Timely funding of Rail Baltic likely to face serious difficulties

Render of the plannned Assaku viaduct.
Render of the plannned Assaku viaduct. Source: Rail Baltic

The Estonian government on Thursday approved the interim report for Rail Baltic, which noted that it is very likely that the amount needed to finance the railway project cannot be secured in time. In all likelihood, the project will end up getting considerably more expensive, and several stages in its completion will run behind schedule.

Major projects always mean periodically updated risk scores, but never before have Rail Baltic's risk indicators been so red.

"As we have launched construction projects over the past few months, we have been forced to index input prices for materials, for example, in order to manage the risks for contractors," said Andres Lindemann, Rail Baltic adviser at the Ministry of Economic Affairs and Communications, commenting on the new reality following the launch of Russia's full-scale invasion of Ukraine in late February.

Rail Baltic Estonia CEO Anvar Salomets said that several bigger procurements will be announced in the coming weeks. After that, the picture regarding prices will be clearer.

"When we look at fuel inputs, steel inputs, concrete inputs, then we're looking at a price increase in the order of 10-20 percent," Salomets said. "On the other hand, it must be understood that volumes on the infrastructure construction market are dropping. There may be other factors involved there as well, which will ultimately impact the price in a more favorable direction for the client."

"It is very likely that the amount needed to finance the railway project cannot be secured in time," the interim report approved by the Estonian government on Thursday states. According to Lindemann, the fundamental issue is how to cover the increase in the cost of the project. The European Union's priorities may change as well.

"It's possible that some logistics directions will be shifted more toward Ukraine — so that when the war there ends, it would be possible to help get that country back on its feet as quickly as possible," the ministry adviser said. "And so that these current humanitarian corridors would be as effective as possible. In that sense, competition between projects is growing as well."

Can't do less, can do cheaper

The majority of EU funding going toward Rail Baltic is being allocated from the Connecting Europe Facility (CEF). Currently, financing decisions have been made for Estonia through 2024. Application rounds for funding beyond that, however, still lie ahead.

"How we can make progress in practice will be indicated by cash flows," Salomets said. "We're building at the tempo of the volume of financing currently made available from the CEF."

Various possibilities exist for avoiding blowing the currently agreed-upon budget. Lindemann said that reducing the number of planned wildlife crossings is not an option, and viaducts, or overpasses, that are of vital importance to humans likely won't be cut either.

"It may be possible to optimize some objects by conducting design and build procurements, in which builders seek the most optimal solutions, which may bring down the final price," he suggested.

According to Salomets, works can also be divided into stages if necessary. This would mean that if financing from one application round is insufficient, efforts can be focused on the next one.

Foreign design firm still behind schedule

According to the interim report, there is also a very good chance that the design work of the main railway route will be delayed as well.

To some extent, this risk has already been realized, as shortly after concluding the contract for the design work, the Bilbao, Spain-based design firm IDOM started working at a much slower tempo than promised; it has yet to catch up.

"And we're still not fully convinced that this top form will be achieved again anytime soon," the Rail Baltic Estonia CEO said.

Nonetheless, the Spanish company has managed to drum up some momentum — designs for the planned viaducts and wildlife crossings have finally been completed, and the first sections of the main railway route are slowly starting to trickle in.

"Everything else on this busy schedule, it can be seen that they should be coming in shortly, but before they are received, they've once again been delayed a bit further," Salomets said.

A bigger concern will be if and when the foreign company's pace starts to restrict the use of EU funding. According to Salomets, this has not yet been the case.

There is a laundry list of various risks that must be taken into consideration by those leading the project. For example, various delays very likely to crop up in connection with court cases and labor shortages. It is also highly likely that the completion of environmental impact assessments will run late as well, the results of which in turn may include major restrictions and expensive compensatory measures.

The interim report also notes that the acquisition of necessary properties may not be completed by the deadline, and that planning of the southern Pärnu County section of the railway will in all likelihood drag as well.

Interest groups monitoring Pärnu County plans

In 2020, the Supreme Court of Estonia ruled to repeal part of the planned Rail Baltic route through Pärnu County, as planners had not determined the impact the planned railway would have on a bird sanctuary in Luitemaa Nature Reserve.

Part of the plans had to be redone, and what exactly the most reasonable route for the railway between Pärnu and the Estonian-Latvian border would be remains under consideration to this day.

"We must admit that this correction of mistakes that the Supreme Court considered a minor summer job is not so simple," Lindemann said, adding that their efforts on this front will soon have been ongoing for a full year and a half.

"We have quite a few route alternatives there," he continued. "But it's the assessment and comparison of the environmental aspects that has proven to be quite complicated."

He noted that interest groups' knowledge and skills have significantly improved as well.

"In other words, the precision demanded of us today is much greater than before," the ministry official admitted. "And the more carefully we have to carry this out accordingly."

On the bright side, diligent work will help reduce the risk of the development of the railway project being hampered by yet another court case.

"In close cooperation with associations, we're trying to find a solution that doesn't need to be taken to court, that would suit everyone and that we could quickly move into the design and construction stages with," Lindemann said.


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Editor: Aili Vahtla

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