Study on Strategic Evaluation on Transport Investment Priorities under Structural and Cohesion funds for the Programming Period

Transcription

1 Study on Strategic Evaluation on Transport Investment Priorities under Structural and Cohesion funds for the Programming Period N o 2005.CE.16.0.AT.014 Country Report Latvia Final Report Client: European Commission, DG-REGIO ECORYS Nederland BV Rotterdam, September 2006

2 ECORYS Nederland BV P.O. Box AD Rotterdam Watermanweg GG Rotterdam The Netherlands T +31 (0) F +31 (0) E netherlands@ecorys.com W Registration no ECORYS Transport T +31 (0) F +31 (0)

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4 Table of contents 1 Introduction Background The Strategic Evaluation The Country Report Structure of the report 8 2 Transport Sector: current situation Introduction Latvia Situation per mode of transport Roads and road transport Railways Urban transport Inland waterway transport Sea ports Airports Trends and indicators Conclusions: SWOT analysis transport system 23 3 Accessibility analysis Introduction Methodology: Accessibility Problem Index Transport needs 26 4 Previous support programmes National public funding for transport infrastructure EU funding Other sources of financing 34 5 National Transport Strategy Introduction Long term National Transport Strategy and Planning Operational programme Prioritisation of Transport Investments ( ) Introduction Community Strategic Guidelines Additional factors for the prioritisation of transport investments 45

5 7 Assessment of Impacts Introduction Methodology Scenarios Impact assessment European effects 68 8 Conclusions on investment priorities Introduction Transport investment priorities National and Regional and Local Needs Needs per sub-sector 74 Annex A: TEN-T priorities 77 Annex B: Accessibility red flag analysis 83

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7 1 Introduction 1.1 Background The recent enlargement of the EU to 25 Member States clearly creates a new challenge for its Cohesion Policy. Disparity levels within the EU have increased substantially and will further increase with the accession of Bulgaria and Romania in This is an explicit point of attention as the Treaty states that, in order to strengthen its economic and social cohesion, the Community shall aim at reducing the disparities between the levels of development of various regions and the backwardness of the least favoured regions or islands, including rural areas. This aim lies at the core of the Commission s regional policy. One of the key elements of the cohesion policy of the Commission is the contribution of the development of new transport infrastructure to regional economic development. Extensive spending has taken place in this domain under ERDF, Cohesion Fund and ISPA. One of the prominent initiatives in the European Union in this respect is the development of the Trans-European transport networks (TEN-T). In 2003 the Commission has identified the 30 priority projects of the TEN-T up to The priority projects include: the most important infrastructures for international traffic, bearing in mind the general objectives of the cohesion of the continent of Europe, modal balance, interoperability and the reduction of bottlenecks. For the new programming period the Commission seeks to strengthen the strategic dimension of cohesion policy to ensure that Community priorities are better integrated into national and regional development programmes. In accordance with the draft Council Regulation (article 23), the Council establishes Community Strategic Guidelines for cohesion policy to give effect to the priorities of the Community with a view to promote balanced, harmonious and sustainable development 2. To assess the impact of programmes in relation to Community and national priorities the Commission has indicated that evaluations on a strategic level should be undertaken. The present evaluation should be seen as one of these specific strategic evaluations. The strategic evaluation should feed in the process of determining transport investment priorities and the preparation of the national strategic reference frameworks and 1 Decision 884/2004/EC of 29 April The total investment of the 30 priority projects amounts to 225 billion at the 2020 horizon. 2 COM(2004)492 7

8 operational programmes. As such, it should serve to enhance the quality, effectiveness and consistency of Fund assistance. 1.2 The Strategic Evaluation The strategic evaluation is directed the transport sector. Three specific objectives have been formulated for this strategic evaluation: To provide an analysis of the situation in selected fields relevant to transport, using structural indicators across Member States, plus Romania and Bulgaria; To assess the contribution of Structural and Cohesion funds relative to the current and previous programming periods and draw lessons of relevance for the purpose of the study in terms of identification of potential shortcomings in the development of transport priority projects that might have hampered the utilization of those funds or their expected benefits; To identify and evaluate needs in the selected fields and identify potential investment priorities of structural and cohesion funds for the programming period The Country Report The strategic evaluation results in specific country reports for all 15 countries and a synthesis report. The current report is the Country Report for Latvia. Its main aim is to give a more detailed indication of the strengths and weaknesses of the transport system in the country and to address areas for future intervention. Where relevant this accompanied by recommendations with respect to the overall transport policy of the country. The country reports feed into the joint programming effort with the Member States for the next period, as will be detailed in the National Strategic Reference Frameworks and the subsequent Operational Programmes. 1.4 Structure of the report The report is structured around three building blocks. First a needs assessment is presented based on an analysis of the current transport systems and a modelling analysis which reveals the current (relative) level of accessibility per region. This leads to first conclusions strengths and weaknesses of the current transport system and related transport investment needs (Part A). Next an overview is presented of the transport investment priorities in the past period (Part B). Finally, future areas for priority transport investments are identified. This builds on the needs assessment in the first part but also addresses other factors such as the contribution to EU and national policy objectives, the availability of other sources of funding and the administrative capacity of the country (Part C). 8

9 Part A: Needs assessment current situation 9

10 2 Transport Sector: current situation 2.1 Introduction This chapter describes the current transport situation and policy in Latvia. After a brief introduction on the geographical and economic characteristics of the country, it first describes the situation per mode of transport. The analysis of the current situation is summarized in a SWOT table on the main strengths and weaknesses. The assessment of the transport system is followed by an analysis of the key transport policy issues in Latvia. 2.2 Latvia Located in the north-eastern of Europe, geographically Latvia could be considered as being located at the periphery of the European Union. However, bordering the Baltic Sea on one side and located between its two fellow Baltic States - Estonia to the north and Lithuania to the south - and Russia and Belarus to the east, Latvia is at a strategic geographical location in the North-east of Europe. Figure 2.1 Map of Latvia Most of the country is composed of fertile, low-lying plains, with some hills in the east. There are not many natural barriers, except for the rivers, especially the biggest one the Daugava. Latvia s coastline is 494 kilometres and it has three important ice-free sea ports. These conditions favour Latvia as an important transit corridor to Russia and other CIS 10

11 countries. The backbone of Latvia's multi-modal transport corridor are the east-west railway and pipeline systems concluding at the major ports. Latvia is involved in the priority project number 27: Rail Baltica axis Warsaw-Kaunas- Riga-Tallinn-Helsinki. Basic data Population 2.3 million Total area 64,589 km 2 Population density 37 inh/km 2 Main cities Source: Eurostat Riga, Daugavpils, Liepāja, Jelgava The population is about 2.3 million inhabitants. One third of the population lives in the only large city the capital Riga. The rest of the country has a very low population density, one of the lowest in the EU. Economic data GDP (PPP, 2004) Government debt as % of GDP (2004) 14,6 Government deficit as % of GDP (2004) 0,9 20,6 bn GDP per capita, Latvia (2004) 9,700 GDP per capita, EU15 (2004) 25,700 GDP per capita, EU25 (2004) 22,600 Source: Eurostat Latvia is among the poorest in the EU (only 43% of the EU average in GDP per capita) and that might be one of the reasons that the level of passenger traffic is rather low. According to official data Latvia s GDP has increased by an average 7.7% annually since This is the highest growth rate among the EU New Member states. Real per capita GDP has grown by more than 50% compared to its 1995 level and it is expected that the annual growth rates of about 6% in medium term. At the same time, current account deficit (ranging from 7% to 10% in the past 3 years) remains one of the key vulnerabilities of the Latvian economy. Due to Latvia's geographic location, the transport sector, particularly freight transit, plays a key role in the economy of the country. Transport, storage and communications comprise approximately 16% of the GDP. The transport and communications sector is one of the most dynamic and accounts for about 30% of all direct foreign investment 3. Freight shipments between Russia and the CIS, and the West, are the core of the transit industry in Latvia. Freight shipments from Russia and other CIS countries to the West are the core of the transit industry in Latvia. The centres of the freight transit industry are the seaports of Riga, Ventspils and to a lesser extent Liepaja. 3 Finanšu ministrija, Reference Framework for assistance from the Cohesion Fund

12 2.3 Situation per mode of transport Roads and road transport The Latvian State Roads performs the management of the state road network, administration of the State Road Fund and organisation of public procurement for the state road network. Maintenance and development of parish, company and household roads is supervised, as well. Infrastructure Latvia has a quite dense network of roads. In 2005 there were 6,962 km of highways (main roads (A) and 1 st class roads (P)), 13,264 km of secondary roads, and km of municipal roads in Latvia. Table 2.1 Length of road network in Latvia ( ) in kms % change State roads: ,8% Main roads (A) Na st class roads (P) Na nd class roads (V) Na Local (municipal) roads ,3% Source: Eurostat; SCB, 2006 Most of the roads in Latvia are outworn and in need of renovation. Latvia is working on the reconstruction of state and first class roads and a number of bridges in order to increase the road bearing capacity. Besides the bad condition of the state roads, Latvia has a problem due to the many unpaved roads. These are not accessible throughout the year for all road vehicles and have a decreased visibility. The focus in important state programmes lies on road maintenance and the promotion of further inclusion of Latvian roads into the European road network. The upgrading of road sections, often financed by with European (co)funding, is also covered by the state programmes The average density of the Latvia (state) road network is 315 km per 1000 sq. km, which can be considered as sufficient, taking into account the population and territory. Therefore, construction of new roads is foreseen only for eliminating of bottlenecks (bypasses of cities etc.). The main national roads connect the road network of the Republic of Latvia with the road networks of other countries, as well as, the capital city Riga with district administrative centres. 12

13 Figure 2.2 Motorway network in Latvia Source: Latvian State Roads, 2006 Demand Car ownership in Latvia has grown from 106 cars/ 1000 inhabitants in 1990 to 297 in Although there was a large growth in car ownership, there still is a large gap with EU average (EU25 = 459). Table 2.2 Car ownership Latvia Latvia (2004) EU15 (2002) EU25 (2002) Cars/1000 inh Source: Eurostat; SCB, 2006 Road traffic conditions in rural areas and smaller cities and towns are not bad, and could be evaluated as Level of Service (LOS) B and C, which means basically unrestricted and fluent traffic flow. In towns and in the capital of Latvia, Riga, the problem is more serious due to the extensive enlargement of the private car fleet. The annual increase of the traffic intensity is estimated at 2-5 % per year up to 2005, and 1-3 % from 2006 to % of the State main roads are the elements of TEN-T network. Table 2.3 Number of vehicles (in 1000 vehicles) Percentage change Cars 251,6 686,1 173% Trucks < 3.5 tons - 38,07 - Trucks > 3.5 tons 59,4 107,6 81% Source: Eurostat; SCB, 2006 The increase in car ownership is reflected in the modal split of passenger transport. In 2003, 73% of all passenger kilometres were performed by car. For the EU as a whole, the share of passenger cars is 83%. Busses and coaches represent the second largest means of passenger transportation with a share of 19%. 13

