The supervisory board of RB Rail, that is handling Rail Baltic project work for Estonia, Latvia and Lithuania, has repeatedly told the management board to agree on realistic design deadlines. Kristjan Kaunissaare, project coordinator for the Ministry of Economic Affairs and Communications, said that Estonia has a backup plan should the joint company not be up to the task.
CEO of Rail Baltic Estonia Anvar Salomets has been saying for a while that slow design work is what's holding back the project. That Spanish contractor IDOM has not gotten off the ground. Let us recall that the design contracts were signed in 2019. The projects were supposed to be completed by last summer at the latest. When did the work first fall behind schedule?
Towards the very beginning. It coincided with the first Covid wave that caused preparatory work, geotechnical surveys to grin to a halt. The drilling machinery and crews were brought over from Spain, while the outbreak meant they could no longer travel to Estonia.
But it didn't stop there. There were other delays caused by Spanish design solutions not being up to Estonia's quality standards that caused them to be sent back and worth. The contracting party was not happy, while the contractor did not manage to rectify all mistakes the first time. This caused further delays.
What was the nature of the problem?
From what I've heard, the level of precision was not sufficient for a permit to be issued. Meaning that we are talking about the work itself and not just the way it was presented. Missing drawings etc. The feeling one gets is that IDOM sent in design solutions just to have something to show by the deadline, without heed to whether what they were presenting was even up to scratch. They have tried to stick to deadlines but delivered subpar quality product.
The economy ministry admitted exactly one year ago that the Rail Baltic route will not be ready by 2026. Now, we are hearing it might not be ready by 2030 either. How many years will the designer's various delays cost us?
Hard to say. The design work has been commissioned by the joint venture RB Rail AS that is also in talks with IDOM to get things back on track. We have been sent various new deadlines that RB Rail and IDOM have managed to negotiate, while we've seen nothing that sticks.
Of course, we are already building bridges, overpasses and ecoducts by that same design bureau. But looking at longer sections of the main route where we would like to launch construction, design work deadlines have been repeatedly postponed. Or delays have been caused by poor quality work that has been sent back to the designer only to have it be resubmitted and still not good enough.
Work was supposed to be finished over a year ago. Why hasn't the ministry, as one of the owners of the joint company, put its foot down and restored order?
The supervisory board has clearly ordered the management of RB Rail to bring the projects home so to speak. The management board has fallen short until now. We have been working on the problem since the delays started. It looks like the RB Rail board has not managed concrete agreements yet. The supervisory board will stay on it, continue talking to the management and take necessary measures.
Why is the board still in place?
The makeup of the management board has changed in the past, and it is up to the supervisory board what guidelines or instructions it will have for the former.
Any such plans?
I'm sure members of the supervisory board will be able to answer that.
The supervisory board of RB Rail, as the representative of the Baltic countries, is negotiating with the management board that is in turn negotiating with the Spanish contractor that is looking for ways to do its work better. Quite a few links in that chain...
Indeed. But it's run of the mill corporate governance. The supervisory board is not involved in operative management. It can only tell the management board what it needs to do.
Does Estonia have a plan B should RB Rail fail? Who will design Estonia's part of the project?
There are various options on the table, both for existing project solutions and those IDOM has not yet presented. But no concrete decisions have been made. We will learn of decisions in the near future.
What are those options?
It is true we have several options. But I would not get into them so as not to undermine RB Rail's negotiating position with IDOM.
I only see one position, looking at it from Estonia's point of view. That a major company has been taking a billion-euro project for a ride for years, and no one has done anything about it.
I do not agree that no one has done anything.
Have contractual penalties been ordered?
Not to my knowledge.
What has been done?
New deadlines have been agreed. As I said, we have received project designs. Bridges and overpasses have been constructed. For example, the Assaku overpass should be completed this year.
Do we have any idea or a target for RB Rail in terms of when the Pärnu-Tallinn section design work should be finished?
The design work is tied to the Connecting Europe Facility (CEF) financing contract from 2015. That is the source of funding for the design work. It is important for design solutions for everything between Tallinn and Ikla to be done by the end of 2024 at the latest.
Some of it should be finished sooner so we could use CEF resources for construction and apply for more. The development of these sections is the main criterion for CEF funding, whether you have design documentation, the land and a building permit.
Let's come out and admit that plan B is handing some of the design work to another company. Do we still have time?
It is still possible.
What do these delays mean for us financially?
We see no risk of losing sums already allocated. The year 2024 is still far away. Of course, construction prices are going up from one year to the next. But if we look at overpasses and ecoducts for which contracts are in place, prices have remained on pre-war levels.
Could we draw up a Rail Baltic cost-benefit analysis at one point? Just for the sake of curiosity.
It will need to be updated anyway. Requests for funding will need to have cost-benefit analyses. We have been using the 2017 analysis so far. But I'm not sure about future funding rounds, whether we would need a new analysis for the 2023 round.
We want the analysis to be as exact as possible. This means that design work should be done by the time it is updated, or finished to a point where we can show the investment volume on the main project level.
While this is again speculation, could the project still be in the black in 2023, if we factor in the socioeconomic benefits?
I cannot tell you. I would refrain from making any kind of pledges. The calculations will have the truth of it. And methodology used. If the latter has changed in the meantime, that is what new calculations will be based on.
That would make the old and new analyses incomparable.
Certain components could still be compared. But if the methodology changes, if environmental impact components – for example, CO2 emissions – end up costing more, or if there is specification in certain areas, that is how it will be. These methodologies are not set in stone.
How is IDOM doing in Latvia? The route there is entirely up to them.
The problems are the same as in Estonia. Comparing the Baltics, Estonia is in a better place in terms of design work than Latvia and Lithuania. While this could be of some comfort, considerable delays work to dial back the elation.
A different company is in charge of designing the Pärnu-Ikla section of the new railroad. Is cooperation different there?
[RB Rail signed a contract for the design work between Tootsi and Ikla in February of 2020. German company Obermeyer Pnanen and Spanish firm Prointec promised to complete the work by this summer. Three months after the contract was signed, the Supreme Court revoked the southern part of the Pärnu County plan. Work to find a new and suitable route continues to this day - ed.]
Design work is underway in sections where the plan has not been revoked. Construction will likely start next year, on bridges and overpasses.
As concerns the section that was revoked, the Supreme Court's task will take far longer than it predicted at the time. We see that the plan could be approved again by late 2023. Possible design solutions are being drawn up in the meantime, so as not to lose time once the approval is in. Design work and planning are taking place hand in hand.
But the bureaucracy of it all means that you cannot have a proper design solution before you have an approved plan.
Editor: Marcus Turovski