TRANSPORT SECTOR RESTRUCTURING IN THE BALTIC STATES TOWARD EU ACCESSION Proceedings of the 2nd Seminar held in Parnu on November 24-25, 2003 The Seminar was hosted by: The Estonian Ministry of Economic Affairs and Communications The World Bank Edited by Lauri Ojala, Tapio Naula and Cesar Queiroz March 2004 The second seminar on transport sector restructuring was held in Parnu, Estonia, on November 24 and 25, 2003 to review recent progress in this field in each of the Baltic States and to discuss possibilities for further restructuring of their respective transport sectors in the near future. The seminar was a follow-up of the first seminar held in Riga in 2000. The proceedings reflect the significant progress that the Baltic States have made in modernizing their transport sectors over the past few years. The Governments of Estonia, Latvia, and Lithuania deserve to be congratulated for their achievements, which will help to promote economic growth in the region. The Governments of the three states participating in the seminar attached considerable importance to the topic, as reflected by the high level of their delegations, led by the respective Ministers of Transport and Communications. The EBRD, EIB, NIB and ECMT joined the World Bank at the Seminar, and made a significant intellectual contribution to the proceedings. TRANSPORT SECTOR RESTRUCTURING IN THE BALTIC STATES TOWARD EU ACCESSION Proceedings of the 2nd Seminar held in Parnu on November 24-25, 2003 The Seminar was hosted by: The Estonian Ministry of Economic Affairs and Communications The World Bank Edited by Lauri Ojala, Tapio Naula and Cesar Queiroz March 2004 2004 The International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. Published for The World Bank by Logistics, The Turku School of Economics and Business Administration, Rehtorinpellonkatu 3, 20500 Turku, Finland e-mail: log@tukkk.fi All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of The World Bank. Printed in Paino-Raisio, Finland First printing March 2004 This paper is published jointly to communicate the results of the recent seminar with minimum delay. The typescript of this paper, therefore, has not been prepared in accordance with the procedures appropriate to formal printed texts and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed here are those of the authors and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. ISBN 951-564-181-0 2 CONTENTS List of Attachments....................................................................................................................................................5 List of Figures............................................................................................................................................................6 List of Tables.............................................................................................................................................................7 List of Boxes .............................................................................................................................................................8 Acronyms .............................................................................................................................................................9 A. EXECUTIVE SUMMARY ......................................................................................................12 B. STATEMENTS OF THE MINISTERS OF TRANSPORT ..................................................28 B.1 MINISTER ATONEN'S STATEMENT..........................................................................................28 B.2 MINISTER ZILE'S STATEMENT ................................................................................................29 B.3 MINISTER BALCYTIS' STATEMENT .........................................................................................34 C. SEMINAR OBJECTIVES AND PARTICIPATION.............................................................38 D. STRATEGIC CONTEXT ........................................................................................................40 D.1 GLOBAL TRENDS IN THE TRANSPORT SECTOR.........................................................................40 D.2 THE BALTIC STATES' ECONOMIC PROFILES ............................................................................43 D.3 TRANSPORT SECTOR HIGHLIGHTS IN THE BALTIC STATES ......................................................47 D.4 TRANSPORT SECTOR PROJECTS AND INTERNATIONAL FINANCIAL INSTITUTIONS...................54 D.5 EUROPEAN UNION ASSISTANCE TO THE TRANSPORT SECTOR IN THE BALTIC STATES.............58 D.6 INSTITUTIONAL FRAMEWORK IN THE TRANSPORT SECTOR IN THE BALTIC STATES.................62 D.7 TRANSPORT SECTOR RESEARCH AND EDUCATION...................................................................68 E. MERCHANDISE TRADE, FDI AND THE BUSINESS ENVIRONMENT .......................70 E.1 MERCHANDISE TRADE............................................................................................................70 E.2 TRANSPORT SERVICES TRADE.................................................................................................72 E.3 FOREIGN DIRECT INVESTMENT...............................................................................................74 E.4 MEASURING THE BUSINESS ENVIRONMENT IN THE BALTIC STATES........................................75 F. THE TRANSPORT SECTOR IN THE BALTIC STATES AND EU MEMBERSHIP......81 F.1 EC'S ASSESSMENT ON ESTONIA .............................................................................................82 F.2 EC'S ASSESSMENT ON LATVIA ...............................................................................................85 F.3 EC'S ASSESSMENT ON LITHUANIA..........................................................................................87 F.4 PLANNED TRANSPORT SECTOR INVESTMENTS INTO TEN-T NETWORK...................................89 F.5 PREPARING THE ESTONIAN TRANSPORT SECTOR FOR EU MEMBERSHIP..................................89 F.6 PREPARING THE LATVIAN TRANSPORT SECTOR FOR EU MEMBERSHIP....................................90 F.7 PREPARING THE LITHUANIAN TRANSPORT SECTOR FOR EU MEMBERSHIP..............................90 G. ROADS AND ROAD TRANSPORT ......................................................................................93 G.1 ROAD NETWORKS...................................................................................................................94 G.2 SAFETY ISSUES IN ROAD TRAFFIC ...........................................................................................94 G.3 VEHICLE STOCK......................................................................................................................97 G.4 MANAGEMENT OF ROADS AND ROAD CONSTRUCTION ............................................................98 G.5 ECONOMIC ANALYSIS...........................................................................................................100 G.6 TECHNICAL ISSUES...............................................................................................................101 G.7 ROAD FINANCING .................................................................................................................105 G.8 VIA BALTICA........................................................................................................................108 G.9 ROAD TRANSPORT INDUSTRY ...............................................................................................109 G.10 MARKET CHARACTERISTICS IN ROAD FREIGHT TRANSPORT..................................................110 G.11 ROAD TRANSPORT PERMITS .................................................................................................114 G.12 INTERURBAN AND INTERNATIONAL BUS TRANSPORT............................................................116 G.13 REGULATORY ISSUES IN ROAD TRANSPORT SERVICES ..........................................................117 G.14 CONCLUSION........................................................................................................................119 3 H. RAILWAYS ............................................................................................................................121 H.1 VOLUME OF RAIL OPERATIONS .............................................................................................122 H.2 ORGANIZATION ....................................................................................................................124 H.3 RAIL TRANSPORTS' FINANCIAL PERFORMANCE ....................................................................124 H.4 RAIL INFRASTRUCTURE ........................................................................................................126 H.5 REGULATORY ISSUES ...........................................................................................................128 H.6 PASSENGER TRANSPORT AND PUBLIC SERVICE OBLIGATION ISSUES....................................129 H.7 CONCLUSION........................................................................................................................130 I. MARITIME TRANSPORT AND PORTS ...........................................................................132 I.1 PORT AND WATERWAY INFRASTRUCTURE ............................................................................132 I.2 PORT ORGANIZATION AND ACTIVITIES .................................................................................133 I.3 MARITIME SERVICES ............................................................................................................138 I.4 REGULATORY ISSUES IN PORT AND MARITIME TRANSPORT...................................................144 I.5 CONCLUSION........................................................................................................................145 J. TRANSSHIPMENT OF RUSSIAN OIL VIA BALTIC PORTS ........................................147 J.1 MAIN EXPORT ROUTES OF RUSSIAN OIL................................................................................147 J.2 ECONOMIC IMPORTANCE OF TRANSIT TRAFFIC TO THE BALTIC STATES................................148 J.3 OIL EXPORT INFRASTRUCTURE IN THE BALTIC SEA REGION.................................................149 J.4 OIL TRANSSHIPMENT VOLUMES IN THE BALTIC SEA REGION ...............................................151 J.5 CONCLUSION........................................................................................................................154 K. CIVIL AVIATION .................................................................................................................156 K.1 AVIATION INFRASTRUCTURE................................................................................................156 K.2 ORGANIZATION OF CIVIL AVIATION ADMINISTRATION .........................................................157 K.3 AIR TRANSPORT MARKETS IN THE BALTIC STATES...............................................................157 K.4 ORGANIZATION OF AIRLINE SERVICES .................................................................................159 K.5 AIRPORT SERVICES...............................................................................................................160 K.6 REGULATORY ISSUES ...........................................................................................................161 K.7 AVIATION INFRASTRUCTURE FINANCING..............................................................................161 K.8 CONCLUSION........................................................................................................................162 L. GENERAL TRANSPORT SUPPORT SERVICES .............................................................164 L.1 COST AND QUALITY OF LOGISTICS SERVICES MATTERS ........................................................164 L.2 TENDENCIES IN EUROPEAN LOGISTICS MARKETS..................................................................165 L.3 ASSESSING THE IMPACT OF JOINING THE EU ON LOGISTICS COSTS .......................................166 L.4 THE ROLE OF FREIGHT FORWARDERS AND CUSTOMS BROKERS.............................................167 L.5 CUSTOMS SERVICES..............................................................................................................172 L.6 LOGISTICS CENTER DEVELOPMENTS.....................................................................................174 L.7 CONCLUSION........................................................................................................................177 M. VIEWPOINTS OF LOGISTICS USERS..............................................................................179 M.1 INTERNATIONAL FIRMS' LOGISTICS OPERATIONS IN THE BALTIC STATES.............................179 M.2 BALTIC WHOLESALING AND RETAILING FIRMS....................................................................182 M.3 SHIFTING FOCUS FROM TRANSPORT INFRASTRUCTURE TO EFFICIENT LOGISTICS ................185 N. URBAN TRANSPORT ..........................................................................................................188 N.1 ORGANIZATION ....................................................................................................................188 N.2 URBAN AREAS IN THE BALTIC STATES .................................................................................188 N.3 SERVICE OPERATIONS...........................................................................................................189 N.4 REGULATORY ISSUES ...........................................................................................................190 N.5 FINANCING...........................................................................................................................191 N.6 CONCLUSION........................................................................................................................194 O. ENVIRONMENTAL ISSUES IN THE TRANSPORT SECTOR .....................................195 O.1 AERIAL EMISSION IN THE BALTIC STATES ............................................................................196 O.2 NATURA 2000....................................................................................................................198 O.3 BALTIC 21 AGENDA FOR SUSTAINABLE TRANSPORT.............................................................198 O.4 MARITIME ENVIRONMENT AND HELSINKI COMMISSION (HELCOM)...................................199 O.5 CONCLUSION........................................................................................................................200 REFERENCES...................................................................................................................................201 4 List of Attachments Attachment C.1. List of Participants......................................................................................................................206 Attachment C.2. Program of the Seminar ..............................................................................................................208 Attachment C.3. Questionnaire for the Seminar ....................................................................................................210 Attachment D.1. Map of the Baltic States..............................................................................................................218 Attachment D.2. Estonia at a glance......................................................................................................................219 Attachment D.3. Latvia at a glance........................................................................................................................221 Attachment D.4. Lithuania at a glance...................................................................................................................223 Attachment D.5. Transport sector balance of payments in the Baltic States..........................................................225 Attachment D. 6. International transport agreements and conventions ratified by the Baltic States, Finland and