CONTENTS. Introduction 5. Review of commercial and Financial activities 6. Freight Services 11. Passenger Services 13.

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1 A n n u a l r e p o r t

2 CONTENTS Introduction 5 Review of commercial and Financial activities 6 Freight Services 11 Passenger Services 13 Rolling Stock 16 Lithuanian Railway Infrastructure 19 Technical Development and investment policy 23 Traffic Safety 26 Environmental Protection 27 Information Technologies 28 International Relations 29 Human Resources 32 AB Lietuvos Geležinkeliai Management Structure 35 Major Events in Independent Auditor s report 38 Balance Sheets 40 Income Statements 42

3 Dear Readers, In 2010, Lithuanian economy started recovering from the recession, this resulting in an increase in rail freight volumes and company revenues. AB Lietuvos Geležinkeliai operated on an even keel, as well as at a profit in The Company produced approximately 1.5 per cent of the gross domestic product (GDP) and is one of the largest taxpayers in Lithuania. AB Lietuvos Geležinkeliai is a modern railway undertaking. Having invested more than LTL 3.6 billion over the past 10 years, the Company currently operates an up-to-date fleet of freight locomotives; state-of-the-art signalling installations, telecommunications and rolling stock control systems have been installed on the main railway lines and stations, railway constructions and passenger buildings have been refurbished, new comfortable and frugal passenger trains have been acquired. In May 2010, the Rail Baltica project works were commenced. Rail Baltica is supposed to link Warsaw, Kaunas, Riga, Tallinn and Helsinki; it would create the possibility to develop freight and passenger connections between the Baltic States and other European countries. In the Republic of Lithuania, Rail Baltica has been acknowledged as a state priority project. AB Lietuvos Geležinkeliai focuses on the improvement in management and control by implementing information systems and modern management methods. The financial management system, SAP, has been operating in the Company allowing one to ensure transparent accounting that complies with the EU and Lithuanian legal requirements. Modern technologies, effective management and the implemented system of risk management ensure the stable and successful activity of the Company. In 2010, the dates important for us, railway people, and also for Lithuania were commemorated: 4 September marked the 150th anniversary of the arrival of the first train to Lithuania, while the 140-year history of Radviliškis Locomotive Depot was recalled in July. Stasys Dailydka Managing Director AB Lietuvos Geležinkeliai

4 Review of commercial and Financial activities Review of commercial and Financial activities main indicators INDICATORS Assets and Liabilities (LTL million) Assets 4, ,135.7 Equity 2, ,196.4 Total Revenues (LTL million) 1,393,5 1,206.0 Revenues from core activities (sales) 1, ,183.5 Revenues from financial and investing activities Other revenues Total Costs (LTL million) 1, ,193.7 Costs of core activities 1, ,162.7 Costs of financial and investing activities Other costs Result (LTL million) Profit before tax Net profit Financial Indicators Liquidity (current assets/current liabilities), % Gross profitability (gross profit/sales), % Net profitability (net profit/sales), % EBITDA (earnings before interest, taxes, depreciation and amortisation) (LTL million) Return on Assets (ROA) (net profit/assets), % Return on Equity (ROE) (net profit/equity), % Investment (LTL million) Investment Company funds invested Staff Average number of staff 10,318 10,506 Average monthly salary (LTL) 2,649 2,487 Sales income per employee (LTL thous./person) Changes in the balance sheet In 2010, the assets of the Company went up by 8.8 per cent amounting to LTL 4,501.1 million. The noncurrent assets accounted for 93.5 per cent in the total asset structure, an increase of 9.4 per cent up to LTL 4,207.0 million, compared to This was mostly determined by a rise in the material assets of the Company due to considerable investment in railway infrastructure and rolling stock. The Company s inventories and the amount of cash having increased, the current assets rose by 1.3 per cent amounting to LTL million and accounted for 6.5 per cent in the total asset structure. During the year 2010, the shareholders equity grew by 19.0 per cent to LTL 2,614.6 million. The growth in capital was determined by an increase in the Company s statutory capital made by extra contributions from the State budget in , as well as by a rise in net profits. By the end of 2010, the loan portfolio of the Company had reached LTL million. In order to finance the investment projects on the modernisation and development of infrastructure and acquisition of rolling stock, the Company had taken out 12 long-term loans: one loan from the EBRD, 3 loans from the EIB, 4 loans from the Lithuanian Ministry of Finance, one loan from Nordea Bank Finland Plc. Lithuanian Division, one loan from AS UniCredit Bank Lithuanian Division, one loan from AB SEB Bank, and one loan from the Nordic Investment Bank. 6 7

