Since this construction material is a by-product of the mining of oil shale, using it in construction contributes to a circular economy. Moreover, Estonia has an issue with its disposal, often leading to air, land and water pollution. Thus, finding ways to reutilise this material not only provides additional economic value but might also be good for the environment.

Rail Baltica

Rail Baltica is one of the most ambitious projects in the history of the European Union. A single railway network stretching for 870 kilometres connecting the three Baltic states: Estonia, Latvia and Lithuania, from Tallinn to Panevėžys. As expected, a project of this size does not come without challenges, especially when it comes to sticking to deadlines and finding the funds.

For example, the deadline for the completion of the first single-track line has been moved multiple times, from 2025 to 2030 and now rumours that it might not happen before 2035. Finding the funds is also a challenge. European institutions are contributing significantly, especially from the Connecting Europe Facility.

A cross-Baltic railway became even more relevant for the European Union with the beginning of Russia’s invasion of Ukraine. After this, the EU decided it is now time to rearm itself and place much more focus on military mobility, where rail has to play a prominent role, especially in Eastern Europe. The line should also benefit passenger transport across the Baltics, while ‘traditional’ rail freight might only remain a side note.

In the coming year, Estonia intends to announce tenders for projects beyond mainline construction. That includes a freight terminal in Muuga, a rolling stock depot at the far end of Rail Baltica in Ülemiste as well as a traffic management system. “These are the components that will turn the railway into a full-fledged transport system, linking it with the economy and the daily lives of people”, Salomets is cited as saying by Latvian media.

Timeliness is the challenge

Once completed, Rail Baltica should provide a continuous standard-gauge rail connection from Tallinn, across all Baltic states to Poland. Despite the numerous problems, the project is underway, and that is a win in itself. “Previously, the main question was whether the Rail Baltica project would ever be implemented. Now the challenge is its execution: the timely completion of the complex cross-border railway system and ensuring that all accompanying infrastructure is ready by the time train operations begin”, Anvar Salomets commented.

Monika Lilles, an official spokeswoman for Estonian Railways, previously stated in an interview with Eesti Rahvusringhääling (ERR), the Estonian radio and television organisation, that the losses are primarily due to a reduction in transportation volumes. This decline has been observed in recent years, mainly as a result of COVID-19 and later sanctions against Russia.

The cost picture

The growing losses also came about due to a significant increase in costs, which are associated with the technical maintenance of the railway network in Estonia.

In this regard, Estonian Railways places its hopes on an increase in state support. According to the company, in most EU countries only 20% to 30% of the costs for railway infrastructure are presently covered by fees from carriers, while the rest are provided by the state in the form of subsidies and other support.

Currently, the company is unable to cover most of these costs due to a generally tough financial situation and a significant drop in its cargo transportation. If in the past its annual freight traffic amounted to 40 million tonnes, in recent years it has declined to only three million tonnes.

Same goals despite altered context

Russian oil products used to pass through Estonia in the past, which allowed for the railway to be maintained without the participation of taxpayers, according to Ain Tatter, the Head of the Roads and Railways Department of the Estonian Ministry of Climate. The situation changed after 2022. Starting 1 January 2023, the Estonian government imposed a ban on the deliveries of Russian and Belarus rail freight via its territory.

Now, according to Tatter, the state’s goal remains the same: to increase the volume of freight traffic and to reduce state expenditures. However, in the absence of transit with Russia and limited domestic transportation capabilities, it is difficult to significantly increase volumes. One of the possible options may involve the increase of transport from Kazakhstan, although implementation of these plans will be associated with complex logistics issues.

No opportunities for improvement

In this regard, Tatter does not see any opportunities to reduce the accumulating losses currently. The threshold for the profitability of transportation is at least 20-25 million tonnes, Tatter said.

In 2024, 7,1 million tonnes of freight were transported by Estonian Railways (-30.1% compared to 2023). Its freight performance fell by 24% to 585.8 million tonne-kilometres. Most analysts expect that these figures will further decline in 2025. Among the most prevalent freight categories were oil shale, bulk cargo and mineral fuels.

Notably, the Russian-Finnish border is the longest shared border between Russia and an EU member state, stretching approximately 1,340 kilometres. Prior to the Russian-Ukrainian war, most freight along this route was transported by road. However, after 24 February 2022, most of these road shipments were suspended, although rail deliveries have continued. These have largely consisted of Russian goods not subject to sanctions, such as mineral fertilisers, nuclear fuel, various ores, and similar products.

As rail shipments to Finland remain stable, and with ongoing positive trade dynamics with other neighbouring countries in the north (particularly the Nordic states), Russia plans further development of its railway infrastructure in the region.

Military or civilian rail?

Some Western media, such as the Wall Street Journal, have suggested that Russia prepares for military rail logistics in the area. WSJ specifically referred to the construction of new rail infrastructure close to Finland, Norway and Estonia, claiming that these would serve military supply routes.

By contrast, Russian government officials have denied those reports, claiming that the infrastructure being developed in the north and northwest will be used exclusively for civilian purposes and the transportation of civilian freight.

Meanwhile, RZD is planning to modernise the rail approaches to ports in northwest Russia—particularly those around Saint Petersburg—by 2030. This is expected to increase freight capacity on this corridor by up to 150 million tonnes over the next several years.

“Leaders from the transport ministry explained to us a month ago that building to Salaspils within seven to eight years is not possible”, Kulbergs explained. Salaspils is a town right next to capital city Riga, still a long way from the Estonian border.