14 In freight transport, there was a large increase in the number of heavy trucks. This expansion is largely due to the expanding transportation of timber. The increase negatively influences both road quality and road safety. Road charging Currently, there are no pay roads in Latvia, and there are no plans for pay roads in the future. Latvia has set up legislation to accommodate PPP. Although the government actively promotes PPP, it foresees no infrastructure charging Railways Infrastructure Latvia has a relatively large railway network compared to its population (a relatively dense network in relation to the population and population density). However, compared to the the average railway density in the other EU member states (67/km2), the density of Latvian railways (35/km2) is relatively small. Table 2.4 Railway density, 2003 Railway line/1000 km 2 Railway line/100,000 inh Latvia EU Source: Eurostat; SCB, 2006 The railway network is oriented at freight traffic along major transit cargo corridors that mainly run in east west direction from the Russian hinterland to the three major ports at the Baltic Sea. The main corridors are: Moscow Rezekne Krustpils Vitebska Daugavpils Krustpils European transport corridor I: Tallinn-Valga Ieriķi- Riga Meitene Sauli - Warsaw St. Petersburg Karsava Rezekne Daugavpils Currently, Latvia is also involved in priority project number 27: Rail Baltica axis Warsaw-Kaunas-Riga-Tallinn-Helsinki. The majority of the network consists of single track (incl. broad gauge). Latvian railways operate with 1524mm wide gauge. Only at 11% of the network, some 257 km of the lines is electrified. The majority of these lines are located in the vicinity of Riga and mainly used for passenger transport. 14

15 Figure 2.3 Railway network and rail electrification Latvia Source: Latvijas Dzelzceļš, 2005 The Latvian rail network needs considerable restoration or upgrading. Large parts of the network are deteriorated. It is estimated that 30 %, or 605 km, of the main railways need to be reconstructed. The shortage of resources for maintenance and development of the existing rail system leads to wear of infrastructure and rolling stock as well as to the incapability of performing rehabilitation works in due time. This decreases both efficiency and safety level. Latvia has relatively high number of railway transportation means. However, the main part of the rolling stock is also outdated and should be modernized or replaced. Means Maintenance, development, and administration of railway infrastructure, organisation and management of rail traffic are mostly covered by payments from private railway operators through the Railway Infrastructure Fund in accordance with the Law on Railways. The amount of investments for maintenance and development of the railway infrastructure has decreased. On the one hand this decrease is due to the decrease of the income level from freight carriage and on the other hand due to the fact that part of this income is still used for cross-subsidising unprofitable passenger rail transport and not for renewal of fixed assets. According to the latest amendment to the Law on Railway there are two regulatory bodies in the Latvian railway transport sector, the State Railway Administration and the independent Public Utilities Commission. The State Railway Administration is responsible for issueing cargo transportation licences. The Public Utilities Commission is responsible for issueing passenger transportation licences and for infrastructure charging. It determines both the 15

16 methodology for infrastructure charging and these charges, thus ensuring a compliance with the requirements of EU directives. The last amendments to the Law on Railway make the State Railway Administration responsible for infrastructure capacity allocation in cases where a railway infrastructure manager is also railway operator. Currently this is the case for Latvijas Dzelzceļš (Latvian Railways) which is both infrastructure manager and also a railway operator at the same time, although with separate accounting. Latvijas Dzelzceļš is the main state railway operator in Latvia (apart from its role as infrastructure manager). It is a joint stock company that is 100% owned by the state. Since 2003, Latvijas Dzelzceļš only operates freight trains and owns all its diesel locomotives. Other operations (e.g. passenger operations and their rolling stock repairs and maintenance are being carried out by several subsidiary companies). International rail cargo transportation services are provided by three companies, but their service tariffs are not regulated. Passenger trains are operated by subsidiary "Pasazieru Vilciens" ("Passenger Trains"). "Pasazieru Vilciens" is the, also 100% state-owned, domestic passenger services joint stock company. It was not given any rolling stock assets from Latvijas Dzelzcels upon creation but is negotiating for this transfer now. Although the passenger train market is open to other parties, the entry of new carriers into this market is problematic, as the market seems not very profitable at the moment. Demand Rail transport in Latvia is heavily dominated by freight transport demand. Latvia s geographical position favours the development of transit traffic. At current levels 55% to 60% of freight transit transport (in ton-km) is done via railways. Most of the annual cargo volumes transported on railways flows in East-West direction, mainly from Russia (48.2 % of total transit shipments in 2002) and Belarus (37.4 % in 2002) to the Baltic ports. Freight transport by rail is dominated by a very small number of shippers. Furthermore, rail freight-traffic consists almost entirely of full wagonloads; consolidated cargoes use road transport. It comprises a very large share of goods transported in the Baltic States. Rail passenger transport is much less significant than freight and comprises almost exclusively domestic traffic. At this moment the number of performed passenger kilometres is at very low levels and still decreasing. Despite of the relatively high rail network density, passenger rail can not compete with passenger cars and bus transport that can provide more frequent services to the sparsely populated rural areas. Passenger transport by rail is competitive only in Riga region. 16

17 2.3.3 Urban transport Table 2.5 Urban public transport network in Latvia Urban public transport: Tram network km Light rail (trolley) network km Source: Eurostat; SCB, Public transport has a very high share in passenger transport in Latvia. As mentioned before, Latvia has a low share of private car us (62%). Therefore public transport is very important. Two thirds of transport passenger-kilometres are made by buses and coaches. There is well developed market of private bus transportation services, especially in regions where buses are the main and most efficient mean of public transportation. More than 100 companies perform regular commercial passenger services on urban, regional, inter-city, and international routes. Most of them are private, but approximately 15 % are owned by municipalities or joint-stock companies. There are 39 entrepreneurs operate long-distance bus services, of which 14 on international routes. About a third of the passengers in public transport travel by national and urban rail (Riga).In some regions the railway is an integral part of the local public transport system (especially for Riga s commuting traffic). Only in Latvia s three biggest cities (Riga, Daugavpils and Liepaja) an electric urban transport network (trolley and tram lines) has been developed. The motorisation trend is strongly against public transport, and it will be difficult to maintain the high share of public transport. The urban region of Riga is the only region where there are serious congestion problems. Here public transport has a real chance to maintain or even expand its share Inland waterway transport There is hardly any inland water traffic in Latvia. Latvia has a very small merchant fleet (most Latvian ships operate under a foreign flag, there are no data on these available) Sea ports There are three large ports in Latvia (Ventspils, Riga, Liepaja) that are all part of TEN-T and seven small ports (Salacgriva, Skulte, Lielupe, Engure, Mersrags, Roja, Pavilosta). The major ports profit from their favourable geographical position, serving as ice-free ports that are well connected through rail, for the Russian hinterland. Ports of Riga and Ventspils are operating as Freeports for already 10 years. Port of Liepaja is part of the Liepaja Specialized Economic Zone. Companies working in Freeports and SEZ can receive up to 80% tax discount. The amount of rebate depends on investments made during the tax year. 17

18 The larger ports are mainly involved in processing transit freight around 80% of transit freight transported through Latvia is handled through these ports. Latvian ports are highly export-oriented, mostly shipping cargo for transit and export from Latvia. The volume of cargo reloaded 4 at the ports of Latvia in 2005 was 60 mln tons, an increase of 4.6 % compared to 2004, according to the Central Statistical Bureau. In 2005, 55.9 mln tons of cargo were loaded at ports, 3.3% more than in The volume of cargo unloaded at ports in 2005 was 4.1 mln tons, 25.8% more than the previous year. Table 2.6 (international) Cargo handled in ports (in 1000 tons) Total Loaded in Latvia Unloaded in Latvia Source: SCB, 2006 Regarding cargo turnover, the Ventspils Free Port is currently the leading port on the Baltic Sea and is included in the list of the 15 most important European ports. The terminals handling crude oil, oil products and liquid chemical products operating in the Ventspils port are amongst the largest in the Baltic Sea region. The smaller ports have local significance. They are mainly engaged in the shipment of timber and receipt of fishing products. In the summer season they are also used as sailboat terminals. A very small share of passenger transport is being performed by a few ferries. According to the rail freight forwarders, the machinery in the Latvian ports for handling cargo coming by rail is old and in bad condition. For example, the container terminal at Riga port can handle only eight wagons at the same time, and thus, as the cargo volumes on rail increase annually, there is a need for increasing the cargo-handling-capacity at the terminal. 4 Reloaded cargo includes loaded plus unloaded cargo. 18

19 Figure 2.4 Composition of cargo flows Source: SCB, 2006 Traditionally, crude oil and oil products have been the most import cargo for the Latvian ports 5. However, in the last few years there has been a large decrease in the flow of crude oil and oil products and there has been a major increase in the handling of coal. Particularly, the volume of crude oil loaded has decreased substantially. In 2005, 0.4 mln tons of crude oil was transported from ports, which is 5.2 times less compared to The volume of cargo in containers accounted for the bulk of cargo unloaded. The volume of this cargo unloaded has increased by 12.9% in comparison with Although the port of Ventspils has faced difficulties due to reduction of oil transit from Russia, other ports have shown very good economic results over the past few years Airports Infrastructure In Latvia there are several airports, the largest one being the Riga International Airport. Smaller airports are located in Liepaja, Ventspils and Daugavpils. Riga International Airport is the leading airport of the three Baltic States. There are several major airlines operating and recently also low cost airlines started operating from Riga Airport. The State Joint Stock Company of Air Space Utilization and Air Traffic Organisation Latvijas Gaisa Satiksme provides flight control services in the air space of Latvia. During the last years the air traffic control system has seen drastic improvement. Substantial investments in the airport were made and the number of destinations has increased. Over the last decade air passenger traffic has steadily increased. The airlines have recently turned profitable after years of negative results. 5 This amount is still accounted for only by crude oil transported to the ports by rail. 19