5 Review of commercial and Financial activities Review of commercial and Financial activities 6.8% 1.4% 0.7% 5.5% Revenue structure in 2010 (%) Costs 85.6% Revenues In 2010, Lithuanian economy started recovering from the recession; therefore, the revenues of the Company increased by 15.5 per cent, compared to 2009, up to LTL 1,393.5 million. As in previous years, the major part of revenues came from freight transportations. Freight revenues. Freight revenues accounted for 85.6 per cent in the total revenue structure. The revenues earned from freight services in 2010 rose by 15.0 per cent over the previous year due to an Freight Passenger Other supplementary services Other activities Financial & investment activities Passenger revenues. Passenger revenues accounted for 5.5 per cent in the total revenue structure in 2010, a rise of 15.8 per cent over the previous year. This was due to the increased passenger flows on the line Vilnius Kaunas, as well as increasing international fares. A total of LTL 8.15 million subsidies were allocated from the State budget for financing passenger traffic in 2010 to reimburse privileged passengers (cf. LTL 4.58 million in 2009). Other revenues. The Company provides supplementary services, i.e. operates outside the country (freight transportations on the territory of other countries, operation of locomotives and engine-crews abroad, the use of refrigerator wagons, containers and freight wagons abroad), provides transportation of baggage and post, and renders services related to repair and maintenance of rolling stock, asset lease, freight handling and storage, sales of scrap iron. In 2010, the revenues from rendering supplementary services grew by 19.3 per cent over the previous year and accounted for 6.8 per cent in the total revenue structure. The growth was determined by the increase in freight flows and scope of repairs works, as well as in metal prices. The costs incurred by the Company in 2010 amounted to LTL 1,315.2 million, an increase of 10.2 per cent over The State subsidies provided for covering loss-making passenger services and for reimbursing loan servicing expenses designed for financing investment projects of railway infrastructure modernisation amounted to LTL 1.2 million in 2010 (LTL 0.2 million for passenger services and LTL 1.0 million for loan servicing expenses). The costs incurred in 2010 were reduced by said amount. The growth in costs was mostly determined by the increase in the scope of work performed, by more expensive energy sources (fuels, electricity, thermal energy), as well as by a higher demand for repairs to rolling stock and tracks. In 2010, remuneration costs represented major part in the total cost structure and accounted for 34.1 per cent, while the non-current asset depreciation costs and the costs of fuels made up 24.2 per cent and 15.1 per cent respectively. increase in freight transportation volumes and in scope of related services. The freight tariffs were not increased during the reporting period. 1,630 1,433 1, % 2.3% 1,247 1, % 7.1% 34.1% Cost structure in 2010 (%) Remuneration 2.5% Fuels Depreciation (amortisation) Energy resources Materials Total revenues (LTL million) % 15.1% Repairs Financial & investment costs Other costs 8 9

6 Review of commercial and Financial activities 164 Freight Services profit In 2010, the profitability ratios were considerably improved: profit before tax: LTL 78.3 million (cf. LTL 12.3 million in 2009); net profit: LTL 65.4 million (cf. LTL 13.0 million in 2009); and net profitability: 4.8 per cent (1.1 per cent in 2009). Company Profit (loss) during the reporting year (LTL thous.) UAB Vilniaus Lokomotyvų Remonto Depas Profit before tax (LTL million) Operating results of subsidiary companies In 2010, AB Lietuvos Geležinkeliai group consisted of AB Lietuvos Geležinkeliai and its subsidiary companies: UAB Vilniaus Lokomotyvų Remonto Depas; UAB Gelsauga; UAB Geležinkelio Tiesimo Centras; associated company UAB VAE Legetecha. In order to improve management efficiency, the two subsidiary track construction companies were reorganised in 2010, namely, UAB Gelmagis was merged with UAB Geležinkelio Tiesimo Centras, which further continued its activity after the reorganisation. Core activity Rolling stock repairs and manufacturing UAB Gelsauga Security and cleaning services UAB Geležinkelio Tiesimo Centras 1,220.1 Track repairs and construction UAB VAE Legetecha 2,179.2 Turnout manufacturing In 2010, AB Lietuvos Geležinkeliai carried 48.1 million tonnes of freight, a rise of 12.6 per cent over 2009 (42.7 million tonnes). Import freight and transit freight represented major part of the total rail freight; they accounted for 31.0 per cent (14.9 million tonnes) and 29.9 per cent (14.4 million tonnes) respectively. Domestic freight made up 29.4 per cent (14.1 million tonnes), while export freight constituted 9.7 per cent (4.7 million tonnes) of the total rail freight structure. The bulk commodities transported were crude oil and petroleum products (18.9 million tonnes), chemical and mineral fertilisers (11.7 million tonnes), mineral products (3.6 million tonnes), and ferrous metals (2.4 million tonnes). In 2010, the majority of rail freight was transported on International Corridor IX B trunk line (freight going to the port of Klaipėda) and on International Corridor IX D line Kena Kybartai (transit freight from the CIS countries going to/from the Kaliningrad Region) Klaipėda direction. A total of 23.2 million tonnes of freight was transported to Klaipėda Port in 2010, i.e per cent more than in Chemical and mineral fertilisers accounted for 10.0 million tonnes (43.1 per cent of the total freight), while crude oil and petroleum products for 8.5 million tonnes (36.8 per cent of the total freight). Klaipėda direction was of exceptional importance to Lithuanian railways. Freight to Klaipėda Port was transported under especially favourable conditions and accounted for 48.2 per cent of the total freight transported by AB Lietuvos Geležinkeliai in Freight volumes in

7 Freight Services 9.7% Passenger Services 29.4% 31.0% Rail freight structure in 2010 Domestic Transit Import 29.9% Export The majority of freight reloaded at Klaipėda Port The increased flows of freight were determined by was from Belarus; it represented 8.0 million tonnes, application of a flexible system of tariffs, different of which chemical and mineral fertilisers made up marketing solutions, understanding of customer 5.2 million tonnes, while crude oil and petroleum needs, and introduction of new technologies. products constituted 1.3 million tonnes. Domestic One of the best examples is the Viking project of freight carried from/to the port accounted for 10.3 combined traffic. Freight flows on intermodal train million tonnes, of which the core commodities were Viking has been increasing annually. A total of 41.8 crude oil and petroleum products (AB Orlen Lietuva), thousand containers (TEU) were carried in and chemical and mineral fertilisers (AB Lifosa, AB Another intermodal project, Vilnius Shuttle (Klaipėda Achema). Russian freight reloaded at the port made Vilnius Klaipėda), was launched in The first year up 3.5 million tonnes, of which 1.8 million tonnes of of implementing this project proved it to be promising. crude oil and petroleum products, and 1.2 million The possibilities of intermodal transport have been tonnes of chemical and mineral fertilisers. further developed; public logistics centres are being A total of 13.7 million tonnes of freight was set up in Vilnius and Kaunas. The EU financial transported to the Kaliningrad Region (Kaliningrad assistance of the Cohesion Fund will be used for direction) in 2010, up 26.6 per cent over The establishing infrastructure necessary for said centres: main commodities carried in this direction were crude oil and petroleum products (6.7 million tonnes), ferrous metals (1.3 million tonnes), and solid mineral fuels (2.5 million tonnes). Russian freight made major part of the freight transported in this direction modern overland intermodal terminals, exclusive in the Baltic Sea Region and Eastern Europe, will be built, and conditions will be created for setting up companies on the territory of the terminal engaged in transport, logistics or other freight related activities In 2010, AB Lietuvos Geležinkeliai trains operated on 52 domestic lines and on 2 international lines: 189 trains on domestic lines and 4 trains (made up by the Company) on international lines. A total of 18 trains of the railway companies from other countries came to Lithuania or passed the territory of this country in transit. In 2010, a total of 4.4 million passengers (the same number of travellers as in 2009) were using the services of the Company including: In 2010, AB Lietuvos Geležinkeliai successfully implemented the following actions: Ei, jaunime, nežiopsok traukiniais pigiau važiuok (action for the young people to travel by train at reduced prices). The action was valid in the summer of During this action young people from 10 to 26 years of age received a discount of 30 per cent to travel by the 2nd and 3rd class of all domestic trains. During the action period, the number of passengers transported 3.5 million passengers on domestic trains; and climbed by about 45 per cent and passenger Container volumes carried on Viking (thous. TEU) million passengers on international trains. Compared to 2009, passenger revenues went up by 15.7 per cent in revenues went up by 21 per cent, compared to the same period of the previous year

