The planning process for a bridge between the island of Saaremaa and mainland Estonia is to take 10 years, while the construction is to span five years, it was found at the infrastructure conference Infra2019 on Thursday.
Experts also found that the tax system could be transformed for the realization of major projects, and that it is worth considering building the bridge in the form of public-private partnership (PPP).
The discussion concerning the Saaremaa bridge included Martin Lengi, director of strategic planning at the Road Administration, Margus Kohava, former leader of Est-For Invest, Kristjan Tamla, CEO of Swedbank Investment Funds, and Vilius Girkontas, expert at the Nordic Investment Bank (NIB).
Lengi said that over 60 percent of local residents support the idea of a bridge connecting the island of Saaremaa with mainland Estonia. "If the government were to decide today that the Saaremaa bridge must be established, it would take 10 years to plan it and five years to build it," he said in ha press release.
According to Kohava, major projects with effects spanning across multiple counties can only be planned through a national designated spatial plan, which is a political process. He said that the tax system of Estonia should be changed so that namely those municipalities that are directly affected earn tax revenue from the infrastructure established in rural areas.
"Why not work on a tax system in which the local government would earn immediate revenue from infrastructure located on its territory? This would motivate municipalities to entice investment, not discourage it, and the local population would understand that logic. For example, when it comes to the bridge, some of the income earned from bridge tax could go to local governments," Kohava said.
Tamla said that the Saaremaa bridge can be considered a landmark project, which has two features. "Firstly, such projects tend to be time-consuming, and secondly, as a rule, landmark-type projects always turn out to be more expensive than initially planned," he said.
"Therefore, it is likely that only a consortium of investors can finance such projects, because a pension fund, for example, would like to make a direct investment into a bridge only at a stage where its construction is rock-solid and its completion time and financing needs have become clear. It is therefore necessary to involve other types of investors as well," Tamla added.
A pension fund type investor can initially invest through other funds. For example, a pension fund may be an investor in a private equity fund, which, in turn, decides to become a leading investor of Saaremaa bridge. Tamla added that, in his opinion, major infrastructure projects can only materialize if there is very strong political support, which must last through election cycles and requires the support of different parties.
Girkontas agreed with the need for political support. In addition, the expert found that international experts should be involved in establishing the financing structure for the Saaremaa bridge. "Estonia has little experience with PPP projects. As the stakes are high, risks need to be hedged for both the public and private sectors. If the PPP of Saaremaa bridge is structured well, then the project may hold good promise," he said.
The Infra2019 infrastructure conference, which was held in Tallinn this year, took place for the third year in a row. Last year, the conference was held in Riga, and the year before, the host city was Vilnius. The conference was organized by Estonian private capital investment company BaltCap and law office Cobalt.
Editor: Helen Wright