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Who stands in the way of Rail Baltica? 12

I spent most of my Thursday at a Rail Baltica conference (organized by the Meierovica Society, Konrad Adenauer Foundation, EC representation, and others), where I had to moderate some of the discussions. For those who don’t know, Rail Baltica is an ambitious project to link Baltic capitals to Warsaw, Berlin, and, possibly, Helsinki, by a (relatively) high speed train. For example, if something called the ‘red option’ is realized, you could get from Riga to Tallinn in about two hours.

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Is it important to have Rail Baltica? I think the answer is yes. Here is one way to think about this. Trade economists spend a lot of their time using data on trade between countries to estimate the so called gravity models. This model is an econometric technique which attempts to explain trade flows between any two countries by their incomes (GDP), geographic distance between them, and other factors, such as existence of a common language, trade barriers, etc. Drawing on Edward Leamer’s March 2007 article in the Journal of Economic Literature, typical estimates say that distance elasticity is -0.9. In plain language this means that each doubling of distance reduces trade by 90 percent. Why? One of the earliest and most most powerful insights economics (which dates back to Adam Smith) is that specialization is a powerful driver of trade and economic growth. However, geographical distance inhibits trade by making the exchange of goods, people, and ideas costly. Better transport networks reduce the cost of distance and promote trade, and therefore, economic growth. For example, is it a mere coincidence that construction of the railroad networks went together with the breathtaking economic growth experienced by Western Europe and U.S. in the 19th century? These considerations make Rail Baltica a daring vision that is likely to be crucial to the development of this region.

Will this vision become a reality? At the moment it is not very clear. In my view, the culmination of the conference was the presentation by Pavel Telička, coordinator of the Rail Baltica project. His speech was extremely bold, which is very unusual for such events. At some point I thought he came very close to banging his fist on the table. In short, Mr. Telička was unhappy with how different Baltic countries delivered on their earlier commitments to the project. According to him, Estonians delivered 95% of what they promised earlier (investing massively in the modernization of their infrastructure), Lithuanians delivered about 5%, whereas Latvians - 0%. Mr Teličkawent so far as to suggest that there is a very high likelihood that, if nothing gets done in the next few weeks, Latvian authorities will not see the European funding.

The why is an interesting question. Mr Telička indicated that Mr. Augulis, the minister of transportation, is more interested in investing in the Riga-Moscow line, rather than Rail Baltica. Why? I see two competing hypotheses here. The first one is that the Riga-Moscow line is expected to provide a higher return on investment as compared to Rail Baltica. Is this plausible? There is a pretty good cost-benefit study for Rail Baltica, but I am aware of no such analysis (of comparable quality) for the Riga-Moscow line. I therefore don’t see how, at the time being, one could make an informed decision here. The second hypothesis is quite obvious. The Greens & Farmers (the minister’s party) is highly influenced by the interests of Ventspils, which is not interested in introducing a viable alternative to its ports. Indeed, the history of the railroads is riddled with instances of fierce opposition from the vested interests.

And one more observation. The conference, once more, highlighted sharp differences in quality of the public officials from Latvia and Estonia. If I were to rank quality of presentations by the officials from the Baltic States, I’d say that the Estonian one was a clear #1. He has done his homework, clearly presented using good English, and generally left an impression of competence and enthusiasm. Then, I’d say a Polish official came a close #2, and Finnish official - a close #3. Lithuanians were not represented. However, I’d be extremely reluctant to rank the Latvian official as #4. That might suggest that the quality of her presentation was only ‘half-as-bad’ as that of the Polish presenter. A #20 would be a more accurate estimate. After the conference I had a chance to talk to the Estonian official. Turns out Estonians do not have a separate ministry of transportation but a department within their Ministry of Economy. Number of employees: about 40. Number of employees in the Latvian Ministry of Transportation? About 100.

Seems like a very specific suggestion for a “structural reform”…

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Komentāri (12) secība: augoša / dilstoša

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Valters 02.05.2011 11:59
To note: we should distinguish clearly that Rail baltica includes two different projects- one is existing infrastructure modernisation with travelling capacity for up to 120 km/h and switching trains at borders, and other project is completely new 1435mm rail project- trains with travelling speed capacity exceeding 200km/h. So, the first one is going to be completed and ready to operate by 2015; and 1435 project is cancelled, but !!! But, 1435 project, could be economically efficient Riga-Moscow direction, thus no economic impact study conducted yet!

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Hm 30.03.2011 09:42
Interesting that a very constructive post about a very specific problem that has direct social and economic implications is discussed so little in comparison with the posts about the pension system.

