Rail Baltic – To Deal or Not to Deal? (part 2/3)

(This article has not been published elsewhere)

Rail Baltic – To Deal or Not to Deal?

Esa Nurkka 8.8.2014

Project Rail Baltic was created to close the gap between the European 1435 mm rail network and the 1520 mm rail network in the north. The Baltic Prime Ministers and Transport Ministers agreed in 2011, that a Baltic joint venture is needed to coordinate the project and to submit a joint finance application to European Commission.

A brief history of Rail Baltic agreements, declarations and statements in 2011-2014
After initial harmony and mutual understanding in 2011, the project has proceeded sluggishly. Ministers have signed several political papers, but these statements and declarations have failed to speed up the project. The Baltic joint venture is yet to be established.

Here is a summary of ministerial activities:

• 10.11.2011: The three Baltic Prime Ministers agreed to establish a joint venture by the end of 2012.
• 7.12.2011: Transport ministers of the three Baltic states signed a protocol of intentions for further development activities of the "Rail Baltica" railway route.
• (31.12.2012 The joint venture was not established.)
• 16.9.2013: Transport ministers of the three Baltic states signed a joint declaration, where they agreed to coordinate the delivery of the draft Shareholders’ Agreement and the draft Statute to be signed by 1st January 2014.
• (1.1.2014: The joint venture was not established.)
• 21.6.2014: The Prime Ministers of Baltic countries signed a joint statement, where they agreed to promptly take all necessary steps at national level in order to approve and sign the Shareholders’ Agreement and establish the Rail Baltic Joint venture as soon as possible.

Selected Rail Baltic deadlines and targeted schedules, as communicated in 2014
The two official deadlines for establishing the Rail Baltic joint venture (31.12.2012 and 1.1.2014) were both missed. Since then only unofficial targets for the project schedule have been expressed, and the picture is extremely hazy. No-one seems to know nothing.

Here is a selection of schedular expectations, as expressed during the first half of 2014:

• 28.1.2014: “Perhaps we could set up a joint venture as soon as April [2014]” (Dainius Budrys, the CEO of Rail Baltica Statyba in Lithuania)
• 4.2.2014: “Additional questions have surfaced in Rail Baltica project. They are related to Lithuania’s wish to add Vilnius to the project. This is why it has been decided to postpone the foundation of a joint enterprise until March [2014].” (Ilze Aleksandrovica, deputy State Secretary of Transport Ministry of Latvia)
• 4.2.2014: “If the joint venture is not set up by the end of February [2014], it will not be possible to submit a funding proposal by the end of May [2014], which means that no funding allocation will be made in the first round.” (Andrus Ansip, Prime Minister of Estonia)
• 14.2.2014: “It is very important for all three Baltic states to agree on this project to prepare and submit an application for the EU financing by 2016." (Prime Minister Butkevičius and President Straujuma of Lithuania)
• 21.2.2014: “The shareholders' agreement for the joint venture should be signed over the next few months.” (Arenijus Jackus, director of the Lithuanian Transport Ministry’s Development and International Relations Department)
• 26.2.2014: “We are getting very close on establishing a joint venture.” (Arenijus Jackus, director of the Lithuanian Transport Ministry’s Development and International Relations Department)
• 27.2.2014: “The request for funding will be submitted to the European Commission in 2015, so construction of the railroad could begin in 2016.” (Anrijs Matiss, Transport Minister of Latvia)
• 2.5.2014: “…those studies [the feasibility study on the Kaunas-Vilnius –connection] are expected to be completed by the end of the year [2014], but that could mean the Rail Baltic project on the whole will be pushed into the future.” (Arijandas Šliupas, Lithuanian Deputy Transport Minister)
• 20.5.2014: “…the Ministers [Urve Palo of Estonia and Rimantas Sinkevicius of Lithuania] agreed that in order to ensure the necessary funding for the project, negotiations on the technical part of the joint venture establishment should be completed, and shareholders agreement signed as soon as possible.” (Lithuanian Ministry of Transport)
• 21.5.2014: “I think what we agreed today that we will go further as fast as possible in the joint venture establishment. In the [shareholders'] agreement, we will find an appropriate wording [to ensure] that in the next stage [of the project] Vilnius is an essential part of Rail Baltica as well.” (Taavi Roivas, Prime Minister of Estonia)
• 10.6.2014: …asked when the shareholders' agreement will be coordinated and the joint enterprise is established, the minister replied this will be done by the end of June [2014]. (Rimantas Sinkevicius, Prime Minister of Lithuania)
• 16.6.2014:  “The agreement was being negotiated at the deputy minister level and representatives have finally reached a consensus… I hope that we will have the final draft shareholders’ agreement on Wednesday [18.6.2014]” (Arenijus Jackus, the head of Lithuania’s negotiation group)
• 18.6.2014: “… Lithuania, Latvia and Estonia agreed on almost all parts of the contract, including the Vilnius connection. However, he said, Vilnius connection funding issue is still unresolved, because it requires changes to some of the EU legislation. According to the Minister, the legislation on the funding could be reviewed in 2017.” (Rimantas Sinkevicius, Prime Minister of Lithuania) 
• 4.7.2014: “The agreement between Baltic countries to set up a joint venture is a huge thing. By now the things are at such a stage that governments of the three countries would have to approve the document so that before the end of February 2015 a joint Rail Baltic financing request could be submitted to the European Commission.” (Urve Palo, Transport Minister of Estonia)

