a whole will cost, the public was informed of the exact ticket prices to Pärnu (€14), Riga (€38) and Vilnius (€76).

In the interim summary of the implementation of Rail Baltic project published by the National Audit Office in October 2021, the Ministry of Economic Affairs and Communications, which was in charge of the construction of the railway at the time, was adamant that the railway can start operating in 2026. However, the analysis carried out by the National Audit Office clearly showed that the construction was almost five years behind this deadline. Almost a couple of months later, Rail Baltic Estonia OÜ announced that the realistic deadline for the completion of the railway is 2030. In a couple of months, the deadline for completion of the railway was postponed by several years.

Obviously, no unexpected circumstances that had not been known beforehand became evident during these days or months. Everything was known, but it was considered necessary to sugarcoat the state of the project and avoid sharing unpleasant news – whether the postponement of deadlines or the increase in the cost of the project.

Unfortunately, the use of rhetoric that distorts the situation and creates illusions continues. And there seems to be no end to it. On 12 June 2024, Rail Baltic Estonia OÜ stated in its public response to the overview of the audit offices of Estonia, Latvia and Lithuania and justified the increase in costs that “in comparison with the cost estimate prepared in 2017, which was €1.8 billion, the lion’s share of the increase, i.e. almost 40%, has come from inflation and almost 30% is related to the specification of the project”.

The estimated cost of the project in Estonia in 2017 was actually not €1.8 billion, but €1.35 billion. That is a massive difference. Almost half a billion. Big enough to notice. By the way, in the letter sent to the National Audit Office on 4 June, i.e. 8 days earlier, the very same Rail Baltic Estonia OÜ confirms the fact that in 2017, the estimated total cost of the Estonian section of the project was €1.3 billion and that the cost estimate made in 2021 was €1.8 billion. Why such confusion?

The deadline for completion of the railway and the beginning of using it are different things

The public would certainly love to know when the construction of the railway will end. But the time when we can start using the completed railway is even more important. These deadlines will not arrive at the same time – there are many things that need to be done after the completion of the railway before it can be used. Communication about Rail Baltic focuses mostly on the completion of the railway, but what we should really be asking in light of the ultimate goal is when the first train will start carrying people or goods.

At the time when the Rail Baltic overview was being prepared, 2030 was presented to the national audit offices of the Baltic states as the target for railway completion and 2031 as the year when it will be operational. However, as the overview was being prepared, it became evident that the first realistic deadline for the completion of the section from Pärnu to the Latvian border was 2031 and it would not be possible to start using it before 2032.

When the presented the symbolic ticket mentioned above, the organisers of this had to be aware that no passenger trains would be going to Warsaw via Rail Baltic in December 2030. Why this ticket circus was necessary is for those involved to explain.

The cost of construction of the railway and the total cost of construction, deployment and the launch of railway traffic are different things

When the cost of Rail Baltic has been discussed in public, they have not focused on the total cost of the project, but solely on the cost of construction of the railway. The cost of construction of the railway accounts for the biggest share of the project’s cost, but the cost of deployment of the railway is big enough to be taken into account in planning and to be shown to the decision-makers and the public as part of the cost of the Rail Baltic project. For example, an estimated €300 million is required to buy local trains for all three Baltic States. Also, once the railway has been deployed, it is currently estimated that Estonia will need between €62 million and €89 million per year from the national budget for operation and maintenance costs.

No money has been planned for buying trains and, of course, no preparations have therefore been started for the procurement of trains. As the national audit offices of the three states prepared their overview, it became evident that getting from the decision to buy the trains is made to the deployment of the trains may take eight years – preparing the procurement will take two years, four years are needed to deliver the rolling stock and two years are needed for testing. So if the decision to buy the trains is made in June 2024, the realistic deadline for the deployment of the trains is June 2032.

But the procurement for trains cannot be carried out before its funding has been decided and the source of funding has been found. Another condition for procuring the trains is deciding who will own the trains and under which model they will be operated later. These decisions haven’t been made either. The difference between the official and the realistic deadline is ripping at the seams as every line above is written.

The comparable must be compared when the increase in the railway construction price is assessed

According to the cost-benefit analysis prepared at first, in 2017, the estimated cost of construction of the Estonian section of the railway was €1.35 billion, €1.6 billion in the end of 2018 and €1.8 billion in the end of 2022.

At the time when the three Baltic audit offices were preparing their overview, they assessed that the construction of a railway on the same scale as initially planned and everything needed for its operation would now cost at least €4.03 billion. So almost three times more than the initially estimated €1.35 billion.

In order to cope with the increased budget, the governments of Estonia, Latvia and Lithuania are preparing to reduce the volume of the works and focus on the construction of the main route corridor of the railway as the first stage. The works will be scaled down and as a result of this, the Estonian section of the railway will cost an estimated €3.1 billion. However, scaling down the works means that many local stops will be partially built, i.e. passengers will be able to use shelters instead of station buildings (in Latvia and Lithuania, some stops will not be built at all during the first stage) and instead of two pairs of tracks, only one will be built in some sections of the railway.

I’ve noticed that the initial cost of €1.35 billion is compared with €3.1 billion when the increase in the price of the project is estimated. This is not a correct way of calculating the price increase, as the compared volumes are not comparable.

Speaking of 2030 and 2031 as realistic deadlines without knowing the sources of funding borders on the absurd

Many problems and their deadlines could probably be regarded as realistic if you don’t have to answer the question of where the money for the project will come from. Unfortunately, the existence of the money required for the implementation of the project is also important when the feasibility of projects is assessed.

