State cash needed to keep trains from slowing down

Photo: Liis Treimann

Fresh Estonian Railways chairman Raivo Vare attempts to open governmental eyes to a dramatic change – the well that kept passenger trains going, Russian transit business, has for Estonia run hopelessly dry.

The policy of favouring passenger transport lacks economic consideration; only now, the search has started to find money for infrastructure-related costs. Elron’s fresh carrot-coloured trains could go at 160 kilometres an hour (100 mph), but Mr Vare says they’ll never run faster than 120 km/h – money’s the limit.

Without a yearly extra cash injection of €8m, passenger trains can keep up current speed until next year only; then, the brakes will apply, says Mr Vare, roads minister in the 1990ies and development director for Estonian Railways while it was in private hands.

What has changed at Estonian Railways during the seven years you have not been involved?

Market for carriage of goods has dramatically shrunk; equally dramatically, carriage of people is rising. At the same time, state policy became passenger-centred; even so, they are unwilling to read the price tag related to the change.

Is the state willing to pay fair price for passenger transport?

The situation is not dramatic, but it is complicated as the current models aren’t adequate for the new situation. But there’s still space to react.

The whole railway business revolves around speed limits to trains. The current infrastructure financing model is based on growth of carriage of goods: the more goods were carried, the more money was earned to pay for carrying passengers. Figuratively speaking, a freight train may go like having a guy with a red flag walking before it, manually shifting track points; this takes little money, comparatively. Passenger transport takes more money, as the speeds are high.

To keep infrastructure at the current level, it takes eight million extra euros a year. Should we also desire to develop Estonian Railways in a situation where our credit facilities shrink, the need will be €23m.

Hope remains that we also will get some sums from EU financial perspective. We are talking about €55m which could in reality be used for infrastructure, during five years.

Meanwhile, Estonia has an excellent highways network. 57,000 kilometres of roads – fit to compete with many a land with much more people. Such density of highways would allow solving all travel needs without railways; even so, we have adopted another trend, the one supported and desired in Europe.

But how then do we manage the train travel so popular in Europe?

As we have now purchased the «carrots» – new [orange – edit] trains that attract passengers –, to get the needed speeds, infrastructure costs will have to be paid. To keep train travel attractive for people, ticket prices need to be kept competitive; that takes hefty state subsidies. Should we pour all train travel costs into ticket prices, we could not compete with buses.

At the moment, passenger transport makes for 60 percent of railway infrastructure capacity. Freight train numbers are going down, passenger train numbers are going up; meanwhile, passenger transport only covers 4.2 percent of infrastructure costs. If this continues, we cannot keep current speeds for passenger trains.

Unbelievable! How can such unbalance be?

What goes without saying in Europe – the user pays – is sadly lacking in Estonian thinking. We go by the principle that carriage of goods pays. Now, the environment has changed and many a decision-maker is having difficulty grasping that.

With the price formation now legalised, we are offering very high prices for goods-transport clients on this declining market, as Estonian Railways itself cannot set prices. Thus doing, we weaken our competitiveness.  

Could the current situation at least be maintained, by finding new clients for the railway?

Nope. We could ease the pain of falling. The main volume goods – oil products – went to Ust-Luga, Russia. When replacing oil carriage with containers, the per-tonne price of which is a lot higher, then let’s not forget we’ll never have as many containers as the tonnes of oil used to be.

Elron needs to carry passengers – many, and fast. Maintenance of the tracks and the rising costs, for the, seem like somebody else’s trouble. Who must start paying more, for passenger transport?

At the moment, our owner has had a somewhat fragmented view on the railway business. Carriage of goods was viewed as something negative, it was not linked to passenger transport that was set as a priority.

The mentality that transit transport is a private toy of a small clique – this has long been cultivated in Estonia, as reflected by a statement by a top politician. Giving up the toy spells a €23m payment by the state. Yearly.

The policy of favouring passenger transport lacks economic consideration, but it is not totally wrong. At the moment, over 80 percent of Estonia’s population dwells within 10 kilometres of railway lines.  

It’s not Elron’s task to worry about infrastructure, their job is to ride. But we do have the same owner.

We have passenger trains that could go at 160 kilometres per hour (100 mph), but they are running at 120 km/h (75 mph) and will probably never go faster than that. In order to guarantee maximum speed to Tartu and to Narva, the state should pay extra.

In Finland, the state pays about 85 percent of infrastructure costs straight from the budget; and that’s how they keep passenger travel going.

What do you think, are the current infrastructure payments for passenger transport likely to rise?

The state is faced with a strategic question, as infrastructure payments rise needs to be manifold, not percents; and the money needs to be found in state budget. The economy is in recession and it’s tight with the budget. We cannot raise ticket price, as purchasing power stays low and ticket prices of competing rolling transport ticket prices are staying low as well. Carrying passengers for a few dozen kilometres would not be too profitable even with every train packed to capacity.

By a long-term contract with the state, passenger transport can be directly financed without breaching EU rules.

How can we find new carriages of goods in a situation where Ust-Luga port acts as force majeure and Latvian transit blooms?

In Ust-Luga, they are having the same phenomenon as experienced by Estonian transit companies in the 1990ies: one does not want to deal with small partners as the nitty-gritty with them pulls down efficiency. In Ust-Luga, to the backdrop of political priorities, they are trying to get the large-volume streamlined clients.

Russia will never be such as to only have three large Gennadi Timtšenkos and none other is doing business. The bunch of smaller Russian oil businessmen hasn’t gone anywhere, but at Ust-Luga they are sent away – or left waiting at the end of the line. To offer services to these guys, one must work harder and be content with smaller margins.

Hoping for fast decisions?

No hopes for fast decisions. The main task, as I see it, is getting the new financing model in place, not getting money immediately – a one-off injection will not solve the problem. This year, and the next, we will be able to maintain the current level, but after that the trains will be going go slower.

I can’t say the owner shows no readiness at all for fast solutions, but the existing rules will not allow acting faster than with a 1.5 year cycle. They do understand, in economy ministry, but to carry it out is up to finance ministry – and they have a view totally different. 

At finance ministry, they have to see that income is a high as possible, and costs as low as they can be. In a situation where everybody is waiting for the moment when the overall recession will start being reflected in state budget proceeds, even expedient costs are unlikely to be planned.

Would it make sense, perhaps, to privatise the goods-carrying railway company EVR Cargo, as well as Elron?

EVR Cargo could be privatised, but considering the political calendar I do not consider that a possibility in near future. I don’t believe too much in the privatisation of Elron, as in domestic passenger transport it is not expedient to also pay extra to a private owner. Feels more solid if the extra is paid to the state itself. Already now, more is being paid to Elron than Edelaraudtee used to get.