Estonian Railways may need additional €10 million over Russian freight loss

A section of rail track in Estonia (photo is illustrative).
A section of rail track in Estonia (photo is illustrative). Source: Siim Lõvi/ERR

The state-owned Estonian Railways (EVR) may need an additional €10 million in support from the state to cover this year's costs in connection with the termination of freight transport from Russia. The company is seeking new markets in Central Asia, as cargo shipping on the Black Sea has been reduced due to the ongoing war in Ukraine.

Last year, rail freight volumes saw an upturn following a period of stagnation caused by the COVID-19 pandemic. Fertilizers accounted for nearly half of all goods shipped by rail last year — the import from Russia of which is now banned.

A total of 6 million tons of fertilizers were transported via rail freight last year, followed in volume by mineral fuels, including primarily Belarusian petroleum products, which accounted for 2.8 million tons of freight.

"The shipping of sanctioned goods has been suspended," said Kaido Zimmerman, chairman of the management board of EVR. "We primarily shipped fertilizers here. We had petroleum products come in from Belarus at the beginning of the year, but we don't have those anymore either. The biggest volumes, of which we transported millions of tons a year, are through by now. Limited volumes of imports are coming over the border, which are meant for production at Estonian factories — chemicals, soda, goods like that. Some containers are moving to Russia, and that's it."

According to Zimmerman, the railway company has by now been left with primarily intra-European transport, the domestic transport of shale oil and oil shale, as well as the supplying of the country with gasoline and diesel fuel, which is shipped in from the Orlen refinery in Lithuania.

€14.6 million deficit in 2021

The state covers deficits in EVR's budget each year, in the framework of which it paid the railway company more than €24 in support in 2020, €7 million of which went to cover the deficit in its 2019 budget.

Last year, the state did not provide EVR with operational support, however the company needs it, and thus the support will be paid out this year. According to Zimmerman, last year's budget deficit totaled €14.6 million, €12 million of which is currently earmarked in Estonia's 2022 state budget.

The halting altogether of Russian freight transport, however, would cost the state another €10 million.

"If rail freight transport with Russia were to be halted entirely, that would mean another €10 million in additional damages to EVR, which in accordance with the Railways Act must be compensated from the state budget in order to ensure the balance of the railway infrastructure manager's revenues and expenditures," explained Ministry of Economic Affairs and Communications spokesperson Taavi Audo.

According to Zimmerman, the company's deficit likely won't reach the €10 million forecast by the ministry, as operations continued at typical volumes during the first three months of the year. Nonetheless, he added, the deficit won't be much smaller than that.

"In terms of freight transport, 2021 was better than 2020 because we started transporting Belarusian goods at the end of the year, and in the first half of the year, we were receiving three trains a day of petroleum products," he said. "This started to decrease toward the end of the year, and ceased completely at the beginning of this year."

EVR looking to Central Asian goods

Due to the disappearance of the Russian and Belarusian markets, alternatives are now being sought elsewhere.

"We're working together with ports and terminals," the EVR board chairman said. "Right now, we know that Central Asian countries are in a bind because they cannot ship their cargo via the Black Sea. They have turned to the Baltics and Finland regarding shipping their cargo via our ports. That includes grain, ore as well as petroleum products. Work is underway to begin transporting this here. What we don't know yet is whether they will also come in via Russia."

He noted for example that the first load of linseed from Kazakhstan is currently awaiting transport at Muuga Harbor, and added that Uzbekistani and Chinese companies are likewise seeking transport opportunities.

"There are goods to transport, if Russia allows them through and our border isn't closed entirely," Zimmerman said. "Situations are changing on a daily basis, and the entire goods and logistics market is being reshuffled. Everyone is seeking all possible opportunities for where to send their goods as ships will no longer enter Russian ports and the Black Sea is so dangerous that shipping companies no longer want to risk their ships there."

He noted that EVR is also seeking ways to cut costs as well, including slashing some planned projects and possibly laying off employees at terminals seeing reduced volumes. "We're seeking all opportunities for saving something," Zimmerman said.

According to its unaudited annual report, EVR's 2021 revenue totaled €32.8 million, up 5.4 percent on year.


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Editor: Aili Vahtla

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