Poland.................................................................................................................................226 Attachment D.7. Domestic freight and passenger statistics for Lithuania ............................................................227 Attachment D.8. EU's priority transport projects by Van Miert Group and transport corridors in the Baltic Sea Region as presented in Fall 2003........................................................................................228 Attachment D.9. TEN, TINA and Helsinki transport networks............................................................................229 Attachment D.10. Anticipated TEN-T Road and rail network densities in 2010 ...................................................230 Attachment D.11. The main population centres in the Baltic Sea Region .............................................................231 Attachment D.12. Overview of organisations' transport research capacity in the Baltic States in 2000 ................232 Attachment E.1. Main trading partners of Estonia, Latvia and Lithuania in 2000 and 2002................................233 Attachment E.2. Number of exporters and importers by the value of exports and imports 2000 and 2002 .........234 Attachment E.3. Foreign Direct Investments inward and outward the Baltic States in 1996 ­ 2002 ...................235 Attachment E.4. Data of Business Environment and Enterprise Performance Survey (BEEPS 2002).................236 Attachment E.5. Data of the Logistics Friendliness Survey 2003........................................................................237 Attachment F.1. TEN-T Investment in Accession countries................................................................................238 Attachment F.2. The main Estonian transport projects with EU or World Bank loans or financial assistance....240 Attachment F.3. Lithuanian Railway reform .......................................................................................................241 Attachment F.4. Cohesion Fund and ISPA projects in Latvia..............................................................................242 Attachment G.1. Number of persons killed in road accidents per million private cars.........................................243 Attachment G.2. Transport data on the Baltic States 1980-99..............................................................................244 Attachment G.3. Road fatalities in 1999 in selected countries. ............................................................................245 Attachment G.4: Time series of fuel prices in Europe. Source.............................................................................246 Attachment G.5. Via Baltica traffic flows in 1999 ...............................................................................................247 Attachment G.6. Cargo and passenger transport by road in the Baltic States in 1996-2002.................................248 Attachment H.1. Statistics over rail transport in the Baltic States 1996-2003......................................................249 Attachment H.2. Lithuanian railway and road infrastructure priorities 2004-2006 ..............................................250 Attachment I.1. Cargo traffic in major Baltic States' ports in thousand tons 1996-2002....................................251 Attachment J.1. Oil transport infrastructure of the Baltic States and North West Russia....................................252 Attachment K.1. Development of Estonian civil aviation organizations in 1991 ­ 2003 .....................................253 Attachment L.1: Structure of the Balance Sheet of Estonian firms in supporting transport activities..................254 Attachment L.2: Weekly schedule for shipments to and from Europe of an logistics provider in Estonia...........255 Attachment M.1. Evaluation of logistics environment by 15 international firms in manufacturing and trade ......256 Attachment M.2. Wholesaling/retailing firms' evaluation of regulatory environment and transport and telecommunications infrastructure in the Logistics Survey On Wholesale Operations.............257 Attachment O.1. Transport Emissions in the Baltic Sea Region states. .................................................................258 Attachment O.2. Transport's share of emissions in 1998 and distribution by transport source in Estonia.............259 Attachment P.1. Slide presentations given at the seminar.....................................................................................260 5 List of Figures Figure D.1. Unbundling of activities and the options for competition and private sector involvement, and the approximate placing of transport service provision in the Baltic States in 2003.................................41 Figure E.1. The Baltic States four most important trading partners by value in 1999 and 2002............................71 Figure E.2. General exports and imports by mode in 2002, percent of net weight of trade...................................72 Figure E.3 Credits and debits of trade of transport services of Estonia, Latvia and Lithuania in 1996-2002. ......73 Figure E.4. Foreign investment stocks by sectors in USD million 1996-2002......................................................75 Figure E.5. The ranking of countries in the Logistics Friendliness Survey 2003 against their Corruption Perception Index in 2003....................................................................................................................79 Figure E.6. The ranking of countries in the Logistics Friendliness Survey 2003 against their GNI/capita in PPP terms in 2002...........................................................................................................................80 Figure G.1: The roles of the private and the public sector in road infrastructure management..............................93 Figure G.2: The national road administration employees in Estonia, Latvia and Lithuania 1991-2002.................99 Figure G.3. Actual fuel prices in Estonia, Latvia and Lithuania in US Cents per liter in selected years..............106 Figure G.4: Revenues from road users compared with road expenditures 1999. .................................................108 Figure G.5: The roles of the private and the public sector in road transport services...........................................110 Figure G.6. Transport work in national and international road freight transport in million tonkilometers. .........111 Figure H.1. The roles of the private and the public sector in rail transport services. ............................................121 Figure H.2. Transport work in international rail freight transport in million tonkilometers.................................123 Figure I.1. The roles of the private and the public sector in port infrastructure management and cargo- handling services in ports. ................................................................................................................132 Figure I.2. The number of passengers by shipping lines in Helsinki-Tallinn trade ............................................143 Figure J.1. Freight rate comparison Primorsk-UK Continent vs. North Sea-UK Continent, 80 000 ton vessel..153 Figure K.1. The roles of the private and the public sector in airport infrastructure and scheduled services . ......156 Figure L.1. The roles of private and public sectors in Transport Supporting Services........................................164 Figure L.2: Net turnover development of Estonian firms in transport supporting services by firm size..............168 Figure L.3: Turnover of the four largest road-based logistics firms in each Baltic State, main business areas ...171 Figure L.4: The structural change in demand for different load types in unitized and groupage international transportation in 2000-2003..............................................................................................................171 Figure L.5: The detected transition in logistics customer relationships in 2000­2003........................................172 Figure L.6. Conceptualization of logistics centers with examples of activities that they can perform. ...............174 Figure M.1: The Framework of analysing strategies of logistics users.................................................................179 Figure M.2: Changing physical distribution patterns of 15 international firms in the Baltic States......................180 Figure M.3: Distributing goods via a warehouse in one of the Baltic States serving all three countries. Comparison of the steps of the process before and after EU membership........................................181 Figure M.4: Changing organizational patterns of 15 international firms in the Baltic States ...............................182 Figure M.5: Primary and secondary marketing channels of Baltic wholesaling and retailing firms before and after joining the EU in the Logistics Survey On Wholesale Operations. ..........................................183 Figure M.6: Physical distribution channels of Baltic wholesaling and retailing firms in the Logistics Survey on Wholesale Operations.......................................................................................................................183 Figure M.7: Wholesaling/retailing firm's evaluation of logistics providers firms in the Logistics Survey On Wholesale Operations.......................................................................................................................184 Figure M.8: The 15 firms' main concerns during their stages of market presence against the four layers of freight transport. ...............................................................................................................................186 Figure N.1. The roles of the private and the public sector in urban transport infrastructure and services............188 6 List of Tables Table A.1. Key data on the Baltic States' transport sector in 1999 and 2002. ........................................................15 Table D.1. Structure of Gross Value Added by activities in 2002 in per cent of GVA in EU accession countries.47 Table D.2. Transport sector's share of Estonian and Latvian GDP in 2001 and the approximate values for subsectors in per cent and USD million ................................................................................................48 Table D.3. Freight transport work by land and air transport in 1999 and 2002 in the Baltic States, Poland, Hungary and Czech Republic, million ton-kilometers ..........................................................................51 Table D.4. Passenger transport performance by mode in 1999 and 2002 in the Baltic States, Poland, Hungary and Czech Republic, million passenger-kilometers...............................................................................51 Table D.5. Number of employees in all sectors and in transport, storage, and telecommunications (TSC)............52 Table D.6. Number of employees in all sectors and in transport, storage, and telecommunications by subsectors 52 Table D.7. Transport, storage and communication sector's and all sectors' average monthly nominal salaries.....53 Table D.8. Transport, storage and communication sector's and all sectors' average monthly salaries in Latvia....53 Table D.9. Approved EBRD, EIB, NIB, and World Bank loans in Transport Sector in the Baltic States ..............54 Table D.10. EBRD's commitments in 2003 in transport infrastructure projects in the Baltic States.......................55 Table D.11. EIB financed transport projects in the Baltic States 1994 ­ 2003, million euros..................................56 Table D.12. NIB's total commitments to the Baltic Sea transition countries by sector ­ as of November 2003 .....57 Table D.13. NIB's major commitments to transport projects in the Baltic States as of November 2003.................57 Table D.14. World Bank/IBRD loans in the transport sector in the Baltic States in million USD...........................58 Table D.15. Community co-financing from the EU in infrastructure related targets for the period 2004-2006.......59 Table D.16. The bodies supervised by the Estonian MEAC....................................................................................67 Table E.1. Baltic States' services and goods trade balance in 1996-2002 and balance of transport service trade ..73 Table E.2. Qualitative Assessments of the Business Environment of selected countries in the BEEPS 2002........76 Table F.1. Baltic States' Investment in TEN-Transport network in 1996-2010 .....................................................89 Table G.1: The ownership and maintenance of road network in Estonia, Latvia, and Lithuania in 2002. ..............94 Table G.2: Road traffic accidents and fatalities relative to traffic volume..............................................................95 Table G.3. Number of Lithuanian road users injured and killed in road accidents, 1999-2002 ..............................95 Table G.4: Vehicle Stock in Via Baltica countries 1995-2002, thousand vehicles..................................................98 Table G.5: Passenger cars per 1,000 population in Via Baltica countries 1995-2002.............................................98 Table G.6. Road maintenance by force account and contracts in Estonia by road districts and their regions.......100 Table G.7: Basic unit costs of asphalt concrete, surface treatment and routine maintenance in 2002...................104 Table G.8. Road User Revenues and Maintenance Expenditures in Accession Countries in 1999-2000..............105 Table G.9: Total expenditure in road maintenance and construction and the sources of funding in 2002. ...........106 Table G.10. Road Network Comparison and Macroeconomic Indicators..............................................................107 Table G.11: Trucks, buses and coaches in international and national traffic .........................................................111 Table G.12. Truck fleet of Latvia's national road carriers' association in 2000-2002; actual number of trucks....112 Table G.13. Annual cost of operating a 20 ton truck in international traffic for 200,000 km per year in 2001......113 Table G.14. Emission standards EURO 1 to EURO 4 for heavy duty vehicles used in ECMT countries..............114 Table G.15: ECMT multilateral quota for 2003 in selected countries ­ number of licenses by type of vehicle ....115 Table G.16: Number of TIR carnets issued by IRU to national associations.........................................................115 Table G.17. Example of Long-distance bus fares and approximate distances in scheduled traffic os a major operator, December 2003 ....................................................................................................................116 Table G.18. Number of passengers, passenger-kilometers and average length of journey in Latvian bus transport in 2002 .................................................................................................................................116 Table H.1. Passenger and freight volumes on Baltic States' railways in 1997-2002. ............................................122 Table H.2. Distribution of rail traffic by type in 2002 in per cent of freight tons. .................................................123 7 Table H.3. Financial data for Baltic States' railways 1997-2002, in USD million.................................................125 Table H.4. Freight and passenger revenue data for Baltic States' railways in 1999-2002. ....................................125 Table H.5: Data on labor force of the Baltic railways, 1999 ­ 2002, number of personnel and labor cost. ..........126 Table H.6. Passenger transport by rail in Estonia and Government subsidies in USD million 1997-2003 ...........129 Table I.1. Cargo traffic in major seaports in Baltic States, and for reference the Ports of St. Petersburg and Kaliningrad in 1995-2002, millions of tons.........................................................................................133 