Project Rail Baltic - Now or Never? (part 1/3)

I wrote a brief report on the past 12 months of project Rail Baltic. The text was translated into Lithuanian language, and it was published on 11.7.2014 in the Lithuanian business daily Verslo žinios. All the comments and conclusions presented in the article are based on information that is available in public internet sites. 

 As Verslo žinios operates only on Lithuanian language, I will publish the original English language script here. I have also added some links to the sources of information. Further Finnish language comments on Rail Baltic and other related issues can also be found at Baltirail Association's web site.

Project Rail Baltic - Now or Never?

Esa Nurkka 11.7.2014 (originally published in Verslo žinios)
Prime ministers of Estonia, Latvia and Lithuania met on 21 June 2014 in Tallinn to review the progress of Rail Baltic project. After the meeting the prime ministers signed a joint statement, where they reiterated, recognized and welcomed various Rail Baltic related issues. The news headlines after the meeting were positive, but reality is much harsher. There is a considerable risk that establishing the Rail Baltic joint company could be delayed to indefinite future.

Rail Baltic is important for Europe
The European Union’s transport infrastructure policy aims to close the gaps between Member States' transport networks and remove bottlenecks that hamper the smooth functioning of the internal market. Rail Baltic is one of the European Commission’s TEN-T Priority Projects, and for that reason up to 85 % of Rail Baltic’s 3.6 Billion euros budget could be financed from the European Cohesion Fund.

As President of the European Commission Jose Manuel Barroso puts it: “Rail Baltic is one of the key projects in the pan-European Transport Networks policy. No other project originating from the Baltic States can show an added value for the entire EU that could come close.” Rail Baltic is important for, not just Lithuania or Baltic, but for the whole Europe.

Rail Baltic would be important for Finland, too. About 80 % of Finland’s foreign trade is transported in ships, and a good part of that volume could be transported by rail. On longer term the possible melting of polar ice and opening of The Northern Sea Route between Europe and Asia could add to Rail Baltic’s volumes remarkably.

Rail Baltic train is moving, but slowly
Rail Baltic was chosen as one of TEN-T Priority Projects already in 2005, and the real work started in 2012. The project and its financing decisions are based on AECOM’s extensive Rail Baltic feasibility study from 2011, which suggests a straight-forward Tallinn-Riga-Kaunas-Polish railway. A lot of work has been done since, but progress has been rather sluggish. There have been two major challenges: Time and Vilnius.

Time is running, and deadlines for setting up the Rail Baltic joint company have come and gone. The previous unconditional deadline was the end of 2013, but that one was missed. The current target is to launch the joint company in August and deliver the Connecting Europe Facility finance application in September. At the moment this target looks rather ambitious.

Time is running out because of Vilnius. In July 2013 Minister of Transport Rimantas Sinkevičius expressed a wish that Rail Baltic could also include Vilnius, and even in December 2013 Prime Minister Algirdas Butkevicius referred to the Vilnius line merely as ”more of a bargaining point”. In less than one year this humble wish has evolved into the decisive factor of the whole Rail Baltic project.

Transport Ministry of Lithuania has worked diligently to get Vilnius added to the current Rail Baltic project. Hats off to Mr. Sinkevičius and his team: They have skillfully and aggressively utilized every negotiation tactic in the book, and thus managed to outsmart their negotiating parties.

The Lithuanian Master Class of Getting What You Want in a Negotiation
In both cases ministers from Estonia and Latvia signed declarations or joint statements, which contain several indefinite clauses about adding Kaunas-Vilnius -connection to current Rail Baltic project, and even getting 85 % financing for it from Connecting Europe Facility. Signing these papers will unfortunately make finding the proper wording for the shareholder agreement a rather demanding task.

Two views on Vilnius
There are two different interpretations of the 21.6.2014 statement.

Estonians have nothing against the Vilnius connection per se, assuming that the EU financing is in place. Unfortunately the financing can’t be settled until the feasibility study on Kaunas-Vilnius -connection has been completed and the project has been found eligible for EU financing and the decisions have been made in Brussels. That would take several years. Another Estonian prerequisite is that the preparation of Vilnius connection may not slow down the work on the main line, which leads via Kaunas to Poland.

The Lithuanian view is, however, very different. According to Ričardas Slapšys of Transport Ministry of Lithuania, “Stipulation of Vilnius in the shareholders’ agreement commits all three countries to seek and obtain European funding for this part”. Dainius Budrys, the CEO of Lithuanian Rail Baltica Statyba, has stated “I think the successful completion of the negotiations in the near future will lead to establishing a joint venture in the Baltic states, but how soon it will be done - depends on the Latvians and Estonians.” It seems that the Lithuanians know what they want, and they also seem to know how to get it.

Rail Baltic’s future looks dim
If Lithuania sticks to its claim that the construction and CEF financing of Kaunas-Vilnius connection should be included in the original Rail Baltic contract, the future of Rail Baltic does not look good. A shareholder agreement with such clauses cannot be signed anytime soon. The EU financing decisions are onerous processes that take a lot of time, and amending the EU regulation in order to reallocate the financing makes things even more complicated.

The negotiation teams of the Baltic countries are currently working on the shareholder agreement, and a lot of work needs to be done to solve the disputes between Estonia and Lithuania. It would be great if the joint company would be established in August, and the financing application for Connecting Europe Facility could be delivered in September. Unfortunately Estonia’s Rail Baltic project leader Indrek Sirp as well as EC’s Rail Baltic coordinator Pavel Telička have both recently resigned, which won’t make things any easier.

The whole Rail Baltic project is in jeopardy now. The 3 Billion euros earmarked for this project may be used somewhere else, if the Baltic countries are not able to leave the joint application for Connecting Europe Facility in September. There are EU countries who would be willing to accept 3 Billion euros financing from EU in a blink of an eye, and they would definitely deliver the financing application in Brussels without delay.

Esa Nurkka

The writer is an independent observer from Finland, whose comments and views are based solely on information available on public internet sites, mainly The Lithuania Tribune and the Ministry of Transport and Communication of Lithuania’s web site.


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