The three Baltic countries lobbied hard to get the €6 billion Rail Baltica project included in the draft EU budget.
But Brussels is threatening to cut off future financing unless Estonia, Latvia and Lithuania drastically change the way one of the bloc’s biggest infrastructure projects is managed, according to a letter from a senior European Commission official.
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“It is evident that the current model is not working,” the boss of the Commission’s transport directorate, Henrik Hololei — who is a former Estonian economy minister — wrote in a December 4 letter to Baltic ministers. He warned that funding in the next seven-year EU budget will “directly depend” on changes in the project’s management.
The high-speed freight and passenger line would link up Estonia, Latvia and Lithuania, tying them to the rest of the EU — a crucial economic and security link for three countries worried about Russia’s regional ambitions. Project management has stalled, however, thanks to years of infighting.
Speaking to POLITICO ahead of Thursday’s EU budget summit, Estonia’s Prime Minister Jüri Ratas said that “there is no turning back — Rail Baltica is a vital railway connection for us.”
He said he lobbied European Council President Charles Michel on behalf of the three countries to include a reference to the project in the budget. He succeeded; Rail Baltica is the only transport project mentioned by name in the draft budget, seen by POLITICO.
“It is important for us that the funding for the EU budget will continue for the next seven years,” Ratas said. “This is one of our biggest priorities in the negotiations.”
In his letter, Hololei laid out conditions for uninterrupted EU funding through the bloc’s infrastructure financing pool, the Connecting Europe Facility. He wants agreement on a new legal structure that integrates RB Rail — the company responsible for carrying out the project — and national authorities managing each leg by March, and for that to be put into effect by July.
To head off a funding crisis, leaders from the three countries met in Tallinn on February 7, but only agreed to start considering alternative management options.
The EU allocated €1.4 billion to Rail Baltica in the current seven-year budget. It is one of the top-priority projects under EU’s Trans-European Transport Networks (TEN-T) program, and Brussels is financing up to 85 percent of the costs in some cases.
The problem is that squabbling among the three countries and multiple, often acrimonious, changes in management at RB Rail have hampered development.
In the wake of the latest CEO’s departure in November, staff issued an open letter warning of “inefficiencies, conflicts of interest and [a] careless attitude toward EU and national public funds.” An audit report also found the project was at risk of running both over schedule and over budget if changes weren’t made.
Brussels is losing patience.
“The end of May is the date that’s crucial for the answer on integrated governance for the construction phase,” said Catherine Trautmann, an ex-MEP and former mayor of Strasbourg tasked by the Commission with pushing the project forward. “If there is no decision, there will be no more money.”
The 870-kilometer railway line running from Tallinn via Riga and Kaunas to the Polish border has been planned since the 1990s. It would plug the Baltics into the European standard-gauge rail system, replacing Russia’s network to offer speedy transit between the Baltic capitals and Warsaw. There is even talk of an eventual tunnel linking Estonia to Finland.
“Rail Baltica is not only an infrastructure project — it is a geopolitically strategic project,” Latvia’s Transport Minister Tālis Linkaits told POLITICO.
The three governments finally signed an intergovernmental agreement in 2017, with a commitment for trains to be running by 2026. A cost-benefit study put the economic boon at €16.2 billion, with eight passenger trains a day running at speeds of up to 240 kilometers per hour. Freight transit times to the rest of Central Europe would be slashed as well.
Construction began in Estonia last year. The three countries are pledging to accelerate work, but the project has been dogged by trouble.
“To me, this is the saddest example of mismanagement in the history of public governance,” said ex-RB Rail CEO Baiba Rubesa in her resignation press conference in September 2018. “How can three governments be so short-sighted that they don’t realize they are playing poker with a regional project that will be good for each economy?”
Her replacement, Finland’s Timo Riihimäki, quit in November after bluntly laying out the problems in a meeting with senior EU officials, including Hololei.
The company hasn’t appointed a full-time boss since then. RB Rail spokeswoman Līva Biseniece said the process of finding a replacement will take until September, but new project-planning staff have been hired to get things moving.
Brussels’ Baltica experiment
There are deep divisions among the three countries over how to proceed. Crucially, Lithuania is against giving the project company more control, one of the criteria for keeping funding coming. This puts it at odds with both Estonia and Latvia.
“We are concerned that this experiment in transport is being done in the neighborhood of the Kremlin,” said Romas Švedas, a former diplomat and current chairman of the board of Lithuanian Railways, who also sits on the Rail Baltica supervisory board. “You need to ensure national security.”
Lithuania is ready to tender out construction contracts for the route between Kaunas, its second-largest city, and the Latvian border. It is also pushing the military case for Rail Baltica with a multimodal hub around Kaunas set to become a military transport center, creating a fast supply line through the narrow Polish border crossing.
“We are prepared to do anything to build the railway by 2026,” said Gytis Mažeika, Lithuania’s deputy transport minister. “We are not resisting; we are engaging.”
Baltic leaders aim to discuss the project again in late March or early April, he added, to figure out what to do about the Commission’s condition for integration.
Ceding control of strategic infrastructure is a red line for many in Vilnius. In any case, replacing the current corporate structure with a single cross-border entity to manage an international project would be a first for the Continent — something that locals feel wouldn’t be countenanced in Western Europe.
“The European Commission is not only telling us what to build, but also how to build it,” one Baltic official said of renewed pressure from Brussels. “Can you imagine the same situation for a project between France and Germany, or France and Spain?”
Hanne Cokelaere contributed reporting.
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