When the Baltic prime ministers meet in Tallinn this Friday, they need to agree how to speed up building of Rail Baltica as deadlines are being missed and costs are rising. Latvia and Estonia are blaming Lithuania for stalling the project, while it digs its heels defending own interests
“Construction project is not a democracy,” during his last public performance said Timo Riihimäki, who at that moment still was the head of the Baltic joint venture RB Rail, which is responsible for the biggest regional infrastructure project since the restoration of independence – a high-speed train Rail Baltica (RB) connecting the Baltics to Europe.
In the interview with Re:Baltica, Riihimäki, who lasted as the CEO of the joint venture for just eight months, claimed that he resigned due to personal reasons. When asked more questions, he became irritated. “I just wish that statement will be respected. And I am not actually very keen on going into the details behind those personal reasons,” he said.
In November, during a presentation of the state of play for the European Commission (EC), which is the main funder of RB, Riihimäki was more straightforward. “In the eyes of the public, RB project has progressed well in 2019, but daily life is different,” the Finn started.
Laying out the reasons why the project is stalling, Riihimäki concluded that the Baltic countries will never build the high-speed rail line if things continue as they were. “My intention is not to argue whether the findings are right or wrong – I have based my findings on 30 years of practical experience with different businesses and some common sense,” Riihimäki stated. He stressed that a project as big as RB can’t progress if all decisions are subject to quorums, vetoes and alignments with all until a consensus is reached.
He never returned to work after that speech, leaving the post a few weeks earlier than expected.
The fast turnover of the RB Rail’s key personnel during the last two years has been just one of several red flags. At the beginning of 2019 Finland considered participating in RB if that would speed up the project. However, in the same autumn it dropped out. The memorandum meant for Finnish government, which Re:Baltica has obtained, calls RB the most important rail project for Finland’s interests in the whole Baltic – Nordic region. The reasons for dropping out of the project have been blacked out in the document, however, it still makes it abundantly clear that the reason was not lack of money for the inland lines as it had been publicly stated. To be part of the venture Finns wanted professional management for RB Rail.
As Estonia, Latvia and Lithuania are embarking on the first real ground works for Rail Baltica – the construction of bridges and viaducts, remodelled stations and new railway lines shall start this year – it is becoming evident that the project is stalling and deadlines are not going to be met.
Everyone is blaming someone else. Latvia and Estonia are ganging up on Lithuania which has built a wrong track to Poland and is delaying the decision to solve it, thus slowing down everyone else. In turn, Lithuania is not budging on the issues the others are asking it to fix. There are other pains too: Latvia and Estonia are behind the schedule for acquiring the necessary land.
Who Got the Power?
Riihimäki was not the first to leave RB Rail. During the last year, the atmosphere in the company had become toxic and several key staff members quit. Among them was Mart Nielsen, the Chief Technical Officer (CTO) who left in December after working on the project for 1 ½ years. “If you’re spending more than half of the day doing something that doesn’t make you happy, you are eventually going to need to make that decision,” he explained to Re:Baltica.
Nielsen pointed out the unclear structure and the hierarchy of the project as the reasons that pushed him to resign. “Megaprojects can’t be steered the same way as politicians steer a country. There needs to be a very clear hierarchy (..) The powers and responsibilities need to be in balance and it needs to be clear who has the last say. RB Rail looks like a roof organization and the coordinator, but the political sides of all three countries challenge all the decisions,” Nielsen said. He called every decision of the project a “compromise of a compromise of a compromise”.
In autumn 2019, 62 RB Rail employees, which constitute the majority of its staff, signed an open letter, complaining about the conflict of interest in the venture’s supervisory board , lack of perspective, underfunding and bureaucracy. It was largely dismissed as an emotional “communication problem” by the stakeholders, but the news leaking from the RB Rail employees leave no doubt that the joint venture is going into disarray.
Two sources claimed that conflicts go into daily operational details, for example, Lithuanian representatives claiming that Estonians are paid too much. The annual budget could not be confirmed for more than 7 months.