Speaking of realistic deadlines in the case of Rail Baltic without knowing where the money for the construction of the railway will come from is pointless. There is a shortfall of ca €1.8 billion when it comes to the construction of the Estonian section of the railway on a reduced scale and there is also no money for buying the trains.

As long as it’s not clear where the money for the completion of the project will come from and it will be distributed over the year, it’s impossible to talk about realistic deadlines, but a goal or dream for which funds haven’t been found. Until the source of funding is clarified, completing the project by the desired time is not feasible.

The projected two-year gap in EU funding in 2027 and 2028 will deteriorate the situation of the project significantly and require bigger contributions from the three Baltic States during this time. For example, according to the explanatory memorandum to the 2024 State Budget Act, the planned budget for Rail Baltic in Estonia is almost €399 million in 2026, but only a little over €37 million in 2027. Ten times less – at a time when the construction should be most intensive.

These are the years when construction should be in full swing and if the necessary funds for the project cannot be found in this period, the deployment of the railway will be postponed considerably and this will probably increase the cost as well. The procurement for trains cannot be carried out if no funds for purchasing them have been earmarked – this will also postpone the deployment of the railway and prevent turning the investment made in the railway so far into value.

This autumn, the Government of the Republic will have to approve the State Budget Strategy for 2025-2028. This may clarify how much support can be allocated to the project in 2027 and 2028 or whether funding in these years has been planned in some other way. Hundreds of millions more are needed every year – the state’s financial capacity for making these decisions is known to everyone.

The value of Estonia’s investment in the railway depends on the activities of Latvia, Lithuania and Poland

The completion of the Latvian, Lithuanian and Polish railway line is vital for Estonia. The completion of the Estonian railway line is not vital for either Latvia or Lithuania. In order to create a connection with Poland and from there with other countries important to us, Latvia and Lithuania only need to buy a railway in the southern direction.

In a situation where Latvia and Lithuania also lack a lot of the money needed for the construction of the time, there is the risk that our good southern neighbours will focus their resources specifically in the direction of Poland and the northern direction, which is important to us, will remain a lesser priority. In this case, all we would get for ca €3.1 billion, at least initially, would be a fast and modern railway connection to the Latvian border and nothing more. This why it’s not enough for Estonia that the construction of the section that concerns Estonia is properly managed. The responsible Ministry of Climate and the Government of the Republic must also keep a close eye on the decisions of Latvia, Lithuania and Poland, and defend our national interests and the value of the railway investment constantly and at a sufficiently high level.

Considering the above, we must do everything to ensure that the construction of the railway from Pärnu to the Latvian border is of the same priority as the construction of the railway from Tallinn to Pärnu. We must make up for lost time and avoid the situation where part of the Estonian railway is completed later. If we ourselves are not able to build our railway to the Latvian border within the timeframe agreed between the countries, this is reason enough for the Latvians to delay the construction of the railway to the Estonian border in a situation where resources are limited. Latvians don’t need a railway that heads north and ends on the border of Latvia and Estonia.

We cannot move forward without clarity and openness

In order to move forward with the project, the Government of the Republic should give the Parliament a correct and realistic overview of the current status of the project in Estonia and other countries involved in the project, the funding plan (including sources of funding) broken down by years until the completion of the infrastructure and start of railway traffic, and the realistic deadline of the project. Involving the Parliament is important, as the scale of the railway project has increased significantly and this affects and limits considerably the budgetary choices in the coming years. The questions that must be answered above all are:

• What year is the technically and financially realistic deadline for completing the railway?
• How is the project funding distributed across the years and what are the sources of funding?
• Who will buy the trains, what is the deadline for procuring the trains and how will their procurement be funded?
• How big are the railway operation and maintenance costs and how much of them must be covered from the state budget?
• Does the railway have to be built at any cost or is there a point from which the construction of the railway becomes unreasonable?

The quality of the overview concerning the Rail Baltic project that is an annex to the explanatory memorandum to the state budget must also be improved. This annex must be made more substantive in a way that would provide a comprehensive picture of the key indicators of the project every year by the time when the state budget is prepared.

In addition to the data given at present, it should also include the deadline for the completion of the railway, the deadline for deployment of the railway, the projected cost of the completion of the railway, the projects costs of deployment of the railway (price of trains, the annual operation and maintenance costs allocated from the state budget), the breakdown of the cost of the investment by years and the source of funding, and the progress of the project in Latvia, Lithuania and Poland. It’s important that the information provided is both realistic and official.

I also repeat the suggestion made in the audit of 2019 to prepare clearer budget forecasts and funding scenarios of Rail Baltic until the end of the project and to present them as annexes to the state budget forecast. Five years ago, this suggestion was followed by an unexpected response from the Ministry of Economic Affairs and Communications, which was in charge of the project at the time – in the opinion of the Ministry, planning the financial side of the project for more than four years was unlawful and possibly also in contravention of the Constitution.

This opinion cannot be taken seriously – there isn’t a single legal act that prohibits long-term planning. The preamble to the Constitution still includes the objective to guarantee the preservation of the Estonian people and the Estonian culture through the ages, not just for the four-year period of the state budget. Long-term development plans are still prepared. The Constitution does not obstruct prudential and reasonable behaviour. It demands this.

• Posted: 7/9/2024 3:07 PM
• Last Update: 7/9/2024 3:51 PM
• Last Review: 7/9/2024 3:51 PM