20 Figure 2.5 Traffic development, Riga International Airport Passenger arrivals and departures - total, 1000 Cargoes loaded and unloaded (including mail) - total, tonne Source: SCB, 2006 ; Riga International Airport Passenger turnover at Riga airport is still growing rapidly. In 2005, there were almost 1.9 million passenger arrivals at and departures from the airport. One million of these arrived and departed with foreign airlines; an increase of 2.3 times compared to With 366 thousand passengers the largest passenger turnover volume was secured by the German airports, followed by British airports with 310 thousand passengers. Air cargo and/or the express package services have also grown rapidly over the past five years, but remain of relatively low importance. Ventspils and Liepaja airport are the second and third biggest airports that are certified for international air traffic. At the moment both airports serve charter, business and general aviation flights airport. Currently, both regional airports are meeting their operational and exploitation targets. The potential for further develop these airports to serve the steady growing tourist and trade flows between the East and the West Baltic Sea coasts and eventually serve as a stepping stone for budget airline entrants in the Baltic market still needs to be determined. One regional airport feasibility study for both airports has already been commissioned by the Latvian ministry of transport in February Trends and indicators Modal split The comparison of the modal split in passenger travel demand reveals the importance of public transport. Road density is at about EU level and bus transport has a very dominant position. Also tram and metro have a high share in passenger transport compared to the EU average. Rail passenger numbers are decreasing, and the share of rail is below EU average. Car ownership in Latvia has not reached EU averages yet, but motorisation levels are rising fast. For the moment, the number of passenger kilometres by car is far below the EU15 average. 20

21 Table 2.7 Modal split passenger transport (share % in passenger kilometres, 2003) Situation 2003 Passenger cars Buses Railways Tram & metro Latvia EU EU Source: Eurostat; SCB, 2006 The share of the road in freight is the lowest of the EU (only 22.4% of the ton-km). This is due to the high transit volumes operated by rail. The share of railways in total freight transport (ton-km) is the highest in the EU (55%). Rail freight has substantial increased during the past decade. The growth rate reached some 7% annually on the average. Nevertheless, the modal share of rail freight, although still high, is gradually decreasing. Table 2.8 Modal split freight transport (share % in ton kilometres, 2004) Situation 2004 Road Rail Inland Waterways Pipeline Latvia EU EU Source: Eurostat; SCB, 2006 Figure 2.6 Development of the modal split in freight transport Infrastructure charging Roads: There are no pay-roads existing in Latvia, and it is not planned to introduce a form of toll in the near future in Latvia. Railways: As already mentioned in section 2.3.2, both the methodology for infrastructure charging and the infrastructure charges are determined by the Public Utilities Commission as independent regulator, since the infrastructure manager, LDz, is also railway operator. The charge system is based on four principles: 21

22 1. To satisfy the financial needs of the public railway infrastructure for 100% 2. To establish (gradually) the same conditions for competition in freight and passenger transport 3. To achieve the optimal conditions for intermodal competition, taking into account social costs, environmental issues, and the economic interests of the country 4. To achieve the maximal utilization of the public railway infrastructure capacity The charge for the usage itself is based on the principle of full cost recovery. The Stock Company LDz does not receive any State budget financing to carry out its tasks as infrastructure manager. The level of charge that rail infrastructure users have to pay depends on the type of operator (freight or passenger) and the type of line (3 categories). Furthermore, there are discounts depending on the type of individual train category and for freight operators there are discounts depending on train kilometres travelled by all freight forwarders during the year. The charge highly depends on the actual traffic volume, creating incentives for efficient use of the infrastructure. On the other hand, charges will be very sensitive to traffic volume variation and the actual charges are relatively high, as full cost recovery is aimed for (and rail infrastructure management in Latvia is relatively costly). Table 2.9 Fuel prices Excise duty and VAT on transport fuels in Latvia Fuel for propellant use Minimum agreed Excise duty rate (Directive 2003/96/EC) National Excise duty rate (as at ) VAT % Leaded Petrol 421 /1000 l /1000 l 18 Unleaded Petrol 359 /1000 l /1000 l *) 18 Source: European Commission, Excise duties and transport, environment and energy taxes Together with Cyprus, Lithuania and Estonia, Latvia has the lowest fuel prices and fuel excise duties in Europe. There is almost no distinction in the price of petrol and diesel. In May 2005 fuel prices were at about 80 cents per litre (Source: There is no tax exemption for biofuels in Latvia. It is expected that Latvia will have to introduce some sort of fiscal incentives in the future, or increase energy and fuel taxes or introduce infrastructure charging. According to Council directive 2004/74/EC Latvia is allowed to apply a transitional period until 1 22

23 January 2011 to adjust its national level of taxation on gas oil and kerosene as propellant to a new minimum level of 302 Euro per 1,000 litres and until 1 January 2013 to reach 330 Euro. Similarly Latvia is allowed to apply a transitional period until 1 January 2011 to adjust its national level of taxation on unleaded petrol used as propellant to a new minimium level of 359 Euro per 1,000 litres. Traffic safety Decreasing the number of road and railway accidents is one of the priorities under the NTDP. Reportedly measures for improvement of road safety are the pre-requisite for approval for financing for all road infrastructure investment projects. Figure 2.7 Road Traffic Accidents Source: CSDD Latvia has the highest traffic death toll rate per million inhabitants (205) and per million cars (814) in the EU. In average each year approximately 500 people are killed in road accidents and approximately 6000 people are injured. Compared with other European countries, for example Sweden and Finland, the number of deaths in road accidents per 1 million inhabitants is three to five times higher. One of the main reasons for the high rate of accidents is very low quality of roads. Road infrastructure in Latvia is outworn and with the available financial resources of the last ten years it was not possible to plan for and perform duly the rehabilitation of outworn asphalt pavement and gravel road and bridge repairs. At the same time a rapid increase in the number of road vehicles has been observed in Latvia (the number of cars per 1000 inhabitants increased from 106 in 1990 to 264 in 2002). 2.4 Conclusions: SWOT analysis transport system For some means of transportation, the infrastructure in Latvia is well developed. Due to substantial investments, international air traffic has a high standard and an increasing passenger flow. Latvia also has a dense railway network and a large share of freight 23

24 transport is conducted by rail (approximately 60%). The railway stock however is outworn and in bad condition. This significantly hinders rail passenger transport. Due to large economic growth, car ownership in Latvia has significantly increased over the last ten years. The large growth in both passenger cars and road freight transport can damage the state roads, which are already in a bad condition. Latvia therefore must focus on improving road quality and optimizing the road and railway network. In conclusion the following SWOT analysis has been made for the transport sector in Latvia. Strengths High standards and increasing passenger flow of the international air traffic A strong railway system - approximately 60 % of the cargo is carried by the railways. Access to ice-free Baltic Sea ports throughout the winter season. Opportunities To improve the safety on Latvian roads via improved road quality. To optimise the network of railways and auto transport roads and further coordinate with the territorial planning. Develop the public transport system, particularly in Riga with an appropriate pricing policy. To develop logistic services to ensure Latvia becomes more significant transit route for cargo from Asia to Europe. The potential of regional airports (Baltic hub) should be assessed and developed. Weaknesses The majority of the roads are in a poor technical condition (lighting, traffic signs, etc). A high number of road fatalities which remains the highest in EU. The rolling stock of the railways is worn out and old. The railway transportation is slow, which hinders the passenger transportation. The ferry services are poorly developed in Latvia Threats The rapidly growing number of passenger km (210.6 in 1993 and in 2004) and cargo tons (28.9 thou tons in 1993 and 41.8 thou tons in 2003) can cause a further damage to the roads. Increasing pressure upon the urban centres transport system. The workforce emigration. Political changes, particularly in regarding the transit sector 24

25 3 Accessibility analysis 3.1 Introduction This chapter presents a more quantitative transport needs assessment on a regional level. It clearly complements Chapter 2 in which the current situation of the transport system is described where potential deficiencies are addressed. The analysis on the current situation together with the analysis of transport needs from a cohesion perspective form a basis for identifying possible investment priorities. In this chapter, first a description of the needs assessment methodology is presented. Especially the determination of the composite Accessibility Problem Index (API), which has a central role in the approach, is explained. A higher value of the index indicates a higher need for intervention. This approach has been labelled as the red flag analysis. This composite Accessibility Problem Index is a combined measure, which addresses transport network quality, population density and regional disparity (a more elaborate explanation is provided in Annex C). As such the accessibility analysis is much more linked to cohesion policy than a more traditional accessibility analysis. Next, results of the application for Latvia are illustrated and analysed. This analysis identifies main areas for intervention in rail and road transport for the current situation (2006). 3.2 Methodology: Accessibility Problem Index To determine the need for transport investments, the SASI model has been used to assess the present situation of the road and rail systems in each country without the national transport projects to be examined later. For this the accessibility provided by the road and rail systems in each country was evaluated from both a national and a European perspective. This was used to identify regions with serious accessibility deficits that should be addressed by European transport policy taking account of the stated EU goals competitiveness and territorial cohesion. In the SASI model accessibility, which is directly influenced by transport policy and investments, is judged to play a crucial role in promoting the realisation of the cohesion objectives. To determine the appropriate assessment of transport investment need from the cohesion policy perspective an agreement on the indicator of accessibility to be used is required. Traditional accessibility indicators are not useful for this. They measure the total effect of both geographical location (periphery v. core) and quality of transport provided by the transport system. As a result they always show a steep gradation in accessibility from the 25

26 core to the periphery. However, public policy cannot change the fact that some regions are central and some are peripheral, i.e. provide the same level of accessibility to all regions. Public policy can only alleviate disadvantages through unequal transport provision. This distinction is relevant for European transport policy. To invest only in transport in the most peripheral regions with the lowest accessibility according to such an indicator would benefit only the relatively few people living there and would ignore the needs of the densely populated central regions to combat traffic congestion and so endanger the competitiveness goal of the Lisbon Strategy of the European Union. On the other hand, to invest only in transport in the most densely populated central regions with the greatest congestion problems would not only lead to ever more traffic but also widen the existing gap in accessibility between the central and peripheral regions and would so run counter to the territorial cohesion goal of the European Union. The new accessibility indicator recognises transport network quality, population density and regional disparity To avoid this dilemma, a new composite accessibility indicator was defined which distinguishes geographical location and quality of transport. This indicator assumes that people in the peripheral regions can not expect to enjoy the same level of accessibility (measured in traditional terms) as the central regions, but that they can demand to be able to reach relevant destinations with the same travel speed ("as the crow flies") as the people in the central regions. In addition, the indicator recognises the utilitarian principle of the happiness of the greatest number, i.e. that the transport needs of densely populated regions should be given more weight than those of regions with only few inhabitants. And finally, the indicator recognises that economically lagging regions with severe deficits in accessibility may offer greater potential for stimulating economic effects by transport investments than regions which enjoy already high accessibility. These three principles avoid the pitfalls of both an extreme egalitarian view, which postulates that all regions in Europe enjoy the same level of accessibility and a purely efficiency-oriented view which postulates that accessibility in the already highly accessibly central metropolitan areas should be further strengthened because they bring the largest economic benefits. In other words, the three principles aim at a rational tradeoff between the stated EU goals of competitiveness and territorial cohesion. Annex C gives a more elaborate description of the composite Accessibility Problem Index. 3.3 Transport needs The composite Accessibility Problem Index takes account of the transport system quality (travel speed), population density and regional disparity. Figure 3.1 and 3.2 depict the population density and the regional distribution of income between the different regions in Latvia. In terms of population density, the capital region of Riga (population 732,000) clearly stands out. The other urban centres Daugavpils, Liepaja, Jelgava and Ventspils are parts of larger regions with low overall population density (Figure 3.1). The capital city region is also the economic centre of the country producing almost two thirds of the GDP of the country (Figure 3.2). 26