Table I.2. Income statement data from major ports in USD million in 1999-2002..............................................134 Table I.3. Costs for one port call in euros in 2002 in selected Baltic Sea ports for different types of traffic.......137 Table I.4. Merchant Fleet owned or registered by the Baltic States as of January 1st, number of ships and their gross tonnage (1,000 grt) in 1997-2002...............................................................................................138 Table I.5. Merchant fleet by flag of registration of the Baltic States as of December 31, 2002, by their gross tonnage (1,000 grt) in 1997-2002........................................................................................................138 Table I.6. Main liner shipping routes in 2004 from the Baltic States. .................................................................142 Table J.1. The development of oil production, refinement and crude oil export in Russia in million tons in 1997-2002; forecast for 2003-2010.....................................................................................................147 Table J.2. Oil and oil products cargo turnover 1997-2003 in million tons...........................................................152 Table K.1. Passenger throughput (thousands), cargo volumes handled (tons) and number of aircraft movements at Tallinn, Riga and Vilnius airports. ..................................................................................................157 Table K.2. Passenger traffic volumes by market area, indication for 2003...........................................................158 Table K.3. The number of online destinations and the main airlines operating at major Baltic airports................158 Table K.4. Baltic States' major airlines: passenger volumes and turnover 1996-2002. ........................................159 Table K.5. Net sales and profit, and no. of passengers of Tallinn Airport Ltd 1999-2002, and forecast for 2003.160 Table K.6. Passenger and landing fees in Baltic States' major airports in 2003 in USD ......................................162 Table L.1. Turnover in billion euros and number of employees of selected European logistics firms in 2002 ....166 Table L.2: The impact of the EU membership on logistics costs as identified in the ad hoc inquiry at the Seminar workshop on Transport Services and Trade Facilitation, Parnu, November 25, 2003...........167 Table L.3. The share of customs clearances and domestic deliveries made on behalf of customer by a large freight forwarder in percentage of all import shipments. ....................................................................169 Table L.4: Development of customs number of employees, customs posts, customs warehouses, border crossing points and total number of import and export declarations processed by customs services..173 Table N.1. Key data on main cities and town in Estonia, Latvia and Lithuania in 2002........................................189 Table N.2. Passenger cars per 1000 inhabitants in major cities in the Baltic States in 1998/1999 and 2002/2003.189 Table N.3. Allocations for urban transport infrastructure and public transport equipment in 2002.......................193 Table O.1. Transport fatalities, casualties and accidents in the EU by mode.........................................................196 Table O.2 Emissions into the ambient air from Estonian sources of pollution, thousand tons per year...............197 List of Boxes Box E.1. Improving the business environment ­ the case of Latvia, .......................................................................77 Box F.1. Areas, where the accession countries were required enhanced efforts by the EC in November 2003.......81 Box G.1. Road finance issues in Estonia ...............................................................................................................108 Box I.1. Developments in small ports in the Baltic States ....................................................................................135 Box I.2. Shipping markets of minor bulk cargoes in the Baltic States...................................................................141 Box M.1. Locating European Distribution Centers after EU Enlargement ............................................................187 Box N.1. Urban transport in Helsinki: savings through competitive tendering......................................................192 Box O.1. HELCOM data on airborne pollution in the Baltic Sea..........................................................................200 8 Acronyms AADT Annual average daily traffic volume, a measurement of traffic intensity Acquis Acquis Communautaire, the body of EU legislation accepted by members AETR European Agreement on the Work of Crews in International Road Transport ASYCUDA Automated SYstem of CUstoms Data management developed by UNCTAD ATA carnet A customs document for temporary import of items free of duties Baltic 21 An environmental agenda by Council of the Baltic Sea States Barrel Volume measure; when used in oil trade, 1 US petroleum barrel 159 liters BASA Bilateral Air Services Agreements, an international aviation convention BEEPS Business Environment and Enterprise Performance Survey (EBRD and WB) BMS Bridge Management System BPS Baltic Pipeline System CAA Civil Aviation Authority CAGR Compound average annual growth rate CBSS Council of the Baltic Sea States CEE(C) Central and Eastern Europe (-ean Countries) CIS Commonwealth of Independent States Continent Here in a shipping context = Continental Europe CPI Here: Corruption Perception Index CSI Container Security Initiative Dwt Dead weight ton; unit of a vessel's cargo carrying capacity in metric tons EASA European Aviation Safety Agency EBRD European Bank for Reconstruction and Development EC European Commission ECA Europe and Central Asia, a World Bank region ECB Estonian Customs Board ECMT European Conference for Ministers of Transport; French acronym CEMT EDI Electronic Data Interchange EEA European Economic Area EEK Estonian kroon, pegged in 2004 to euro at 1 EUR = 15.65 EEK EIB European Investment Bank ENRA Estonian National Road Administration ERDF European Regional Development Fund of the EU EU European Union EUR Euro(s), currency unit of the Euro countries EURO 0,1,2,3,4 An environmental classification of heavy trucks used in the EU EVR Eesti Raudtee Ltd, Estonian railways FDI Foreign Direct Investment FIDIC International Federation of Consulting Engineers FTL Full truck load (cf. LTL and FCL for Full container load) FWD Falling Weight Deflectometer GDP Gross Domestic Product GFP Global Facilitation Partnership for Transport and Trade by the World Bank GNI, GNP Gross National Income, Gross National Product GOST Soviet standard system GT/ grt Gross (register) ton; unit of a vessel's gross volume; 1 GRT 2.8 m3 GVA Gross value added; it measures the contribution to GDP made by a sector HDM Highway Development and Management System (version 4) HELCOM Convention on Baltic Sea Environmental Protection; Helsinki Commission IATA International Air Transport Association IBRD International Bank for Reconstruction and Development ICAO International Civil Aviation Organization IFI International Financial Institutions 9 IMO International Maritime Organization INTERREG An EU development program for Europe's regions ISPS International Ship and Port Facility Security Code IRI International (Road) Roughness Index IRU International Road Transport Union ISO 9001,2002 Quality standards of the International Standardization Organization ISPA EU Instrument for Structural Policies for Pre-Accession countries JAA , JAR Joint Aviation Authority, Joint Aviation Regulations; in Europe. JSC Joint-stock company LDz Latvian Railway LG Lithuanian Railways LRA Latvian Road Administration LTL (a) Lithuanian litas, pegged to Euro; in January 2004: 1 Euro = 3.4528 Litas LTL (b) Less-than-truckload; the context of (a) or (b) is evident LVL Latvian lats, pegged to 1 SDR = 0.7997 LVL, allowing fluctuation at +/-1% MEAC Ministry of Economics and Communications (in Estonia since 2002) MoE Ministry of Economics MOT(C) Ministry of Transport (and Communications) MOU Memorandum of Understanding n.a. Data not available NACE International classification system used e.g. by EU in sectoral statistics NATO North Atlantic Treaty Organization NATURA 2000 A network of protected areas in the European Union NGO Non-Governmental organization NIB Nordic Investment Bank OECD Organisation of Economic Co-operation and Development PAX Passengers PHARE EU's development program for CEE Countries PMS Pavement Management Systems PPP Purchasing Power Parity PSO Public Service Obligation PSSA Particularly Sensitive Sea Area, a definition used by IMO RD Road Districts Ro-Ro Roll on ­ roll off vessel SAD Single Administrative Document, a customs declaration form Schengen area Passport-free area of 13 EU countries, Norway and Iceland (in 2004) SICF State Info-Communications Foundation in Estonia SME Small and medium-sized enterprises SOE State-owned enterprise TARIC The Integrated Customs Tariff of EC, "Tarif Intégré de la Communauté" TEN Trans-European Networks TEN-T Trans-European Transport Networks TEU Twenty feet equivalent unit, a measurement for unitized cargo TINA Transport Infrastructure Needs Assessment of the CEE Countries TIR Carnet A document issued by IRU for duty free road transit in Europe TPL Third Party Logistics, a form of advanced logistics provision TRF Transit Flights; used in aviation as opposed to non-stop flights TTF Trade and Transport Facilitation UK United Kingdom UNCTAD United Nations Conference for Trade and Development USD American dollar VTMIS Vessel Traffic Management Information System VTS Vessel Traffic Service WS World Scale; a freight quotation system used in oil shipping WTO World Trade Organization 10 Foreword The Second Seminar on "Transport Sector Restructuring in the Baltic States" was held in Parnu, Estonia, on November 24 and 25, 2003, for the purposes of reviewing recent progress in transport sector restructuring in the three Baltic States and to discuss possibilities for further restructuring in the future, taking into account measures required by the EU for accession to the EU this year. This significant international seminar followed a somewhat similar, useful one held three years earlier in Riga, Latvia. Co-hosts for the recent seminar were the Ministry of Economic Affairs and Communications of Estonia and the World Bank. The attached proceedings indicate that substantial progress has been achieved in the restructuring programs of each of the Baltic countries during recent years. In particular, excellent progress has been realized in meeting the transport restructuring requirements of the EU related to EU accession of the three countries on May 1, 2004. Participation in the seminar by representatives of several international organizations, particularly the EBRD, EIB, NIB and ECMT, demonstrate the strong interest of these organizations in assisting each of the Baltic States in the restructuring of its transport sector. We are pleased that the Ministry of Economic Affairs and Communications of Estonia and the World Bank had the opportunity to sponsor the productive seminar, which has been of great benefit to all three Baltic States and has provided directions for international organizations as they plan future financial assistance to these States in the transport sector. Meelis Atonen Minister of Economic Affairs and Communications Republic of Estonia Roger Grawe Country Director, Central Europe and the Baltic States The World Bank 11 1 A. Executive summary Useful insight into the transport sector was gained from the seminar in terms of realistic assessments of recent progress in restructuring and authoritative projections of promising future programs in the field. The outstanding qualifications of participants gave assurance of good results from the seminar. Among the participants were the Baltic States ministers responsible for transport sector activity. Also participating were other knowledgeable local officials and specialists. Attendees included representatives of the World Bank, European Bank for Reconstruction and Development, European Investment Bank, Nordic Investment Bank and the European Conference of Ministers of Transport. The principal findings and conclusions of the seminar fall mainly into categories representing each of the several principal means of transport, namely, roads and road transport, railways, civil aviation, maritime transport, pipelines, urban transport and transport support services. Urgent needs for change in the roads and road transport sector are to expedite border crossings, improve training for road transport operators, enhance road safety, and develop better road links between poorer areas and main centers. Regarding railways, the principal needs are to reduce overcapacity, rationalize tariffs, raise levels of safety and improve railway service. In aviation, there is a need to improve administrative procedures, improve air services, modernize aircraft fleets, privatize and restructure Tallinn airport operations, complete the reconstruction of Riga and Vilnius airports. Concerning maritime transport, the principal requirements are to facilitate the anticipated significant expansion of maritime traffic at Baltic ports, improve safety in handling cargo and enhance environmental protection in ports and at sea. In urban transport, the principal needs are to overcome the continuing deterioration of public transport facilities, alleviate traffic congestion on city streets and secure a stable source of funding for urban passenger transport companies. The quality of transport support services is good and their markets are competitive. The Baltic States were essentially meeting the criteria for EU accession on transport infrastructure and transport sector administration. However, administrative capacity needs strengthening in all countries and in all modes. Customs legislation is also in place for EU accession, but administrative and operational capacity of the customs needs strengthening in all countries. Underlying these various basic conclusions are significant economic trends, various other determining or influential factors and a variety of problems that affect the performance of the transport organizations. A synopsis of conclusions is given in the subsequent sections. 1By Kenneth Clare, Cesar Queiroz (World Bank) and Lauri Ojala (Turku School of Economics ) 12 Strategic Context Among the notable transport trends in the Baltic States is the rapid growth of demand for transport, growth at a faster rate than that of the gross national product. There has also been increasing demand for consolidated transport related support services. Moreover, privatization has been widely used as a vehicle to restructure transport and transport infrastructure markets. Public-private partnerships have been introduced as a mechanism for providing good quality transport and infrastructure services at a reasonable cost. Meanwhile, the Baltic States have made considerable progress in their preparations for EU accession. The Baltic States have financed many of the major transportation sector projects with exclusive or partial funding obtained either from international financing institutions or from other international organizations such as the European Union. The main such organizations in this field include the EBRD, EIB, NIB and the World Bank. EBRD has financed mainly road and rail projects, EIB largely airports, ports and roads, NIB mainly road projects and the World Bank principally road and port projects. Through its PHARE, ISPA and other programs, the European Union has had a substantial impact on institutional development of the transport sector in all three Baltic States and in the closely related fields of trade and transport facilitation concerning Customs and border crossing stations. Foreign Trade Each of the Baltic States has experienced substantial growth in the volume of merchandise exports and imports. This trend is partly a reflection of the rapid growth of transit traffic. The foreign trade of the Baltic States generally shifted toward the EU during the 1990s. Roughly 70 percent of Estonia's foreign trade, both exports and imports was with the 15 EU countries in 2002. The corresponding figure for Latvia is 60 percent and for Lithuania is 50 percent. In January-November 2003, 80 percent of Estonia's and Latvia's, and over 60 percent of Lithuania's export is with the 25 old and new EU countries. 