BATL: railway electrification’s real price will be at least EUR 230 million larger

«Transport Ministry and the prime minister keep the actual price of railway electrification project from residents – the total price of the first stage of the project will be at least EUR 230 million larger and will exceed EUR 670 million,» notes Baltic Association – Transport and Logistics.

With that, opposite to what state officials say, carriers expect railway freight prices to go up considerably, which will reduce Latvian transit industry’s international competitiveness even more.

Currently Transport Ministry is working on the first stage of the project, whose currently approved funding is EUR 441 million, of which nearly EUR 100 million will come from Latvijas dzelzceļš and the other half from European Cohesion Fund, admits BATL.

BATL notes that cost-wise they will not be the only investments from the state.

BATL board member Ivars Landmanis explains: «For the project to function normally, the state will have to invest another EUR 230 million from budget funds, which is something no one mentions publicly. LDz will have to buy new electric trains, which will cost around EUR 130 million. In addition, existing railway stations are not properly equipped, and it will be necessary to extend railway lines, which will also require at least EUR 100 million of investments.

This means the project’s costs will thereby exceed EUR 670 million, which is not something officials publicly admit. We believe no one really speaks out loud about these costs, because it is clear that with such significant state investments this project will not provide a return of investments and will only leave a significant impact on railway freight tariffs.»

According to the association’s estimates, with such massive investments, the self-cost of railway freight will increase. This means recovery of investments will be put on carriers’ shoulders.

«According to estimates from carriers and transit companies on the costs and tariffs, as well as competitiveness, predictions are not nearly as optimistic as those of LDz, which promises cost savings of 1 euro/t. Considering such important aspects like additional investments and private carriers’ data, reduction of self-cost is not possible under any circumstances,» says Landmanis.

The association also does not understand Transport Ministry’s argument regarding the need to realize the electrification project in order to secure positive effect on climate change – although transports in Latvia constitute 28% of greenhouse gas emissions, data from Environment Protection and Regional Development Ministry’s shows that 92% of these emissions come from road transports (light and cargo trucks and buses) and only 7% come from railway. This means the claim that this project will help reduce greenhouse gas emissions is untrue. The promised 1% reduction of greenhouse gas emissions will cost EUR 670 million, the association notes.

According to BATL experts, under such conditions the railway electrification project will not be economically beneficial to Latvia. «In the situation currently observed in the cargo freight segment, this is an insurmountable burden. In addition, Transport Ministry, LDz or even the prime minister can answer if the massive investments could have a negative effect on the already high transport freight tariff, which is already the highest in Europe. Further increase of prices would mean the beginning of the end for Latvia’s transit industry.»

Landmanis says this is a very expensive project for Latvia. «It should be mentioned that a total of 300 km of railway in the direction Riga-Krustpils, Krustpils-Daugavpils and Krustpils-Rezekne will be electrified. This means about EUR 2 million per 1 km of railway. We are certain that no ‘golden plans’ can ever hope to recover such investments, especially considering the current transit outlooks for the next ten years.»

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