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Rail Baltica project implementation needs to be enhanced to manage the risk of the project cost and time overruns

07/01/2020 Drukāt šo rakstu

TALLINN – RIGA – VILNIUS, 7 January 2020 – The Supreme Audit Institutions (SAIs) of Estonia, Latvia and Lithuania have completed a joint audit which concluded that roles, responsibilities and procedures for managing the Rail Baltica project were mostly in place. Still, the inefficiencies in the project management present a risk that the project will exceed the agreed budget and timeline.

The Rail Baltica project is the largest infrastructure project in the history of independent Baltic States. The 870-kilometre railway line from Tallinn to the Lithuanian-Polish State border is currently estimated to cost 5.79 billion euros. The project is co-financed by the European Union from the Connecting Europe Facility by approximately 85%. Beneficiaries of the Rail Baltica project are the ministries in each of the participating countries responsible for the project implementation and a joint venture RB Rail AS, in accordance with the respective Grant Agreements.

So far, the project implementers have not managed to keep the activities agreed in the Connecting Europe Facility Grant Agreements within the timeline and initially estimated budget. The activities of the entire Rail Baltica project are a year and a half behind the schedule agreed in the funding agreements. RB Rail AS estimated in June 2019 that the project could be delayed up to March 2030 if risks realize and funding is not available when needed. Nevertheless, the budget estimated in the 2017 cost-benefit analysis and the official deadline, 2026, have not been changed. The budget for the first signed Grant Agreement is estimated to be exceeded by 59.3 million euros, though the second Grant Agreement is 0.231 million euros under budget.

A legal analysis showed that the project implementation structure does not conflict with the legislation of the Baltic States and found no inherent conflict of interest in the governance structure, according to law. However, the analysis also found that there is no effective mechanism for solving deadlock situations when the beneficiaries cannot agree on a common solution. The Baltic countries have had different visions for the project governance, such as deciding the best solution for financing RB Rail AS or the infrastructure management model, and these difficulties in reaching decisions have led to time waste.

SAIs also found that, though all three Baltic countries have included the Rail Baltica project in State budget planning, none have made long-term plans for financing until the end of the project. Neither have the countries formally approved plans to guarantee self-financing for the project in case the cost of project implementation will be higher than estimated and/or European Union co-financing is lower than estimated.

The audit showed that RB Rail AS has developed procedures for conducting procurements and contracts and that the rules have become more comprehensive. RB Rail AS has also established a quality control system and is in the process of developing a risk management system.

The SAIs made recommendations to RB Rail AS and their shareholders and the three ministries in charge of transport in each of the countries. Main recommendations are to agree on the clear decision-making rules for the Rail Baltica project throughout all implementation levels and clear change and risk management plans to mitigate the risk of going over the project timeline and budget. It is also recommended to estimate the long-term availability of national funding for the project, including the case if the project costs rise or European Union funding is lower than planned. The auditees generally agreed with the recommendations made during the audit. Nevertheless, the answers to the audit showed that the respective ministries are somewhat reluctant to plan the project finances officially up till the end of the project.

Background information

On 6 September 2018 the Auditors General of Estonia, Latvia and Lithuania signed the agreement on carrying out a joint audit of the Rail Baltica project. The objective of the joint audit was to assess the management of internal control systems and public procurement of the Rail Baltica project.

The joint audit evaluated whether the procurement and contracting models of the Rail Baltica project were efficient enough to enable effective and economic delivery of the project. The use of State funds was also in the focus of the joint audit. The auditees of the joint audit were RB Rail AS, respective national ministries and other entities involved in the project in Estonia, Latvia and Lithuania.

The SAIs of Estonia, Latvia and Lithuania have performed national audits of the implementation of Rail Baltica project within each State, two of them in parallel with international audit of the project. In Lithuania the audit report was issued in 2018, in Estonia – in 2019, in Latvia – in 2020.

Full text of the joint audit report in English is available on the websites of the SAIs of Estonia, Latvia and Lithuania

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