75 percent of Latvia's, 65 percent of Estonia's and 57 percent of Lithuania's imports come from EU25. Estonia's trade is closely linked with Finland, Sweden and Germany while Latvia's and Lithuania's trade is closely linked with Germany, Russia and Britain. Intra-Baltic trade has been relatively limited, but it has increased substantially both in absolute and relative terms during the past few years. The relative share of trade with Russia has declined, while its absolute volume has increased. Transport services trade is important for the Baltic States. Latvia has the highest net cash flow from trade in transport services, a situation mainly attributable to transit flow of oil and related products by railways and pipeline. By contrast, Estonia has the highest value of transport services sold to and bought from other countries, indicating the high degree of internationalization of the Estonian transport sector. 13 Transport Sector in the Baltic States and EU Membership According to The European Commission, the Baltic States ­ and especially Lithuania - have adopted the main elements of the acquis, but further progress is needed in some secondary legislation and overall implementation of transport sector legislation. In addition, administrative capacity requires further strengthening, both in qualitative and quantitative terms, in particular in the rail and the road sector. Estonia is essentially meeting the commitments in view of the trans-European transport networks, road transport, inland waterway and rail transport. It will be able to implement the acquis from the time of accession, provided that the current pace of progress is maintained. However, Estonia must complete the adoption of the railway acquis and strengthen administrative capacity. In road transport, Estonia needs to adopt implementing legislation and further reinforce its administrative capacity. Estonia is meeting the majority of requirements in air transport, where legislative alignment remains to be completed. It needs to accelerate efforts to become a full member of the Joint Aviation Authorities (JAA). Estonia is partially meeting the commitments in maritime transport, where legislative alignment is not complete. Action must be taken to improve the detention rates of Estonian flag vessels. Latvia is essentially meeting the commitments and requirements in the areas of trans- European transport networks, road, rail, inland waterway and maritime transport. It is expected to be in a position to implement the acquis in these areas from the time of accession. However, Latvia must complete the adoption of the railway acquis. In the areas of road and maritime transport, Latvia needs to adopt implementing legislation and further reinforce its administrative capacity. Latvia is meeting the majority of the commitments and requirements in the area of air transport. Latvia needs to strengthen administrative capacity and enhanced efforts are required in order to become a full member of the JAA before accession. Lithuania is essentially meeting the commitments and requirements in the transport sector, and is expected to be in a position to implement the acquis from the time of accession. In completing preparations for membership, Lithuania must complete the adoption of the railway acquis, in particular as regards interoperability, and strengthen administrative capacity. In road, air and maritime transport, Lithuania needs to adopt implementing legislation and reinforce its administrative capacity. Lithuania needs to become a full member of the JAA before accession. Economic Importance of Transport in the Baltic States Transport and storage make over 10 % of GDP Transport, storage and communications is an important sector in all current and new EU countries, but its share of GDP is the highest in the Baltic States. In 2002, 15.5% 14 of the Gross Value Added2 in Estonia, 14.5% in Latvia, and 13.7% in Lithuania was produced by the transport, storage and communications sector. About 35% of the sector's GVA is produced in transport, 35% in storage and the remaining 30% by communications. In other words, transport and storage contributed 10% to 11% of the countries' Gross Value Added or GDP in 2002. (Table A.1.) Table A.1. Key data on the Baltic States' transport sector in 1999 and 2002. Estonia Latvia Lithuania Unit 1999 2002 1999 2002 1999 2002 Sources Value added and employment of Transport, Storage and Communications (TSC) sector Gross Value Added of TSC #) USD million 1 009 1 219 1 891 1) TSC in % of Gross Value Added % of total GVA 15,2 % 15,5 % 15,3 % 14,5 % 10,6 % 13,7 % 1) Employed in TSC thousands 63 55 90 86 105 87 1) TSC in % of total employment % of all employed 10,2 % 9,4 % 9,5 % 8,7 % 6,4 % 6,2 % 1), 2) Average salaries in TSC USD/month 356 455 321 373 299 300 1), 2) Average salaries in All sectors USD/month 285 394 242 297 247 258 1), 2) Balance of payments and FDI of the transport sector Balance of transport services trade USD million 321 313 522 539 186 357 3) Goods and services trade balance USD million -258 -614 -691 -900 -1 099 -793 3) Inward FDI stock in the TSC sector USD million 687 906 329 385 420 680 3) FDI stock of the TSC sector % of all inward FDI 28 % 21 % 27 % 14 % 20 % 17 % 3) Transport work (excl. maritime transport) Total freight transport work Million ton-km 11 274 14 089 22 436 26 221 18 219 25 370 1) Railway transport work Million ton-km 7 295 9 697 12 210 15 020 7 849 9 767 1) Transport work by road Million ton-km 3 975 4 387 4 161 6 120 7 740 10 709 1) Oil pipelines transport work Million ton-km .. .. 6 055 5 071 2 627 4 892 1) Air transport work Million ton-km 4 5 10 10 3 3 1) Total passenger transport work Million passenger-km 3 191 3 282 3 590 3 443 3 797 3 068 1) Railways passenger transport work Million passenger-km 238 177 984 744 745 498 1) Road transport passenger work Million passenger-km 2 222 2 330 2 368 2 361 2 665 2 046 1) Air transport passenger work Million passenger-km 298 355 238 338 387 524 1) Road and road transport Road network of central Gov:t kilometer 16 430 16 443 20 329 20 279 21 161 21 335 4) Road density (all roads ##) in 2002 km/million people 33 412 29 623 21 207 4) Estimated Gov:t budget for roads USD million 47 77 64 46 116 159 4) Government road budget USD/km of Gov:t roads 2 861 4 701 3 148 2 278 5 482 7 471 4) Killed in road accidents actual number 232 224 604 518 748 697 4) Injured in road accidents actual number 1 691 2 852 5 244 6 300 7 696 7 427 4) Number of killed in road accidents per 100,000 vehicles 42 46 86 64 62 47 4) Passenger cars thousands 451 401 483 619 981 1 181 2), 4) Buses thousands 6 5 12 11 15 15 2), 4) Lorries and special vehicles thousands 81 80 85 103 115 116 2), 4) Road freight transported million tons 11,3 17,8 33,3 36,9 45,7 45,0 4) Passengers transported by road million passengers 171 171 167 174 273 182 4) Diesel fuel average actual prices US cents per liter 36 56 35 65 34 59 5) Super Gasoline average actual prices US cents per liter 45 58 55 70 51 69 5) Railways and rail transport Railways revenues *) USD million 92 117 147 189 149 232 4) Personnel in railways **) number of personnel 5 592 3 602 16 550 14 699 16 718 13 096 4), 6) Rail freight transported million tons 37,4 42,6 33,2 40,1 28,8 36,7 4) Rail passengers transported million passengers 6,8 5,2 24,9 22,0 10,6 7,2 4) Port traffic and merchant fleet Port traffic million tons 34,4 46,8 49,0 52,2 15,6 25,9 4) Merchant fleet 1,000 Gross ton (GT) 241 317 333 89 397 435 7) Air transport Air passenger throughput thousands 552 606 562 633 481 635 4) Air cargo handled (excl.mail) thousand tons 5 4 4 7 5 4 4) #) Roughly 1/3 of TSC's Gross Value Added is from transport, 1/3 from storage and 1/3 from communications ##) Excluding forest roads *) Lithuania in 1999 freight and passenger revenue only; Estonia: Eesti Raudtee only for 2002 **) Estonia: data for 2000 and 2002 on Eesti Raudtee only 1) Statistical bulletins of EU Candidate countries 2003 2) Statistics Estonia, Statistical Bureau of Latvia, Statistics Lithuania 3) National Banks of EST, LAT, LIT 4) Ministries of transport data; Pre-seminar Questionnaire 5) Metschies 2003 6) Eesti Raudtee annual reports 7) Ministers of transport for 1999, UNCTAD for 2002, For Latvia; 1998 and 2002 2Gross value added (GVA) is a measure of the contribution to GDP made by an individual industry. 15 Strong positive cash flow into the Balance of Payments The transport sector generates significant positive cash flows to all three countries. In 2002, the positive flow of foreign currency in the trade of transport services was the highest in Latvia at USD 539 million, followed by Lithuania at USD 357 million, and Estonia, USD 313 million. TEN-T infrastructure investment in 1996-2001 almost 900 million euros The three countries have invested substantially in their TEN-T transport infrastructure. In 1996-2001, Estonia invested 235 million euros, of which almost half in ports. In the same period, Latvia invested almost 370 million euros, 2/3 of which into railways. Lithuania invested 270 million euros, half of which in roads. For the period 2002-2010, Estonia intends to spend over 550 million euros, mostly on roads and ports. Latvia has plans to invest approximately 500 million euros, half of which on roads. Lithuania plans to invest up to 1,250 million euros mostly on railways and ports. Combined, this makes 2,300 million euros till 2010 even without the proposed Rail Baltica project. Roads and Road Transport In the roads and road transport sector, the urgent needs are to enhance road safety, increase road maintenance and develop better highway links between poorer areas and main centers as well as to improve training for road transport operators. Road traffic safety record is among the poorest in Europe Road traffic safety in the Baltic States has improved but the number of fatalities and accidents in relation to the number of vehicles are still among the highest in Europe. The absolute number of fatalities has declined slightly from 1999 to 2002. However, the number of injured has increased by 69% in Estonia and 20% in Latvia. Only in Lithuania the number of injured has decreased slightly in that period. (Table A.1.) Road investment activity is high, but the main problem is funds for maintenance The Baltic States have invested heavily in their main road network. Road investment is likely to continue at a rapid rate throughout the decade. While projects related to Via Baltica have a high priority, also projects with secondary roads will receive more funds. As budgetary allocations in Estonia, Latvia and Lithuania are not fully sufficient to cover capital investments, road finance from external sources will be needed in the future, including substantial assistance from EU's Regional Development and Cohesion funds. The Baltic States spend now less money on maintaining their road networks than before. 16 Systematic road maintenance may not be a glamorous undertaking for politicians or road administrations, but it is very good business for road users. Technical publications often cite the statistic that for every additional $1 a country spends on road maintenance, road users save up to $2 in developed countries and $3 or more in developing countries. Heavy trucks and buses benefit most from proper road maintenance, but also passenger car users benefit from reduced accidents, operating costs, and travel times. Transferring tasks from Road administrations to the private sector Road administration in all three countries ­ and especially in Estonia and Latvia ­ has undergone a rapid restructuring. Road construction, maintenance and design are now performed by the private sector. As a consequence, the number of employees in road administrations has decreased. This rapid change has even caused a lack of civil engineering skills in the ministries or road administrations. Motorization is rapid, and private car usage increases fast Motorization progresses rapidly as the number of passenger cars, buses and trucks has increased substantially. Also the fleet renewal has been profound, as Soviet-era vehicles have been replaced by western models, albeit partly with second-hand vehicles. Only in Estonia, the number of passenger cars has not increased. Rapid road freight growth, and in Lithuania road surpasses rail in ton kilometers Demand for road freight transport, measured in ton kilometers has grown very rapidly in Latvia (+ 48%) and Lithuania (+ 39%) from 1999 to 2002. In Lithuania, road transport demand even surpassed that of rail transport in 2002. In Latvia and Estonia, rail transport performs roughly two times more ton kilometers than road transport. In Estonia, transport work grew only modestly, even when the transported volume increased by 59% from 1999 to 2002. This indicates a growing demand on short- distance domestic transports, for example, in construction. Slow growth in bus transport, but a dramatic downturn of rail passenger volumes Demand for bus transport grew a little in Estonia, remained stable in Latvia and decreased substantially in Lithuania in 1999-2002. This is partly due to the increase of passenger car usage, as passenger kilometers by rail decreased by 25% in Estonia and Latvia, and by 33% in Lithuania. The most expensive fuel in Latvia, the cheapest in Estonia Motor transport has also become more expensive due to increasing diesel and gasoline prices. Thanks to competitive markets, their price follows world market prices more closely now than in the mid-1990s. Fuel taxation differs between the countries, and Latvia has the most expensive diesel and gasoline, followed by Lithuania and Estonia. 17 Railways With regard to railways, the principal needs are to continue with railway restructuring, especially in Latvia and Lithuania, including efforts to separate commercial operations from rail administration, and in all three countries to reduce over-capacity, rationalize tariffs, raise levels of safety, and improve railway service. Rail transport propelled to strong growth by oil transit trade in Estonia and Latvia Rail transport work grew between 23% and 33% in 1999-2002 propelled by oil transit trade. In the medium to long term, continued growth may be limited, as oil transport arrangements develop in Russian territory. Over 80% of Estonian and over 70% of Latvian rail freight traffic is oil and oil product transit trade through ports. Transit traffic to Kaliningrad is likely to remain a substantial operation for Lithuania; in 2002, it accounted for 36% of the cargo volume carried by rail. Rail passenger volumes at their lowest level since 1990 Passenger transport volumes were at their lowest level in 2002 since 1990. This is almost exclusively domestic traffic in Estonia and Latvia. In Lithuania, international services - mainly connecting Kaliningrad and Russia ­ perform 20% of passenger kilometers. Developing passenger rail transport remains a challenge, as passenger cars and bus transport offer an increasingly competitive substitute to rail. Railways have turned profitable, yet unit freight revenue shows no signs of increase All railways have improved their management and have turned profitable. In 1999- 2002, freight revenue per ton-kilometer remained unchanged in Estonia and Latvia, but increased slightly in Lithuania. Passenger services are operated at loss. The number of railway staff has been reduced in all three countries. In Estonia, the privatization of railways has radically changed the management and organization of railways. However, total labor costs in railways have remained the same in Estonia and Lithuania and increased substantially in Latvia despite personnel reductions. Estonia privatized its railways, Latvia and Lithuania struggle with restructuring Rail infrastructure ownership and railway operations remain the responsibility of the public sector in Latvia and Lithuania. Estonia privatized its railways in 2001. Rail infrastructure maintenance and construction is entirely run by the private sector in Estonia, and most of this work is privatized also in Latvia. In Lithuania, these duties are still carried out by the state-owned Lithuanian Railways. Railway restructuring was politically a problematic process in Estonia. It has also been one of the most difficult restructuring processes in Latvia and Lithuania. Substantial investment in railways; the feasibility of Rail Baltica remains to be seen Lithuania plans to invest 835 million euros in rail infrastructure in 2004-2015. This is far more than Latvia. 