8 Passenger Services Passenger Services Passenger transportations in (million people) Arranging the route Vilnius Kretinga Palanga, On the routes Vilnius Lazdėnai Vilnius and and back (from June to October 2010). The price Kaunas Lazdėnai Kaunas in the summer of was reduced for the train ticket on the route Vilnius Kretinga; the cooperation contract 2010 the passengers bicycles were carried at a discount. A cooperation agreement was signed was signed with UAB Kretingos Autobusų with the administration of the Neris Regional Park Domestic International Total Parkas (Kretinga Bus Company), following which the passengers arriving to Kretinga by train used on the promotion of railway transport; as a result, numbers of passengers on said routes travelling to take a bus to reach Palanga. During this action, to the Neris Regional Park by train increased the number of passengers transported climbed about 3 times. by about 21 per cent and passenger revenues The Passenger Loyalty Programme was launched rose by approximately 26 per cent, compared to in December Following this programme, the the same period of the previous year. ticket prices on domestic lines are reduced 2 to 5 Passenger revenues in (LTL million) 76.6 At the end of 2009, the ticket price for the route Vilnius Kaunas Vilnius was reduced. The fares were reduced by about 8 per cent for the 3rd class and about 16 per cent for the 2nd class. The per cent depending on the discount type standard or variable chosen by the passenger number of passengers on this route grew by about 18 per cent Passenger Transportation Year Total number of passengers transported, million people Passenger turnover, million passenger-km Subsidies International transportations Domestic transportations Other Total Average passenger journey, km Average number of passenger journeys

9 Rolling Stock Rolling Stock The average daily run of freight locomotives was km, up 3.6 per cent over the 2009 figure Average daily locomotive run (km) 2,621 2,652 2,678 2,712 2,756 The average gross weight of a freight train was 2,756 tonnes, a rise of 1.6 per cent over Average gross weight of a freight train (t) Timely and qualitative preparedness of the rolling stock of AB Lietuvos Geležinkeliai is one of the most important factors determining traffic intensity, efficiency and safety, as well as the factors related to environment pollution. The traction fleet of the Company consisted of the following in 2010: 44 freight locomotives ER20CF (produced by Siemens); 42 freight locomotives 2M62, 25 locomotives 2M62K with internal combustion engine D49, and 29 locomotives 2M62M with internal combustion engine Caterpillar; 23 freight locomotives M62, 1 standard gauge locomotive V-200, and 16 locomotives M62K with internal combustion engine D49; 4 passenger locomotives TEP60, 4 passenger locomotives TEP70, and 4 passenger locomotives TEP70BS; 7 shunting locomotives TEM TMH; 19 shunting locomotives ČME3, 5 locomotives ČME3MG with internal combustion engine Caterpillar (1450 kw), and 17 locomotives ČME3ME with internal combustion engine Caterpillar (940 kw); 26 shunting locomotives TEM2, and one locomotive TGK2. The locomotives have been allocated to Vilnius or Radviliškis Locomotive Depots with their workshops at Kaunas, Klaipėda, and Bugeniai. Traction rolling stock has been registered with the Register of Rolling Stock and Containers. 27,571 27,901 24,813 25,953 23, * Data on the use of rolling stock on the territory of Lithuania and that of other countries. The performance of freight trains was 25,953 million gross tkm in 2010, a rise of 11.8 per cent over Performance of freight trains (million gross tkm) 16 17