“Then the next stage – to Estonia. We still do not have documentation, a design. Well, and the financing, in Latvia it’s a minimum of 2,7 billion euros, we don’t have those resources”, the parliamentarian continued. There seems to be very little progress on a completed standard-gauge railway to Latvia’s northern neighbour.

Not even before 2035?

Moreover, Estonian politician and Head of the Anti-Corruption Committee Anastassia Kovalenko-Kõlvart also has a rather pessimistic view of the situation. “Currently, our colleagues from Latvia let us know that there will be no railway before 2035.” That would be a new worst-case scenario for Rail Baltica.

All the while, finishing the railway on time remains crucial. Around 85% of its funding comes from the EU, which wants to see the line completed by 2030. Otherwise, the project could lose out on one billion euros in European financing. That would be a setback for Rail Baltica, especially considering that Latvia’s primary obstacle to finishing its part on time mostly relates to a lack of funding.

Minor role for freight

Expectations are that freight will play only a minor role in a completed Rail Baltica. A cost-benefit analysis estimated the goods will contribute only 5% of the economic gains. However, it could provide a new livelihood for Baltic rail operators that have lost a big part of the business due to sanctions against Russia. The railway would also be highly important from a military perspective.

Another Coolergy project in Riga

Since the end of 2024, Coolergy is also leading a project aimed at deploying hydrogen-powered shunting locomotives at the Freeport of Riga, in Latvia. Here, the company converted an old diesel-electric TGM4 locomotive to run on liquid hydrogen. This initiative, which also involves Estonian transport company Hanko Trans, will see 11 more units being converted by the end of this year.

Each of the locomotives will be equipped with four 80 kW Toyota fuel cells. In support of this project, Coolergy is also going to build a production and liquefaction plant with a capacity of two tonnes every day in Narva, near the Estonian border with Russia. The Latvian Energy and Transport Competence Centre ETKC is partly funding the conversion project with 500,000 euros.

“Considering the location and the shape of transferable properties, it is unlikely that an alternative use of these properties would have generated significant sales revenue in the long term”, the group said. In the context of Rail Baltica, a new intermodal terminal will be built in Muuga. Together with similar facilities in Salaspils (near Riga, Latvia) and Palemonas (near Kaunas, Lithuania) the terminal in Muuga will constitute the logistics backbone of the line.

Rail Baltica

The ongoing construction of the Rail Baltica line, which will cross Estonia, Latvia and Lithuania connecting the Baltics to the standard gauge rail network, is not always a smooth process. Most of the issues concern funding, as it is a multi-billion euros initiative. Latvia seems to be the country facing the most issues, with concern over the plan and even threats to abandon the project due to lack of funding.

However, the importance of the project is ever growing, especially considering the current geopolitical tensions regarding Russia and the European Union. Having an infrastructure which allows the quick movement of military assets has become a prerogative in the Old Continent, and the difference in gauge (1520 mm in the Baltics and 1435 in most of the rest of Europe) is a significant obstacle. With Rail Baltica, this obstacle should be removed, but the finish line still seems quite far.

Through simplifying administrative processes and reducing management costs, a total reduction in operating costs of approximately 1,4 million euros should be achieved in 2025. Measures also include a significant reduction of the workforce from 1,017 employees (as of January 2024) to 595 employees in December 2026. By 2030, the merger should lead to savings amounting to 25,9 million euros. LDz expects the new company to have a turnover of 120 million euros and a 7,5 million euro profit by 2029.

The reorganisation will start only after the Latvian government adopts an order to that end. Nevertheless, there is already a timeframe for the merger to be completed, namely by the end of the year.

Estonia continues negative trend

Over the past five years, rail freight volumes in the Baltic region have fallen from 134 million tonnes annually to 52 million tonnes. Freight volumes decreased by an average of 14,9 per cent per year since 2018, according to Latvian media. A big part of the rail freight decline is due to sanctions against Russia, which resulted in less freight coming into the Baltics from their eastern neighbour.

For its part, Estonia has come out with quarterly rail freight figures. Unsurprisingly, its volume is still on a downward trend. In the first two months of this year, 1,115 million tonnes of freight were transported by rail in Estonia – 27,6 per cent less than in January and February last year, according to data published by the National Statistics Office.

February’s volume of freight alone showed a 20,1 per cent decline year-on-year and amounted to 585,9 thousand tonnes. In 2024 as whole, freight on the Estonian rails decreased by 30,1 per cent to 7,1 million tonnes.

From Russia’ GTT to the European Vehicle Register

Traditionally, rail freight services in the Baltics relied on the Russian GTT system, which included sharing data on rolling stock and cargo to the Kremlin. However, a new platform to register broad-gauge platform wagons to the European Vehicle Register now makes this procedure unnecessary. A test for this new type of service was launched at the beginning of 2024.

“It is the first time in the history of the restored Independence of Lithuania, when a train moves in the Baltic States based on the data of European Vehicle Register, based on the European certificate of Entities in Charge of Maintenance and – the most important! – without providing any redundant data to the Russian systems”, said the CRO of Lithuanian Railways Gediminas Seckus.

Before the takeover by Operail, it was Latvia’s state operator LDz that was transporting the palm oil from Russia. Unlike Estonia, its southern neighbour did not stop its rail company from transporting the load.

Privatisation

Earlier, Estonia opted to privatise Operail in an attempt to make the company competitive again. After the loss of crucial volumes of Russian freight due to sanctions, the company’s financial situation deteriorated significantly. In December 2024, real estate company Tiigi Keskus purchased the company for 19 million euros.