18 In Estonia, Government investment in rail is very small because rail infrastructure and operations have been privatized. The Baltic States have put considerable political weight to the Rail Baltica project. It is a blueprint for a new, European standard high-speed railway line between Berlin, Warsaw, Kaunas, Riga and Tallinn. The construction is planned to start in 2008. If realized, it would be the biggest single transport infrastructure project in the Baltic States, estimated at 3.9 billion euros, of which over 2.5 billion in the Baltic States. So far, preliminary studies have been prepared but no economic feasibility assessments have been presented. However, current volumes of cargo and passengers in the north-south direction by rail or other modes do not readily justify such a large investment. Air Transport Key findings of the seminar concerning civil aviation in the Baltic States were (a) aviation infrastructure and management remains the responsibility of the public sector; (b) the major airline in Lithuania is state owned, in Latvia government has a majority stake and in Estonia a minority stake; the airlines have recently turned profitable after several years of negative financial results; (c) several major airlines operate from the major airports; and (d) passenger traffic has steadily increased; cargo traffic, however, remains low. While aviation infrastructure in the three Baltic States remains in the public sector, the organizations for infrastructure administration are quite different. In Estonia and Latvia, the airlines have been transformed into joint ventures with established international carriers and other investors. The Civil Aviation Administration (CAA) in each of the three countries falls under the Ministry responsible for transport. Estonia runs its Air Traffic Management (ATM) as a state-owned corporation, Lithuania as a state-owned enterprise, while the national CAA is in charge of ATM in Latvia. 600,000 passengers in each country, and the demand is gradually picking up There are about 600,000 air passengers per year in each of the Baltic States, of which roughly ½ use national and ½ use foreign carriers. The volume has increased at all key airports, especially in Vilnius. Cargo traffic is modest in each country. Major foreign airlines in many cases operate to the Baltic States through code-sharing arrangements. Important carriers serving the Baltic States are Finnair, Lufthansa, Scandinavian Airlines (SAS) and British Airways. The Baltic States have attracted some airline investments in anticipation of their EU membership. The main investor in Estonian Air is Maersk Air after SAS sold its 49 per cent stake in Autumn 2003. The Estonia government has a 34 percent stake and an investor group has a smaller stake. The government provides no subsidies to Estonian Air. 19 The Latvian Government has a 52.6 percent stake in the national airline, airBaltic. The other principal shareholder is Scandinavian Airlines. Transaero of Russia has a very small stake in airBaltic. AirBaltic receives no direct or indirect state subsidies. In Lithuania, the national airline, Lithuanian Airlines, is owned and operated by the government. Several attempts to privatize this airline had been unsuccessful, including one in 2003. A new privatization scheme has been launched, and as part of it, Air Lithuania, a local carrier, was divested in February 2004. Frequent helicopter passenger service in provided between Tallinn and Helsinki. The flight time between the two capitals is only 19 minutes. Bilateral agreements used now, EU's Single European Skies anticipated in 2005 The right of foreign airlines to operate air services in the Baltic States is based on bilateral agreements with various governments. This practice will continue with non- EU countries within the limits of EU regulation. For example, EU's stringent noise regulation will effectively ban non-complying aircraft from the main airports, and give only short transitional periods for traffic in some minor airports. Intra-EU air traffic will stand for over 2/3 of all traffic. Assignment of slots for service is often granted freely. The key regulatory issues for Baltic States civil aviation can be summarized as follows: (a) progressive liberalization (increased competitiveness) of air services in relation to EU countries; (b) airport slot allocation; (c) technical requirements and administrative procedures of the Joint Aviation Authority; (d) appointment of an independent accident investigator; (e) need for improved statistics; (f) greater reliance on market forces vis a vis approval procedures at the CAA, and (g) harmonization of air navigation systems in view of EU's Single European Sky initiative (expected to be implemented in 2005). Substantial airport development with EU assistance and loans from EBRD and EIB Tallinn airport has financed its reconstruction with EBRD and EIB loans, EU's PHARE program, its own internal resources and some state budgetary assistance. Regional airports in Estonia mainly use state budgetary allocations for construction activity. A regional airport financial plan in Estonia for the period 2000-2006 has been prepared. In Latvia, the main source of funding for reconstruction and improvement at Riga International Airport is a passenger departure tax. Other sources of funds are international financial institutions and commercial banks. In Lithuania, reconstruction and improvement of airports are funded through the airports' own resources and loans from foreign investors. Limited administrative capacity and fragmented markets among the key weaknesses The main weaknesses identified in civil aviation of the Baltic States are (a) limited administrative capacity of regulators; (b) small and fragmented markets; (c) lack of individual strategies for particular markets; (d) large number of air carriers compared with the modest market size; (e) prevalence of "two aviation worlds" in terms of 20 technology and regulations; and (f) diminished access at EU airports for all air carriers of the Baltic States. Strengthening administrative capacity and legal harmonization among the key issues The most important development areas in civil aviation of the Baltic States are: (a) in all three countries, strengthening administrative capacity, complete legal harmonization with EU, signing of the Common Market Aviation Area Agreement; (b) in Estonia, airport privatization and restructuring including privatization at Tartu and certain other airports and restructuring at Tallinn airport; (c) in Latvia, reconstruction of Riga airport including a new terminal, runway extension, category II facilities, and improving access road to the airport; (d) in Lithuania, CAA restructuring, fleet improvement, reconstruction of Vilnius airport including new terminal, runway extension, aprons, navigation facilities, and at Palanga airport runway rehabilitation, improved landing system, and a decision on the future of the ex-military airbase. Maritime Transport and Ports Key findings of the seminar in this sub-sector were: (a) ports have shown strong economic results during the past few years; (b) stevedoring and shipping companies have been almost completely privatized; (c) further strengthening of the maritime administration is needed; (d) the merchant fleets registered in the Baltic States need to comply to Paris MoU; (e) international regulation on maritime safety at sea and in ports need to be followed; and (f) environmental issues have grown more important. Major ports are owned by Governments and they have been very profitable Governments own the land occupied by large ports of the Baltic States while smaller ports may belong to municipalities or, as in Estonia, may involve some private ownership of port land. Private companies generally carry out port work such as stevedoring and warehousing. The only ports of the Baltic States handling a million tons or more of cargo annually are Tallinn, Kunda and Parnu in Estonia; Ventspils, Riga and Liepaja in Latvia; and Klaipeda and Butinge in Lithuania. Among these ports, only the port of Tallinn has significant international passenger traffic. The islands of Saaremaa and Hiiumaa in Estonia generate domestic ferry traffic. The major ports of Tallinn, Riga and Klaipeda handle relatively diverse traffic while the traffic of Ventspils is mainly oil and chemicals, and the traffic of Liepaja comprises principally timber, metals and bulk liquids. The major ports as well as the privately-run cargo handling operations in them have been very profitable. Private sector participation in port operations has increased significantly in recent years, driven by increased opportunities made available as the role of public authorities has become more limited. The countries adopting this new policy have been able to attract substantial amounts of private capital investment to refurbish 21 infrastructure and modernize cargo handling equipment. Under private management of certain operations, ports have improved performance in terms of improved quality of service and reduced cost of cargo handling. The national merchant fleets have been declining, but Baltic seafarers still have jobs The merchant fleets of the Baltic States in 2002 included 174 ships totaling about 898,000 gross tons. Some of these ships were inherited from the Soviet Union. Including small vessels and fishing fleet, Lithuania had 376 ships, Latvia 362 ships and Estonia 160 ships. The fleet of Latvia has declined in recent years, whereas Lithuanian and Estonian fleet, measured in gross tonnage, has remained stable. Private companies own a major part of the fleets. Seafarers from the Baltic States have found plenty of jobs in ships sailing under foreign ownership or flags. This applies especially to deck officers and engineers, but also to able-bodied seamen, thanks to their comparatively good training and skills. Over 100 million tons through Baltic ports, with unitized traffic increasing fast The total seaborne trade in the Baltic Sea is over 400 million tons. Ports in the Baltic States handle about 30 percent of this volume. Individual ships in the Baltic Sea do not exceed 150.000 tons because of draft restrictions in the Danish straits. Also, lack of berths and limited cargo handling capacity limit the size of ships that can be accommodated. Operations of Ro-Ro ferry lines have increased significantly especially in trade with EU countries, where such use is common. Traffic in passengers and vehicles between Tallinn and Helsinki grew steadily till 2001 and volumes are well balanced in the two directions. A number of EU-based shipping companies have formed joint ventures in the Baltic States, or opened liner routes with their Ro-Ro and container vessels. New Vessels Traffic Systems are being implemented Increased ship traffic in the Baltic Sea during recent years has increased the dangers of ship operations there. These growing dangers have led to the creation and implementation of an advanced system for control. A vessel traffic management and information system (VTMIS) is being implemented in the Gulf of Finland in 2004 jointly by Finnish, Russian and Estonian maritime authorities. Safety at sea and in ports and related inspections is among key regulatory issues In the maritime sector, the main regulatory issues include manning of the vessels, safety at sea and in ports, as well as keeping up with the inspection of the technical requirements of vessels. The inspection involves both national and foreign vessels through Port State Control. According to statistics for 2002 under the Paris Memorandum of Understanding (MOU), the percentage of vessels registered in the Baltic States detained following Port State control was over 6 %. This compares with an average for EU-flagged vessels of 3.5%. However, there are strong indications that the situation is deteriorating, in that the number of Baltic States' vessels being detained is rising sharply. The countries need to urgently address this issue with a view to reversing this trend of deteriorating 22 detention rates. In 2003, both Lithuania and Latvia were removed from the black list to the grey list of the Paris MOU. Information flow and safety among key development areas in the maritime workshop The workshop on maritime and port issues in the Parnu seminar prioritized the most important development areas as follows: (1) information flows and systems, (2) maritime safety issues, and especially ISPS, (3) infrastructure development and (4) environmental protection. Other issues that were mentioned included EU Transport Policy, transit traffic, cargo security, competition of ports and shipping as well as institutional development. Transit of Oil and Oil Products in the Baltic States The volume of transit oil and oil products handled at Baltic States and Russian Baltic Sea ports has increased from 50 million tons in 1997 to 100 million tons in 2003. The economic impact of oil transit traffic through the Baltic States is quite significant to these countries. Transit revenues represent 5 to 8 percent of gross domestic product of the three Baltic countries. Each Baltic state earns a significant amount of revenues from this transit traffic. Russian firms, recognizing the importance of the transit revenue through the Baltic States, have tried to obtain controlling stakes in companies operating oil export facilities in the Baltic countries. The Polotsk-Ventspils crude oil pipeline leading to the port of Ventspils has an annual capacity of 14 to 16 million tons of crude oil; parallel to the crude pipeline is an oil products pipeline with an annual capacity of 4 million tons. The Lithuania oil export terminal at Butinge is served by a pipeline with an annual capacity of 13 million tons of crude oil. The terminal facilities at Butinge are owned by a company in which the Russian oil company, Yukos, has a controlling stake. Most of the crude oil and products brought to the port of Tallinn arrive by railway. For the ports of Riga, Liepaja and Klaipeda, railways are the only economically feasible means of transporting oil to the ports. Capacity in Russian terminals is increasing, and tariff policy favors these terminals Competition between the Baltic ports for transit traffic has intensified during recent years. All the Baltic ports have modernized their facilities to attract that important traffic. At the same time, major Russian oil companies have successfully played off the Baltic ports against each other and thus pressed down transit fees. As a further measure favoring Russian interests, the volume of oil shipped on tankers from Russian ports on the Baltic has increased sharply. St. Petersburg has increased its oil shipping capabilities while a new, nearby Russian oil shipping port of Primorsk was developed and began shipping oil in 2001, and will reach a capacity of 40 million tons in 2004. Another Russian terminal in Vysotsk in the Gulf of Finland goes operational in 2004 with an annual capacity of 10 million 23 tons. Also, the Russian Federation has revised railway tariffs in such a way as to benefit railway shipments of oil through Russian ports. Notwithstanding these negative influences on Baltic States oil