Economist: Latvia may lose competitiveness as a transit corridor

«It is no secret that the volume of cargoes carried by rail in Latvia has already dropped by 20% this year. This can be explained with the unfortunate situation with prices of raw materials, coal demand decline in the west and Russia’s political decision to divert large volumes of cargoes to its own ports in the Baltic Sea. We have noticed recently that Russia’s threats tend to become real – state companies have been ordered to divert cargoes through its own ports, around Latvia. Such a decision is not only politically motivated, but also economically motivated – Russia hopes to recover its investments in St Petersburg, Ustyug and Primorsk,» – says Nordea Bank economist Gints Belevics.

«One of the main reasons why railway electrification is necessary lies in current trends in the country’s railway infrastructure. Similar to how we had stopped using steam-powered locomotives, the time of diesel trains has come to an end. They are less effective than electrical trains, they require more maintenance and they pollute the environment with harmful emissions. Electro-magnetic levitation technology is too far-away in the future for us, so we should get by with less futuristic technologies for the time being. It is also worth mentioning that Latvia’s current fleet of locomotives has models that should be put in a museum, not the railway. Railway electrical lines are also outdated; we will have to replace them soon.

Secondly, if we look at our neighbours, we will see that Belarus has begun gradually increasing the proportion of electrified railway lines using Chinese funding. Lithuania also intends to electrify the railway line from Klaipeda to the border with Belarus. This creates concerns that Latvia could lose its competitiveness as a transit corridor, with more cargoes being sent to Klaipeda Port. This especially applies to cargoes from Belarus. Belarus, not China or the Far East, could become a replacement for Russia as a source of cargoes. This is why it is vital that Latvia does not fall behind its transit competitors,» – Belevics said.

«It is estimated that 38% of railway electrification investments could remain in Latvia. I believe this number can be increased to at least 60%, because Latvia has companies engaged in metallurgy and electronics. These companies can secure supplies for the electrification project. Railway electrification would benefit Latgale the most. This project can also have a positive geopolitical impact. The construction process can also provide additional jobs for the population. It is also worth looking into synergy possibilities with Latvenergo for the use of infrastructure to be used for the project’s needs.

With this project, Latvia has an opportunity to use EUR 347 million provided by the European Union for environmental projects. Without performing railway electrification, it would be impossible to recover finances in such an amount in other projects. […] Considering that the electrification project has remained in active discussion for at least a decade, we have come to the conclusion that benefits, expenses, risks and possible execution variants have been researched sufficiently enough to say the project is not too green and not rushed for the sake of getting EU money,» – said the bank’s expert.

According to him, «questions could appear in relation to the chosen railway electrification routes and the order of their introduction. It is likely that electrification should be carried out for the railway routes connecting Riga and Ventspils with industrial ports. This, however, makes this project very expensive. Leaving one of those ports out of the game would be dangerous from a competitive viewpoint. This especially applies to Ventspils, which already loses to Riga because of its longer railway line. If electrification starts with Ventspils, as it is recommended by LDz, it is important to avoid leaving Riga without attention. It is no less important to maintain the cargo proportion between Riga and Ventspils ports equal.»

«There are undoubtedly many risks associated with such a massive infrastructure project. This is why it is vital to reduce them as much as possible in order to ensure more benefits than losses. Without taking timely actions, we will lose our competitiveness on the international stage. Transit industry has always been the backbone of Latvia’s state and territory. The inability to make timely decisions has often been our main problem. This resulted in our competitors getting ahead of us. Reasonable risks should be taken on a state level from time to time,» – Belevics concluded.

BNN 

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