Why is the Baltic joint venture needed?
In their 21.6.2014 Joint Statement, the Baltic Prime Ministers “stressed 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 2014”. The joint CEF application can only be submitted after the joint company has been established

Although the Prime Ministers seemed to support Baltic joint activities, there are very few reasons for optimism. As long as Lithuania sticks to its claim, that Estonia and Latvia should actually commit to seeking and obtaining European funding for the Vilnius connection, we can forget about the Baltic joint venture. Estonia and Latvia cannot commit to such financing, and thus the Baltic joint venture cannot be established anytime soon.

If the Baltic joint venture will not be set up in the coming months, how about Plan B?

Plan B: Separate financing applications.
Already in 2013 there was speculation, that Estonia and Latvia might set up the Baltic joint company in Riga by themselves, and submit the CEF financing application. Lithuania could join in later. This has always sounded like a bad idea, and after having witnessed the progress/regress of project Rail Baltic in 2014, the idea of leaving Lithuania the option to join the project later, sounds like a surefire recipe for disaster.

A couple of weeks ago Arijandas Sliupas, the Deputy Transport Minister of Lithuania, hinted that all three Baltic states might submit separate finance applications for CEF. From politicians' point-of-view that might be a nice way to save their faces on short term, but what would that mean for the project?

Estonia and Latvia might take care of their own sections of Rail Baltic, but could they rely on Lithuania taking care of the southern part of Rail Baltic? Although the money and the funding terms originate from Brussels, Lithuania has opted to argue with Estonia and Latvia and justify this behavior with Lithuania's national interest.

Here are some comments from Lithuania, which reflect the Vilnius attitude towards the Rail Baltic project:

• 13.1.2014 “We have a decision adopted by the Seimas [from December 2013] that Vilnius is part of Rail Baltica. Therefore, I do not even know how this issue should be discussed. We are a sovereign state and no one should tell us where to build a railway line.” (Arenijus Jackus, director of the Lithuanian Transport Ministry’s Development and International Relations Department)
• 22.1.2014 "Neither Estonia nor Latvia will be able to join the European railroad network without Lithuania, this is very important to them." (Rimantas Sinkevicius, Lithuanian Transport and Communications Minister)
• 24.1.2014 “The aim of the company [Rail Baltica Statyba of Lithuania] is to supervise the creation of the new public infrastructure and to defend the state's public interest in accordance with the Lithuanian laws.” (Dainius Budrys, CEO of the Rail Baltica Statyba)
• 2.4.2014 “Estonia and Latvia agree to Vilnius being made an integral part of Rail Baltica, but they propose to make the final decision later, after carrying out certain studies and analyses. Moreover, Latvia together with Estonia would decide where and how infrastructure in Lithuania would be built. We cannot agree to that.” (Arenijus Jackus, director of the Lithuanian Transport Ministry’s Development and International Relations Department)
• 11.7.2014 "I think that the successful completion of the negotiations in the near future will lead to a common Baltic financing application, but how soon it will be done - depends on the Latvians and Estonians.” (Dainius Budrys, CEO of the Rail Baltica Statyba)

Yet another problem might be lurking in the Brussels. It was, after all, European Commission and Connecting Europe Facility, who wanted the project to be handled by one entity. If the three Baltic countries can’t even deliver a common finance application, how could the CEF accept three separate applications?

Conclusion
Connecting Europe Facility’s first call for transport sector’s finance proposals runs from September 2014 to February 2015. Despite the mostly positive tone of Rail Baltic news reports, it’s hard to see how Baltic countries could submit a common financing request in that time frame.

Anything short of (1) signing the shareholder agreement, (2) setting up the RB Rail joint company in Riga and (3) submitting one common finance application for CEF by the end of September 2014 is a disappointment. Appealing to the fact that the absolute deadline for finance application is only in February 2015, is lame. If the shareholder agreement cannot be signed now, how could it become any easier half a year later?

Disclaimer: All the comments and views presented in this article are based solely on information available on public internet sites.