27 Figure 3.1 Population densities (population/sqkm) Latvia 2006 Figure 3.2 GDP/capita (Euro of 2005), Latvia 2006 The results of the analysis of regions with accessibility deficits that should be addressed by European transport policy are presented in Figures 3.3 to 3.6. These figures show the 27

28 spatial distribution of the Accessibility Problem Index in Latvia first for road and then for rail from a national and a European perspective for the current situation (2006). The colour scale of the maps resembles that of a traffic light: green shades indicate average interregional travel speeds above the national or European average, yellow values indicate speeds slightly above the national or European average and red shades indicate speeds significantly lower than the national or European average. Overall accessibility If accessibility in Latvia is compared with the European average (Figures 3.4 and 3.6), it becomes apparent that road accessibility is moderately below and rail accessibility severely below the European average as indicated by the orange and red shades on the maps. Regional imbalances Figure 3.3 shows the spatial distribution of road accessibility in Latvia seen from a national perspective. There are no great disparities in road accessibility between the regions, only the coastal region of Liepaja and the eastern region of Daugavpils have slightly higher average interregional road speeds. However, the road speeds in all regions are below the European average (Figure 3.4). The spatial pattern of accessibility problems for rail shows a similar pattern (Figure 3.5). Again the western and eastern regions have above-average rail speeds, whereas the central regions including the capital Riga have lower rail speeds. The average interregional rail speeds of all regions are below the European average. However, the gap between the quality of the rail system of Latvia and the European average is much larger than that of the road network (Figure 3.6). 28

29 Figure 3.3 Accessibility Problem Index Road (national), Latvia 2006 Figure 3.4 Accessibility Problem Index Road (European), Latvia

30 Figure 3.5 Accessibility Problem Index Rail (national), Latvia 2006 Figure 3.6 Accessibility Problem Index Rail (European), Latvia

31 Part B: Past transport investment priorities 31

32 4 Previous support programmes 4.1 National public funding for transport infrastructure Although, at this moment Latvia is still one of the poorer countries of the EU, the Latvian economy is expanding rapidly. It can only be expected, that along with Latvia s economic development also traffic volumes and motorisation rates will grow. The transport sector is regarded as a priority sector. Since 1995 Latvia is running a Public Investment Programme. It comprises the total amount of infrastructure investments for which annually state budget resources are allocated or are planned to be allocated, and comprises approximately half of public investments in infrastructure. As table 4.1 shows the budget dedicated to transport increased rapidly until Between 2000 and 2003 the budget of Public Investment Programme decreased every year. In % of the GDP was invested through the Public Investment Programme compared to 3.3% in Nevertheless the share of the transport related expenditures in the total national expenditures is rather high compared to other new member states (e.g. in 2003 Latvia spent 5.8% of its total national expenditures on transport; for Poland this share was 1.7%, for Cyprus this share was 4.6 in 2003). Table 4.1 National funding (budget allocation) for transport, (mln ) Total governmental expenditure (including lending and repayment) Of which transport and communications Share of transport related expenditures % of the total Million Million LVL Million Euro* Million LVL governmental Euro* expenditures ,7% ,4% ,7% ,8% ,1% ,9% ,6% ,4% ,8% (*1 LVL= Euro, ECB exchange reference rate as at 21 June 2005) Source: Latvian Ministry of economic affairs Apart from the Public Investment Programme investments are financed by the special budgets (State Motorways Fund, Railway Infrastructure Fund, Ports Development Fund, Environmental Protection Fund, etc.), as well as from local government budgets, loans 32

33 taken by local governments and loan guaranties given by local governments to enterprises owned by local governments. In the road sector, the State budget is mainly spent on road maintenance, whilst EU Structural funds and Cohesion Funds are used for development of infrastructures. The main source of financing of the state budget for road infrastructure is money generated from the excise duty. Currently approximately 35 40% of all income from the excise duty has been allocated for improvement of road infrastructure. According to the new regulations starting from 2007 the roads will receive 100% financing from cars duty and 65% from excise duty. The share from the excise duty will be increased till 80% in Approximately 30% of all road financing is being transferred for regional roads. For railways maintenance costs are mostly covered by payments by private railway operators. However the level of financing from private operators is insufficient to cover all maintenance and State budget and EU funds have to provide additional funding. The costs for developing the major ports and airport are mainly covered by private investment. State budget is providing only a limited amount of funds for reconstruction of infrastructure of small ports (reconstruction of bulwarks, deepening of harbour) as well as access roads to the big ports. 4.2 EU funding Under the Phare programme relatively few investments were made in the transport infrastructure with contributions from the European Commission. Investments were mainly targeted at administrative capacity building and strategic planning, with few interventions in building of infrastructure. From the pre-accession fund ISPA on average 24 million EUR (plus national cofinancing 25%) per year has been made available for investments during the period 2000 to Moreover since Latvia s accession to the EU in May 2004 Latvia can apply for financing from the Cohesion Fund up to the amount of approximately 60 million EUR per year, and 30 million EUR per year from the European Regional Development Fund. As a result, total EU funds for the transport sector have increased from 108 million EUR in 2001 to 315 million EUR in The number of projects in the transport sector has increased from 5 in 2001 to 21 in The focus of the projects financed under ISPA lies mainly on rail projects. Major works funded by ISPA in included: the replacement of 780 railway track turnouts; the construction of the new railway reception yard in Rezekne II station; and the modernisation of signalling and hot-box detection systems on the East - West railway corridor. Also 62.2 km of state main roads have been reconstructed, as well as the Saulkrasti bypass. Projects in Latvia funded by the Cohesion fund from 2004 to 2006 (plus national cofinancing 15-50%) include: Reconstruction of 190 km of state main roads; Reconstruction of 220 km of railway tracks in the East-West railway corridor; 33

34 Development of access roads to Ventspils and Liepaja ports; Extension of runway and reconstruction of the lighting system at the Riga International Airport. Projects in Latvia funded by the ERDF from 2004 to 2006 (plus national co-financing 15-50%) include: Reconstruction and development of 250 km of state 1st class roads and transit streets of cities; Reconstruction of 11 bridges in the network of state 1st class roads; Reconstruction of breakwaters in Mersrags, Skulte and SalacgrTva ports; Launching of modernisation of passenger electric trains. However, implementation of the projects was rather slow, ex-ante approval by the EC Delegation in Latvia was required at all stages, which reportedly delayed implementation of ISPA and CF funded projects. The situation notably improved after introduction of the national procurement procedure. 4.3 Other sources of financing This section gives an overview of other sources of financing for transport infrastructure. EBRD Only a limited number of projects related to developing transport infrastructure in Latvia have been financed with funds from the EBRD. Since 1993, five projects received support from the EBRD, all in the form of a Direct Investment. Two projects were related to the airport: the Upgrade of existing runway, taxiways and lighting system at Riga International Airport; and an investment in a Facility of RAF Avia for the Construction of a new aeroplane maintenance facility, located at Riga International Airport. Two other EBRD investments were supporting the Construction and operation of a terminal servicing general cargo traffic from the Baltic Sea at Ventspils port. Finally, the EBRD invested in a project for Road rehabilitation and Upgrade of Latvia s main road network EIB The European Investment Bank has been financing projects fostering the integration of the Baltic States into the European Union since the early 1990s. Last year (2005), the EIB signed a contract for co-financing of priority projects fostering the development of the Latvian economic and social infrastructure that are co-financed by the EU Structural Funds as well as projects in the fields of the environment and Trans-European networks co-financed by the EU Cohesion Fund. From 1998 to 2002 the EIB provided individual loans totalling 85 mln EUR for transport projects in Latvia like: The upgrading of the East-west railway line (1998) Upgrading the Ventspils port infrastructure (1999) Modernisation and enlargement of the passenger terminal at Riga international Airport (2000) 34

35 The rehabilitation and upgrading of road sections forming part of the Via Baltica. PPP financing Financing through Public Private Partnership is not widespread in Latvia. There are only 14 relatively small concession agreements registered in the Register of Concessions. Although legal preconditions for PPP have been established also in Latvia 6, currently conditions PPP projects are considered problematic. Interest rates proposed by the commercial banks are considerably higher than that by the State Treasury and commercial banks rather require real estate as a pledge than a propect on a future finance flow. Nevertheless there is a high expectancy and strong interest in the PPP approach. As the cost and works to improve the road infrastructure are extremely high (approx. 2-3 billion LVL), the Ministry of Transport, envisages to implement reconstruction projects for all category A- roads using PPP models. The Ministry of Economy has selected the project on Improvement of Road safety in Cesu city as a pilot PPP project in transport sector, and commenced preparation of methodological guidelines. 6 The implementation of PPP projects is regulated by the Law on Concessions adopted in The procedure of concession agreement registration in the Register of Enterprises of the Republic of Latvia and control over these agreements are established in Regulations adopted in