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IG 27.03.2011 20:48
Sounds like a lost cause. Regrettably things are not Trumanesque (the buck stops here) with the Rail Baltica Project. It would not surprise me that the Latvian politicians and bureaucrats have already been bought off by the interests in Kremlin who are pushing the Riga-Moscow line as a priority. Hence, the anemic and mediocre presentations and second rate officials are the signals from Latvia what this Rail Baltica means to them. The feasibility studies of the various returns of investment, IRR, payback, elasticity are merely going through the motions. The tradeoffs of what’s there for “them” in this case are not being represented numerically.

Latvia needs a different system of government to separate the powers, leadership with influential competence, and a body of citizens who care and have been able to shake the psychological Soviet influence after 20 plus years.

Corruption in Latvia is a lot deeper than we like to admit. It plays tic-tac-toe with what most folks would like to see in economics.

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grr 27.03.2011 08:35
No, but I'd be really interested to know how many passengers do they expect e.g. on the Riga-Tallinn route, and how much is the ticket going to cost.

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grr 27.03.2011 08:22
It is remarkable that nobody in the discussion below the post has mentioned expected passenger numbers and cargo volumes, estimated costs, return on investments, or impact on local economies and on the environment - in short, the factors that should be decisive. Instead, we have seen all sorts of opinions, including a refreshing idea that public opinion should be ignored because half of the public consists of The Evil Russians.

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Georgs Andrejevs 26.03.2011 21:48
Pilnībā pievienojos Vjačeslava Dombrovska domām par Rail Baltica. Eiropas Parlamenta 6. sasaukuma (2004.-2009.)laikā katru mēnesi Srasbūras plenārsēžu laikā notika ļoti aktīvās parlamentāriešu interešu grupas Baltic Europe sēdes. Visi (izņemot T.Ždanoku)EP no Latvijas ievēlētie deputāti bijām aktīvi šo sanāksmju dalībnieki. Soli pa solim un cīnoties ar EK, tika panākta atsevišķas budžeta līnijas ieviešana Baltijas jūras problēmu finansēšanai.Aizvien noteiktākus apveidus ieguva Rail Baltica projekts un beidzot tas tika ieslēgts EU TEN-T politikas plānā. Esmu apkaunots un sašutis, ka gadiem kaldinātu projektu Latvija gatavojas torpedēt koalīcijas valdības viena ministra (vienas partijas?)savtīgo ekonomisko interešu vārdā. Mēs to nedrīkstam pieļaut! Mēģināt rast skaidrojumu Rīgas-Maskavas ātrgaitas dzelzceļa priekšrocībām, balstoties uz sabiedrības aptaujas datiem arī nav īsti korekti. Nav grūti iztēloties, kāds atbalsts būtu ātrgaitas līnijai uz Berlīni, ja 2.Pasaules kara rezultātā 5o gados Latviju būtu kolonizējuši vācieši attiecībā 50%:50%

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Alberts 26.03.2011 11:47
Kurš no LV prezentējās? Arnis Kākulis?

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JO 26.03.2011 02:50
Well, i also have expierenced the shame about many Latvian public officals in different kind of meetings(not even speaking about politicans).

First of course it is related to poor english, but most of time it's related to intelectual capacity. Why we have such ''profesionals''? I think there are several explenations:

1) Latvian administration has interesting methods of recruting employees. (often not based on profesionalism, but rather personal or political reasons).

2) Latvian officals often are inactive, because there is no initiative from politicans. Good friend of mine who works for Ministry of Foreign affairs once complained, that he must go to Brussels for EU Council meetings, but he has no Latvian position to present while his Estonian colleague has position in most of questions.

3) As we all know Estonia has better higher Education

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G.D. 26.03.2011 01:10
BTW, Danes are going to build a tunnel to Germany. As I understood from newspapers the Danish side will pay for it. Can you imagine? Those guys think that they are somewhat far from the German market and could benefit from being closer to Hamburg (in terms of hours spent on a trip).

As far as I see, there is one very strong argument in favor of Rail Baltica Via Baltica. Those, and probably investment in the energy sector, are probably the only kind of public investment from which the Latvian society could get a guaranteed positive return. However, since any large energy project would most likely result in a public-private partnership controlled by some shady off-shore companies (which means that we are better off continuing importing) the only thing left is Rail Baltica and Via Baltica. In case of Rail Baltica it is difficult to imagine how one can screw up the project. And that is probably the reason why it is so difficult.

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NBC_LV 25.03.2011 23:20
Vai kaut kur ir pieejami šīs konferences materiāli video vai rakstiskā formā? (tw. @NBC_LV )Paldies!

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