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Bremze: does Latvia need railway as a mode of transport?

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU«I have always agreed with the medieval belief that it is not possible to escape from taxes and the plague. This is why Finance Ministry’s tax reform or ‘game rules’ should be accepted. It is not worth questioning. Instead, we should search for ways to work in the business environment more efficiently,» said Baltic Express Chairman Maris Bremze in a conversation with BNN about decisions made in the transit industry.

LatRailNet’s decisions to raise railway infrastructure costs

Industry expert Bremze notes that one of the most topical problems in the industry is LatRailNet’s decision to raise the cost of using railway infrastructure by 7% in 2018.

«This decision is proof than our country’s railway system is not friends with the term ‘cost effectiveness’. That’s the problem. The country’s railway system has become three times larger in the past decade. This is because the fixed assets volume has tripled, whereas supply volumes, the number of workers and the amount of work performed using Latvia’s railway system have not changed much. With that, it can be safely said that transit volumes have declined,» says Bremze.

He explains that to balance railway system’s finances, the only solution proposed by infrastructure manager and LatRailNet is raising prices.

He believes one of the causes for the established situation lies in history – the investment decisions made in the recent past. «As a result of those decisions, Latvia’s railway system has become much larger, and the mass of fixed assets has become enormous. In addition, it is also necessary to keep all assets in working condition. However, they are also not used to their full capacity. Cargo volumes transported using Latvia’s railway system are small in comparison with its processing power,» Bremze adds.

«Generally speaking, our country’s railway infrastructure is in pretty good shape. However, at the moment, it is being used to no more than 25-30% of its capacity. 70% of the railway system’s network remains idle,» industry expert says.

As for the reasons why the country’s railway system is not being used, Bremze mentioned another problem: «You see, fixed assets of the railway system are owned by the Latvian state, which has formed specific commercial associations to manage it all and provide services. Most work under supervision by LDz. Passenger transport services, on the other hand, are provided by Pasažieru vilciens, which separated from LDz some time ago. Other than that, it is state-run monopoly that is unable to offer competitive products to passengers and cargo owners. Because of that, the railway stands mostly idle.»

Does Latvia even need a railway system as a form of transportation?

Bremze voiced concerns over criteria as to why Latvia needs a railway system. He said: «To maintain and build railway lines, traffic lights, stations, as well as to electrify the entire system to carry passengers and cargoes. I think the answer should be: to carry passengers and cargoes. If passengers do not want to travel by train, they look for alternatives. The same applies to cargo owners. This is where the big question appears – who does need the railway as a form of transportation if there are no buyers for railway transport services?» the expert rhetorically asks.

In an attempt to explain when impedes railway popularity, Bremze mentions: «One of the reasons is that transports are currently organized by state-owned businessmen, even though most of the EU railway systems have been open to be used by businessmen for some time now. Basically any businessman can organize transports and compete with others. And because of that, attractive services appear for passengers and cargo owners.»

The expert adds that formally Latvia’s legislation uses EU regulations in relation to liberalization of the railway system and free competition. However, as it is often the case, it is one thing to approve laws and a completely different thing to realize everything in real life. «Latvia’s railway system, unfortunately, is not open for free competition and that our country’s railway transport system remains different from other EU member states, which had performed important political decision in the ‘90s to open up their systems for competition,» Bremze says.

He continues: «Unfortunately, state-owned companies still dominate the transport sector. I believe no one would agree that, considering the current state of the economy, the state is the best businessman capable of making attractive offers.»

The expert also mentioned certain risks: «If state-owned companies are unable to create an attractive railway product, it would be a good idea to let private businessmen have a go at it. Otherwise all maintenance costs will inevitably crash on the shoulders of taxpayers.»

He says it is not the state of Latvia’s economy that should be blamed for why the country’s railway system keeps stagnating, but rather political unwillingness to open up the system for competition.

He mentions an example: «Imagine a situation in which Riga would have only one restaurant network owned by the same people. The situation with Latvia’s railway system is currently exactly that. There is one state-owned service provider. There is a legal way to form another 100 railway carriers, but no real way to do that because there are so many obstacles and opposition to any private initiatives in the industry.»

The fact that Baltic Express and Baltic Transit Service appear in railway cargo statistics does not mean these carriers are free to present their offers on the market, Bremze notes. «In reality, both carriers depend heavily on LDz Concern. State-owned businessmen continue believing that they alone have the freedom to offer services on the market using Latvia’s railway transport system. That’s the problem.»

How to resolve the problems present in the transit industry?

Bremze says: «First of all, we should discuss the fact that there is no free competition on the market. This goes against Latvian and European legislation. Secondly, we should discuss cost-efficiency in the transport system.»

Transport costs continue growing. «We know that infrastructure costs will grow from EUR 10.35 to EUR 11.08 in 2018. This means the self-cost per ton of cargo will grow by 20 to 30 cents depending on length of the route and type of train. To make it easier to understand, cargo owners will have to pay 12 to 15 million euros more for using Latvia’s railway network a year. Will they want to do it? Perhaps they will search for alternative offers.»

«Looking at the general picture, we have ended up in a situation when we function without profitability reserves. I think revenue we receive from those services is not enough to restore our assets, even the old trains we use for cargo transports. Realistically speaking, we are below our self-cost,» says Baltic Express chairman.

Competition with other countries

When asked if this decision – increasing infrastructure cost – may have an effect on competition with other countries, Bremze says: «The cost of carrying a single ton through Latvia’s corridor is important to us. If it grows, the self-cost will increase as well. It is a major risk for low-cost category cargoes.»

Ref: 225.109.109.2595


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  1. Riga says:

    There is absolutely no focus on passengers and the wants of passengers: a quality, timely and comfortable journey.

    How old is the railway stock? How utilised is it? Does it offer a competitive journey experience? How far is Cesis from Riga? Do we have a 30 minute connection? Is Jelgava 15 minutes away? after the 07:56 to Zemitani, when is the next service? And yet, it is proposed to build a nigh on 97m Euro tramway in the same area as a heavy rail is already laid. Can you make this up?

    How do the SM and LDZ feel about connectivity? The refrain is often: Not enough people. And yet, how many live within an 80km circle of Riga – potentially a 30 minute journey time? Over a million?

    Now cast your eyes over the track – and its utilization – or not. Massive amounts of pointwork – which all needs power control, heating, signalling and maintenance.

    The network does not need cutting however, it does need infrastructure pruning and rationalisation with a realistic view as to what about of freight is going to be carried in the future, the value of that transit against infrastructure cost and a focus on improving connectivity of passengers.

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