10 Rolling Stock Lithuanian Railway Infrastructure In 2010, 6 new shunting locomotives TEM TMH AB Lietuvos Geležinkeliai focuses its attention on were purchased from a subsidiary company UAB the modernisation of freight wagons. The experience Vilniaus Lokomotyvų Remonto Depas; they were of railway administrations from other countries and manufactured using the new main frame and knowledge of specialised scientific institutions were undercarriage of the Russian shunting locomotive used for this purpose. TEM18, as well as the power unit and management The modernisation of freight wagons is being modules analogous to ČME3M produced by CZ conducted in two ways: (1) purchase of new wagons, LOKO. and (2) extension of the life cycle to existing wagons. In 2010, Siemens AG delivered 10 new freight In 2010, the life cycle was extended to 146 freight locomotives ER20CF. wagons (of which 2 flat wagons, 120 low-sided On average, 61.1 freight locomotives were operated wagons and 24 covered wagons). daily in 2010 (cf locomotives in 2009). The In order to use the freight wagons efficiently, a total average daily efficiency of freight locomotives was of 12 flat wagons were readjusted to 1 flat wagons 1,125.9 thousand gross tkm, down 10.5 per cent unit for the transportation of refrigerating containers, from and 20 refrigerator cars were readjusted to covered The operating speed grew from 47.4 km/h in 2009 to wagons with heat insulating car bodies km/h in Diesel fuel consumption per 10 In 2010, the assessment in line with the RID thousand gross km fell to kg (cf kg in (International Carriage of Dangerous Goods by Rail) 2009). The total diesel fuel consumption amounted requirements was undertaken to 1,200 tank wagons. to 53.2 thousand tonnes in 2010 (cf thousand In 2010, the passenger rolling stock fleet consisted tonnes in 2009). The freight wagon fleet had consisted of 9,228 wagons by the end of 2010: 1,899 covered wagons; 227 flat wagons; 1,823 low-sided wagons; 1,859 tank wagons; 467 freight wagons for carrying mineral fertilisers; 832 freight wagons for carrying grain; 1,120 flat wagons for carrying containers; 1,001 other wagons. of the following: 138 passenger cars; 113 diesel train cars; 86 electric train cars. In 2010, the following rolling stock was purchased and put into operation in passenger services: 3 railcars 620M manufactured in PESA Bydgoszcz Plant, Poland, in 2010; and one double-deck electric train EJ 575 produced in Škoda Vagonka Plant, the Czech Republic, in The convenient geographical location, welldeveloped railway network, ice-free Klaipėda Seaport, skilled technical capacities these are the factors that make a considerable impact on the transport system in this country. The two International Transport Corridors having an especial importance for the whole European transport system cross the territory of Lithuania: Corridor I (Helsinki Tallinn Riga Kaunas Warsaw); Corridor IXB (Kiev Minsk Vilnius Šiauliai Klaipėda), and IXD (Kaišiadorys Kaunas The total length of Lithuanian railway lines makes up 1,767.6 km, of which 122 km of electrified lines, and km of double tracks; there are 106 railway stations, 536 level crossings, and 429 overpasses. The following track repairs were conducted in 2010: overhaul repairs to 5.90 km of tracks; medium repairs to km of tracks; replacement of 29 sets of turnouts; replacement of 8.81 km of rails by used ones; replacement of km of rails by new ones. AB Lietuvos Geležinkeliai has invested approximately LTL 2.5 billion in the rail infrastructure over the past Kaliningrad). 15 years

11 Lithuanian Railway Infrastructure Lithuanian Railway Infrastructure of second tracks on the sections Kaišiadorys permanent way and the renewal of turnouts), the Radviliškis and Šiauliai Klaipėda was started. bridges and overpasses will be refurbished, and two- The reconstruction of bridges and overpasses level crossings will be built. on Corridor IX (totally 64 units). The reconstruction of the section Kaunas The extension of station tracks on Corridor IX Kybartai. In 2009, the technical project for the has been completed: the 26 tracks extended up reconstruction of track installations and signalling to 1,050 m will ensure safe traffic of heavy (up to equipment was completed and the tender for 6,000 t) and long freight trains (the total length contract works was announced. The project reaching up to 1,000 m, 71 conventional wagons), works were started in The project will cover as well as better capacity for freight flows. arranging of track areas at Rokai and Jiesia The modernisation of Vaidotai Marshalling Stations, reconstruction of Pilviškiai Bridge, and Yard on Corridor IX has been completed; the modernisation of signalling. new automated computer system for wagon The construction of second tracks on Vilnius distribution has been installed. The railways of the bypasses Pušynas Paneriai and Kyviškės Valčiūnai. Baltic region intercross in Vaidotai Marshalling The construction of a second track on the bypass Yard as the freight from Belarus (Maladzyechna, Kyviškės Valčiūnai is to be started in 2011, and that Baranovici) is being transported through it to on the bypass Pušynas Paneriai in Kaliningrad and Klaipėda, i.e. about 70 per cent In , the construction of second tracks of the total rail freight carried by Lithuanian is to be started on the line Šiauliai Klaipėda; they railways is transported through this station. The will be installed on the following sections: Telšiai modernisation of distribution equipment has Lieplaukė, Kūlupėnai Kretinga, Pavenčiai Raudėnai, resulted in an increase in station capacities of up Plungė Šateikiai and Telšiai Dūseikiai. to 3,000 wagons daily, therefore, trains are made The project for arranging the Traffic Management up faster and the traffic safety is ensured. Centre was commenced in Railway automated In order to enhance competitiveness of the railway transport system on the international and domestic transport service markets, the reconstruction of railway lines is being carried out and the strategic investment projects are being implemented. The modernisation of signalling and power supply installations on the line Šiauliai Klaipėda, the modernisation of telecommunication systems on the line State Border with Latvia Panevėžys Radviliškis Tauragė Pagėgiai, and the modernisation of Lithuanian railway communication system by installing GSM-R. Within the framework of the aforementioned projects, over 1,000 km of optical fibre cables have been laid; the obsolete telephone exchanges were replaced by new digital ones on almost the entire Lithuanian railway network; the modern data transmission system has been set up; 42 automated control units for the moving rolling stock have been installed by connecting them into a uniform centralised computer management and control system; the centralised train management system has been set up for use on 200 km of railway lines by replacing the obsolete relay automated equipment by Siemens and Bombardier Transportation made microprocessor systems at 22 stations and 34 level crossings (the works are being conducted on extra 200 km of railway lines, 16 stations, and 56 level crossings); 300 km of power supply lines have been reconstructed by connecting them to the centralised management and control system SCADA (the works are being conducted on extra 100 km of lines); the project of the construction The decision of the European Commission on financing the Rail Baltica project had been received, and the design work of Rail Baltica line Warsaw Kaunas Riga Tallinn Helsinki on the Lithuanian territory was started. The modernisation of the section Vilnius Kaunas for raising the speed of passenger trains up to 160 km/h. Stage I is scheduled for and will cover the modernisation of the section Kaunas Kaišiadorys, i.e. a section of about 30 km will be reconstructed, namely, the permanent way will be arranged (the drainage system will be installed, side slopes cleaned up, strengthened and increased, the permanent way widened, the route changed), the track works will be conducted (the reconstruction of a double track section will cover the construction of a protective layer for systems and power supply installations are technical measures ensuring safe train movements. They consist of automated (signalling) installations at railway stations and wayside stations which are used for planning train routes, as well as managing and controlling train movements. The parameters of the electrification system are to be adjusted to western European standards, while the power supply system will be adjusted to train speeds up to 160 km/h. The power supply system will also be reconstructed: new networks and substations installed, new transmission towers erected. One of the most advanced automated systems is the traffic management interlocking system allowing one to connect installations of electrical interlocking and automatic track blocking systems at separate stations into one system managed and controlled from one centre

