The head of the state company Latvian Railways (LDz, Latvijas Dzelzcels) Maris Kleinbergs announced a significant reduction in freight traffic through the republic's infrastructure.
He named the main reason for the redirection of shipments by Russia to its own ports.
According to Kleinbergs, this year LDz plans to transport about 25 million tons of cargo, which is about half of the last year's traffic volume.
“In the coming years, we expect to achieve slight growth.
But, most likely, it will really be modest, since I do not see any opportunities to replace the volumes of cargo from Russia that we have lost, ”said Kleinbergs.
As explained by the head of LDz, the reduction was mainly due to a decrease in the supply of oil, oil products and coal.
According to him, in previous years, Moscow used the services of the state company more actively.
The share of Russian cargoes among all transported by Latvian railways could reach 70%.
Kleinbergs explains the significant decline in transportation by several reasons, including the coronavirus pandemic, a warm winter in Europe, as well as a decrease in the EU countries' generation of heat and electricity at coal-fired power plants and thermal power plants and the transition to more environmentally friendly fuels, such as gas.
However, he named the increased volume of transshipment of Russian coal at the Ust-Luga commercial sea port (Leningrad region) as the main factor.
Located on the shores of the Gulf of Finland, the harbor is the largest in the Baltic Sea and the second largest in Russia.
Today the port includes 11 terminals that are capable of handling up to 180 million tons of various cargo per year.
Ust-Luga is operated year-round with a short period of ice escort (about 40 days).
The harbor capacity is constantly growing.
A shipping complex for mineral fertilizers is being created there, and by 2024 the port will acquire a multi-purpose transport and transshipment complex Lugaport with a throughput capacity of up to 25 million tons. The main investors in the modernization of Ust-Luga are VEB.RF and PJSC Gazprom.
The development of the port in the Leningrad Region is greatly facilitated by participation in the Chinese infrastructure project "One Belt - One Road", which will make it possible to form a single transport network of land and sea routes for the delivery of Chinese goods to Europe.
As part of this project, the China National Chemical Engineering Corporation (CNCEC) and Russian enterprises are financing the construction of the Baltic Chemical Complex, located 50 km from Ust-Luga.
The enterprise will annually produce 2.8 million tons of ethylene and 2.88 million tons of polyethylene.
"The previous volumes will never be"
According to experts, the well-being of LDz strongly depends on orders for the transportation of industrial products from foreign countries.
The overwhelming majority of goods that move on the railways of the Baltic republic are international or transit.
According to the Ministry of Transport of Latvia, in January - August 2020, the total volume of freight traffic through the country's railways fell by 45.8%, to 15.385 million tons, compared to the same period last year. International traffic fell by 47.9%, to 14.246 million. tons, transit - by 52.9%, to 11 million tons.
The difficult situation on the Latvian railways has led to a reduction in freight traffic through the country's ports.
In the first eight months of 2020, the transportation of rail cargo through the harbors of the republic decreased by 55.5%, to 9.8 million tons, and the transportation of transit cargo, by 33.6%, to 1.968 million tons.
Cargo ship in the Latvian port of Ventspils
© Ints Kalnins / Reuters
Analysts state that in Latvia the downward trend in freight traffic through the country continues.
At the end of 2019, 15.8% less goods were sent by the republic's railways than last year.
In absolute terms, this is 41.492 million tons, which is the worst figure over the past 18 years.
In such conditions, the LDz management had to make a number of unpopular decisions.
In particular, it is planned to lay off 1.5 thousand employees of the company.
To date, about 1 thousand people have lost their jobs.
The management of the state-owned company intends to develop sea and road freight forwarding, provide customers with terminal and warehouse services, as well as actively build up cooperation with Ukraine and Belarus, although the latter still uses the services of the port in the Lithuanian Klaipeda.
Earlier, commenting on the prospects for cooperation with Belarus, the former vice-president of LDz Aivars Strakshas told the newspaper Latvijas Avize that Latvia has hopelessly lost the competition to Lithuania.