36 Part C: Future transport investment priorities 36

37 5 National Transport Strategy 5.1 Introduction This is the first section of Part C which aims to determine transport investment priorities at a strategic level. This chapter deals with the current national transport policy and resulting investment priorities. In the next chapter these investment priorities are confronted with an analysis of possible sources of financing, and other factors such as their contribution to EU policy objectives, the administrative capacity of the country, the socio-economic impacts in relation to the costs of the projects, and the extent in which the projects contribute to the needs identified in Part A of this report. Finally, the overall impact of the proposed investment priorities is assessed. 5.2 Long term National Transport Strategy and Planning Road infrastructure development The main objectives of the Latvian policy for the road sector are to foster economic progress of the state, increase the standard-of-living of the population, and reach compliance of Latvian international roads to requirements of the European road network, through an effective maintenance and development of the Latvian road network. The road infrastructure in Latvia is outworn. The lack of sufficient financial resources during the last ten years prohibited the planning and performance of rehabilitation works on outworn asphalt pavement and gravel roads and bridge repairs. The task of the current period is to preserve and maintain the road network at operative level, to stop its further decay, and to develop the road network in accordance with the most urgent economic and social interests. Thus the main lines of action are: Improvement of road maintenance by improvement of the funding system; Quality improvement and development of international road transport corridors; Improvement of traffic safety; Raising the load carrying capacity of road surfaces and bridges; Optimisation of road network division and improvement of management. Key priority lies with further developing the Via Baltica and East-West road-corridors and improvement of their quality standards, including improvement of the traffic situation in the city of Riga (construction of a new Daugava river crossing). Secondly, the rural roads have to be better maintained and developed. 37

38 Railway infrastructure development The objective of the Latvian railway development policy is a comprehensive modernisation and development of the Latvian railway-sector, in order to achieve successful integration into the European railway transport system as well as successful operation within market economy conditions. The key priorities for railway infrastructure development are: Reconstruction and increasing of traffic safety level of the rail corridor East-West (Ventspils-Tukums-Jelgava-Krustpils-state border with branch lines Riga- Krustpils and Krustpils-Daugavpils-state border); Finishing of reconstruction of access tracks to Milgravis channel railway bridge; Development of Ventspils and Rezekne railway junctions; Development of information systems and data transmission network; Modernisation of rail track and shunt repairing and rail welding equipment; Optimising and development of port railway infrastructure in response of increasing demand Development of transit corridors in North-South direction, thus facilitating movement of passengers and increasing cargo flows in the single European territory. Creation of border-crossing control infrastructure at railway stations in accordance with the respective EU requirements. Taking into account the trends of the prospective European development, it is planned to equip the main transit corridors with electrical traction in the future. Therefore Latvia is engaged in studies on possible future electrification of the main lines. Latvia has also planned the implementation of GSM-R as a part of ERTMS. Port infrastructure development The objective of the port-sector s development is to increase cargo and passenger flow through Latvian ports. Attractive and up-to-date cargo handling conditions need to be created, as well as high-quality services for passengers. The development of the Latvian ports and their integration into the European transport system is hampered mainly by the low quality of the infrastructure associated with port operations (i.e. roads, railway access roads and other infrastructure). Key priorities for the Latvian port sector are: Further developing the port infrastructure at the three major ports; Ventspils, Riga, and Liepaja; Implementation process of Motorways of the sea ; Regulating shipping safety and conforming legislation, its implementation practices and process control to international requirements and standards; Creating border-crossing control infrastructure in ports in accordance with the respective EU requirements. 38

39 Airport infrastructure development The main task of air traffic policy is the development of Riga airport into a significant air traffic centre integrated in EU transport system. Policy actions aim at creating a homogeneous environment for the users of air transport, and at harmonizing the operation of Latvian air traffic control service with the air traffic control system of other European countries. Infrastructure projects at Riga airport are to increase the Riga airport passenger terminal throughput capacity up to 1.4 million passengers per year and to ensure passenger service quality in accordance with international standards enabling to provide competitive services. Development projects are related to the upgrading of the airport category and to the extension of the runway. Most relevant planning documents The main national policy document in the transport sector is the National Programme for Transport Development The National Transport Development Programme is a medium term strategic planning document. The implementation of this planned strategy is deemed of vital importance for a balanced development of the society and national economy of Latvia. The goal of the transport development policy in Latvia continues to be the setting-up of an efficient, safe, environmentally friendly, multimodal, balanced and competitive transport system. The document was prepared by the Ministry of Transport and adopted by the Cabinet of Ministers in November The National Transport Development Programme is a medium term strategic planning document in the transport sector. The implementation of this planned strategy is of vital importance and indispensable for the purpose of balanced development of the society and national economy of Latvia. The Sub-Program N3 of the National Transport Development Program aims to establish a united passenger transport system to provide qualitative and accessible public transport services; and to increase safety, sustainability, and effectiveness in freight transport operations. The key mid-term planning document is the Strategy of the Ministry of Transport In principle this document reiterates the objectives outlined in the current NTDP. Additionally, it includes the priority: to develop public transport system. The Strategy is revised each three years and presented for the adoption to the Government. The goals listed in Strategy are further reflected in the relevant strategies for the Cohesion Fund, and integrated in the draft National Strategic Reference Framework Document (NSRF). Other important policy and planning documents include: Guidelines for the Development of Public Transport for the Years 2005 to 2014, accepted on 28th of September 2004; Programme for Regional Support of the State 2nd Class Roads, accepted on 30th of November 2004; Concept on Shipping Policy, accepted on 21st of July 1998; Concept on the Control of the Road Traffic, accepted in 2002; 39

40 State Programme for the Development of Latvian Ports for the Years 1995 to 2010; State Programme for the Development of Safety of Maritime Services; National Programme for the Road Traffic Safety Environment in the planning process The EIA procedure is a requirement for implementation of every infrastructure investment project and no financial decisions can be taken before the EIA procedure is finished for every project. The Law On Environmental Impact Assessment, in full compliance with the relevant EC legislation and along with several amendments, was passed on 14th October Since June 2004 the Law on Environment Impact Assessment requires that a SEA is elaborated for all major investment projects. Both the National Development Plan and territorial and spatial plans require a SEA. Since June 2004 there have been about 400 applications submitted for SEAs and in 188 cases the SEA procedure has been started. In 31 cases the SEA procedure has been finished. 5.3 Operational programme The National Strategic Reference Framework Document (NSRF) and related Operational Programmes are being prepared under responsibility of the Ministry of Finance. The draft NSRF foresees three Operational Programmes. The OP for the transport sector will be integrated under Operational Programme Infrastructure and services and will not be a separate document. The Ministry of Transport has elaborated draft proposals for this OP. Main objectives of the OP Strategic objectives in the field of transport and transport infrastructure are determined based on the National Programme for Transport Development and the Strategy of the Ministry of Transport. The Operational Programme Infrastructure and Services has two main objectives which are translated into two measures: Improvement and development of large scale transport infrastructure, and Development of accessibility and transport systems. Measure Improvement and development of large scale transport infrastructure will be financed from Cohesion fund and will include the following activities: Improvement of TEN road network; Development of East-West railway corridor infrastructure; Development of large ports infrastructure; Development of airport infrastructure; Improvement of urban infrastructure connections with TEN-T. 7 Amendments on 30th May 2001 corresponding to ESPOO Convention; Amendments on 19th June 2003 incorporating the legal provisions of the Directives 92/43/EEC, 2001/42/EC; Amendments on 26th February 2004 incorporating the legal provisions of the Directives 2003/35/EC and 92/43/EC; The Cabinet of Ministers Regulations No 87 on 17th February 2004: Procedures for Environmental Impact Assessment ; The Cabinet of Ministers Regulations No 91 on 17th February 2004: Procedure for Regional Environmental Board issues technical Regulations for providing action which does not need Environmental Impact Assessment 40

41 Measure Development of accessibility and transport systems will be financed from European Regional Development fund and will include the following activities: Improvement of 1 st class state road routes; Improvement of urban streets following 1 st class state road transit routes; Improvement of transport safety in populated areas; Optimisation of Riga public transport system by improvement of electric public transport; Improvement of small ports infrastructure; Modernization of Riga suburban train passenger traffic infrastructure; Improvement of regional urban electric transport for passenger traffic. Priorities in OP by sector The current approach favors an equal spread of available funds over the sectors (roads, railways, ports, airports and public transport) and among the regions. The majority of measures are continuing Phare, ISPA, Cohesion Fund and Single Programming Document ( ) policies, for instance development of TEN-T road, rail and port elements and ensuring sustainability and safety of transportation. Priorities for EU funding The resources obtained from EU funds are to be invested in projects which promote the growth of the whole country, by integrating Latvia s transport infra-structure in the united EU transport system. In the field of transport, with the resources of the Cohesion Fund and ERDF, development of infra-structure included in the Trans-European transport network (TEN-T) is supported: major State motorways, East West railway corridor, the Rail Baltica route, and the three largest ports and airports. On the basis of the operational objectives the government of Latvia established a list of projects for the period The lastest list of projects to be funded with European Commission funds includes: Transport projects Type EU funds involved Status Modernization of Via Baltica - section Riga-Kekava and Kekava bypass road CF approved Construction of E22 - section Riga-Koknese road CF approved Modernisation of TEN-T road network, 2nd project road CF approved Modernisation of E22 - section Rezekne-Terehova road CF approved Via Baltica - construction of Baltezers bypass road CF potential Daugava river North crossing in Riga road CF potential Construction of E22 entrance to Riga road CF potential Construction of city bypasses road CF potential Construction of second track on section Riga-Krustpils railway CF approved Reconstruction of Riga railway junction railway CF approved Introduction of unified railway communication system GSM-R railway CF potential Rail Baltica railway CF potential Reconstruction of Liepaja airport runway airport CF potential Development of Ventspils airport infrastructure and access roads airport CF potential Source: Finanšu ministrija, Reference Framework for Assistance from the Cohesion Fund, Republic of Latvia, August

42 It must be noted that several large scale investment projects, i.e. Development of Second Runway in Riga Airport, Daugava River Crossing in Riga, Transferring the Railways Power Supply from Fossil Fuel to Electric Power, The City Bypass Programme on 1 st Class Roads are not as mature as others and that the investments needed for these projects are considered very high. This might give these projects a lower priority than the others on the list. 42

43 6 Prioritisation of Transport Investments ( ) 6.1 Introduction This chapter intends to identify the main areas for transport investments that would merit EU funding in the period It should be emphasized that this is based on an analysis that has been carried out at strategic level. Although the areas identified are expected to result in high potential projects they should still be subjected to the regular cost-benefit analysis at a project level before being finally selected. Community Strategic Guidelines The context for identifying strategic investment priorities is set by the Community Strategic guidelines. In accordance with the draft Council Regulation (article 23), the Council establishes Community Strategic Guidelines for cohesion policy to give effect to the priorities of the Community with a view to promote balanced, harmonious and sustainable development 8. These Strategic Guidelines form the basis for identifying investment priorities, which are then elaborated in National Strategic Reference Frameworks at the Member State level, which are subsequently further detailed in Operational Programmes (OPs) for thematic areas. A Commission proposal on these Strategic Guidelines was published in July In parallel, Member States have already started preparations for their National Strategic Reference Frameworks and OPs. Additional factors influencing investment priorities As indicated the Strategic Guidelines form the context in which investment priorities for Community financing should be identified. In addition to these strategic guidelines a number of other factors shape the eventual establishment of transport investment priorities. These other factors include: Cost-effectiveness of projects; Availability of other sources of funding; Appropriateness of transport policy Administrative capacity to adequately absorb and manage funds. 8 COM (2004)492 9 COM (2005) 299 Cohesion Policies in Support of Growth and Jobs: Community Strategic Guidelines,

