Rail Baltic - To Vilnius or not to Vilnius, That is the Question

Esa Nurkka, 11.11.2014

Baltic countries eventually managed to sign the shareholders’ agreement for RB Rail on 28th of October in Riga, and media coverage on Rail Baltic has been rather positive ever since. And why not, establishing the Baltic Joint Company looks like a major breakthrough in the negotiations. 
 
Even the geopolitical climate supports the positive interpretation of Rail Baltic’s progress. Russia’s political, economic and military activities are a constant worry for the three Baltic states, who have been card carrying members of EU and NATO since 2004.

Although the Rail Baltic task force has worked hard, their achievements so far have been rather humble. To get the Rail Baltic train on the move, they need to pick up the speed radically! It does not help that the sluggish progress of project Rail Baltic has never been a real concern for the Transport ministries in Latvia and Lithuania.

Who needs Rail Baltic the most?
Estonia stands to gain the most from Rail Baltic. Unlike Latvia and Lithuania, Estonian Railways have practically no east-west business with Russia, and Rail Baltic would offer new business opportunities for both the state owned Eesti Raudtee and the private entrepreneurs operating in the Estonian logistics business.

Latvia used to be the nerve-center for Baltic railways in the Soviet era, and the Latvian Railways still regards the freight trains shuttling between the harbors of the Baltic Sea and Russia as the only viable business. Although the Latvians do not object Rail Baltic, they are doing an excellent job hiding their possible enthusiasm towards it.

The Lithuanian Railways’ primary interest is the east-west axis. In the west there are Port of Klaipeda and the Russian enclave of Kaliningrad, and in the east Belarus, Russia, Kazakhstan and China. Although the Lithuanian Railways claim to support Rail Baltic, their support could be described as questionable but volatile.

Conclusion: Estonia wants Rail Baltic, and Latvia does not object it. Vilnius does not actively want or need Rail Baltic (at least north of Kaunas), and their support comes with a price. Lithuanians are eager to capitalize their valuable position as the “strategic gatekeeper” to the European 1435 mm rail network. 

RB Rail: Who’s got the upper hand?
RB Rail’s shareholder agreement was signed on the 28th of October. The photograph taken after the signing ceremony shows, who had the upper hand in October’s negotiations.

Palo, Matiss and Sinkevicius: Who's got the upper hand? (photo LETA/diena.lv)

Lithuanians have proved time and time again that they have not skipped the "getting what you want in a negotiation" class. Once again they persuaded the Estonian and Latvian ministers to sign a shareholders’ agreement including the “Vilnius provision”. Kudos to Mr. Sinkevicius team on that.

However, it is hard to understand the Lithuanians fetish to argue about the Vilnius connection with the other Baltic states. The fate of Lithuania's internal Kaunas-Vilnius connections’ financing lies completely on the hands of the European Council, never mind how much or how little Estonia and Latvia support it. Hopefully the Lithuanian mastery of negotiation tactics will be next time used in Brussels, to the benefit of Rail Baltic and Baltic states.

Latvian Minister of Transport Mr. Matiss was optimistic after the signing ceremony: “I am convinced that the signing of the Contract will ensure the implementation of Rail Baltica II.”  But to be honest, starting a statement with “I am convinced” does not sound too convincing.

Another shade of the Latvian attitude towards Rail Baltic can be heard in the comments of Latvian Rail Baltic manager Dins Merirands, who did not want to rule out a partial failure of the project. Mr. Merirands pointed out that in a tripartite project like Rail Baltic there is always a risk that the “will” to finish the project may not be always shared by all the participants. But then again, Mr. Merirands reasoned that everyone should work hard in the Rail Baltic project, in order to get at least something done. “Even the separate elements of this infrastructure could be used for the benefit and the purpose of what they were built for.” (Mr. Merirands comments are at 23 minutes of this video recording, taped at the Globālās transporta kustības vīzija 2050 conference in Riga on the 14th of September 2014).

Estonian Minister of transport Urve Palo was more or less forced to sign the shareholder’s agreement, as that was the only way to move forward with the project. After the signing ceremony Ms. Palo did not comment on the past problems of the project, and opted to concentrate on the future instead. She stated that the most urgent tasks for RB Rail are to prepare the financing application ASAP, contact the European Commission, prepare the business plan and evaluate the benefits of the project.

