Rail Baltic's cost-effectiveness analysis includes mistakes that are so serious that funding the project based on the data is not justified. This means that unrealistic qualities have been attributed to Rail Baltic that will not manifest, ERKE Riigikogu member Kai Rimmel writes.
Let us for a moment imagine the following situation. You have a house that your father built on a beautiful piece of land that you have been gradually fixing up. You have ordered a new geothermal heating system and have plans for replacing the roof.
Next, you receive a letter from a state agency telling you that you are obligated to build a new house in the bushes a few kilometers from your existing dwelling that the state will pay for, while your cost-sharing component will amount to 15 percent for which you need to take out a loan. Your family has just two people, while you must also keep using the old house and cannot sell it.
Absurd? However, that is precisely what has happened with the Rail Baltic (RB) railroad project in Estonia. Its "import" has taken place as follows.
In 2007, Danish consulting group COWI carried out a study to analyze the effects of switching the Baltic countries to the so-called European 1,435 mm track gauge railroad. The study concluded that the Baltics should stick with their 1,520 mm track gauge which they should renovate because using two different track gauges would cause a plethora of compatibility issues and be economically insensible.
The existing so-called Russian track gauge 1,520 mm railroad infrastructure in the Baltics needs renovation but can ensure goods transit from east to west and north to south as well as passenger transport.
Reconstructing the Tallinn-Tartu-Valga railroad to allow for speeds of up to 160 kilometers per hour would have cost €314 million according to the COWI study. (The Tallinn-Ikla RB line is estimated to cost €1.8 billion to construct).
For reasons that remain a mystery to this day, the European Commission ordered a new study from U.S. infrastructure consulting firm of dubious reputation AECOM that was given a diametrically opposite task: to rule out the existing 1,520 mm railroad and only look into alternatives sporting the 1,435 mm track gauge.
The AECOM study lacks argumentation on why the Baltic countries should switch to 1,435 mm tracks on the north-south heading. It also failed to take into account the negative effects of discarding existing infrastructure.
These fundamental shortcomings alone are enough to strike out the entire AECOM study. Unfortunately, the Rail Baltic process was launched in expedited procedure instead: the Estonian government decided that a new 1,435 mm railroad needs to be constructed to pass through Pärnu as part of the European transport network just three months after the AECOM study was completed.
To legitimize the project the foundation of which was shaky to begin with, Baltic countries' joint venture RB Rail AS created in Riga then ordered a cost-effectiveness analysis from auditors Ernst&Young that cost a few hundred thousand euros and was completed by spring of 2017.
That is what then Minister of Economic Affairs Kadri Simson used to justify Rail Baltic to the parliament and the Estonian public in June of 2018. The railroad was meant to connect Estonia to Europe in two ways – allow for rapid passenger transport and create a new transit corridor.
Specialists were skeptical of those promises already back then. By now, representatives of different fields (environmental protection, passenger transport, carriage of goods) have had time to study the cost-effectiveness analysis and have reached an unambiguous conclusion – the RB cost-effectiveness analysis includes mistakes that are so serious that funding the project based on the document is not justified. This means that unrealistic qualities have been attributed to Rail Baltic that will not manifest.
In addition, NGO Avalikult Rail Baltikust (ARB) has pinpointed a mistake of €4 billion in how much "clean air" RB would generate that has not been challenged.
The problem has been made note of further away – the European Court of Auditors has called into question Rail Baltic's projected cost and passenger transport volumes this fall, finding that the number of potential passengers has been overestimated at least two times, while the project's construction cost has been severely underestimated. However, goods carriage is expected to provide the lion's share of RB revenue.
Alas, hopes that RB would open a new transit corridor for goods have proved baseless. Why is that?
A third of goods should move to RB from road transport. The cost of moving a trailer "door to door" from Tallinn to the heart of Europe is around €1,500. That cost is €2,500-3,500 if one makes maximum use of the railroad today.
