It is expected freight volumes in Baltic States will reduce as a result of Russian transit businesses diverting their freights to the country’s own ports. This creates risks for the long-awaited railway electrification project in Latvia, as reported by TV3 programme Nekā personīga.

Nekā personīga is aware Russian transit business representatives have had to sign a contract with the state, which provides for a specific time frame, during which they have to divert their freights from Baltic States to ports in Russia. Data for railway freights over the railway in November shows the volume of coal, for example, has declined multiple times.

Transport Ministry has ordered Latvian Railway (LDz) to review the company’s costs and prepare for the worst. The future of the EUR 318 million worth railway electrification project is unclear.

Lithuania and Estonia have already begun modernizing their railways, which means if Latvia postpones its project it will lose to its competitors. Freight volume decline also means lower income from LDz, which, in turn, creates risks of the company failing to implement the electrification project. Additional funding from the state budget may be necessary as well, the programme concluded.

Journalists say rapid decline of freight volumes from Russia means the scenario under which the project becomes financially disadvantageous may become a reality.

For years Russia has threatened to divert cargoes away from Baltic States to its own ports. However, freight volumes suffered a considerable decline after Crimea’s annexation.

Nekā personīga is aware Kremlin’s recently prepared plan provides for reducing traditional cargoes to zero and sending only potentially dangerous freights to Latvia.

«This is no secret for Russia to execute the strategic plans the country has hatched over many years – diverting freights to its own ports. The total volume of freights is expected to decline even further in the future. This is why LDz needs to work on developing flexible cost reduction programme so that it is possible to reduce costs in a situation when freights decline,» the porgramme was told by Transport Minister Tālis Linkaits.

Nekā personīga reports that Riga Freeport is still unaware if the port has plans to resign contracts with Russian suppliers in Russia this year. Coal freights from Russia compose one-third of freight volumes handled by Riga Freeport.

The volume of freights carried by LDz in January remained on last year’s level. However, a decline still followed after. Between summer and October, the total volume has not been above 87% of last year’s transported freights, journalists say. A considerable decline has been observed for coal and oil products – respectively 15.5% and 19.1%.

Data available to Nekā personīga about the volume of coal handled by Riga Freeport shows that it has declined three times in November when compared to October.

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«Unofficial information shows that Russia’s largest freight carriers have signed with Russia’s government a contract to reduce cargo flow through Latvia’s ports. Russia’s government is very serious about this matter,» says State Railway Administration’s director Juris Iesalnieks.

He also admits the freight decline is noticeable this year – in the first nine months volumes have declined 12.5% when compared to the same period of 2018.

«The situation is especially bad for coal, which has been a saviour for us until now. Currently coal volumes are below the most pessimistic predictions we heard half a year ago,» admits Iesalnieks.

The previous government decided that as the freight volume reduces dramatically, the state may have to reject the EUR 318 million worth railway electrification project.

Nekā personīga reminds that LDz already has debt close to EUR 200 million. Use of EU funds in a time when freight volumes decline may force LDz to either increase tariffs or request money from the state.

LDz electrification project’s documentation has been sent to the European Commission. Soon it is planned to execute tenders. Next year it is planned to perform design work. Construction work is planned to be concluded by the end of 2023, as reported by TV3 programme.

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«We directly monitor freight indexes and do what we can to increase the amount of them headed in Latvia’s direction. However, I have to say that the volume of freight depends on the geopolitical situation. If we look as the situation over the course of multiple years, it is possible to say we are on the level of 2017. The critical threshold at which it would be necessary to review the project or pick a different solutions has not yet been reached,» journalists were told by Transport Ministry’s Development Directorate’s head Sandra Caune.