Janar Holm: On and on the story goes and where it ends nobody knows

Rail Baltica's official goal is unrealistic and its realistic goal is unofficial, Auditor General Janar Holm writes in a longer treatment of the seemingly never-ending railroad project.
On the penultimate day of May, Magda Kopczyńska, head of the European Commission's Directorate-General for Mobility and Transport, was handed a symbolic ticket for the first Rail Baltica departure to Warsaw pledged in 2030. But just eight days after the ceremony, it turned out that taking the promise at face value could strand our esteemed guest and her luggage on the platform at Ülemiste in the dead of winter 2030.
Namely, CEO Anvar Salomets of Rail Baltic Estonia OÜ told the Postimees newspaper in an interview that while the official date of completion is still 2030, it is possible the railway will not be finished until the third quarter of 2031.
Project like a concertina
In just eight days, the time it will supposedly take to finish the project lengthened by three-quarters of a year. In a new comment provided just five days later, the deadline shrank again. A project like a concertina that extends and contracts based on what the occasion calls for.
In April of 2021, Rail Baltic Estonia OÜ presented designs for new high-speed trains. The public was told, among other things, that rail traffic would start in 2026, with even ticket prices and a timetable provided. In a situation where the company could not tell the National Audit Office how much the entire project was going to cost, exact ticket prices were provided – €14 to Pärnu, €38 to Riga and €76 to Vilnius.
In the National Audit Office's interim report from October 2021, the Ministry of Economic Affairs and Communications, then responsible for the completion of the railway, still maintained that Rail Baltica could facilitate trains in 2026, even though the National Audit Office's analysis suggested the project was five years behind schedule. A few months later, Rail Baltic Estonia OÜ said that the railway will realistically be completed in 2030. In just a few months, the time it took to complete the railway grew by several years.
It is clear that no unexpected or previously unknown circumstances came to light in those days or months. All of it was known and it was simply deemed necessary to embellish the situation and avoid unpleasant news – of new deadlines or increased cost – being published.
Unfortunately, efforts to distort the reality of the situation and create illusions continue. On June 12, 2024, Rail Baltic Estonia OÜ said, when commenting on the reports of the Baltic audit authorities and explaining the project's increased cost: "Compared to the 2017 cost estimate of €1.8 billion, inflation has accounted for 40 percent of the increased cost, while adjustments to the project are responsible for 30 percent."
In fact, the project's 2017 cost estimate was not €1.8 billion, but €1.35 billion. It is a major difference. A difference of nearly half a billion euros. Big enough to be noticed. Whereas in a letter to the National Audit Office from just eight days prior, on June 4, Rail Baltic Estonia OÜ confirmed that the Estonian part of the project was estimated to cost €1.3 billion in 2017 which grew to €1.8 billion only in 2021. Why create all this confusion?
Railway completion and start of train traffic deadlines two different things
I'm sure the public is itching to know when construction will be completed. But more important still is when might the new railway become operational. These will be two different deadlines. Once the rail infrastructure is in place, several things still need to happen for it to be usable. Rail Baltica's communication efforts largely talk of the railway's completion, while it always pays to ask when might trains actually start moving people and goods.
For the Rail Baltica report, the audit authorities of the three Baltic countries were told that the railway should be completed by 2030 and become operational in 2031. But a closer look revealed that the section of Rail Baltica between the city of Pärnu and the Latvian border cannot realistically be completed before 2031 or put into commission before 2032.
The organizers had to be aware, when presenting the symbolic ticket, that no train would be going to Warsaw in December of 2030 and will have to explain for themselves why this circus was even necessary.
Total cost of building the railway, it becoming operational and the start of train traffic three different things
Public treatments of the cost of Rail Baltica have not mentioned the total cost of the project, but narrowly how much it costs to build the railway. While the latter makes up the lion's share of the total cost, the remaining expenses are significant enough to be factored in and brought to the attention of the decision-makers and the public. For example, the estimated cost of the trains for all three Baltic states comes to €300 million, while €62-89 million would have to be spent annually on operating and maintaining Rail Baltica in Estonia alone.
No sums have been earmarked for train procurements, which also means no preparations have been launched. The report by the three Baltic audit offices concludes that it could take eight years to go from a decision to procure the trains to the fleet being operational – two years for preparation and tendering processes, four years for delivery and two years for testing. In other words, if we decided to buy the trains in July 2024, they would not become operational before June 2032.
But no train tender can take place until funding has been decided and a source found. Another decision regarding the trains is who will own the fleet and the model based on which it will be used. These decisions simply do not exist. The gap between the proposed and actual dates of the project's completion is stretching audibly with each new sentence.
When estimating ballooning costs, comparable things need to be compared
The initial 2017 cost-benefit analysis put the cost of the Estonian part of Rail Baltica at €1.35 billion. This grew to €1.6 billion by late 2018 and again to €1.8 billion at the end of 2022.
By the time of the Baltic audit offices' overview, constructing the railway and associated infrastructure in the originally planned volume is estimated to cost at least €4.03 billion for a threefold increase from the initial estimate of €1.35 billion.