“Timo is a very competent man and had a lot of very good ideas. But the role of the joint venture was constantly diminished. The supervisory board acted like management. He didn’t have the nerve to last,” said a source who was familiar with the resignation reasons, but could not disclose his name due to the position. He said the Finn did not have the “Soviet temper” that would allow him to impose himself.
A Nudge From Brussels
“I have to bring to your attention the critical issue of delays,” Henrik Hololei, Director-General for Mobility and Transport of the EC), told the Baltic Prime ministers in a meeting in Vilnius in December 2018. “We should all be well aware that the delays which have occurred in the project implementation are quite significant. According to our latest assessment, delays on the first two CEF Grant Agreements [source for RB funding from EU – ed.] now add up to over two years.”
Hololei blamed the countries for not working together and pointed out that too often tiny issues are delaying the decisions for months or even years. “We cannot allow any more delays because of lack of efficient decision making or arbitration mechanisms,” he said.
The Baltic Prime ministers promised to bring the train back on track, but six months later little had changed. In July and November 2019 Hololei invited the stakeholders to Brussels for crisis meetings, followed by letters with specific requirements and deadlines.
“As a result, I believe we achieved a pretty good pace,” Hololei said in an interview with Re:Baltica in January. “Definitely we are much more strict in observing the deadlines now than we were before. We are tying all financial decisions with clear progress in the project.”
However, the optimism seems a little premature. None of the requirements set out in the EC’s latest letter have been met on time.
The Baltic states were asked to resolve the conflict of interest in the RB Rail supervisory board by January 1, 2020. To put it simply, Lithuania is represented in all levels of the project by Lithuanian Railways (Lietuvos Geležinkeliai), thus effectively the planners and builders are supervising themselves. It has not changed. Baltic stakeholders were also tasked to draft an acceleration plan to speed up the progress of construction by January 31. In addition, they need to build a structure which will bound closer the RB Rail and the national implementing bodies, so there would be a single point for the decision making and transparent financing.
In the letter, which Re:Baltica obtained and which so far has not been made public, EC confirms readiness to continue funding RB, but ties it to fulfilling the above mentioned requirements and obligations taken upon when signing the funding agreements.
“Ask Lithuanians,” laconically said Latvian Transport minister Tālis Linkaits, when Re:Baltica asked how the fulfilment of the EC demand to fix conflict of interest is going.
It Wasn’t Me
Former Lithuania’s Transport minister Rokas Masiulis, who left this post last autumn, rebuffs Baltic neighbours’ objections and does not feel guilty for anything which has been or still is delaying RB. Lithuania is on average 540 days behind the schedule, still, on paper it is the quickest of the Baltic countries.
“There are objective reasons. There are three countries, and every one of them looks after its own interests more or less. It’s normal for a project of this size to get stuck once in a while. There’s simply too many actors,” Masiulis said to Re:Baltica/Siena.lt.
He believes that a lot of delays were caused by the former management of RB Rail, while the conflict of interest is non-existent. “Should we then appoint someone who’s not taking part in the construction? This accusation is absurd,” Masiulis said matter-of-factly. “This is really a lame rebuke. To be honest, it was never brought up on a higher level.”
Another major reason for disagreements is Lithuania’s reluctance to share the control of RB infrastructure on its territory with the other two Baltic states. Lithuania is a well-known advocate of its own interests, which does not allow outside players on its railway. And it appears that RB is treated as an outsider.
Latvia and Estonia want joint management and suspect that Lithuanian Railways might not grant RB the same access to the railway as it would grant to its own freight and passenger trains. “If this line is run directly by Lithuanian Railways (..) it should be ensured that for some reasons Lithuania does not give priority to some trains due to self-interest,” Latvian transport minister Linkaits said to Re:Baltica.
“The railway lines in the territory of Lithuania have to be owned by the state,” Masiulis defends Lithuania’s position. According to him, if Lithuania would give one line to RB, the next day Russia would be at its doorsteps asking for the same. “This simply is a red line. (..) This is strategic infrastructure,” he said.