transit revenues, it is expected that Russian oil exports will rise substantially in the years ahead and that the Baltic States will benefit from this trade through transit operations. In recent years, some 80 percent of Russian oil exports have gone to Europe. While the Russians are looking for other markets in the world, Europe will undoubtedly continue to be a major market. Transport Supporting Services Key findings of the seminar concerning transport related services are as follows (a) infrastructure limitations and regulatory issues are not major concerns of those firms providing transport related services in the Baltic States; (b) the supply of transport related services in these countries is adequate and generally of good quality; (c) advanced information technology is becoming increasingly important to companies providing transport related services in the Baltic countries; and (d) well over half of the transport related services in the Baltic States are provided by international firms. The market for transport support services is competitive and service quality is good The principal transport related services provided are freight forwarding, customs brokerage, customs service, warehousing services, insurance, and banking. In all three of the Baltic States, these services are almost entirely privatized and the general quality of services is good and improving. Freight forwarding services in the Baltic States is dominated by ten companies. These firms handle about half of the total market for these services. The freight forwarding market has been growing rapidly here. During the past five years, the net turnover in this market grew three-fold in Estonia. Most of the main freight forwarding operators are subsidiaries of major international logistics firms, and they offer a wide range of transport and logistics services. Throughout the three countries, buyers increasingly favor "one-stop-shopping" for the various transport related services such as customsclearance, warehousing and the like. The overall quality of these services in terms of timeliness, accuracy of documen- tation and the absence of fraud, has improved dramatically during the past ten years, especially since the mid 1990s. The various transport related services provided by specialist firms in this field are particularly attractive to companies engaged in international trade. Expedited clearance of imported goods often permits companies to reduce their inventories of such goods with consequent savings in cost and improved delivery times to their customers. 24 Customs clearance volume has risen fast, but it is expected to fall in EU The volume of customs clearances in the Baltic States has increased considerably while the number of people involved in customs clearance or processing has remained stable. The quality of the custom services has also improved. The principal areas needing improvements are border crossings where excessive delays occur; data exchange systems between ports and custom warehouses; and improved customs relations between Baltic countries and Russia. Much of customs clearance work will not be needed in intra-EU trade. As a consequence, many customs, customs brokers and freight forwarding staff will become redundant. Logistics firms and freight forwarding associations report that this has affected the work motivation, and caused delays. Unreasonable delays at border crossings have been a common and persistent problem in all three Baltic States. Special efforts are required to minimize these delays. In late 2003, persistent borders crossing delays affected the trade with EU countries, which is increasingly depending on tight delivery schedules and dependable service. The change to EU customs procedures on May 1, 2004 is also likely to cause disturbances. Customs practices have generally improved in the Baltic countries during recent years as procedures have been simplified. Each of the countries has adopted the Automated System of Customs Data Management (ASYCUDA). However, this system will not be used in intra-EU trade, so its main usage in the future will be in trade with non-EU countries. Reliable insurance, banking and related support services available Reliable international insurance services as well as banking services are in place in all three Baltic countries. Some restructuring of these services is expected, especially in Latvia and Lithuania, in the near future. Competition in the provision of these services is increasing, a trend that has had the effect of reducing costs of insurance services. Some firms providing transport related services have expressed some concern that their operating costs will rise as a result of the Baltic States joining the EU. Early indications, however, suggest that the overall impact of EU membership on those firms will be positive. Urban Transport In the urban transport sub-sector of the Baltic States, both infrastructure and service provision essentially remain in the public administrative domain. Urban bus and trolley services are offered by a limited number of private companies. Their share of the overall market is for the time being small, but it will rise as EU rules enforce competitive tendering of routes in major cities. 25 The dominance of publicly owned operators reflects in part the poor profitability of these services for private firms when required to maintain good service levels. Good quality service affordable to the public is clearly in the public interest. Cost recovery and service level is at the core of urban transport's problems A persistent problem in urban transport in the Baltic States and elsewhere is that effective urban transport system needs subsidies in order to keep up a decent service level in terms of connectivity and frequency of services. This involves an integrated bus, tram, trolleybus and commuter train system. None of the cities in the Baltic States has an underground service. The pricing scheme needs to recover a high percentage of costs, while considering the Public Service Obligations or, for example, elderly people, children and the disabled. In Estonia, both municipal and private companies operate urban, suburban and county services. There are two municipal companies in Tallinn. In Parnu, the bus company is 50 percent owned by the government and 50 percent owned by other investors. In Tartu, a private international firm is operating a large part of the city's bus transport. Rail services are provided in Estonia to local and intercity passengers by a private company and a subsidiary of Estonia Railways. In Latvia, more than twenty bus companies, two tram and one combined tram and trolley company provide passenger services. Three of the companies are municipally owned. In Lithuania, there are 46 bus companies and two trolley bus lines, all under municipal ownership. In addition, private bus companies provide services in Lithuania both within urban areas and beyond urban centers. Regulatory environment is changing to allow competition in urban transport A number of regulatory issues concerning urban transport face the Baltic States. In Estonia, parliament adopted the Public Transport Act in 2000 providing the legal basis for public transport activity including harmonization with EU requirements. Public transport was made part of the free market economy with local authorities issuing permits, under competitive bids, to private firms for bus services. Latvia, too, has made provision for issuance of permits to private bus lines. Any licensed firm is allowed to compete for a permit to operate a bus service. Nevertheless, about 70 percent of the urban market is served by municipal companies. The Lithuanian Ministry of Transport attempts to reach a fair balance between municipal and private companies in the provision of urban transport services. Lack of public funds for urban transport is the main obstacle to increased effectiveness of services. In Estonia, for example, three fourths of the buses are more than 10 years old and repair costs of buses have steadily increased as the buses have aged. Inability to finance new buses is attributed to the decline in passenger traffic levels and consequently revenue. In the Baltic countries, the market for urban transport services is eroding at the same time that increased motorization-induced traffic congestion is exerting pressure on the 26 operating costs and service quality of urban transport providers. Prevailing fares and financial assistance in the form of subsidies are insufficient to finance good quality services. No stable source of adequate funding has been found for urban transport. Competitive tendering is coming; Tartu has embraced it already EU membership also brings about the need to arrange competitive tendering of public transport services in major urban areas. This has already been exercised in Tartu, Estonia, where an internationally operating firm has won tenders for bus transport. Since mid-1990s, private operators have rapidly gained market share from municipal enterprises in many EU countries, including Sweden and Finland. The tendering processes have typically provided lower costs for taxpayers and better service quality. Environmental Issues Improvement of environmental quality has become an integral part of policy making in the transport sector in the three Baltic countries. Tighter emission controls on vehicles have already been imposed here on private and commercial vehicles and these controls will become more rigorous in the near future. Further action is needed as the Baltic States have relatively high aerial emissions from transport vehicles relative to the volume of traffic. As environmental issues cross administrative boundaries, a tightening cooperation between Government and research entities, both nationally and internationally, is called for. Active participation in international and regional bodies, such as NATURA 2000, Baltic 21 Agenda, Helsinki Commission, and maintaining a dialogue with non-governmental environmental organizations will require more attention in the future. 27 B. Statements of the Ministers of Transport The chapter presents the abstracts of the speeches delivered by the three Ministers of Transport at the Parnu Seminar on November 24, 2003. B.1 Minister Atonen's statement Dear ministers, honourable Secretary in General of ECMT, representatives of the World Bank, European Investment Bank, European Bank for Reconstruction and Development, Nordic Investment Bank, business circles, my ladies and gentlemen. Looking back to the subjects discussed in the last seminar, I would like to reflect on the reforms implemented meanwhile, and our common ambitions and interests in the context of the EU enlargement. In the past years the Estonian transport policy can be characterized by comprehensive privatisation of operator services, regulation of competition between different modes of transport through prices and taxes, and the infrastructure policy that favours international transport links. Road transport would not be thinkable in any country without an excellently developed and high-quality road network. During the last years large-scale road reconstruction works have been started with the help of European Union's ISPA and foreign loans, turning attention primarily to international transport links with the neighbouring countries, primarily in Tallinn- Ikla (Via Baltica), Tallinn-Narva and Tallinn ­ Luhamaa directions. It seems that we are getting over the preliminary difficulties in starting ISPA projects and in the forthcoming years most of the international transport links going through Estonia, roads which also play an important role in ensuring domestic connections, will be covered with a new pavement. As to large-scale road works, the reform connected with the reorganizing of counties Road Offices' management structures and road management work, started in 1998, has reached its final stage. During the last 10 years Estonia has implemented many substantial reforms for establishment of modern society based on market economy. Estonia has consistently involved private capital for ensuring high-quality road construction and maintenance. Currently the maintenance of roads has been given to private enterprises in half of Estonian counties. The procedures concerning arrangement of road construction and maintenance works need improvement. Talking about big investments and developments of transport networks, cooperation between the Baltic States, which involves processes inside the European Union concerning TEN-T networks and development of legislation, cannot be avoided. All the States around the Baltic Sea depend more or less on maritime transport. Economic development of the Baltic Sea region and our accession to the European Union is remarkably increasing trade flows transported by the sea. Currently the volume of trade transported by the Baltic Sea has been estimated up to 700-800 million tons and therefore it is very likely that this amount will be double in the year 2010. As to figures it should also be mentioned that 30 000 ships that headed to other 28 ports in the Gulf of Finland passed our costal waters. After all, maritime transport is considerably more environmental friendly than land transport and it can be the cheapest transport mode in case it is well organized. Maritime transport will remain environmental friendly only in case we focus on maritime safety in cooperation with our neighbouring countries. At the same time this field is one of the priorities of the European Union. Mistakes on the sea will be expensive both directly and indirectly. Ensuring maritime safety is expensive and requires big investments. Regrettably, Estonia alone within its possibilities is not able to achieve it all. Under the conception of the motorways of the Baltic Sea, which is in preparation in cooperation with the Member States and the European Commission at the moment, we hope to give our complementary contribution both to encourage trade by improving infrastructure and to invest measures guaranteeing safety. In order to ensure safe shipping traffic in the Gulf of Finland, Estonia is planning to cover its whole coast with the Automatic Identification System (AIS) network during the year 2005. Also the Vessel Traffic Management (VTS), which covers the region of Tallinn, is planned to extend to other Estonian regions. Additional attention should be paid to keep ports and shipping lanes navigable all the year round in order to implement the Motorways of the Baltic Sea conception. This presumes existence of modern ice-breakers and navigational marking. We hope to maintain as safe passenger and merchandise traffic as possible on the surrounding seas with support of technical and human resources and through different programs and funds in collaboration with the neighbouring countries and EU. Our cooperation is getting a more explicit look because the three Baltic States and all the Baltic region is involved in the EU decision making process in the near future. Today's seminar is the next forum, where the above-mentioned subjects can be discussed. Also I would like to take the opportunity and express my gratitude to my colleagues and representatives of international financial institutions for successful cooperation already made towards the European Union. I hope that the two following days full of intensive exchange of ideas will make cooperation even more tight in the years to come. Thank You! B.2 Minister Zile's statement Dear ministers and representatives from the World Bank, ECMT and International Financial Institutions, ladies and gentlemen. Today, when globalization, integration and liberalization processes are developing rapidly, it is very important to establish transport development strategies and create a basis for increasing the transport competitiveness in the years to come. The basic function of the Ministry of Transport and Communications of the Republic of Latvia, 29 similarly to its counterparts in other European countries, is to raise the efficiency of transport, communications and information technologies, thus establishing basic prerequisites