12 Lithuanian Railway Infrastructure Technical development and investment policy Klaipėda Seaport. The development of Klaipėda railway junction has been carried out since 2003 following the programme approved by the Lithuanian transport minister. A total of LTL 21 million was invested in this programme in While further carrying out the programme, the Company is planning to invest LTL 428 million, as well as implementing the following projects in : the reconstruction of Pauostis track area (design and contract works). The technical project is scheduled to be completed by 2012; the reconstruction of Rimkai Station track area (design and contract works). The technical project was completed in The procedures for bidding contract works are scheduled to be started in the near future; the construction of noise protection walls at Klaipėda Station (design and contract works); the reconstruction of Klaipėda Station track area This allows avoiding the necessity of having train (design and contract works); The most important priorities of AB Lietuvos The technical development and investment policy dispatchers at every station, as well as reducing the reconstruction of Draugystė Station track Geležinkeliai are traffic safety, ecology issues, carried out by the Company is based on the traffic management expenses. area (contract works). The contract works are pollution prevention, saving of energy resources, development strategy for Lithuanian economy, The development of Klaipėda railway junction. to be completed in 2013; competitiveness, and diversified high quality on the development strategy for the Lithuanian Klaipėda railway junction is an integral part of the reconstruction of Anglinė interlocking customer-centric services. In order to achieve these transport system, and on the Lithuanian Strategy for Corridor IXB, therefore, AB Lietuvos Geležinkeliai (design and contract works). objectives and to ensure successful integration Absorbing the EU Structural Funds in carries out an integrated development of the corridor The contract works are to be completed in 2012; of Lithuanian railway transport into international While maintaining cooperation with Sweden, from a border station to Klaipėda railway junction. the reconstruction of a ferry terminal track area and transport systems, the railway infrastructure Denmark and Germany and in order to establish Klaipėda railway junction contains Klaipėda, Rimkai that of track No. 54 (design and contract works). is being modernised, the rolling stock fleet is a network and infrastructure for transport and Draugystė railway stations, wayside stations The contract works are scheduled to be completed being renewed, advanced transportation-related and logistics services in East West direction, connecting them, as well as connecting tracks. The in IT and intelligent transport systems are being the Company has participated as a partner in main function of railway stations at Klaipėda railway The total value of the projects to be implemented by implemented, and the interaction between the implementing the international project East West junction (Draugystė and Klaipėda) is to service AB Lietuvos Geležinkeliai in amounts to LTL Company and scientific or educational institutions Transport Corridor II partly financed from the EU 5,472.9 million. is being strengthened at both Lithuanian and Baltic Sea Region Programme funds. international levels

13 Technical development and investment policy Technical development and investment policy 40.9% 40.2% Structure of investment in 2010 Own funds Borrowed funds Funds from State budget EU funds by Siemens (totally 44 such locomotives were purchased from 2007 to 2010). The design works of important units were further continued, The Company has been actively cooperating with Vilnius Gediminas Technical University and Kaunas Technological University. In 2010, mutually beneficial 3.5% 15.4% namely, projects for construction of petroleum product warehouses in Vilnius, Kaunas and Vaidotai, other projects. activities were further maintained, and 5 research studies were conducted. The Company staff have been participating in the A total of LTL 83.9 million was invested in activities of international organisations contributing passenger services in The renewal and to resolving technical interoperability issues among modernisation of the passenger rolling stock railway companies from different countries. In 2010, In 2010, the Company invested in Lithuanian railways LTL million (up LTL million over 2009), of which LTL million or 40.9 per cent of the total invested funds came from the EU funds. This was the largest amount of the EU funds ever absorbed during the entire period of receiving the EU structural support. A total of LTL million consisted of own funds, LTL 22.1 million of the State budget funds, and LTL 98.4 million came as loans. More than half of the Company s investment funds accounted for the projects included into the State Investment Programme. In 2010, a total of 20 projects financed from the EU Cohesion Fund for programming period and 5 projects partly financed from the TEN-T Fund were being implemented; 5 applications for receiving the EU support were submitted, and EU support contracts were signed for implementing 7 projects. In 2010, a total of LTL million was invested in the renewal and modernisation of railway infrastructure. A total of 255 railway infrastructure renewal and modernisation projects were being implemented, of which the following high value investment projects commenced several years ago were completed: the modernisation of Lithuanian railway communication system by installing GSM-R, the extension of station tracks on Corridor IX, and the modernisation of marshalling yards on Corridor IX. In 2010, a pedestrian bridge at Klaipėda Station was reconstructed, a railway overpass was constructed in Klaipėda, protective measures were installed at Kaunas railway tunnel, the turnout replacement programme was being further implemented, signalling installations were modernised on the section Šiauliai Klaipėda, the reconstruction of Draugystė Station track area reached the middle, second track design works on the sections Kyviškės Valčiūnai, Šiauliai Klaipėda, and Kaišiadorys Radviliškis were started. In 2010, a total of LTL million was invested in freight services (in the renewal and modernisation of assets). The Company acquired 6 shunting locomotives TEM-TMH manufactured at its daughter company UAB Vilniaus Lokomotyvų Remonto Depas, as well as 10 locomotives ER20CF produced fleet covered acquisition and putting into service of the 2 double-deck electric trains (totally 4 such trains were purchased from 2008 to 2010), acquisition and operation of the 3 one-coach railcars (totally 7 such railcars were purchased from 2008 to 2010). Special attention was paid to the Fast Train Vilnius Minsk project. AB Lietuvos Geležinkeliai and Belarusian railway undertaking drafted and approved an action plan covering organisational and technical measures allowing one to shorten train travelling times from 3 hours 51 minutes to 3 hours from June 2011 (shorter passenger control procedures, fewer stops on the territory of Belarus). In addition, a joint action plan was approved for electrification of the section Molodecno Kena Naujoji Vilnia following which travelling times for said train will be cut by about one hour and will reach totally 2 hours en route from the year A total of 2.6 LTL million was invested in the development of IT and other divisions. The information systems OPKIS and Krovinys (Cargo) were expanded with new functions, the financial management system, SAP, was being further our specialists were participating in ERA/OSJD contact group for interoperability of the 1435/1520 mm gauge rail systems: the analysis of technical parameters of the locomotives, multiple units and coaches subsystem for Latvia, Lithuania, Poland, Russia, and Ukraine was completed. The results of this analysis were submitted to ERA experts for developing the technical interoperability specification of this subsystem. The analysis of technical parameters of the signalling and communications subsystem is being further conducted. In 2010, a total of 16 normative technical documents were prepared and approved. One of the most important documents prepared by the Company was the unique Inventory 241/SS of Cargo Handling Safety Technological Cards. Also, amendments to 27 valid documents were made, and 6 European standards were translated into the Lithuanian language. The projects already implemented or started to be implemented in 2010 increase the competitive abilities of the Company, while close relationship between academic community and business as well as their partnership ensure further technical progress. improved

