Taking the northbound train. On Nordic-Baltic railway infrastructure

“Railway infrastructure planners need to stop staring themselves blind on national borders, and start to see the big picture,” says Oddgeir Danielsen, Director of the Nordic Dimension Partnership on Transport and Logistics (NDPTL).

The NIB Newsletter met with the director to discuss developments of the Nordic-Baltic railway infrastructure.

During the last three years, NIB has financed several railway projects in its owner countries, including train stock upgrades in Sweden and rail infrastructure investments in Latvia and Lithuania. Electrified rail traffic is without a doubt the most environmentally sustainable way of travelling today, and supporting a greener transport infrastructure strongly corresponds with the Bank’s mission of promoting sustainable growth.

But when looking at the overall picture of rail investments in the Nordic-Baltic region, NDPTL Director Oddgeir Danielsen is not satisfied with the current pace. There are both technical and financial barriers on the way, he says.

Mismatching puzzle pieces

“One of the major problems when developing the Nordic-Baltic railway infrastructure network is that the track systems don’t fit together, they are not compatible,” says Mr Danielsen. “The track gauge in the Baltic countries and Finland are harmonised to the Russian system, while the rails in the rest of the region follow the European standard. So in order for trains to cross between these two systems, their wheels need to be adjusted, or otherwise the trains must be reloaded to other trains.”

“Finland and the Baltics are using the Russian rail system to what it is worth, since they are handling transit cargo to and from Russia and the Far East, even China. This is a great market benefit for them, since in the railway business the money comes from cargo, not passenger traffic,” Mr Danielsen notes.

“But despite the income factor, most of the investments in the region have focused on improving passenger transport. For example in Finland, this has resulted in a situation where we don’t have enough capacity for cargo trains. There are no railroad tracks that can carry the actual volumes, which in turn has a negative effect on the industries in the northern parts of the country”.

Still, when planning the rail infrastructure in this region, it is also a European affair, Mr Danielsen notes.

“The EU is concerned about the situation with the two different gauge systems, and they want, for example, to see the new Rail Baltica project built with European tracks. That will be an extremely expensive project, and for the time being several project initiatives are looking into this in order to find a viable solution.”

EU money offered

Another crucial factor when planning railway investments is the EU Trans-European Transport Network (TEN-T), a European network comprising all transport modes and defining the major nodes, such as border crossing points, airports and ports. The European Commission agreed on this prioritized network in spring 2012.

“Major investments are expected in the routes and connections of this network, and the projects are entitled to EU transport funding. The states that deploy the funding, also have an obligation to complete their projects within a time frame, which is set to 2030,” Mr Danielsen says, and adds that the EU funding in combination with the states’ liabilities will offer many attractive and low-risk financing projects.

“But obviously, the TEN-T-network is not very dense here in the northern parts of the EU, so what we are doing within the NDPTL is to provide financial support to projects that develop railway extensions to reach outside the union’s northern borders, to Norway, Russia and Belarus.”

“In this connection” Mr Danielsen stresses “we are lacking some fundamental elements; one example is a railway link between Helsinki and Tallinn. Both a railroad tunnel and railroad ferries have been introduced at the discussion table, and such a solution would provide a good transportation infrastructure for both passengers and cargo. And simultaneously, improving the routes for cargo transport would have a strong positive impact on the industrial development of the north.”

New financing models wanted

“What it all comes down to in the end is financing,” says Oddgeir Danielsen. “Most of the railroad investments are bound to state financing, which makes the processes and projects both slow and ineffective. New models of financing are what we need in order to speed up the investments”.

“We have already seen railway projects in the form of public private partnerships, where the risks are divided between the state and the private sector. But PPPs are only one model of financing. I see that expert institutions, such as NIB, could play an important role here as developers and coordinators of new and innovative finance structures in order to reduce railways’ heavy dependence on state funds,” Mr Danielsen concludes.