for growth of the national economy and social welfare. Progress in implementation of acquis The conclusion of negotiations between Latvia and EU resulted in Latvia's commitment to implement fully the EU transport acquis with the exception of certain part regarding land transport for which the parties agreed on transitional periods. The Commission's Progress report from 2002 and monitoring reports from 2003 have indicated that Latvia has generally followed its commitments with some delays occurring in maritime sector and with some further efforts needed in road and railway sector. However, the report of the peer review carried out by Member States' experts in 16-18 June 2003 demonstrates that Latvia has taken considerable steps to close remaining gaps in maritime sector. Peer reviews' reports also indicate that progress in aligning legislation and administrative practice in road and railway sectors will ensure that Latvia will be able to successfully implement the remaining parts of the relevant acquis. That means that Latvia is in position to fulfill its commitments following the requirements of transport acquis. However, it is necessary to further strengthen administrative capacity of Ministry's units dealing with structural and other EU funds. The Government has approved additional budgetary funds for year 2004 which will ensure effective management of EU funds. Different initiatives have taken place to improve maritime, aviation and other transport sectors including both - the increase of budget of relevant state agencies and recruitment of additional staff. Position regarding modal shifts as flowing from White Paper on Transport The need to promote modal shift as envisaged in the White Paper does not correspond the factual situation in Latvian transport sector. The situation in Latvia is quite different from that of densely populated Western European countries and can be characterised by two significant factors: many areas in Latvia are scarcely populated, market shares for rail and road sectors in terms of figures are equal. In addition, the problem, when road transport is dominant and roads do not have space to develop, is of importance only for Riga city and its surrounding areas. Development of road infrastructure is determinant for region development and social cohesion, and due to short distances inland railway transport is not profitable and thus cannot replace road transport services. However, taking into account the new EU transport policy that orientates on developing environmentally friendly transport means, as well as the large share of transit traffic in the total amount of transport services, it is envisaged in the programming period for the years 2000-2006 to divert 45% of the ISPA and Cohesion fund financing to railway projects. The initiatives from the market are complemented with the Government's new priority to develop project Rail Baltica. This project envisages establishment of 30 railway transport infrastructure, which corresponds to current European demands and which connects the Baltic States, on the one hand, and Central and Western Europe, on the other, in the direction South - North. The work on Rail Baltica project has been commenced. Transport Ministers of three Baltic States and Poland have agreed to carry out common feasibility study. On September 5, 2003, Prime Ministers of Latvia, Lithuania, Estonia, Poland and Finland agreed on the need to establish common technical parameters for the project. Based on that decision, the representatives of the Transport Ministries from these countries on September 15, 2003, agreed on such parameters and sent the document describing the project Rail Baltica to the European Commission with the request to include the project in the Trans European Network's priority list. Road freight's market share in average is 48% and the statistics shows stable development of rail and road transportation services without significant changes in market structure and without undesirable modal shifts. The main goal of the Ministry in the area of the road transport development is to increase safety and comfort on the state road network and maintain a certain level of quality on the rest of the roads in the country, in accordance with existing financial potential. In addition the Ministry is attaching high priority to activities that are connected with TEN network development in Latvia The development of Via Baltica is in process according to 2nd Via Baltica Investment programme. It is envisaged that the reconstruction of present infrastructure will be completed by year 2008, including construction of Saulkrasti bypass. As it is envisaged in TINA process final report, TEN network every year receives financing that corresponds to 1.5% of GDP (including private investment in ports). After accession to EU this figure will increase along with the increase of EU financial aid. The basis for improvements in different aspects of road traffic safety is National Road Traffic Safety Program adopted January 25, 2000 by the Government and updated annually. It contains division of responsibilities over wide range of tasks among different institutions in Latvia. Road Traffic Safety Council is established with the aim of co-ordinating necessary efforts, ongoing activities and future plans. Administrative capacity to implement EC and national legislation has always been a priority matter both for national and EC authorities The Road Traffic Safety Directorate is legitimately proud as being one of the most modern vehicle and driver registers in Europe. It allows receive information about drivers, vehicles, technical inspection data, vehicle duty payment, statistical data on traffic accidents etc. In future it is planned to register drivers' penalty points for violating traffic regulations. Truck replacement with technically more developed models is currently one of the main activities on the Latvian market. Now approximately 36 % of all Latvian trucks involved in international traffic comply with modern technical requirements and produce less impact on the environment with "Green and safe" as well as "Euro-3 Safe" certificates. Statistical data indicates that in freight market the railway transport plays an equal role with road sector, although there is a marginal tendency for road market share to 31 increase. In terms of figures it means that the modal share of railways in the freight carriage is about 52% (inland waterway transport and transport via pipelines not included). Therefore, as mentioned above, the market share of railway does not cause concerns. Completely different situation is in passenger market where road transportation has absolutely dominant position and railway transport in the field of passenger carriage occupies 12% of market (urban transport excluded). The main reason for such situation is considerably smaller state subsidies (financing of public service obligation) in railway sector if to compare with road transport. The amendments to the Law on Railways, which are currently submitted to the Parliament for adoption, provides necessary legal basis for implementation of the 1st railway package. As of today the functions of the infrastructure manager and freight operator are carried out by separate divisions of the state joint stock company "Latvijas Dzelzce s" (Latvian Railway). The budgets and accounting of these divisions are separated. Further reorganization of Latvian Railways is carried out step by step in order to reflect development of EU acquis and the needs of railway transportation market. In such situation in order to implement the requirements of the 1st Railway package the Law provides nomination of independent institutions responsible for allocation of capacity and setting up infrastructure charges. Such institution has been selected and currently is preparing to carry out these tasks. The existing national legislation has created the foundation for liberalization of railway market. It creates the mechanism for private sector to enter the market and to provide railway transportation services and currently private capital is present in freight market. Beside the state joint stock company Latvian Railway, there are three private operators which have received operator's license. Two of them actually operate on the market since February 2003. Transparent execution of functions of infrastructure manager and freight operator as a result of the reorganization of Latvian Railways as mentioned above is seen as a good tool to foster competition. It is expected that such approach will strengthen the position of private operators currently present on market and will promote new entrances. Taking into account the fact that Latvian railway uses different rail gauge and that Russian railway standards are currently applicable, international railway transport operations with the rest of European Union with the exception of other two Baltic States are not technically possible unless special technical solutions are applied. However, improvement of technical standards to increase safety is on going. It includes also modernization of existing infrastructure. The materials used to improve the quality of infrastructure correspond to currently applicable EU standards. The other railway project relates to improvement of signaling system where the applied technical principles will be able to ensure future interoperability with EU signaling system. The development target for the air transport is to achieve a maximum increase of passenger, freight and number of flights in the Latvian airports by providing quality passenger and aircraft service. Riga International Airport which fully complies with the international civil aviation standards is still undergoing major modernization and 32 expansion. Nearly 99% of all air passenger and freight transport in Latvia is carried from this airport. The biggest air carrier in Latvia is Airbaltic. The Latvian Government's share in the ownership structure is 51%, Scandinavian Airline System owns 49%. There have not been any cases of state subsidies, neither direct nor indirect in form of reduced airport or ATC charges. Airbaltic operates all scheduled air services from the Latvian side. During the last years Airbaltic's financial results have improved significantly. The volume of services produced, though not very big, also grew steadily. The September 11 events and the following downturn in European air transport had minimal impact on Airbaltic operations due to the route network structure and effective costs reduction measures. The law does not establish such status as "national carrier" and does not subordinate to such status any special rights. All carriers, which are licensed according to Regulation on Licensing of Air Carriers, have equal rights. The traffic rights which follow from bilateral agreements are to be tendered out, and a real route access for carriers depends on financial and operational capability. After accession of Latvia to EU we see more opportunities then threats for our carrier. Our strength is flexible and effective management, still lower costs and access to new markets. The intensity of maritime traffic increases year by year. And reasonably, the number of international instruments regulating the field increases, thus enhancing the maritime safety, marine environment and costal protection. Latvia pays much attention to joining international treaties and standards in maritime safety, sea pollution control and prevention, as well as traffic efficiency. Total cargo turnover in the 3 big ports (Ventspils, Riga, Liepaja) and 7 small ports is stable during the last years and increases 50 million tons per year. The average detention rate of Latvian flag vessels in port state control is higher than that of average EU 3.14%. However, this does not give a correct picture regarding the actual safety standards of Latvian flag vessels. The number of vessels under Latvian flag which are operating in international traffic and thus are subject to port state control is very small therefore each detention creates high level of detention rate in terms of percentage. Actually the situation has been steadily improving from 6 detained vessels in 1999 to 1 detained vessel in 2001 and 2002. More than 7,000 foreign merchant ships are calling Latvian ports every year, some of them on liner service making regular calls. Therefore more than two thousand individual ships may be subject to Port State control inspections. Maritime Administration of Latvia has been assigned by the Ministry of Transport to perform these duties and has started port state control inspections since 1996 based on IMO Resolution A.787 (19). Latvia has been applying for co-operative membership to Paris MoU since 1997. Following the longstanding training missions supported both by IMO and EC and taking into account better port state control records since 1997 the co-operative membership to Paris MoU has been granted in May 2002. 33 In 2002 23.3% of ships calling Latvian ports were subjected to port state control. The EU acquis on seafarers' working hours as included in the Council directive 1999/63/EEC has been fully transposed in Latvian Maritime Code, which came into force on 1 August 2003. The goal of the national transport policy is to provide a safe, efficient, multimodal and competitive transport system. Integration in the overall European transportation system is in progress, thus meeting the needs of people and the national economy for high quality freight transport services, as well as increasing the variety of options and flexibility in the carriage of passengers and cargoes. We try to promote regional development and create a favorable environment for the competitiveness of the Latvian businesses in the European and global markets. Thank You! B.3 Minister Balcytis' statement Dear ministers and representatives from the World Bank, ECMT and International Financial Institutions, dear ladies and gentlemen. I would like to thank the World Bank and the Estonian Ministry of Economic Affairs and Communication for arranging this very important seminar. There is no competitive economy without a well-developed transport system. A sound transport system is one of the preconditions for successful development of other branches of the economy. At the same time transport services, especially transit ones are a profitable activity for the country. Staying on the edge of the EU membership the transport system faces new tasks and new challenges. It should correspond to the modern and high quality requirements and should be supported by a multimodal approach. Therefore, Lithuanian long-term strategy says that a modern multimodal transport system has to be created in the country by 2015. Taking into consideration the recommendations of White Book of the European Commission, the forthcoming full membership in the EU and particularities of Lithuanian transport system the strategic long-term aims of the Lithuanian transport policy were defined. They are: the modernization of the transport infrastructure; the improvement of compatibility of elements of various transport systems; the creation of logistics centres; the formation of a safe, environmentally friendly and accessible transport system; the completion of structural reforms; the development of short sea shipping with the aim of integration to the Baltic Sea Motorways network. The geographical situation of Lithuania has caused that through its territory passes two Pan-European priority transport corridors, covering rail, road and maritime links. 