The Derailed Rail Baltic

Esa Nurkka, 24.2.2015

Estonia, Latvia and Lithuania signed RB Rail's shareholders´ agreement on the 28th of October 2014 in Riga. The Baltic joint company was needed to coordinate the Rail Baltic II project and to submit a joint finance application to European Commission. Unfortunately "one common finance application" proved to be too ambitious a target. While Estonia and Latvia had no problem with committing to it, the Lithuanians once again opted to stick to their very own agenda.

RB Rail’s Recent History
  • 21.6.2014: The Baltic Prime Ministers´ Joint statementstressed the importance to prepare and submit the joint Rail Baltic/Rail Baltica CEF application for the first CEF call for the project proposals to be opened in from September 2014 through February 2015”.
  • 23.8.2014: The Baltic countries were supposed to launch the RB Rail joint company in Riga as a part of Baltic Way 25th anniversary celebration, but due to different views on shareholder agreement’s wording, the signing ceremony was cancelled.
  • 28.10.2014: After onerous negotiations, RB Rail was eventually established in Riga. To get the signatures on the dotted line, some compromises were needed: 
o Estonia and Latvia did not want to carry any risk on the financing of Kaunas – Vilnius connection, and they got “each party co-finances the railway construction only within its territory” clause in the agreement.

o Lithuania wanted to get the “provision for Vilnius connection” in the contract, as well as the statement that “owner of the rail infrastructure in Latvia, Lithuania and Estonia is the country in which the infrastructure is located”.
  • 5.12.2014: The Prime Ministers of the three Baltic states met in Maardu, Estonia, in a Baltic Council meeting. Once again, to get the joint statement signed, compromises were needed:
o Estonia and Latvia managed to get the phrase “a fast conventional double track 1435 mm gauge electrified railway line with the maximum design speed of 240 km/h on the Route from Tallinn through Pärnu-Riga-Panevezys-Kaunas to Lithuania-Polish border” in the statement, and Lithuania’s Prime Minister, Ms. Laimdota Straujuma did indeed sign the paper. Lithuanian transport minister Sinkevicius would have probably refused to sign such a commitment, but luckily this meeting was on a prime-ministerial level.

o Lithuanian prime minister would not have signed the paper without the Vilnius clause, and thus “as proposed by AECOM study with a connection of Vilnius-Kaunas as part of the Route” was added to the statement.
o Does “from Kaunas via Vilnius to Riga and Tallinn” really mean that to get from Kaunas to Riga, you need to visit Vilnius?

o Does “implementation of the project from Kaunas via Vilnius to Riga and Tallinn” mean that Lithuania does not intend to build a high speed dual track connection between the Polish border and Kaunas?

Money matters

RB Rail is going to apply for 461 million euros from the first round of financing. Estonia is looking for 191 million euros, Latvia 240 million euros and Lithuania 30 million. This financing is for preliminary studies, cost-benefit analysis and designing the route.

Besides the 30 million euros applied through the Baltic joint venture, Lithuania is applying separately for 160 million euros to be used for “acquisition of land for public purposes” as well as “construction and partial electrification of a rail section between Rokai and Palemonas”. It is easy to see why this 160 million application is not a part of the RB Rail application. Rokai – Palemonas -section is a part of the old rail Baltic I project, which has nothing to do with the high speed double track Rail Baltic II project or RB Rail.

Lithuania has also other reasons for a separate financing application. According to minister Sinkevicius, the bulk of Rail Baltic works in Lithuania will probably be carried out through the Lithuanian railway monopoly Lietuvos Geležinkeliai (never mind the EU procurement rules…), and the VAT on that work should therefore be collected by Lithuania, and not Latvia.

Rail Baltic: The Mother of All Bottle Necks?

Rail Baltic is one of the European Commission’s TEN-T Priority Projects, and its aim is to close the gaps between Member States' transport networks and remove bottlenecks that hamper the smooth functioning of the internal market. The current Rail Baltic 2 project and RB Rail are based on AECOM’s feasibility study.

AECOM's study suggests that a 728 kilometer double track 1435 mm 240 km/h railway would be constructed from Tallinn all the way down to the Lithuanian/Polish border. At the moment it seems that the Estonian and Latvian parts of Rail Baltic might be well on track, while the Lithuanians have shown very little interest in constructing the high speed Rail Baltic railway line connecting Latvia and Poland via Kaunas.

Minister of Transport and Communications of the Republic of Lithuania Rimantas Sinkevičius is going to meet Violeta Bulc, European Commissioner for Mobility and Transport in Brussels on 24th of February 2015, ie. today. It will be interesting to see how Ms. Bulc reacts to Lithuania’s initiative. If the chances of getting a proper Rail Baltic connection across Lithuania look slim, how could the European Commission award financing even for Estonia and Latvia? Rail Baltica's Estonian project manager Miiko Peris stated yesterday, that a common application has a better chance of being funded by the European Commission.

Rail Baltic with no connection to Europe would be purely and utterly infeasible.

UPDATE: Lithuanian Ministry of Transport announced in the evening that the meeting between Mr Sinkevičius and Ms Bulc was "constructive and efficient". They agreed that "the TEN-T Core network has to be developed mainly by establishing the cross-border missing links, and, therefore, the project “Rail Baltica” is one of the key components of it". Wow.

The most interesting piece of news can be found at the end of the press release: Lithuania will apply for a total of EUR 365 million of co-funding under the CEF cohesion envelope. We do not know what this actually means, but here is an educated guess: Lithuania will still apply independently for 165 million to finance Rail Baltic I project, and Lithuania's original 30 million euros stake in the RB Rail's pan-Baltic application has been raised to 200 million euros.

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