Cross-subsidization hurts transit

  • 2004-07-22
  • From wire reports
RIGA - Cross-subsidization continues to hinder the development of transit business in Latvia since revenues go toward covering loss-making passenger transportation, officials of the Latvian Transit Business Association said last week.

Although the railway law states that cross-subsidization is forbidden and that passenger transportation should be state-subsidized, funds allotted in the budget aren't enough to cover the difference.
Still, cross-subsidies of 13.3 million lats (19.8 million euros) for passenger transportation will no longer be necessary by 2005 when the state begins to fully finance loss-making passenger transportation.
The state budget has already allocated 4.7 million lats this year for infrastructure costs, falling short by 1.3 million lats of what the industry needs.
Latvian Railway CEO Andrejs Zorgevics said that 4.7 million lats for the fifth largest cargo transporter in Europe "didn't make sense," adding that Germany spends 9 billion euros on its railway sector.
"This is an issue regarding the transit corridor," he said, adding that because Latvia has significantly more railway users than Estonia or Lithuania, the weight of cross-subsidizing passenger transportation is double.
Transit Business Association head Aivars Lembergs said that cross-subsidization both lowers the competitiveness of Latvian companies and promotes the concentration of capital and industry in Riga.
Riga City Council representatives have on numerous occasions in the past said that it did not make economic sense for the Latvian capital to subsidize the commuting expenses for people living in other cities, as their taxes were paid outside Riga.