44 In the next section the Strategic Guidelines and the other factors are elaborated in more detail, leading to a proposed prioritisation of areas for funding from Cohesion and Structural Funds. 6.2 Community Strategic Guidelines The (draft) Community Strategic Guidelines set the scene for any future transport investment financed as part of the Commission s cohesion policy. According to the communication of the Commission (COM(2005)299) the guidelines with respect to the expansion and improvement of transport infrastructures for the period determine clear guidelines for action (see text box 6.1) Box 6.1 Community Strategic Guidelines: Guidelines for action The Community Strategic Guidelines distinguish the following guidelines for action: Member States should give priority to the 30 projects of European interest, located in Member States and regions eligible under the Convergence objective 10. Other TEN projects should be supported where this is a strong case in terms of their contribution to growth and competitiveness. Within this group of projects, cross-border links and those overseen by the specially designated European co-ordinators in the Member States merit special attention. Member States should make use of the co-ordinators as a means of shortening the time that elapses between designation of the planning of the network and the physical construction Complementary investment in secondary connections will also be important in the context of an integrated regional transport and communications strategy covering urban and rural areas, in order to ensure that the regions benefit from the opportunities created by the major networks. Support for rail infrastructure should seek to ensure greater access. Track fees should facilitate access for independent operators. They should also enhance the creation of an EU-wide interoperable network. Compliance and applications of the interoperability and the fitting of ERTMS on board and on track should be part of all projects financed. Promoting environmentally sustainable transport networks. This includes public transport facilities (including park-and-ride infrastructures), mobility plans, ring roads, increasing safety at road junctions, soft traffic (cycle lanes, pedestrian tracks). It also includes actions providing for accessibility to common public transport services for certain target groups (the elderly, disabled persons) and providing distribution networks for alternative vehicle fuels. In order to guarantee the optimum efficiency of transport infrastructures for promoting regional development, attention should be paid to improving the connectivity of landlocked territories to the Trans- European network (TEN-T) ( ). In this respect, the development of secondary links, with a focus on intermodality and sustainable transport, should be promoted. In particular, harbours and airports should be connected to their hinterland. More attention should be paid to developing the motorways of the sea and to short-sea shipping as a viable alternative to long-distance road and rail transport. In addition the Guidelines give specific instructions with respect to the territorial dimension of Cohesion policy in stressing that Member States should pay particular attention to prevent uneven regional development and improve territorial integration and cooperation between and within regions. 10 Decision n. 884/2004/EC of the European Parliament and of the Council, 29 April

45 6.3 Additional factors for the prioritisation of transport investments As indicated in the introduction a number of other factors determine the eventual prioritisation of transport investment priorities under the Commission s cohesion policy instruments. These will be subsequently elaborated. Cost-effectiveness Cost-effectiveness or value for money stands at the core of any sound investment programme. It is also fully embedded in the procedures and structure of the cohesion policy of the Commission in which cost-benefit assessments of proposed projects are standard procedure. Also the EIB applies CBA as standard assessment methodology before granting new loans. The cost-effectiveness criterion is especially important if budget resources are limited. In this case cost-benefit analyses can be used to phase foreseen transport investment in time or to seek alternatives with a similar functionality that offer a higher value for money. Availability of other sources of financing As can be learned from the previous investment programmes other sources of finance should not be overlooked with respect to future transport investments. Apart from public financing by the country itself important potential sources are: TEN-T budget EIB The Commission recently reached an agreement with the EP on future TEN-T financing. Total budget available is 7 billion for the coming programming period. Financing can be up to 20%. It should be noted however that this financing is only a fraction of total cohesion financing (e.g. Cohesion Fund financing for transport approximates 45 billion ), while TEN-T funds are valid for all EU members. It is expected that TEN-T funds will be focused on cross-border TEN-T projects. EIB financing is another potential source of financing available for transport investment. In 2005, EIB signed a EUR 150 million loan with Latvia that will be used for investments in priority areas identified in the Single Programming Document and the Cohesion Fund Reference Framework for , such as the development of transport infrastructures. For example, the loan will finance projects like the upgrading of the Latvian priority road networks and modernisation of the East-West railway Corridor including access roads to Latvian ports. EBRD PPPs The EBRD supports the upgrade of transport infrastructure and municipal infrastructure, particularly in regional cities and towns. Financing is provided where possible without a state guarantee or on a private basis. The EBRD encourages private sector participation, particularly relating to large, complex or sensitive projects. Between 1998 and 2000 the EBRD financed 3 projects, including a direct investment for the Construction and operation of terminal servicing general cargo traffic from the Baltic Sea in Ventspils port. PPPs are explicitly mentioned in the Community Strategic Guidelines as a possible and appropriate method of financing investment when there is significant scope for involving the private sector. Apart from the financial leverage positive impacts are expected on 45

46 implementation and management of projects. Experience with private involvement in transport infrastructure in the form of PPPs has been limited until now. However, based on the experience in other countries appropriate sectors for a more intense private sector involvement are: ports, airports and logistics centres. Also motorways sometimes figure as typical PPP models. As already discussed in section 4.3, currently only a very limited number of PPP projects projects have been executed, although legal preconditions for PPP have been established also in Latvia. The current situation on the financial markets can be judged as problematic and hinder the wider use of the PPP approach. Nevertheless, the current needs in the sector would justify a wider application of the PPP. Both EBRD and EIB can also get involved if PPP constructions are considered through direct equity participations. In summary, other financing sources are expected to relevant for the following areas: Table 6.1 Potential financing sources and expected destination of funding Source TEN-T EIB EBRD PPP & private capital Destination TEN projects, especially cross border sections Motorways and railways, port access Possibly state roads (road rehabilitation) ports and airports Income generating transport investments: ports, airports, logistic centres Appropriateness of the transport policy Almost all objectives of the White Paper of the European Commission can also be found in the documents outlining the principals of the Latvian transport policy. Only three transport related aims of the European Commission (i.e. Efficient Infrastructure pricing taking account of internal and external cost ; Intermodality for people makes travel conditions easier for passengers and facilitates modal transfers ; and Rights and obligations for users: Passengers are able to invoke their rights, both vis-à-vis the transport company and vis-à-vis the public service. ) are not explicitly mentioned in the Latvian transport policy documents. Apart from the investment policy other aspect of the Latvia s transport policy are relevant to contribute to EU and national policy objectives. Two specific elements are identified on the basis of the analysis of the current transport system: Transport safety Transport pricing and charging Transport safety is clearly an area for attention as accident levels are still clearly above the EU average. The accident rate is the highest in the EU and it remains to be seen, whether the ambitious target of halving the accident rate can be met in Latvia. To bring down the accident rate it is important to improve the quality of the state road network. 46

47 Another point of attention is the development of a specific transport safety policy and an adequate level of enforcement. Research on causes of the high accident rate is needed, and based on this, effective measures need to be developed to decrease the number of accidents. The current situation is clearly unsatisfactory. With respect to transport pricing current transport price structures do not clearly reflect the costs of transport to the community and therefore fair competition between modes is not ensured (although is has to be taken into account, that the share of rail in freight is the highest in the EU). Fuel taxes are at the lower limit set by the EU, which is however in line with the low level of GDP in Latvia. The Ministry of Transport has elaborated new Regulations of Cabinet of Ministers that envisage constant increase of the share from the excise duty. Nevertheless further attention should be paid to the generation of income from user of the transport system. This is specifically important with respect to the financing of the maintenance and operation of the state road network and possibly also the rail network which are both in a bad state. Depending on EU-policies, Latvia might have to introduce some sort of infrastructure charging in the future. Administrative capacity Since 2004 the management of the projects financed by the Cohesion Fund and the Structural funds has been performed by the Ministry of Finance, the State Treasury and the Ministry of Transport. The technical and administrative capacity varies among the involved institutions. Project planning and design are very important elements where the capacity still remains a problem. The number of projects in transport sector has increased from 5 in 2001 to 21 in The funds have been increased from 108 MEUR in 2001 to 315 MEUR in Respectively, the number of employees working with the projects in Ministry of Transport has doubled comparing in 2001 (14) and in 2006 (28). New employees need extensive training and their potential can be used fully only after a year of employment. The resulting lack of experience leads to delays in project implementation. Due to the poor quality of tender documentation more time needs to be spent on tendering, the tenders are delayed and sometimes need to be re-launched. From the Cohesion Fund s 2004 programme none of the tenders has been successfully accomplished during Recently, the situation on tendering has somewhat approved; for the projects approved in December 2005, several tenders have been launched of which some have been awarded already and contracts were signed early Reportedly all institutions involved in the management of the SF and CF lack experienced and qualified employees. In addition, there is a lack of capacity among final beneficiaries and implementing bodies regarding the application of procedures. A major problem is the high turnover of employees the average length of working time in one institution is 1-2 years. Main reasons for the high turnover are: the low remuneration in the public sector and the lack of a transparent and appropriate payment system. New employees with the necessary qualifications are hard to find on the labour market. This results in a high number of young, inexperienced staff, who remain in the institution for a relatively short period. 47

48 In order to improve the situation there are capacity building measures undertaken targeting the institutions in charge of the SF and CF. These measures are partially covered by the Technical Assistance means under the Structural Funds (Priority 5) and the Cohesion Fund. In accordance with the Human Resources Development plan for the institutions involved in management of the SF there are: a) specific payment provisions for employees working with the EU financed projects, b) training and coaching of the employees working with the SF and CF. 48

49 7 Assessment of Impacts 7.1 Introduction This chapter assesses different scenarios with respect to their impacts on three different (EU) policy objectives: Economic competitiveness Territorial cohesion Environmental sustainability In addition the impacts are assessed on the Accessibility Problem Index (see Chapter 3). First the methodological approach is described, including the SASI model that has been used to assess the impacts. Next the scenarios are described, followed by a presentation of the impacts. 7.2 Methodology The SASI model The impacts are assessed with the support of the SASI model. The SASI model is a recursive-dynamic simulation model of socio-economic development of 1330 regions in Europe. The model was developed to assess socio-economic and spatial impacts of transport infrastructure investment and transport system improvements. It has been applied and validated in several large EU projects including the IASON and ESPON projects. The SASI model differs from other forecasting models of regional development by modelling not only production (the demand side of labour markets) but also population (the supply side of labour markets). Regional production by industry is forecasted by regional production functions containing production factors capital, labour, regional endowment and accessibility. Regional population is forecasted by a demographic model including fertility, mortality and migration. The SASI model is specifically relevant for projects that serve a function on a European level (e.g. the TEN projects). Such projects can not be adequately evaluated using traditional cost-benefit analysis on a national scale, since they are less able to capture the international effect and the indirect effects occurring in non-transport sectors See e.g. Rothengatter, The relevance of Transeuropean Transport Networks for Integration and Growth in the Extended European Union. 49

