Estonian report: Funding, design for Rail Baltic likely to be delayed

TALLINN – According to the Rail Baltic Interim Report 2021 endorsed by the Estonian government last week, there is a very high probability that the funds necessary for financing the project will not be received in time and the design of the main line is also likely to be delayed.  

The report highlights as major risks a significant increase in the price of the project resulting from the increase in the prices of construction materials and energy due to the Russian military activities in Ukraine; non-realization of European Union 2021-2027 funding opportunities as projected to date; delay in acquiring the necessary land; and delays in the implementation of the project in Latvia and Lithuania.

The total construction cost of the railway and associated facilities is currently estimated at 5.8 billion euros, in line with the results of a cost-benefit analysis completed in 2017. According to the preliminary design of the Estonian section, as specified in 2018, the cost of the railway and related infrastructure on Estonian territory is approximately 1.59 billion euros.

In 2021, Rail Baltic Estonia OU updated the budget for the Estonian part of the infrastructure for the National Audit Office, and the cost was then estimated at approximately 1.73 billion euros.

Considering the situation on the construction market and the fact that the cost as estimated in 2018 is constantly changing due to the increase in construction prices, the construction will rather prove more expensive than forecast, the report says.

Compared to 2017, when the estimates concerning the costs of pre-design solutions were prepared, construction prices had increased by almost 13 percent by 2021.

The financial volume of investment and expenditure in Estonia to date amounts to 87.9 million euros, which includes both EU grants and national contributions. The total investment in 2022 will be approximately 92 million euros, and in the period of the national budget strategy 2023-2026, around 911 million euros.

Funding for the construction of the railway is planned mainly from the EU's Connecting Europe Facility (CEF) with national contributions. To date, funding has been applied for in five rounds of CEF applications, resulting in more than 1.1 billion euros, of this around 940 million euros in CEF grants.

Most of the funding needed to build and launch Rail Baltic has to be applied for in the current EU budget period of 2021-2027. The maximum funding rate from the CEF is 85 percent of eligible costs in the period 2014-2020, and up to 90 percent of eligible costs in the current period.

The real EU support rate, which takes into account the financial needs of the project at the specific time point, is approximately 81 percent for works and 85 percent for other activities.

In 2021, two applications were submitted under two parts of the first round of CEF application. The total volume of the joint applications is around 1.48 billion euros, including national contributions.

Rail Baltic is expected to be completed in Estonia by 2030 at the latest, when, in accordance with the Trans-European Transport Network (TEN-T) Regulation, the Trans-European Core Transport Network must be completed. According to the report, the originally agreed completion date of end 2026 is unrealistic, in particular due to the delay in the project solutions for the main railway line and the allocation of funds under the CEF Regulation for 2021-2027.

The report points out that internal delays are related to the completion of the main railway line  project solutions. It was not possible to announce the construction procurements of all the  planned objects and to start construction works in 2021, which is why the conclusion of some construction contracts and the start of works have been adjourned to 2022.

Due to the aftermath of the COVID-19 crisis, including, for example, the prohibition of public consultations on environmental impact assessments during the emergency situation and restrictions on the movement of external experts working on the design, the deadline for the CEF agreement, and thus for design and construction activities and land acquisition activities under it, was extended until the end of 2024.

According to the report, all activities completed as of the end of last year remained within or below the budgets agreed upon in the CEF financing agreements, while the design activities completed in the first half of 2022 regarding the Ulemiste and Parnu terminals and rolling stock depot have turned out to be more expensive than estimated.

According to the new schedule, the design of the main line of Rail Baltic in Estonia, including the track embankment and superstructure, is planned to be completed during 2024, and construction with the existing funds by the end of 2024.

Which specific individual sites of Rail Baltic can be built in which years will also depend on the availability of CEF funding. The timing of tendering and contracting of specific projects may therefore change compared to what is currently planned, the report says.