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Audit office: Size of Estonia's Rail Baltic financial obligation unclear

Planned route of the Rail Baltic project.
Planned route of the Rail Baltic project. Source: (Latvian Ministry of Transport and Communication)

The size of the financial obligation assumed for the Estonian satte to build the Rail Baltic rail link remains unclear, Estonia's National Audit Office said on Wednesday, advising the Riigikogu to ask the government before ratifying the treaty for additional analyses and action plans in case the state's expenses on the project should increase.

The analysis conducted by the National Audit Office showed that neither the international agreement nor the explanatory memorandum to the draft act for its ratification provide clear anwers to questions about how big the size of the financial obligation assumed for the state is, how the project will be financed and whether there is a clear decision-making mechanism in case the project ends up costing more than planned, is not completed by the deadline or there are changes in financing.

As it is not clear what the size of the financial obligation assumed for the state is, it is likewise unclear what the size of the financial obligation the Riigikogu will authorize the government to assume is, and it is likewise unknown when and how much the state intends to spend on the construction of Rail Baltic, from which sources the necessary funds will be obtained and how the Riigikogu will be guaranteed the appropriate possibilities to intervene in issues concerning further financing decisions during the performance of the international agreement.

The international agreement and the explanatory memorandum do not describe the manner in which Estonia, Latvia and Lithuania will finance the project. The states only assume the obligation to apply for EU support according to the highest permitted EU co-financing rate. It is not known how the project would be financed if EU support to the project were to decrease, the cost fo construction were to increase or the Rail Baltic project proved to be less profitable than expected.

Withdrawal from the international agreement and the consequences thereof have likewise not been worded in the agreement. The liability of the participating states in the case of a breach of agreement has not been regulated in the agreement and the procedure for resolution of disputes has not been appropriately determined. According to the agreement, any disputes arising from the interpretation or application of the agreement will be resolved by way of negotiations and consultations between the parties, but no further mechanism for resolving disputes has been agreed upon in case such negotiations should fail. The agreement includes no separate provisions regarding liability.

The substantive role of the Riigikogu and its involvement in decisions concerning the Rail Baltic project is unclear. The materials submitted to the Riigikogu and the explanations provided to the National Audit Office indicate that following the ratification of the international agreement, the Riigikogu will not have to make any more decisions regarding Rail Baltic other than its participation in the state budget process. The document of the draft does not specify whether and in which cases the government should seek the approval of the Riigikogu before making any decisions or performing any acts related to the Rail Baltic project, the National Audit Office pointed out.

National Audit Office recommendations

Based on the above, the National Audit Office advises the Riigikogu to also develop a regulation for the implementation of the international agreement which would require the government to request the Riigikogu's decision before assuming or planning additional obligations that exceed the authorization received from the Riigikogu in the annual State Budget Act and determine the obligation of the government to inform the Riigikogu regularly and in agreed cases extraordinarily about the status of the development of the Rail Baltic project.

The National Audit Office also advises the Riigikogu to have the government submit an analysis and action plan to the Riigikgu in case the state's expenses on the Rail Baltic project increase due to a decrease in the rate of EU co-financing or an increase in the cost of construction, or if the economic performance of Rail Baltic differ from expectations.

If the Riigikogu approves the agreement made between the governments of Estonia, Latvia and Lithuania and the Rail Baltic project will actually go ahead, the National Audit Office is prepared to offer the Riigikogu an independent view of the course of the project. The National Audit Office can also mediate a view from Latvia and Lithuania to the Riigikogu, as the entire construction of Rail Baltic will be monitored by the supreme audit institutions of the three Baltic states, who are planning on carrying out joint audits. The supreme audit institutions of Finland and Poland have expressed their wish to be involved in the information field of the cooperation project of the national audit offices of the Baltic states as well.

By ratifying the agreement for the development of the Rail Baltic rail connection entered into by the government of the Republic of Estonia, the government of the Republic of Lithuania and the government of the Republic of Latvia, the Riigikogu decides to take on for the state of Estonia the obligation to build on Estonian territory a new rail line with European track gauge on which trains can travel at the speed of up to 240 kilometers per hour by 2025. Latvia and Lithuania will enter the same obligation regarding their respective countries.

The estimated cost of construction of Rail Baltic is approximately €5.79 billion, and the total cost of building the railway section located in Estonia according to initial calculations is approximately €1.35 billion. According to current expectations, 85 percent or approximately €1.07 billion of this should come from EU support and the state of Estonia will be liable for at least €268 million. The expenses the state will have to incur in order to complete the construction of Rail Baltic may increase if the amount of financing to be provided by the EU decreases or the cost of construction increases.

Editor: Aili Vahtla

Source: BNS

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