14 Traffic Safety Environmental Protection or axle journal etc. breaks down, the signalling Environmental protection, reduction of pollution and installation produces a false alarm, the rail or rail prevention are among the Company s priorities. joint breaks down etc.). In 2010, the Company operated 12 industrial As of 1 July 2010, any derailment, collision with wastewater treatment systems, 11 domestic other rolling stock or engineering installations wastewater treatment systems and 30 surface has been regarded as an accident (previously any wastewater treatment systems. Control derailment or collision with other rolling stock was measurements of atmospheric pollutants in these regarded as an incident). installations were conducted twice to four times a In 2010, the number of rail traffic events on the year. railways of Lithuania decreased slightly. A total of The Company reduces air pollution from stationary 24 events owing to a human factor were recorded in pollution sources by installing electric radiators in 2010 (cf. 26 events in 2009). railway buildings in small towns instead of heating As of 1 July 2010, the traffic events at level them with the use of solid fuels. crossings involving a collision of rolling stock with The monitoring of groundwater was further the transport vehicles or pedestrians that cross the continued in the subdivisions of the Company in level crossing, or a collision of rolling stock with order to evaluate the impact of the Company s any objects at the level crossings and resulting in activities (freight and passenger transportations), at least one injured person have been investigated as well as the impact of potential pollution sources according to the Regulations on Investigating and that of the places of accidents on the soil Following the amendments to the Law on Railway Traffic Safety of the Republic of Lithuania made in 2010, railway traffic events are divided into train crashes, accidents and incidents. As of 1 July 2010, the list of incidents was made shorter following the amendments to the Rules on Investigating Railway Traffic Events and Eliminating Their Effects. An incident is any traffic event caused by the operation of rolling stock and resulting in negative effects for the control and management of traffic safety yet not causing train crash or accident consequences (e.g. the vehicle driver ignores restrictive aspects or landmarks, the wheelset axle Railway Traffic Events and Eliminating Their Effects (formerly such events were investigated following the order of AB Lietuvos Geležinkeliai). A total of 9 traffic events were recorded at the level crossings in 2010, during which 4 people perished and 2 were injured (cf. 11 traffic events in 2009 involving 3 fatalities and 2 injuries). All traffic events occurred owing to the fault of motorists as they ignored the most important rule for safe traffic at the level crossings, i.e. the priority of railway transport against any other transport modes. and groundwater. In 2010, soil and groundwater remediation works were conducted on the territories where in 2009 the exceeded pollution limits had been identified by ecogeological research data. The Company started using biologically degradable oil for locomotive axle boxes, thus considerably reducing pollution by petroleum products on railway tracks from locomotives. The Company participated as a partner in the project Arrangement of the Contaminated Territory of a Former Military Installation Fuel Base in Pagėgiai Municipality financed from the EU Cohesion Fund and being carried out by the administration of Pagėgiai municipality. Following legal requirements, the waste is delivered to waste management companies. In order to achieve objectives related to the use and/or recycling of taxable items and packages, the accounting of taxable items and packages has been made more stringent in the Company. The railway noise is being abated by constantly implementing new technologies, modernising old rolling stock, acquiring new railway vehicles, repairing tracks, e.g. replacing butt joint rails by longrails, carrying out planting projects, reconstructing railway lines, as well as designing and constructing noise protection walls