It is an excellent idea to contact European Commission, and ask whether all the planned adjustments to project plan are acceptable for the financier. If RB Rail’s finance application is made according to the specifics that have been presented in the ministerial declarations and joint statements, the EC will need to consider issues like “Does it matter who owns the infrastructure, once it has been constructed using EU financing?” and “Is it all right if the 1435 mm 240 km/h railway from Tallinn leads to Vilnius, instead of Poland?”. 

The European Commission and the Vilnius Issue

Lithuania has been advocating the 1435 mm Kaunas-Vilnius connection since summer 2013, and there is nothing wrong with that. It’s just that managing the plain north-south Rail Baltic 2 from Tallinn to the Polish border is a demending task, and addition of Kaunas-Vilnius connection to the already complex and multi-dimensional project could turn it into a Mission impossible.

AECOM’s extensive Feasibility study from 2011 found project Rail Baltic to be feasible and eligible for EU funding, but the feasibility was based on assumption of a double track 240 km/h railway from Tallinn all the way down to the Polish border. Currently the “bottom 100 km” from Kaunas to the Polish border is a slow speed single track connection, with only a fraction of the capacity that would be required to digest the cargo and passenger flows between Kaunas to Europe.

Claiming that the Tallinn-Riga-Kaunas-Vilnius version of Rail Baltic fits the “Connecting Europe” agenda is a tough act. If there was a “Connecting Vilnius Facility”, that would be a natural source of funding for this twisted version of Rail Baltic.    

However credible or incredible the Lithuanians’ arguments for a new Kaunas-Vilnius track are, the state of the current 1520 mm connection between Kaunas and Vilnius should also be considered. It is the highest quality railway in Lithuania at the moment, and it would serve as an ideal connection for Kaunas area’s intermodal terminals and future Rail Baltic connections to north and south. This is how Lithuanian Railways illustrates the dramatic improvement in the 1520 mm connection between Kaunas and Vilnius, achieved with the help of EU funding:

Conclusion: To Vilnius or not to Vilnius?

The Vilnius issue has delayed Rail Baltic, and it looks like the problem might possibly have been solved now. However, moments of optimism have often been followed by a return to harsh reality. Here's a recap of the situation:

• Lithuania wants to add Kaunas-Vilnius connection to the Rail Baltic 2 project to maximize its stake of EU financing.
• Estonia and Latvia have not opposed the idea of constructing a 1435 mm railway from Kaunas to Vilnius per se, but their logical view has been that there is no reason to complicate the already daunting project Rail Baltic. Kaunas-Vilnius is purely Lithuania's domestic issue, and they should discuss it directly with Brussels.
• Eventually a compromise was reached, and RB Rail's shareholders' agreement was signed in October. Lithuania was happy because the "Vilnius provision" was included in the agreement after onerous negotiations, while Estonia and Latvia were probably pleased with the “each country will co-finance the railway construction only within its own territory” clause added to the agreement.

A high ranking official from the Lithuanian Ministry of Transport confirmed me last week, that “regardless of the EC financing decisions for the Kaunas-Vilnius railway, there is no risk for the construction of Kaunas-Latvia section”. If we take that comment at face value, the construction of Rail Baltic's Kaunas-Latvia section will not be affected, even if the European Commission would completely turn down the application for Kaunas-Vilnius financing. That would be major progress, since only last June the Lithuanian Minister of Transport, Mr. Rimantas Sinkevicus linked together the financing decision of Kaunas-Vilnius and the construction of Kaunas-Latvia sections.

The European Commission has been following this Baltic mud wrestling act mostly on the sidelines. Considering that we are talking about a 4+ Billion euros project, the EC might consider taking a bit more vocal role. Giving clear guidelines of what can and what can not be included in the Rail Baltic 2 finance application would help. Creating a sense of urgency and instigating the fear of missing the 3 Billion euros financing to other TEN-T Priority Projects would help keep the Rail Baltic folks in Tallinn, Riga and Vilnius well motivated and focused. Money is the ultimate motivator.

“The Rail Baltic Task Force continue working on the establishment of the Rail Baltic Joint Venture as mandated by the ministers” (Source: Ministry of Transport and Communications of the Republic of Latvia)

Disclaimer

This article is based mostly on information available on public internet sites. If you are interested in more in-depth analysis on Rail Baltic issues, do not hesitate to contact me by e-mail, esa.nurkka@gmail.com.