In particular, Riga failed in the fight for the right to maintain the Chinese-Belarusian industrial park “Great Stone” (25 km from Minsk).
According to the former top manager, the products of the industrial cluster are sent to Klaipeda, where Minsk previously acquired part of the infrastructure.
In addition, the Lithuanian harbor is geographically closer to Belarus than the Latvian ports.
The current management of LDz admits that it is impossible to completely remedy the depressing situation for the Latvian railway infrastructure.
As Maris Kleinbergs said at a press conference in the building of the Riga railway station in July, “the previous volumes of cargo transportation at the enterprise will never be”.
Speaking to reporters, the head of the state-owned company expressed doubt that by the end of this year, LDz will be able to achieve the planned freight traffic of 25 million tons.
According to him, in the first half of the year, the country's railway transported only 11 million tons. He explained the catastrophic drop by a 78% reduction in the volume of coal transported.
"Big problems await Latvia"
According to LDz, the capacity of the Latvian railway network is 100 million tons per year.
A record figure for freight traffic was recorded in 2014 - 58 million tons of cargo, mainly due to the transportation of Russian goods.
In the structure of transportation in 2014, more than 85% of products were coal from Kuzbass and liquid cargo (oil, oil products, etc.).
In an interview with RT, Nikolai Mezhevich, chief researcher at the Institute of Europe of the Russian Academy of Sciences, said that a sharp drop in freight traffic through Latvian railways raises the issue of compensation for losses.
According to the expert, LDz needs significant additional funds to maintain the infrastructure in a normal technical condition.
Railway section on the border of the Russian Federation and Latvia
© Wojtek RADWANSKI / AFP
For example, according to the results of an earlier audit on the electrification project, it turned out that the Latvian railway is profitable only with an annual freight traffic of 48-50 million tons. However, LDz is unlikely to reach such an indicator, including due to the growth of traffic through the port in Leningradskaya area, Mezhevich predicts.
He called the situation for Latvia "a prolonged catastrophe".
“Of course, no one can give an accurate forecast, but the downward trend in freight traffic is obvious.
I think that at a certain stage it will become so insignificant that it will not allow Latvia to maintain the transit infrastructure for which it has been famous since the times of Alexander III.
Big problems await Latvia, it is potentially a bankrupt country, ”Mezhevich believes.
The expert believes that Moscow does not derive any serious economic benefit from the transit of goods through Latvia.
In his opinion, it is much more profitable for Russia to transport industrial products through its own infrastructure, including the port of Ust-Luga.
“Russia's desire to load Ust-Luga by redirecting flows from Latvia is understandable and fair.
Otherwise, why invest billions of investments in the development of this port?
These are new jobs for our citizens, new enterprises and prospects for the region's economy.
It is for this purpose that the infrastructure of Ust-Luga has been improved for the last fifteen years, ”Mezhevich stressed.
In addition to pragmatic commercial considerations, Moscow's desire to redirect more traffic around Latvia has a distinct political implication.
Alexander Mikhailenko, professor of the Department of Foreign Policy of Russia at the Faculty of National Security of the RANEPA, said this in a commentary to RT.
“Russia is in a situation where it cannot fully rely on the integrity of its Western partners.
Taking into account the complicated relations between Moscow and the West and the likelihood of another aggravation, we can expect "sanctions" from Riga in the form of an increase in payments for the transportation of our goods or a blockade of transit.
Why should Russia take such a risk? "
- says Mikhailenko.
The expert does not exclude that in the future Moscow may completely refuse from LDz services.
To prevent such a scenario, the expert believes, Latvia should soften its rhetoric against the Russian Federation and demonstrate its readiness to remain a reliable economic partner regardless of the development of the geopolitical situation.
“Transit is one of the important sources of income, an incentive for at least some kind of economic activity in the republic, from where young people are leaving to work in Western countries.
If Russia completely stops delivering goods, then Latvia will find itself practically in a stalemate in the economic situation, ”summed up Mikhailenko.