15 Information Technologies International Relations Successful development and modernisation resulted in a rapid and reserved data transfer and in safe access to the Company s centralised information resources on the aforementioned sections and entities, thus allowing further development of existing and new information technology systems, as well as rejecting the data transfer services provided by the third party at 15 railway stations. While implementing the procedure for backup copying, the licences for relevant software were obtained and the software was installed on the servers. In 2010, information systems STOKIS (a computerised information system for stations), OPKIS (operative computerised information system for haulage), and Krovinys (Cargo) designed for computerising the accounting of freight services were further developed. A total of extra 90 licences for mysap were obtained. In 2010, the implementation of the IT projects launched in previous years was further continued by the Company. Major IT projects covered the establishment of data communication network, the design and installation of cargo accounting system, as well as ensuring information security. The year 2010 saw further development and modernisation of the Company s data communication network. At this stage, the trunk segment was installed on the sections Vilnius Turmantas, Lentvaris Marcinkonys and Vilnius Šalčininkai; local data communication networks were installed in 25 buildings belonging to the Company. The investment management modules are being further implemented. In order to enhance Company s information system security, the following internal regulations were prepared and started to be implemented in 2010: Description of the procedure for safe hardware utilization or refurbishment; Description of the procedure for ensuring hardware safety; Description of the procedure for business continuity management; Guidelines for secure workplace and desktop. Successful international cooperation maintained by the Company is based on its active participation in international transport organisations, their projects, different international events, as well as on the development of partner relationship with neighbouring railways and establishment of business relations with new potential partners or customers. The development of international relations contributes to improving the Company s image as a reliable and promising business partner on the international transport services market. Participation in international organisations Essential decisions on the settlement between railway undertakings, setting of tariffs, and other current issues related to the 1520 mm gauge area are being taken in the meetings of Railway Transport Council (RTC). In May 2010, managers and specialists of AB Lietuvos Geležinkeliai participated in the 52nd RTC meeting held in Jūrmala, Latvia. In October the same year our Company hosted the 53rd RTC meeting in Vilnius. The issues important for RTC member railway undertakings were discussed at said meetings, namely, coordination of train traffic schedules, inventory of freight wagons 28 29

16 International Relations International Relations and containers, rail transport development up to railway transport system. In February and June, business community. At the end of March, our implementing the project East West Transport 2020, settlement between railway undertakings the Company management participated in the representatives together with the delegation Corridor II were raised. In the same discussion, a for the use of freight wagons, and tariff policy for 39th and 40th CER general assemblies where of Lithuanian minister of transport paid a visit draft agreement on cooperation was worked out. international freight transportations. In addition to important issues related to railway transport to China where meetings were held with the As a result from this extensive and constructive that, our specialists have been taking part in the policies and the annual operating results of CER Chinese companies interested in transporting dialogue, agreements were signed at he end of RTC committees and working parties discussing were discussed. freight in the East West direction between AB Lietuvos Geležinkeliai and RZD on documents regulating the railway transport activity AB Lietuvos Geležinkeliai further participated In 2010, several important meetings were the development of rail freight and rail passenger and offering relevant proposals. in the activities of UIC (International Union of arranged with the chief executives of transportations. In 2010, the Company maintained further active Railways). On 1 December 2010, the Company neighbouring railway undertakings. In January, An important event contributing to enhancing a cooperation with the OSJD (Organisation for managers attended the 11th meeting of UIC meetings were held with the managers of bilateral cooperation was the visit of Belarusian Cooperation of Railways). On December regional assembly held in Paris, France, while on Russian Railways (RZD) and business partners transport minister and Belarusian Railways 2010, the meetings of representatives authorised 7 11 June and on 4 9 December they participated in Moscow, a trilateral meeting with the delegation received in June speeding up the issues by the OSJD Conference of Ministers and Managing in the 76th and 77th UIC general assemblies. Our representatives of Belarusian and Kaliningrad of track reconstruction and organisation of fast train Directors were held in Warsaw. In these meetings, specialists took part in working parties dealing railways was convened in Minsk to address traffic on the route Vilnius Minsk. current issues of OSJD activities and their results with the issues relating to freight traffic, technical cooperation results as well as prospects for A meeting with the representatives of American were discussed as well as guidelines for further interoperability and safety. passenger and freight traffic. A similar meeting transport company USTRANSCOM was held in work defined. In the same year, AB Lietuvos In 2010, our representatives participated in the with the managers of Polish Railways was November, during which the possibilities for carrying Geležinkeliai also organised several meetings of meetings of CIT (International Rail Transport held in February. In March, our specialists US military freight to Afghanistan with the use of LG OSJD working parties. CIM/SMGS legal group 17th Committee) working parties and general visited Minsk where they discussed with the (Lithuanian Railways) services were discussed in meeting and CIM/SMGS expert group 21st meeting assemblies. representatives of Belarusian Railways the detail and positively evaluated. were held on April, to address the issues issues relating to freight transport, train traffic In order to discover more about the latest transport related to implementing the common CIM/SMGS consignment note which is important for enhancing railway transport competitive abilities. OSJD experts also held a meeting in Vilnius in May to address the coordination of OSJD leaflets and their annexes on power supply and electric traction installations. Special attention was paid to the activities of CER (Community of European Railway and Infrastructure Companies), which our Company has been a member since Our specialists in cooperation with CER contributed to developing a European Parliament and Council directive which is very important for the regulation of European Cooperation with neighbouring railway undertakings, business partners and customers The Company seeks for new possibilities while providing lucrative freight services; considerable attention has been paid to maintain relationship with neighbouring railway undertakings, as well as establishing new contacts. On March 3 5 in Helsinki, Finland, AB Lietuvos Geležinkeliai conference on the services provided was well received by the Finnish organisation and exchange of wagons. In May, a delegation from Russian railway undertaking OAO RZD, major carrier in the East, was received at the Company. During this visit, the issues of setting more favourable tariffs and arranging container train traffic between Lithuania and Russia were discussed. In this discussion, the possibilities of using Šeštokai Station for freight transportations between Western Europe and the CIS countries were explored and the cooperation issues in technologies, our representatives were participating in international conferences and transport fairs, namely, in international geopolitical symposium 1520: Strategic Dialogue held in Moscow, in the 15th international conference on freight traffic, transport and logistics organised during the international fair TransRussia 2010, in the international railway forum 1520: Strategic Partnership held in Sochi, in the European and Asian Rail Summit (EARS) held in Berlin, as well as in the transport fair Innotrans 2010 etc

