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Baltic Express: our children will have to pay for Latvia’s railway electrification project

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU«Latvia’s railway electrification project will not only fail to provide any tangible economic returns but will also cost so much that our children and their children after them will have to pay for it. Similar to any investment project, those who wish to use it expect also a return of investments. Unfortunately, we can predict that the cost of using Latvia’s railway infrastructure, which is already the highest in Europe, will only grow as a result of this project. Unjustifiably high costs have never benefited competition,» says AS Baltic Express Train Movement Organization Office manager Linards Gulbis.

«Imagine a store in which prices are so high people simply cannot afford any purchases. The store’s management is well-aware there is no room to increase prices even further, but they still want money. Then they adopt a fee for use of doors, a fee to remain in the store, a fee for the use of heat, etc. How many buyers would such a store have?! None! This is the kind of situation Latvia’s railway industry risks falling into,» says Gulbis.

He reminds that the project’ s representatives all claim that by going through with it Latvia demonstrates its presence in the transit business sphere, and that without it Lithuania, Estonia and other competitors will surely win over clients. «Unfortunately, our competitors will only benefit from this project because with electrification of Latvia’s railway infrastructure we can forget about competitive prices. In addition, the continuous cargo decline will only make this project and economic catastrophe for the country,» Gulbis continues.

«The study performed in 2012 made it clear that electrification would be acceptable only if our railway lines are used to transport a constant volume of cargoes. In 2011 and 2012 the volume of cargoes was 60 million tonnes. Last year, however, cargo volume was only 40 million tonnes. This means the main factor for the project’s viability – volume of cargoes enough to sustain costs – is absent. Ideally speaking, it would be best to postpone the project and reassess it. Another study performed in 2011 warned that benefits from the electrification project will be possible only if electric drive is performed along the entire corridor. If carriers are not permitted to provide transport services and use LDz network and diesel power instead of electric power, it is likely investments will not be returned.

Considering that the electrified railway line is planned to be established only as far as Riga, the project is already doomed to fail. It is but one of many factors,» said Gulbis.

As mentioned by authors of the study, one of the most important aspects is the price change of diesel fuel in relation to the price change applied to electricity. «If the rate at which electricity prices increase is higher than that of diesel fuel prices, the project’s financial longevity may be put at risk,» as mentioned in the study.

«Here I would like to mention one of the loudest scandals in recent months – the one associated with mandatory procurement component. In 2016 alone MPC payment reached EUR 237 million! Every single Latvian resident and businessman paid this money through electricity bills. There are justified reasons to believe that households and businesses will have to pay even more for electricity once the railway electrification project is completed. The average electricity price per kWH (EUR 16.2) is already higher than the one in Estonia (EUR 12.4) and Lithuania (EUR 11.7). What kind of improvement of competition will this project bring?» said Gulbis.

«Because the decision regarding railway electrification has no economic need, and is actually a political ambition, none of the aforementioned risks have been taken into account. Moreover – an enormous and unreasonable burden is put on the shoulders of cargo carriers. Only part of the project’s costs will be covered from finances of the European Union. Replacement of diesel trains with electric models is now a ‘voluntary duty’ of active businessmen. Let’s calculate – one Siemens diesel locomotive costs around EUR 5 million. One electric locomotive will cost at least EUR 8 million. Businessmen have to reform their electric locomotive park, a new repair base, train new specialists and sustain two locomotive parks – cargoes will be carried to Riga using electric trains, and using diesel trains from Riga to Ventspils. Only politically motivated experts see economic benefits from the project. It will not benefit Latvian residents at all,» Gulbis concluded.


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