This makes it clear that not a single trailer will be moving to Rail Baltic and these goods volumes need to be ruled out in the cost-effectiveness analysis. Companies have retained common sense when evaluating the situation. The "Industry 2030" cooperation body notes in its summary: "Estonian industrial companies largely manufacture small series of highly variable goods following the Just in Time principle, which is why there is no alternative for road transport."
The second third of goods for RB should come from the east. The cost-effectiveness study reads that Russia is expected to provide the biggest part of goods to be moved on the new railroad. However, Russian goods move westward on the railroad well south of the Baltic countries where the routes are shorter and tariffs lower.
A terminal for reloading goods from the Russian railroad to European track gauge railroad was built in Brest on the Belarusian-Polish border 20 years ago. Russian, Chinese and Kazakh goods move west through Moscow. Moscow and Brest are on the same line. Kaunas would turn that straight line into a triangle, while Riga or Muuga would make the journey longer still.
Over those 20 years, the terminal in Brest has managed to generate goods flow of around 10 million tons a year. The business plan for Rail Baltic prescribes a goods volume of 12 million tons by 2026. Could RB benefit Finland that is expected to provide the final third of its goods volume through the Port of Muuga?
Finland is a maritime country that only moves modest amounts of goods southward. RB will not be able to compete with trade routes Finland has long since been using – 15 export ports and a railroad running from the Port of Turku to Europe through Sweden (that is 600 kilometers shorter that RB would be running from Muuga to a comparable destination in Europe).
Hopes that the Port of Kirkenes in Norway could be expanded as the Arctic Ocean melts and a railroad to Helsinki constructed to move Asian (mainly Chinese) goods from Kirkenes through Helsinki and Muuga onto RB also proved deceptive. A Finnish government study from 2018 found the plan to be economically unpractical.
For these reasons, Finland has given up participating in Rail Baltic organization. China's new "Silk Road" also does not include RB. Therefore, claims according to which RB would open new transit possibilities for Estonia are incompetent. The Estonian government has made important decisions for the development of competing infrastructures.
Plans include reconstruction of the Tallinn-Tartu, Tallinn-Pärnu, Tallinn-Viljandi and Tallinn-Narva railways to allow speeds of up to 160 km/h as well as constructing four-lane highways from Tallinn to Tartu, Pärnu and Narva. This would gain a person traveling on RB a mere 20 minutes when traveling from the capital to Pärnu. Is this good enough to justify constructing a second railroad to complement an existing one that costs ten times as much?
The position that RB construction will add to Estonia's GDP is also misguided. On the contrary, its effects will negatively impact the availability of scarce resources (sand, gravel, construction capacity). Planning 14-17 million cubic meters of these materials for RB is unrealistic. They also cannot be imported (with the exception of granite gravel) because transport is expensive and our southern neighbor Latvia has the same problems.
This shortage of resources, specific labor and technology required for infrastructure construction (mainly dump trucks, diggers and bulldozers) will place the entire sector in a difficult position for the duration of RB construction that will result in price advance that will negatively impact all Estonian residents. This is where the negative effect of RB construction manifests, can be calculated in financial terms and should be subtracted from projected revenue in the cost-effectiveness analysis.
Article 171 of the Treaty on the Functioning of the European Union emphasizes: "The Union's activities shall take into account the potential economic viability of the projects." Surveys could prove the project impracticable, for example, on grounds of being economically unsustainable.
Correcting if only the passenger and goods transport volumes in the RB cost-effectiveness analysis and considering the €4 million "hole," the truth is revealed – Rail Baltic's cost-benefit is not socioeconomically in the black, which is why the project does not meet EU co-financing requirements. Environmental damage has also been underestimated in RB cost-benefit calculations that make no mention, for example, of "ecosystem services."
It has turned out that all primary arguments in favor of RB have been based on false forecasts and the project is headed for a dead end. That is why the RB cost-effectiveness analysis needs an independent audit involving Estonian specialists who have so far made the effort out of civic duty.
Editor: Marcus Turovski