17 Human Resources Human Resources Compared to 2009, the number of employees had The labour productivity expressed by revenues In order to motivate and reward both the employees increased by 85 people, mostly due to establishing from core activities per employee was LTL and other people contributing considerably to the a new division, the Fuel Depot Management Centre thousand in 2010, up 17.4 per cent over 2009 Company s and the entire railway transport system at Freight Directorate; the Company took over the (cf. LTL thousand per employee in 2009). activities, the Lithuanian Railways Merit Award was functions from the previous service provider. The labour productivity according to relative established and the three classes of this award were One of the most important elements of social production was 1,390.4 thousand tkm/employee approved. In 2010, a total of 25 employees as well as security was constant improvement in the in 2010, a rise of 5.8 per cent over 2009 (cf. 1,314.1 long-service railway workers received said awards. remuneration and motivation system. The value thousand tkm/employee in 2009). The increase in Special attention was given to employee health care: of a position and the qualifications necessary labour productivity was determined by increased cooperation agreements were signed with medical for it determine the amount of the fixed part of a transportation volumes in freight and passenger institutions; the Company partly financed the salary, while the results of the work performed by services. diagnostic examinations of the staff. At the seaside an employee and their initiatives are motivated by A total of 16 employees were awarded badges in Giruliai, the staff training, rehabilitation and the variable part of a salary. With the increase of of honour for good performance results in 2010, recreation centre is located where the employees transportation flows in 2010, a certain part of the 13 employees received letters of appreciation could have leisure time with their family members. salaries reduced in 2009 was reimbursed to the from the Lithuanian transport minister, and 132 A summer camp for the employees children employees, namely, as of 1 July 2010 the variable employees received letters of appreciation from the operates in Ignalina. part of a salary has been increased by 5 per cent. Company s managing director. Also, 18 employees Therefore, the average monthly salary increased by were awarded nominations The Best. in The Company had employed 10,419 people by the end of 2010, of which 1,153 accounted for administrative staff and 9,266 for production staff. The staff turnover made up 3.36 per cent in In order to ensure Company s financial capacity and competitive abilities, changes in the organisational structure as well as in work organisation were further implemented in The number of employees was optimised not only by applying new technologies, but also by cancelling ineffective operations or merging separate divisions in order to reduce management costs. 6 per cent, compared to The average monthly salary in the Company exceeded the average monthly salary in the country by even 36.8 per cent. In order to ensure qualitative and timely implementation of the investment projects financed from the EU funds, to improve staff motivation and adequately evaluate their efforts, a new remuneration system was introduced in It covered occupational pay differentiation, procedure for setting the variable part of a salary and benefits, as well as factors for employees implementing said projects Labour productivity (thousand LTL/employee) 32 33

18 Human Resources AB Lietuvos Geležinkeliai Management Structure The number of employees at AB Lietuvos Geležinkeliai Group Ministry of Transport and Communications of the Republic of Lithuania AB Lietuvos Geležinkeliai 10,318 UAB Vilniaus Lokomotyvų Remonto Depas UAB Geležinkelio Tiesimo Centras AB Lietuvos Geležinkeliai UAB Gelsauga Head Office Considerable attention has also been paid to staff training and retraining. In 2010, a total of 4,862 employees attended the training courses, twice as many as in Company funds as well as those from the EU project to be implemented with the Lithuanian Confederation of Industrialists were allocated for training purposes. In 2010, a total of 472 employees were studying at universities and colleges. Contracts for financing the studies were signed with 31 employees who were studying specialities related to railway transport or to their direct jobs (11 new contracts were signed in 2010). Following these contracts, the Company reimbursed up to 50 per cent of study expenses. In 2010, a total of 115 employees completed their studies. In order to determine the coefficient of employee satisfaction with their work and to get their opinion about motivation and remuneration systems applied at the Company, about work conditions, effective methods of informing employees, organisation of training etc., a relevant survey was conducted in Following the survey results, certain means designed for general staff policies, specialist training, career possibilities, motivation, remuneration improvement, assignment preparation etc. were prepared and approved. Railway Infrastructure Directorate Freight Directorate Passenger Directorate Subsidiary companies Rail Baltica Project Directorate Information Technologies Centre Representative Office in Moscow, The Russian Federation 34 35

19 Major Events in 2010 Major Events in June 2010: an agreement establishing the East West Transport Corridor (EWTC) Association was signed in Vilnius. The East West transport corridor links southern Swedish, Danish, German and Lithuanian transport centres with Belarusian, Ukrainian, Russian and Asian transport systems. The key objectives of EWTC are to enhance cooperation between different transport hubs and contribute to forming a competitive international transport and logistics chain on the basis of this corridor. 29 July 2010: the 140th anniversary of the locomotive depot was commemorated in Radviliškis. In 1870, the depot started operating only with 6 steam locomotives. Currently the fleet consists of 125 locomotives, of which 41 modernised and 11 re-engined locomotives. The locomotive fleet can truly boast of 44 modern freight locomotives ER20CF produced by Siemens. 2 March 2010: a modern railway data centre was launched. Advanced solutions were implemented at the centre, e.g. the most reliable and maximum 10 May 2010: the Rail Baltica project works were commenced at wayside station Šeštokai Mockava. Construction works were started by AB Lietuvos 4 September 2010: the 150th anniversary of the arrival of the first train in Lithuania. 17 December 2010: AB Lietuvos Geležinkeliai was awarded gold medal at the competition Lithuanian Product of the Year 2010 for installation of GSM R uninterruptible power supply system in the Baltic States. The systems ensuring the business activity and finance management as well as the ticket booking systems have been functioning at the centre. The data on freight trains necessary for traffic management have been processed and kept here. Geležinkeliai daughter company UAB Geležinkelio Tiesimo Centras. The works classified into seven groups will be conducted (earthwork, superstructure, installation of temporary level crossings, drainage, installation of level crossings, culvert repairs, building elements), as well as the three bridges will be reconstructed. 20 October 2010: Railway Transport Council (RTC) 53rd meeting was held in Vilnius. Members of delegations from 17 countries were taking decisions relating to the coordination of passenger and freight transportations on international routes, wagon accounting, settlements between railway undertakings and technical standards for 1520 mm radio communication at Lithuanian railways, while the Lithuanian Confederation of Industrialists presented AB Lietuvos Geležinkeliai with its award The most Successful Company 2010; this award was given to the companies successfully operating under complicated economic conditions in gauge etc

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