All these issues are important, yet for Lithuania and the whole project the biggest headache has become the track from Kaunas to Polish border. Lithuania built it using EU funding as part of the RB route, but it doesn’t meet the technical standards which were approved a few years later. The first trains between Kaunas and Bialystok began running in 2016, and it is far from what a modern railway connection should be. Lithuanian Railways admits that the roughly 200 km trip lasts for close to five hours.
There are two options to fix Lithuania’s railroad connection with Poland – to rebuild the current track or to build an entirely new track that would be capable of supporting the high speed of the new train. The major obstacle for these solutions is the cost, which is why Lithuania is likely hesitating to make the decision.
“In preliminary calculations, the implementation of either of the two alternatives would cost around 600-700 million euros,” Lithuanian Railways told Re:Baltica/Siena.lt in a written statement.
The estimated price is nearly double of that spent on building the existing Polish connection, and it would increase Lithuania’s total RB project costs by at least 24%, Re:Baltica calculations show.
These, as well as other project changes need to be coordinated with the EC, which effectively funds the RB construction. What would be it’s call, is hard to say.
“Time passes. (..) The longer it takes for this decision to fall, the bigger impact it will have on the project as a whole,” Julius Lukošius, the director of Economy Audit Department at National Audit Office of Lithuania, said to Re:Baltica. According to him, this decision will have an impact for the decades to come, therefore it must be calculated wisely.
Missed deadlines was another issue which the Baltic state auditors recently raised in the joint report on the progress of the RB project. It states that some activities agreed upon in the three signed grant agreements are already delayed by on average 571 days or 1 ½ years.
Delays mean that costs are already rising. The Baltic auditors estimate that the overall costs of original agreements so far are up by approximately 59 million euros. Most of it comes from expected project spending increases in Latvia and Estonia.
The expenditure overrun may not seem high when compared to the total RB costs, but the Lithuanian auditor Lukošius says this is the wrong math. The cost increase should be compared with the first signed grant agreement. “The first agreement was above 500 million. In other words, the 59 million is an 11% increase,” he explained.
At the same time, as the execution of project activities have been delayed the Baltics are struggling to spend the money that has been granted to them. So far, three CEF grant agreements have been signed amounting to 800 million euros. Due to delays they have been extended by two years until the end of 2022. CEF funding works on the principle of “use it or lose it”.
To give an example, by now 30 million euros have been spent in Estonia, although over 200 million euros have been granted to it. “In Latvia and Lithuania it’s even less, so we are even good spenders,” RB Rail‘s Estonian manager Aivar Jaeski joked.
“[When assessing] next fundings, it has to be clear that the funding already awarded has been spent. We can’t allocate money for the next segments of the project, if they haven’t been able to carry out the previous ones,” Hololei said.
The Illusion of Control
According to the current plans, the RB line should be built by 2025 and trains would start running a year later. Shortly after taking the office, Latvian Transport minister Linkaits said that the project was already 2 – 2 ½ years late. When will it be finished? “No one knows. There is an official date, 2026, which, of course, is not likely to be fulfilled,” he said to Re:Baltica at the end of last year.
RB Rail has drawn up various scenarios. The worst one estimates that the project will be completed by March 2030 if it runs into funding problems. Publicly, however, everyone is sticking to 2026.
RB is not a hot topic in the Lithuanian parliament. However, last December the former prime minister Algirdas Butkevičius asked the new transport minister Jaroslav Narkevič what was the status of RB after another resignation in RB Rail.
“The challenges are very serious. (…) But it is under control,” Narkevič replied.
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Written by Inese Liepiņa (Re:Baltica), Holger Roonemaa and Martin Laine (Delfi), Šarūnas Černiauskas (Siena.lt)
Edited by Sanita Jemberga (Re:Baltica)
Translated and edited by Aija Krūtaine
Graphics and technical assistance by Madara Eihe