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.

Military analysts have reportedly argued that the railways in question should be removed as quickly as possible. That would have far-reaching implications for LDz. The company is already in deep trouble when it comes to the freight business.

A highly impactful decision

As a consequence of post-war sanctions, the rail freight transit business has collapsed in Latvia. It would completely come to a halt in case these railways would be dismantled. No more freight from Russia, China or Central Asia could come into the country via the railways.

Beyond LDz, the move would negatively impact other economic sectors, such as ports, and state expenditures on maintaining rail infrastructure. Due to the impactful nature of the decision, President Edgars Rinkēvičs said that more clarity will come in the beginning of 2026.

“We cannot rule out any option for strengthening national defense and security, but such decisions must be made by determining both the timeframe and the scope of the work and assessing what this means for various socio-economic aspects”, Rinkēvičs is quoting as saying. Coordination with neighbouring Estonia and Lithuania is also said to be an important aspect in decision-making, according to Latvian publication LSM+.

LDz Board Chairman Artis Grinbergs explained that the LDz Group has experienced significant changes in recent years. Those relate to a decline in freight transportation and market changes caused by “geopolitical events”.

“In order to adapt to these new circumstances, we have both focused on reviewing our operating processes and actively carried out various optimisation measures”, Grinbergs said.

Freight collapse in the Baltics

“One of the important steps is also the reorganisation of subsidiaries – by combining the forces and resources of the three companies, not only will cost savings be created and administrative processes will be facilitated, but most importantly – in all types of commercial activities offered by the companies, we will strengthen our business positions and become more efficient.” The long-term goal of the newly expanded LDz Cargo is to operate profitably and to contribute to the national economy, says Grinbergs.

A restructuring at LDz became necessary following the collapse of rail freight in the Baltic states. The overall volume between the three countries dropped from over 130 million tonnes to 52 million tonnes over the course of only five years.

Earlier, LDz had said that the merger should lead to a total reduction in operating costs of approximately 1,4 million euros in 2025. Other measures were said to 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 said that it expects the newly expanded freight branch to have a turnover of 120 million euros and a 7,5 million euro profit by 2029.

International traffic declined by around 31%, for a total of 3,11 million tonnes. Of that number, 2,44 million tonnes came from transit traffic (-36.5%). Around two million tonnes transited through ports. The only category to see growth was domestic freight, which rose slightly by 5.5%, from 613,000 to 647,000 tonnes.

In line with the decline of its freight business, the turnover of LDz decreased by 11.3% to 233,7 million euros last year. That means that the company ended the year with a loss of 39,4 million euros. LDz Cargo’s turnover decreased from 148 million euros in 2022 to 100 million euros in 2024.

Wagon sales

Unsurprisingly, LDz is looking for ways to readjust to the new reality of crashing freight volumes. Its freight subsidiary LDz Cargo wants to sell 63 freight wagons from its inventory fleet, for which it held a tender on 18 June. It also wants, however, to keep 28 bogies and 176 wheelsets, which the buyer will need to disassemble and return to the rail freight operator.

Moreover, LDz Cargo is preparing for a similar auction on 26 June, during which it wants to sell 66 wagons that are now located in Ukraine.

“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.

It is not the first time that KTZ is finding destinations far and wide. Earlier, it sent non-raw material freight across the Atlantic to Houston, Texas. “In this shipment, KTZ Express provided a full range of transport and logistics services, including the organisation of the first mile, cargo insurance, provision of containers and preliminary declaration. This event became an important milestone, confirming the readiness of KTZ Express to provide reliable and high-quality service in any route direction, which opens up new opportunities for Kazakhstani manufacturers to enter world markets”, the company commented at the time.

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.

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.

The decline in the transported freight volume is the primary cause of the financial downturn at LDz. The company was planning to transport 16,5 million tonnes of freight, but only managed 11,5 million tonnes, 26,2 per cent less.

Passengers in the lead

LDz was profitable without state support as recently as 2018, write Latvian media. However, the war in Ukraine and the subsequent sanctions have not worked favourably for the rail operator. With the decline of freight, passenger transportation has now overtaken it as the leading source of revenue. LDz transported 19,4 million passengers in 2024, a growth of 13 per cent compared to 2023.

The joint venture responsible for implementing the project, RB Rail, will stop any project that could incur further supply costs if it does not receive the money by Thursday 30 January. The suspension would be in effect for at least a month, until the next board meeting of RB Rail. The 9 million euros demanded that RB Rail needs is supposed to cover administrative, project management and design work costs.

Priority tasks

The stop would include a suspension of priority tasks endorsed by the Latvian government: The European gauge mainline connecting Lithuania and Estonia, completion of works around Riga airport and the central railway station, further integration of the airport into the existing railway network and military mobility hubs.

Latvia’s transport ministry warns that the country may be digging a deeper and deeper hole for itself. Last year, it failed to pay a million euros in the common project fund, which meant that workers were paid with Estonian and Lithuanian money instead. Lawsuits could make Latvia incur even more costs and a loss of reputation.

Reimbursement of European funding

Perhaps an even bigger problem is the failure to fulfill the obligations set out in the EU’s Connecting Europe Facility funding agreements – if Latvia fails to comply with those, it will need to pay the funds back to CINEA, which allocates the money. The ministry also says that it may then need to pay compensation to Estonia and Lithuania.

Were it to come to that point, a timely and qualitatively sufficient completion of Rail Baltica would be even more difficult to achieve in Latvia. But in the short term, the most pressing issue seems to be the possible temporary exit of Latvia from Rail Baltica. “… since Latvia does not fulfill its obligations to co-finance RB Rail cross-border activities, Latvia is effectively withdrawing from the Rail Baltica project and is also halting the implementation of the project in Estonia and Lithuania”, the transport ministry says.