In order to marry reality to the increased cost, the Estonian, Latvian and Lithuanian governments are preparing to dial back the project and concentrate on constructing the main track first. This reduction in scope is estimated to bring the cost of the Estonian part of the project down to €3.1 billion and means simpler local stops with no railways stations (some stops will not be added at all in the first stage in Latvia and Lithuania), while some parts of the railway will only have a single pair of tracks.
I've noticed attempts to compare the initial cost estimate of €1.35 billion and the recent estimate of €3.1 billion when demonstrating how much the cost has grown. However, this is not accurate as we need to compare the comparable.
Talking about realistic deadlines in 2030 or 2031 without knowing where your funding will come from bordering on the absurd
I suppose various kinds of projects and deadlines could be treated as realistic if one did not have to answer the question of where to find the money. Alas, having the necessary funds tends to be a prerequisite for finishing things.
Talking about realistic Rail Baltica completion deadlines without knowing where to find the money to finish the project or buy trains, or how much will be available each year is just so much hot air. We are short some €1.8 billion to construct the scaled back version of the Estonian section of Rail Baltica as well as the money for procuring trains.
For as long as we don't know where the money for finishing the project will come from or its allocation from one year to the next, we can at best talk about unsubstantiated goals or a dream as opposed to realistic deadlines. Until we have a source of funding, the project cannot be considered feasible in the provided time frame.
The forecast gap in EU funding in 2027-2028 will worsen the project's situation considerably and require the tree Baltic countries to contribute more. For example, the explanatory memo of the 2024 state budget earmarks €399 million for Rail Baltica in 2026, while the sum falls to just over €37 million the next year. That is a reduction in funding of ten times just when construction efforts should be at their most intensive.
These are the main construction years, and should the project fall short of funding during that time, its completion will be postponed far beyond what has been suggested, and the cost will likely also increase. A train procurement is impossible without the necessary funds, which will postpone Rail Baltica becoming operational and recent investments being turned into value further.
The government will have to approve the 2027-2028 fiscal strategy this autumn, which is when funding for those years will become clear. The project is short hundreds of millions each year, while we all know the extent of Estonia's financial prowess as things stand.
Value of Estonia's investment dependent on developments in Latvia, Lithuania and Poland
Latvia, Lithuania and Poland completing their sections of Rail Baltica is of vital importance for Estonia, while Estonia completing its makes little difference to Latvia and Lithuania. It is enough for the latter to build south, so to speak, and link to Poland.
In a situation where both Latvia and Lithuania also seem to be short on money they can spend on Rail Baltica, there is the risk that our neighbors to the south will concentrate on the part of the tracks leading to Poland first. In that case, we could initially get a high-speed train link to the Latvian border and no farther for our €3.1 billion. Therefore, it is not enough for Estonia to properly manage the construction of the Estonian section. The Ministry of Climate and the government will also have to keep a close eye on decisions made in Latvia, Lithuania and Poland and maintain efforts to protect our national interests and value of investments on the international arena.
With all of the above in mind, we must make sure the part of Rail Baltica running from Pärnu to the Latvian border is just as high of a priority as the section between Tallinn and Pärnu. We need to make up for lost time and avoid finishing a part of the Estonian section later. If we fail to construct our section of Rail Baltica all the way to the Latvian border in time, it will give the Latvians an excuse to stall on their end, in the conditions of limited resources. The Latvians do not need a north-bound railway that ends on the border with Estonia.
Progress impossible without clarity and openness
In order for the project to make headway, the government will need to provide the Riigikogu with a correct and realistic overview of the current state of the project in Estonia and other countries, a financing plan (including sources of funding) from one year to the next until the infrastructure is built and train traffic launched, as well as realistic project deadlines. Involving the parliament on a fundamental level is key as the volume of the project has grown by leaps and bounds, which will affect the coming year's fiscal choices. The following questions need to be answered first and foremost:
- By what year could the railway be technically and financially realistically completed?
- How will the project be funded from one year to the next and what are the sources of funding?
- Who will procure the trains, by when and how will it be funded?
- What are the railway's operating and maintenance expenses and how much of it will have to come from the state budget?
- Will Rail Baltica have to be completed at all costs, or from which point will relevant efforts become insensible?
The quality of the Rail Baltica overview attached to the state budget's explanatory memo will need to be improved. This annex will have to become more comprehensive in a way to provide an exhaustive overview of key project KPIs for state budget deliberations each year.
First and foremost, it will need to provide the date of completion of the railway, the date of it becoming operational, the projected cost of construction, the cost of operation (trains and annual maintenance sums from the state budget), necessary investments by year, ways of covering costs and progress in Latvia, Lithuania and Poland. It is important for this information to be both realistic and official.
I would also reiterate the proposal from the 2019 audit of drawing up clearer Rail Baltica budget forecasts and financing scenarios until the project ends and to present them as an annex to the state budget. Five years ago, the Ministry of Economic Affairs and Communications, then in charge of the project, provided the rather unexpected response of suggesting that financial planning beyond four years was illegal and potentially unconstitutional.
This is not a serious position. There are no legal acts to prohibit long-term financial planning. The preamble of the Constitution tells us to ensure the survival of the Estonian nation and culture throughout the ages, not just over the four-year period covered by fiscal strategies. The Constitution is not an obstacle on the road to responsible and sensible behavior and rather mandates it.
--
Follow ERR News on Facebook and Twitter and never miss an update!
Editor: Marcus Turovski