Estonia, EU – Baltic States, Financial Services, Legislation, Railways, Transport

The transport program approved in February 2020 sets more modest goals to passenger train speed: the program aims to achieve a speed of 120 km/h on the railway and add additional speed up to 135 km/h in certain sections of Tallinn-Tartu and Tapa-Narva routes.

In the course of the review, the National Audit Office found that although current railway development strategies set the goal of shifting passenger and freight traffic from road to rail, there have been decisions made that actually favor the development of road transport.

Since 2005, railway development has been addressed in 15 different national strategy documents, which, unfortunately, do not form a comprehensive plan, and the question of how and when the targets are to be met and how much it will cost remains unanswered.

"The picture given in the development plans is very mixed, and also contradictory," Auditor General Janar Holm said, commenting on the results of the review. "For example, the main goals are to take passengers and goods from road to rail, to reduce greenhouse gases in the transport sector, to create a rail link with Europe and to increase the speed of passenger trains. The development of railway would benefit if the goals were aggregated into a clear state policy. The advantage of rail transport over the road could be speed or lower user charges in addition to good service quality, but the current development has not so far created any convincing advantages."

The state and railway companies plan to invest more than 2.6 billion euros in railway by 2030. This amount includes both the needs of the existing rail network and the construction of Rail Baltic. However, considering the current practice of railway financing and the funds planned for the development of railway in the state budget for the following years, the National Audit Office estimates that it may not be realistic to receive 2.6 billion euros for all railway development activities planned for the next 10 years.

"In a situation where freight transport by rail has decreased and the share of passenger transport on the railway is growing, one should decide how to optimally maintain, develop and finance the railway sector," Holm said. "Current plans are times greater than the total investments made during the previous decade. If we want to build Rail Baltic, electrify a large part of the rest of the rail network, build a railway route to Haapsalu and at the same time build four-lane roads, these wishes altogether may be unrealistic for the Estonian state.”

According to the explanatory memorandum to the 2020 State Budget Act, a total of approximately 41.5 million euros will be allocated from the state budget for the development of the current public rail network in 2020-2023 and a total of 344 million euros for Rail Baltic. According to the explanatory memorandum to the new, 2021 State Budget Act, the amount of funds allocated to the existing railway for 2021-2024 has been reduced. More funds will be allocated to Rail Baltic with the new budget, as the Rail Baltic project reaches the construction stage.

In the last ten years, that is in the period 2010-2019, the Ministry of Economic Affairs and Communications has allocated a total of 522.8 million euros from the state budget to railway companies, of which 212.6 million euros were the funds from the European Union.

As in other European Union countries, the maintenance of public railway network in Estonia depends increasingly on the state subsidy, and the sector needs additional major investments to maintain the quality of infrastructure, increase safety and trains’ speeds. The state-owned railway companies Estonian Railways and Eesti Liinirongid, which operates under the Elron brand, do not themselves have enough funds to invest and the implementation of railway development projects depends on how much state’s, the European Union’s and/or carbon dioxide (CO2) quota sales money the state will allocate for the development of railway, the National Audit Office said.

The project of electrification of the entire rail network in Estonia, which was added to the objectives last year, was not among the priorities of the Ministry of Economic Affairs and Communications and was started after it became clear that foreign funding is available for that and it can be one of the measures to reduce greenhouse gas emissions from the transport sector. At the same time, various parties in the railway sector have criticized the project because of hasty decisions, the lack of feasibility studies and the failure to consider alternatives, the National Audit Office said.

In the review, the National Audit Office raised six questions to which the responsible ministries, agencies and railway companies should find answers and make corresponding decisions in the future. For example, the National Audit Office asked what are the priority needs of railway development, what activities and in what period of time should be implemented as a matter of priority, what are the realistic plans for railway development, considering that the revenues from the business activities of the rail infrastructure companies -- Estonian Railways and Edelaraudtee -- and Elron are lower than the costs and there is no money for all the investments. It is also necessary to decide whether and how the management of rail infrastructure should be integrated into the joint transport agency to be established, in order to ensure cost savings and integrated transport planning for both the movement of goods and passengers.

There are about 1,514 kilometers of public railways in Estonia, which are managed by the state company Estonian Railways and the private company Edelaraudtee. Public transport services are provided by two main providers -- Eesti Liinirongid, or Elron, organizes public passenger transport and Operail is the main freight transport company operating in Estonia. The owner of Estonian Railways, Eesti Liinirongid and Operail is the state and the Ministry of Economic Affairs and Communications performs the duties of the sole shareholder.

Freight transport in Estonia has decreased by about three times in the last 10 years -- from 30 million tons in 2010 to 13 million tons in 2019. The number of rail passengers has almost doubled in the last ten years -- in 2010, 4.8 million people travelled by rail, while in 2019, there were 8.4 million passengers.