50 Figure 7.1 Main structure of the SASI model SASI Model The reference network To assess the impacts of new transport investments a reference scenario has been prepared. This mainly implies an adjustment of the transport network in the SASI model 12. The dynamic network database of SASI is based on highly detailed pan- European transport networks with respect to: Roads (including short-sea shipping) Rail (including ferries) Air (including regional airports). Network calculations are based on travel times or generalised costs including border waiting times and (political, economic cultural and language) barriers. The reference network has been updated based on the most recent information from the countries on implementation schedules and alignment with respect to TEN and national transport projects (also information on toll is included). The reference network includes all projects that are already under construction and will be operational in at latest In addition the reference scenario assumes the further development of the European integration with the accession of Bulgaria and Romania to the European Union in Which relies on the trans-european transport network database developed by IRPUD (2003) and now maintained and further developed by RRG (2005) 50

51 Increased European integration results in reductions in waiting times and lower barriers between countries. 7.3 Scenarios Impacts have been assessed for different scenarios to be able to compare the outcomes and draw conclusions on the different impacts. Although the study aims to identify strategic areas for investment priorities these areas need to be translated into projects to enable the SASI model to assess impacts. As a result assumptions have been made on projects within the scenarios. These projects have not been listed separately as this would distract the discussion from strategic priorities to projects. Where possible, these projects are based on existing planned projects and related cost estimates 13. Where no existing data existed, estimates are based on existing unit parameters in EU wide infrastructure needs assessments 14. In all scenarios, after 2016 no further transport projects are implemented. However, it is assumed that European integration proceeds as in the Reference Scenario. In addition to the Reference scenario, two major scenarios have been distinguished: The Maximum Scenario, which comprises a listing of possible projects 15 which have been identified in the respective countries; The Balanced Scenario, which applies a budget restriction (with in parallel an assessment of additional financing opportunities). Projects are prioritised on the basis of their benefit-cost ratio and their contribution to specific objectives and needs (sustainability, regional disparity, and contribution to accessibility 16 ). On the basis of the maximum scenario, two sub-sets are determined: the Maximum Road Scenario and the Maximum Rail Scenario which illustrates the differential impact of rail versus road projects. The Maximum Scenario The Maximum Scenario is based on an extensive listing of possible investment projects that have been identified by the national project partners in the project. Where relevant these projects lists have been extended with projects that have been identified on the basis of existing network analyses and studies 17, projects identified on the basis of interviews that have been carried out in the countries, or projects that can be additionally identified on the basis of the needs assessment in Part A of this report (including the red flag analysis). This results in a scenario of all TEN priority projects and additional national projects that are planned to be constructed (or start with construction) in the period and This can be national studies or information, information on TEN priority projects 2005 (EU 2005), or recent studies on the Pan-European corridors (VTT 2006). E.g. TINA, TEN-Invest, TEN-STAC The impact assessment in SASI has only been done on a selected set of road and rail projects. This is done because these sub-sectors in general will receive the majority of funding and an assessment of their impacts can be done without having to go into too much project detail. It is assessed that this approach gives sufficient feedback on the potential impacts. Are projects solving missing links in the network. For example the recent study carried out by VTT on the Pan-European corridors (VTT 2006). 51

52 which are operational by An important notion with respect to the maximum scenario is that no budget restriction is applied. 52

53 Within the Maximum Scenario two specific sub-sector scenarios are distinguished: The Maximum Road Scenario assumes the implementation of all proposed road projects including cross-border transport corridors. The Maximum Rail Scenario assumes the implementation of all proposed rail projects including cross-border transport corridors. The Balanced Scenario The Balanced Scenario starts from the Maximum Scenario. First, an assessment is made of the available EU funding in comparison to the total budget requirements of the projects. If a budget restriction applies projects are selected and prioritised 18 on the basis of a number of criteria: Cost -benefit ratio. Are projects in this field expected to deliver value for money (socio-economic rate of return 19 )? Accessibility. Are they contributing to a clear improvement in accessibility both on a European and national scale (missing links in networks, main transport corridors, and secondary connections to backbone network)? Sustainability. Do interventions facilitate modal shift to more environmentally friendly transport modes? Territorial cohesion. Is there a contribution to improving the accessibility of more backward regions? Safety. Do measures contribute to improved transport safety? The assessment in this respect draws strongly on the finding in Part A of the report (SWOT-analysis of the transport system and red flag analysis). Finally, an assessment is made of the extent in which other financing sources could play a role. In this respect especially the potential of EIB involvement and PPP is included (see also Chapter 6): Other sources of finance. Are projects able or likely to attract other sources of finance? In those cases application for EU financing might not be necessary. In addition, the possible impacts of limitations in the administrative capacity and changes in the pricing policy (if large distortions exist in this respect) are taken into account. Table 7.1 gives an overview of the criteria that have been applied for the sub-sectors road and rail In the calculations in certain countries this leads to the elaboration of an interim scenario, which is called the Restricted scenario (strict application of the budget restriction, i.e. no other sources of finance). Based on TEN-STAC 53

54 Table 7.1 Assessment of selected areas for road and rail investment Sub sector Costeffectiveness Accessibility Sustainability Cohesion Territorial Safety of finance Other sources Roads: - East-West corridor and Via Baltica - reconstruction and upgrading (TEN-T) roads Railway: - Rail Baltica corridor (Kaunas-Riga) Upgrading/modernisation East-West corridor Legend: + positive effect on criterion; 0 neutral effect on criterion; - negative effect on criterion Roads Projects promoting the integration of the Latvian transport network into the European transport system stand out as the most significant ones in the sphere of road traffic. In particular improvements in the Western-Eastern corridor route, the Via Baltica and TEN road network are deemed of high importance. The aim is to eliminate the current bottlenecks by gradually reconstructing and widening its sections, building bypasses, increasing the number of traffic lanes, constructing viaducts and intersections. With an increasing motorisation rate and the important position of Latvia in freight transit it is necessary to improve the load carrying capacity of road surfacing and bridges. At the same time improving the quality of the road network will help to achieve the much needed improvement in traffic safety and reducing accident rates. Latvia has already got a quite dense network of roads. However, backlog maintenance is a major problem restricting road capacity and safety. Priority should also be given to the roads in the region of Riga which is the only region where considerable congestion problems occur. For the rehabilitation and upgrading of the national road sections, particularly those on the major international corridors, (co)financing through EIB loans is an option. To collect sufficient funds further attraction of finance from the CF is likely. To link economic centres and connect them to the TEN-road-network financing from the ERDF could be attracted. Railways Latvia should modernise the current rail infrastructure network and focus on the rail connections with the seaports and the main rail connection with Russia and neighbouring countries. Whilst the (Warsaw -) Kaunas - Sialial - Jelgava Riga section of the TEN-T railway Rail Baltica project can be a valuable addition to Latvia s rail network, the section connecting Riga Tartu - Tallinn is not considered a real priority yet. Rehabilitation and maintenance of some of the links on the railway corridor network is expected to be financed through CF/ ERDF involvement and possibly EIB loans. 54

55 Table 7.2 gives on overview of the assessment which areas for the road and rail projects can be (potentially) financed by other sources. Table 7.2 Potential financing sources and expected destination of funding Sub sector CF/ERDF EIB EBRD PPP Roads: - East-West corridor and Via Baltica - reconstruction and upgrading (TEN-T) roads Railway: - Rail Baltica corridor (Kaunas-Riga)? - Upgrading/modernisation East-West corridor Legend: = potential source of funding Location of projects Figures 7.2 and 7.3 show the location of the expected projects under the Maximum (Road and Rail) and Balanced Scenarios that have been included in the impact analysis. Figure 7.2 Road network in Reference, Maximum and Balanced Scenarios TEN/Tina road projects Riga - Plavinas Other road projects Jurmala - Tukums Skulte - Babite Ludza - Zilupc (Russian border) 55

56 Figure 7.3 Rail network in Reference, Maximum and Balanced Scenarios TEN/TINA rail projects Rail Baltica: (Warsaw -) Kaunas - Sialial - Jelgava - Riga Rail Baltica: Riga - Tartu (-Tallinn - Helsinki) Other rail projects Jelgava - Ventspils (sections) Riga - Jekabpils - Daugavpils (sections) Jegalva - Jekabpils - Rezekne (sections) Rezekne - Russian border - Ostrov (sections) Daugavpils Junction North-East 56

57 7.4 Impact assessment The impacts of the balanced transport scenario are measured as differences between the Balanced Scenario and Reference Scenario. These impacts are evaluated with respect to the strategic objectives: Economic competitiveness Territorial cohesion, and Environmental sustainability The following objectives have been identified to describe the impact on the different policy objectives: Table 7.3 Strategic objectives and related indicators Objective Indicator Level Economic competitiveness Territorial cohesion Average speed of interregional road trips (kph) Average speed of interregional rail trips (kph) GDP per capita (Euro) Primacy rate population (%) Primacy rate GDP (%) Gini coefficient 20 of accessibility (0-100) Gini coefficient of GDP per capita (0-100) National, regional average National, regional average National, regional average National National National National Environmental sustainability Share of interregional rail trips (%) National, regional average It should be realised that these spatial impacts are long term effects, as: Location decision of firms result in changes in economic activity and employment only after some time; Secondary effects of economic activity (i.e. attraction of other firms) take even longer. This is accounted for in the SASI model by time delays of one to five years. In order to take due account of the long-term spatial impact of transport infrastructure investments in the period , the target year for the model simulations is set at Overall Impacts Table 7.4 presents the impacts of the proposed priority transport investments on the above indicators. For each indicator the table shows the value of the indicator in 2006 and its values in the five scenarios in The numbers in italics are the differences between the indicator values of the policy scenarios compared with those of the Reference Scenario in 2031 in percent. 20 The Gini coefficient is a measure which represents the deviation from a fully egalitarian distribution of indicator values between regions (i.e. equal indicator values in all regions). 57

