Latvia’s inability to complete Rail Baltic construction by the set deadline will inevitably end up costing Estonia as well, Auditor General Janar Holm has said.
The Riigikogu Anti-Corruption Select Committee discussed the Rail Baltica construction schedule, the sustainability of its financing and the main risks related to the project’s implementation on June 8.
Sander Salmu, deputy secretary general for mobility at the Ministry of Climate, said at the meeting that despite developments in Latvia, Estonia was continuing at a pace that would allow the railway to be completed until 2030.
“I would remind everyone that this is not only a Baltic project. It is an important link in a European transport corridor that member states are required to complete until 2030. We are dealing with an international obligation,” Salmu said.
According to the ministry official, attention is now focused on what Latvia’s new prime minister, Andris Kulbergs, will do.
Anvar Salomets, chairman of the management board of Rail Baltic Estonia, said the company has technically secured the capacity to complete and open the railway until 2030. State funding decisions needed to stay on schedule have been made for this year, while decisions for next year have yet to be taken. Those decisions are expected in the fall, when the 2027 state budget is prepared.
“From a scheduling perspective, it is important to emphasize that December 2030 remains technically achievable. The owner’s guidelines for Rail Baltic Estonia stipulate that target and we have organized our activities accordingly,” Salomets said. “At the moment, the schedules remain on track.”
Matiss Paegle, chairman of the supervisory board of RB Rail AS, the Rail Baltica joint venture, said Latvia was currently short EUR 3.7 billion needed to complete the project on schedule and the joint venture has been consistently working on proposals for how to close that funding gap.
As one viable option that Latvia has not yet used but could, Paegle pointed to SAFE, the European Union’s Security Action for Europe financing instrument, noting that its terms are very favorable and its repayment period is 45 years.
“I think this would be a financing instrument that could help close the funding gap. Another option that RB Rail has been very actively considering is financing Rail Baltica as a PPP or public-private partnership project,” Paegle said.
He acknowledged that he had been on the company’s supervisory board for a year and that few decisions had been made in Latvia during that time. However, he said the new government should take action as options do exist.
If railway construction in Latvia is ultimately carried out as a PPP project, Paegle estimated that preparing it would take two to three years, meaning completion of the railway until 2030 would be very difficult. It is not possible to say exactly how long the project would be delayed, as many factors will affect the outcome. Meeting the 2030 deadline would require construction work to proceed at a much faster pace.
“Latvia needs to invest around EUR 300 million in construction this year and EUR 720 million next year. We are already behind schedule this year and if that continues, we will fall significantly behind schedule next year. To accelerate progress, decisions need to be made very quickly and the most important decision the Latvian government must make is a funding decision,” Paegle said.
Auditor General Janar Holm said that, objectively speaking, Latvia had no realistic way of completing its section of the railway on time and the amount of money that would need to be allocated to the project within a short period is substantial for Latvia.
Holm noted that the three Baltic States were seeking an additional EUR 10 billion for Rail Baltica from the next EU budget period, of which Estonia was requesting only EUR 1.2 billion. By comparison, the project received a total of EUR 4 billion during the previous two budget periods.
“Just a few months ago, the Ministry of Climate said that Latvia was two years behind Estonia on the project. At the same time, we know that Estonia can meet the deadline if we do not lose time. Based on that statement, being two years behind would mean at least 2032,” the auditor general said.
He added that he hoped the Ministry of Climate had already calculated what the most sensible course of action for Estonia would be if Latvia now said it could not complete the railway on time. It is important, he says, that Latvia provide a clearer timetable for when and according to what schedule it expects to complete the railway, after which Estonia could make informed calculations.
“Because if Estonia brings all the work to a halt, everything becomes more expensive,” Holm explained. “Take Rail Baltic Estonia, for example. You have around 200 employees, slightly fewer than that. Will all those people simply wait around without working for that long? These calculations need to be made from a variety of perspectives. The fact is that Latvia’s delay will cost us money regardless and I think that is a problem.”
Matiss Paegle said Latvia should now focus on clearly explaining to both its citizens and neighboring countries why the project needed to be completed, as one of the biggest problems in Latvia was that ordinary people were often unable to answer that question.
He emphasized that Rail Baltica was a political and strategic issue as well as a military and defense project that strengthened the European Union’s eastern flank.
“Many people do not understand the need for a railway in extreme situations, when hundreds of military units must be moved efficiently and quickly from one place to another. At present, moving them can take weeks or even months,” he said.
Paegle also noted that while the Latvian government had consistently portrayed Rail Baltica construction as a major burden that the country could not afford, analyses actually showed that a large share of the funding came from EU sources. The national co-financing invested through the state budget is largely recouped almost immediately through tax revenue and economic activity. As a result, he said, the project was also economically viable.
According to Sander Salmu, the European Commission has the authority to initiate infringement proceedings if a member state fails to develop its infrastructure until 2030 and may later impose fines. At the same time, he acknowledged that, according to a review by the European Court of Auditors, Rail Baltica’s schedule slippage was smaller than that of other European transport projects.
“Compared with others, the Rail Baltica project is progressing well,” the Ministry of Climate’s deputy secretary general said.
Latvian Prime Minister Andris Kulbergs, who was in Estonia on June 8 and had been in office for just under a week, said at a press conference that completing Rail Baltica until 2030 would be difficult for Latvia, but that he had ideas for how to solve the problem.
“I also have some ideas that involve a bit of out-of-the-box thinking. If, over the next couple of weeks, I conclude that the idea is viable, I have already promised that the Estonian prime minister will definitely be the first to hear how we could move this project forward more quickly,” Kulbergs said.
Latvia is currently facing a EUR 3.7-billion funding shortfall to complete the project on schedule. Kulbergs said he was confident that financing options could be found, but stressed that it would not be sensible to build the railway at any cost.
“We are trying to do everything possible to complete the work on time, but if the price is too high, that becomes problematic. If we try to do something at any cost, then the cost will indeed become too great,” Kulbergs said.
Kulbergs also said he intended to discuss Rail Baltic with European Commission President Ursula von der Leyen, arguing that Europe should now view the project differently than it has in the past.
“This project is now enormously important, especially when we think about military mobility. We cannot finance it in the way we have done so far, through small installments. If this is a military project, then the financial allocations should reflect that and the necessary sums should be allocated accordingly,” the Latvian prime minister said. (ERR)