In search of the reasons for the delay and increased costs of the Rail Baltica project, the State Audit Office has established that its successful implementation lacks the essential prerequisites for project management, such as risk management, strategy development for the Latvian Implementing Body, SIA Eiropas Dzelzceļa līnijas, and assignment of officials responsible for the project and their responsibilities in the Ministry of Transport.
In addition, passive expropriation of real estates and sluggish cooperation with municipalities add to the lack of control over project cost increases.
A week ago, the State Audit Office alarmed the findings of a joint audit of the Supreme Audit Institutions of Estonia, Latvia, and Lithuania – the largest infrastructure project in the history of the independent Baltic States with the estimated cost of at least 5.79 billion euros was exceeding both the timeline and the budget. In this audit, the State Audit Office assessed the “contribution” of the Latvian responsible authorities precisely to the project’s failure to comply with the initial timeline of the project, which inevitably resulted in the project becoming more expensive.
This time, Latvia stuck out because only less than a quarter or 24% of the funding granted in five years has been used and several activities have been delayed for one to four years during the first five years of the project implementation. The State Audit Office considers the extension of construction periods of Riga Central Railway junction, Riga International Airport station, and central part of the railway track in Latvia from two to four years due to the untimely designing of the technical projects be the most severe delays.
“These significant deviations from the plan show that we have had only an ambitious commitment at first without any real readiness to manage the project. This project is an ordeal for all the countries involved, but nobody wants Latvia to become the weakest link in its implementation,” admits Auditor General Elita Krūmiņa.
One has not managed the Rail Baltica project efficiently in Latvia so far, with several facts pointing to the letting processes of their own accord or the reliance on supreme forces
The Ministry of Transport is responsible for the Rail Baltica project in Latvia, which has delegated the establishment of the Rail Baltica railway infrastructure to the state-owned SIA Eiropas Dzelzceļa līnijas since 2014. The State Audit Office points out that supervision of the project by the Ministry of Transport has not been commensurate with the scale of the project and efficient.
Until 2016, no employees of the Ministry of Transport had direct responsibilities in project monitoring. For the next two years, only one ministry official was responsible for monitoring the project, but in the unit set up in 2018 with four staff members, each employee worked according to his or her own understanding, because there was no common project management procedure or rules. The high-level coordination group set up by the Ministry of Transport in 2017, consisting of the Ministry, SIA Eiropas Dzelzceļa līnijas, and RB Rail AS, convened only four times with the last meeting being held a year and a half ago.
So far, the Ministry of Transport and SIA Eiropas Dzelzceļa līnijas have not been able to agree on the eligibility of costs of approximately 170,000 EUR occurred during the implementation of the project. Similarly, the mechanism set up by the Ministry of Transport for the elimination of ineligible costs does not work.
Cooperation with municipalities, especially with the Riga City Council (the largest sites of the Rail Baltica project are planned exactly in the capital of Latvia), has been neither regular nor sufficient. The Advisory Council for Sustainable Development, although established, has only been convened twice, most recently one and a half years ago.
The actual expropriation of real estate in Latvia has not yet started
Timely expropriation of the real estate in the demarcated project area is the prerequisite for the completion of the designing and the commencement of construction. The Rail Baltica project will affect at least 1,623 properties, including real estate of 1,179 individuals and legal entities. For example, the expropriation of real estate in central Latvia should have been completed by the end of last year. However, as of October 2019, no real estate expropriation process had been completed in Latvia and progress was only 3% of the target value.
Delays in other activities also affected the expropriation of real estate adversely, such as the construction design guidelines developed by RB Rail AS, as well as the delay in determining the exact location of the route, and pushing the necessary regulatory changes for consideration by the government. By comparison, in Estonia, the progress of real estate expropriation reached 36% of the target value at the end of 2018. The risk that Latvia will not be able to meet the deadlines set by the decision of the European Commission on co-financing the project is increasing day by day. In the opinion of the State Audit Office, there is no sound justification for the delay. The process of expropriation of property is undoubtedly complicated. However, the progress of amendments to the laws and regulations necessary for expropriation has been unforgivably slow in the Ministry itself.
No one can implement the projects of the Rail Baltica scale without risk management
Neither the Ministry of Transport nor SIA “Eiropas Dzelzceļa līnijas” have taken the need for efficient project risk management seriously that is unacceptable for the implementation of projects of this scale. Efficient risk management also serves as an early warning system that enables the management to take corrective action and mitigate risks in due time. For example, these are required amendments to the laws and regulations to speed up the process of expropriation of real estate. One has already identified this problem in the Transport Development Guidelines 2014-2020, which SIA „Eiropas Dzelzceļa līnijas” has also mentioned as a risk.
After the audit, the State Audit Office calls on the audited entities to “trigger” risk management really at the level of the Ministry of Transport and eliminate shortcomings in risk management in SIA “Eiropas Dzelzceļa līnijās”, to improve financial discipline of the project, including preventing the increase of ineligible costs, improve project governance by using the existing tools efficiently and assessing the need for new ones.
The State Audit Office will also call on the Cabinet of Ministers to intensify its support to the Ministry of Transport in its initiative regarding the expropriation of real estate for public use from state-owned companies and reiterate its call for the establishment of a monitoring system for strategically significant projects by taking over the functions of the responsible ministry if needed.