58 Table 7.4 Strategic objectives and related indicators (2031 impacts) Objective Economic competitiveness Territorial cohesion Environmental sustainability Indicator Average speed of interregional road trips (kph) Average speed of interregional rail trips (kph) Reference Maximum Road Scenarios Maximum Rail Maximum Balanced % % GDP per capita (Euro) 21 3,108 6,490 6, % Primacy rate (%) population % Primacy rate (%) GDP % Gini coefficient 22 of accessibility (0-100) Gini coefficient of GDP per capita (0-100) Share of interregional rail trips (%) % % % % % 6, % % % % % % % % 6, % % % % % % % % 6, % % % % % % Table 7.4 indicates that the economic impacts of the scenarios on Latvia are significant. The transport improvements of the policy scenarios increase the average income in Latvia by up to 110 Euro per capita per year. This effect is almost completely due to the rail investments of the Rail Baltica, which increase interregional rail speeds in Latvia much more than the planned road investments. The impacts on the cohesion indicators, which reflect the impact on the spatial structure of the country, are negligible. The model expects the capital region of Riga, which contains 40 percent of the national population, to decline in population nearly as much as the overall population in Latvia, so that its share of the national population grows only slightly. The Riga region is even more dominant as economic centre it produces almost two thirds of the GDP of the country. According to the SASI forecasts, this dominance is likely to decrease as other regions catch up in development. However, these trends are only marginally changed by the transport infrastructure scenarios. However, the Gini coefficients of accessibility show a strong divergence effect, though from a very low level, through the Rail Baltica, which serves mainly Riga, whereas the Gini coefficient of GDP per capita shows practically no effect on the income distribution between the regions The GDP per capita value for 2006 is not an official statistic but a result of the SASI model based on regional GDP per capita statistics for 2001 by Eurostat. Regional GDP is forecast in the SASI model in terms of international exchange value; in purchasing power standards all GDP figures for Latvia would be about twice as high. The Gini coefficient is a measure which represents the deviation from a fully egalitarian distribution of indicator values between regions (i.e. equal indicator values in all regions). 58

59 The environmental effects of the policy scenarios in terms of increased rail share are significant. If only rail projects were implemented as in the Maximum Rail Scenario, rail use on interregional trips, including trips abroad but without air, would more than double. This effect would hardly be reduced if also the planned road projects are implemented as in the Maximum Scenario. However, if the northern extension of the Rail Baltica is not built, as in the Balanced Scenario, this effect is reduced substantially. Regional impacts Figures 7.4 to 7.6 show the spatial distribution of gross domestic product (GDP) per capita in the regions of Latvia in the target year Figure 7.4 shows GDP per capita of the regions in the Reference Scenario in the year Because of the growth in GDP per capita a different colour scale as in Figure 3.2 had to be used. Except for the higher level, the two maps are nearly identical, i.e. according to the model the regional distribution of income in Latvia remains much the same. Figures 7.5 and 7.6 show the effects of the Maximum and Balanced Scenarios on the distribution of GDP per capita. The impact maps show the percentage differences in GDP per capita between the policy scenarios and the Reference Scenario. The more intense the green shade, the higher the impact. The two maps are also nearly identical; only the economic effects of the northern part of the Rail Baltica, which are not included in the Balanced Scenario, are missing in Figure 7.5. Figure 7.4 GDP per capita (in 1,000 Euro 2005), Reference Scenario,

60 Figure 7.5 Impact on GDP per capita, Maximum Scenario, 2031 Figure 7.6 Impact on GDP per capita, Balanced Scenario,

61 Figures 7.7 to 7.9 show the impacts of the Maximum and Balanced Scenarios on sustainability (as expressed in the share of interregional passenger rail trips). Figure 7.7 shows the average share of interregional rail trips originating in the NUTS-3 regions of Latvia (excluding air) in the Reference Scenario in the year 2031, i.e. without road or rail improvements. The spatial distribution of rail use shows the combined effect of better roads and rail services in the coastal and eastern parts of Latvia (see Figures 3.3 and 3.4) resulting in higher rail shares in the east and lower rail shares in the west and in the metropolitan area of Riga. Figures 7.8 and 7.9 show the combined effects of the road and rail projects in the Maximum and Balanced Scenarios on the share of interregional rail trips. Here, too, the reversed traffic light colour scale is used; green indicates a higher and red a lower share of rail trips than in the Reference Scenario. The distribution of impacts follows the distribution of road and rail projects (See Figures 7.2 and 7.3). It shows that the sustainability is heavily affected if major investments in rail, notably the implementation of the (two) Rail Baltica sections, would be made. Remarkably, the effects in Lithuania are even greater than those in Latvia, as Lithuania is nearer to the important destinations in Central and Western Europe. However, the preliminary results of a detailed study into the specific feasibility of the Rail Baltica demonstrate that there is little potential for (international) passenger traffic and these figures should be treated with caution 23. Figure 7.7 Sustainability of transport (share of interregional rail trips), Reference Scenario, It would be expected that similar effects on sustainability could occur based on a shift of freight from road to rail. 61

62 Figure 7.8 Impact on sustainability of transport (share of interregional rail trips), Maximum Scenario, 2031 Figure 7.9 Impact on sustainability of transport (share of interregional rail trips), Balanced Scenario,

63 Finally the impacts of the policy scenarios on the composite Accessibility Problem Index (see Chapter 3) are shown to examine to what extend the transport projects contribute to solving the accessibility problems identified in the red-flag analysis. As already noted in Chapter 3, both road and rail accessibility in Latvia are significantly below the European average (Figures 3.4 and 3.6). Figures 7.10 and 7.11 show the Accessibility Problem Index for road and rail in the year 2031 in the Reference Scenario from a European perspective 24. It should be remembered that in the Reference Scenario no new road or rail projects are started after The comparison with Figures 3.4 and 3.6 shows that despite of this accessibility has improved in many regions due to the ongoing European integration, which has led to shorter border waiting times and reduced trade barriers. Figure 7.10 shows the Accessibility Problem Index Road. Now all regions in Latvia are coloured in a lighter shade of yellow, i.e. their accessibility has moved closer to the European average. Figure 7.11 shows the Accessibility Problem Index Rail. Here the effects of European integration are weaker. It can be seen that without rail improvements most parts of Latvia would remain poorly served by rail. Figures 7.12 to 7.15 show the impacts of the Maximum and Balanced Scenarios on the Accessibility Problem Index in Latvia seen from a European perspective. Compared to the Reference Scenario in 2031 (Figure 7.10), road accessibility has further improved only little in both scenarios (Figures 7.12 and 7.14). The improvements in rail accessibility in the Maximum Scenario (Figures 7.13) are much larger and focussed on the Rail Baltica between Kaunas and Riga. In the Balanced Scenario (Figure 7.15) the part of the Rail Baltica north of Riga is not included, so the effects on rail accessibility are reduced. 24 Note that the Accessibility Problem Index for 2031 is calculated in reference to the national and European average of the base year 2006 in order to show changes in accessibility. 63

64 Figure 7.10 Accessibility Problem Index Road (European perspective), Reference Scenario, 2031 Figure 7.11 Accessibility Problem Index Rail (European perspective), Reference Scenario,

65 Figure 7.12 Accessibility Problem Index Road (European perspective), Maximum Scenario, 2031 Figure 7.13 Accessibility Problem Index Rail (European perspective), Maximum Scenario,

66 Figure 7.14 Accessibility Problem Index Road (European perspective), Balanced Scenario, 2031 Figure 7.15 Accessibility Problem Index Rail (European perspective), Balanced Scenario,

67 Table 7.5 summarises the effects of the four policy scenarios on the Accessibility Problem Index: index values above one indicate accessibility problems, whereas index values below one indicate above-average performance. Table 7.5 Accessibility Problem Index, Latvia, 2031 Scenarios Roads Rail Mode Level Reference Maximum Road Maximum Rail Maximum Balanced National % European % National % European % % % % % % % % % % % % % The table reflects the results of the evaluation. There are some improvements in both road and rail accessibility between 2006 and 2031 already in the Reference Scenario through the effects of European integration in the form of reduced waiting times and other barriers. There are only small further improvements to the road network in Latvia if the envisaged road projects are implemented as in the Maximum Road and Maximum Scenarios. The improvements in rail accessibility in the Maximum Rail and the Maximum Scenarios are much larger, however in the Balanced Scenario the improvements are reduced as the northern part of the Rail Baltica is excluded from the Balanced Scenario. 67

68 7.5 European effects The effects of transport infrastructure improvements are not confined to the country in which the construction work actually occurs but reach across borders into neighbouring countries. The SASI model forecasts these effects. To demonstrate this on the following pages maps of the spatial distribution of the impacts of the transport infrastructure investments in Latvia are shown (Figures 7.16 to 7.23). The maps show the difference between the Maximum and Balanced Scenarios and the Reference Scenario in 2031 for four of the evaluation criteria of Table 7.4: average speed of interregional road trips (Figures 7.16 and 7.17), average speed of interregional rail trips (Figures 7.18 and 7.19), GDP per capita (Figure 7.20 and 7.21) and share of interregional rail trips (Figures 7.22 and 7.23). It can be seen that although the main impacts occur in Latvia itself, significant effects spread beyond its national borders. Because of the small number of road projects in the two scenarios, the weakest crossborder effects are with respect to average interregional road speed. Only parts of Estonia and, through the ferries from Tallinn, parts of Sweden are affected. The situation is totally different for interregional rail speeds. If the Rail Baltica is completely implemented, as in the Maximum Scenario, the effects on interregional rail speeds are felt through all Nordic countries and large parts of eastern and central Europe. As to be expected the impacts are stronger if also the northern part of the Rail Baltica between Riga and Tallinn is implemented as in the Maximum Scenario. The economic impacts, though marginal, are almost equally widespread, to the north to Estonia, Finland and Sweden and to the south to Lithuania, Poland, Germany and the Czech Republic. The environmental impacts in terms of share of rail trips depend on the implementation of the Rail Baltica as well, but even if the implementation of the northern part of the Rail Baltica is deferred, the share of rail trips grows in all affected countries. 68

69 Figure 7.16 Average speed of interregional road trips: European impacts, Maximum Scenario, 2031 Figure 7.17 Average speed of interregional road trips: European impacts, Balanced Scenario,

70 Figure 7.18 Average speed of interregional rail trips: European impacts, Maximum Scenario, 2031 Figure 7.19 Average speed of interregional rail trips: European impacts, Balanced Scenario,

71 Figure 7.20 GDP per capita: European impacts, Maximum Scenario, 2031 Figure 7.21 GDP per capita: European impacts, Balanced Scenario,