34 After enlargement of the EU, the Central European and Baltic countries, including Lithuania, will gradually obtain the double role of functioning as a part of the EU and as connecting chain between present EU members states, CIS and Mediterranean countries. Therefore, to satisfy the growing transport demand in Lithuania, the significant infrastructural, administrative and operating developments are still needed. I will start from infrastructural development. Firstly I will overview road transport. Despite well developed and sufficient road network in Lithuania, transport operators raise high requirements for transport infrastructure. With the aim of efficient handling of growing transport flows various international transport infrastructure projects are under implementation. The implementation of reconstruction and development of highway Via Baltica allows us to increase quality of road infrastructure on the North ­ South direction and at the same time to connect I Corridor with IX Corridor, which is serving the traffic flows on West ­ East direction. It also should be noted that in Lithuania as in other European countries roads are increasingly getting overcrowded and overloaded, while the potential of railway infrastructure is not fully used. Therefore, the especially big importance gathers these projects which can unload roads and balance the cargo flows between different transport modes. As one of the projects could be mentioned project Rail Baltica, which has to promote fast and high quality transport of goods and passengers, connecting Eastern Baltic Sea coast countries with the rest of Europe. Railway transport plays an important role in Lithuania. The amounts of freight transported by Lithuanian railways increased and in 2002 accounted for more than 36 million tonnes. The existing density of the railway network, would allow to handle up to 50 million tonnes of freight per year but this level cannot be reached mainly due to the unsatisfactory condition of the railway infrastructure: there is a need to renovate the tracks and to modernise the signaling and telecommunications systems. Talking about maritime transport I would like to note that Klaipeda sea-port is the most important transport node in Lithuania. Consequently, the port may be proper indicator that shows success or failure periods of the entire Lithuanian transport sector. The total cargo turnover in Klaipeda sea port in 2002 was almost 20 million tons. Much has been invested in the reconstruction of the port gates infrastructure, the deepening of the approach channel and aquatorium, the extending of good storage conditions and the installation of modern loading equipment. However, part of the infrastructure is still not in line with modern requirements. The main works of infrastructure improvement are: the reconstruction and construction of quays, reconstruction and development of the railway network of the port and the deepening of the seaport waters. After the modernization of the infrastructure is completed, the capacity of the sea-port could reach to 32 million tonnes per year 35 As far as air transport infrastructure is concerned, I would like to note that air infrastructure management remains in the responsibility of the public sector. All three airports in Lithuania are profitable and that is related to the air transport growth, which is determined by European economic development and lower air fares. The development of a single European market combined with a general economic recovery is a contribute to this trend. In order to meet future requirements the biggest attention is paid to the projects related with the implementation of Schengen acquis requirements. In this respect in Vilnius international airport a new passenger terminal will be built, while Kaunas and Palanga airports terminals will be reconstructed as well. Other major projects are modernisation of instrumental landing systems at Vilnius and Palanga airports. It is evident that transport services directly depend on the quality and capacity of transport infrastructure. Nevertheless, an improvement of operational activities is also crucial. Seeking to liberalise the transport market Lithuania completed the creation of equal conditions for all companies and all operators. Much attention is paid to combined transportation, reduction of time spent at the border, simplification of procedures and other questions. A significant event of this year was the launching of combined transportation train "Viking". Since 2003 February the train "Viking" has been operating on the route Odessa - Klaipeda - Odessa. Integrating to the EU economy, one of the high priorities of Lithuanian transport sector development is the creation of a network of new generation logistic centres providing the whole range of transport services. There are plans to create logistics centres in the regions of Vilnius, Kaunas and Klaipeda. The logistic centre of Vilnius will be established on the basis of the modern concept of "freight village". The foundation of the other two centres is in process as well. As regards the administrative development the main tasks are to strengthen the administrative capacity, to finish harmonisation of legislation with the EU ones, to complete structural reforms with a view to the European experience. Road transport is the mostly developed, most liberal and privatised transport mode. In this field Lithuania fully applies the EU acquis on market access, professional competence, technical standards, traffic safety, social and fiscal requirements, transport of dangerous goods. Besides the legal approximation, which is almost finished, Lithuania pays great attention to the strengthening of administrative capacities. The implementation of social legislation and ensurance of road safety are the priorities in road transport sector. The most political and technical efforts are needed for railway liberalisation. The Government of Lithuania approved the strategy of Lithuanian railways reform until the year 2006 which foresees the liberalisation of railway transport, creation of competitive railway sector, ensurance of equal legal and economical conditions for all operators. 36 The structure of the railways was reorganized gradually, in order to create units of clear responsibility and commercial activities. In the process of restructuring, accounting systems for new units are established, a system of fees for the use of the infrastructure is created, and the activities of auxiliary companies are separated. The railways have entered the final stage of restructuring. Until 31 December 2003 there will be established 4 separate branches in JSC ,,Lithuanian Railways" passenger transportation services, freight transportation services, infrastructure maintenance and management, infrastructure property, On a later stage it is planned to establish a state enterprise which will be responsible for management of railway infrastructure and its development. (See Attachment F.3.) In 2002 the Ministry of Transport and Communications approved the Lithuanian Shipping Development Strategy, which aims to introduce broad and fundamental policy approach in the field of maritime transport. The Strategy covers the commitment to adhere and to implement all international maritime safety regulations, to ensure fair competition in the shipping market, and further development of seafarers' training. Harmonization is taking place in the area of regulation and state control of safe shipping, certification of shipping companies and vessels, the preparation of quality management systems for staff training. Issues of maritime safety are very important and are one of the priorities for Lithuania. As regards civil aviation, I would like to mention that the state owns the air transport company Lithuanian Airlines, with the daughter company Air Lithuania. Recently all shares of Lithuanian Airlines belong to the State Property Fund. Earlier this year the privatisation has been announced but the process has failed due to complicated situation in aviation market. At the time being Lithuanian Airlines undergoes restructuring. The main objective of the restructuring is to outsource some functions and daughter companies in order to be well prepared to operate in the liberalised European market. Lithuania will further harmonize its legal basis with EU requirements and will seek to fully liberalize and restructure the transport sector, granting quality and availability of services, traffic safety and the reduction of negative effects on the environment. Thank You! 37 C. Seminar objectives and participation The Baltic States have made substantial progress in restructuring their transport sectors since they regained their independence in 1991. Progress in the various transport modes has varied, however, and the three countries have not all taken the same approach. The World Bank has assisted in this process in some of the transport modes, especially in the road subsector where the Bank has had projects in all three countries. Discussions between the World Bank transport team and the Ministries of Transport of Estonia, Latvia and Lithuania had indicated that it would be useful to exchange information on what has transpired in each country, and to see what lessons could be learned from their separate experiences. The Ministers of Transport in the three countries expressed interest in participating in a seminar with this objective in mind, and the Minister of Transport in Latvia agreed to host the first seminar held in Riga in November 16-17, 2000 at the Ministry. The first seminar aimed at discussing the progress made in the Baltic States towards restructuring their transport sectors, including the road, road transport services, railways, air infrastructure and services, ports, urban transport, and general transport support services. The proceedings of the 1st seminar were published by The World Bank in 2001, and distributed to the participants. The three Ministries also received a stock of the book for their use. The report is also available at the website of The World Bank's Europe and Central Asia region3. The political and economical development since the 1st seminar has been very rapid. The Baltic States are about to join the European Union as well as NATO in spring 2004. The speed of the process was difficult to anticipate in 2000. As a consequence, the content of the 2nd seminar also reflects transport sector issues in view of EU membership in addition to the themes addressed already in the 1st seminar in Riga. The objective of the two seminars has been to allow the personnel involved in each of the transport modes to exchange information on what they have accomplished in their countries, to compare the degree of progress that they have made, and to assess what types of action have achieved the best results. This in turn provides a basis for generating constructive ideas for additional restructuring activity in the future, including those measures required by European Union member countries. Participants in the 2nd seminar on transport sector restructuring in the Baltic States included Mr. Meelis Atonen, Minister of Economic Affairs and Communications in Estonia; Mr. Roberts Zile, Minister of Transport in Latvia; and Mr. Zigmantas Balcytis, Minister of Transport and Communications in Lithuania. Several officials of the World Bank were involved in the seminar including Roger Grawe, Country Director for Central Europe and the Baltic States, and Cesar Queiroz, Transport Program Team Leader, Europe and Central Asia Region. Representatives 3 The report (Ojala and Queiroz, 2001 eds.) is at:available http://lnweb18.worldbank.org/ECA/eca.nsf/0/285b85155cb0455885256ab800689a2a?OpenDocument 38 from other international institutions included Mr. Sauli Niinistö Vice President, European Investment Bank (EIB); Mr. Erkki Karmila, Executive Vice President, Nordic Investment Bank (NIB); Mr. Urmas Paavel, Head of Mission in Estonia, European Bank for Reconstruction and Development (EBRD); Mr. Jack Short, Secretary General, European Conference of Ministers of Transport (ECMT). Numerous other officials involved in the transport sectors of each state also participated in the seminar. The total number of participants was around 80, representing mainly transport sector administration. (Attachment C.1.) The agenda included presentations by the Transport Ministries of each of the countries as well as those of the invited speakers; workshops, made up of personnel from each transport mode; and presentations of the results of the workshops. (Attachment C.2.). Prior to the seminar, each country responded to a questionnaire outlining in some detail what has been done in each mode in each country. The questionnaire used in the 2nd seminar was somewhat expanded from the one used in the 1st seminar. The replies of the questionnaire were prepared in a summary format and distributed in connection with the seminar. The material was also useful when compiling the seminar proceedings. The pre-seminar questionnaire is shown in Attachment C.3. The 2nd seminar was held on November 24-25, 2003 at Ranna Hotel in Parnu, Estonia, which provided an excellent venue. The seminar was hosted jointly by the Estonian Ministry of Economic Affairs and Communications and the World Bank. This seminar report was compiled by Professor Lauri Ojala and Mr. Tapio Naula of the Turku School of Economics and Business Administration, Finland, and Mr. Cesar Queiroz, The World Bank. The participation of Professor Ojala and Mr. Naula was funded through a research grant by the Finnish Academy of Sciences, which is gratefully acknowledged. This seminar report and the slide presentations shown in the Parnu seminar are available in an electronic format at the transport the website of The World Bank's Europe and Central Asia region4. Some of the slide presentations shown in Attachment P.1. have been edited to ensure readability in this report. They are available in full at the World Bank's website. In the Parnu seminar and during a subsequent mission to Lithuania, The World Bank representatives discussed the possibility to organize a third seminar hosted jointly by the Lithuanian Ministry of Transport, The World Bank and the European Conference of Ministers of Transport (ECMT). Both Minister Balcytis and Secretary General Short were willing to continue preparations to organize a follow-up seminar in Lithuania. 4http://wbln0018.worldbank.org/ECA/Transport.nsf 39 D. Strategic context 5 D.1 Global trends in the transport sector In an international comparison, the value added by transport lies within the range between 3 and 5%, and public investment in transport typically amounts to 2-2.5% of GDP. For the Baltic States, the value added of transport alone6 is ranging between 5 and 7 percent depending on the country and the year of observation, underlining its importance for these countries. Demand for transport in developing and transition countries typically grows 1.5 to 2.0 times faster than GDP. For the Baltic States, however, the performed ton kilometers have grown 3 to 4 times faster than their GDP during the past decade. At the same time, the Baltic States economies have grown fast, at an average annual rate of 4.5 per cent in Lithuania, 4.7 per cent in Estonia and 5.7 in Latvia during 1998-2003, and even higher growth rates are anticipated for 2004 and 2005. The main macro level factors defining the transportation trends include (i) the changing trade patterns and globalization, (ii) the evolving role of the private sector, and (iii) sustainability concerns. The main micro level factors include (i) the changing traffic patterns and behavior for passenger transport and mobility, and (ii) the changing logistical patterns and the impact of technological developments. In addition to these, a number of subnational challenges also need to be addressed. Globalization and changing trade patterns mean, inter alia, that the value of trade in manufactured goods increases faster than that of raw materials. During the 1990s, economic growth was a very strong in most OECD countries, especially in the US, but in 2000-2002 the world economy has slowed down. In 2003 and onwards, the growth seems to have picked up again. A further feature of globalization is that trade in services grows rapidly7. The evolving roles of the private and public sectors draw attention to the importance of allowing the private sector to operate efficiently, and of finding better ways of implementing good governance. This has led to the identification of separate roles for public authorities and commercial operators, especially in infrastructure management and in transport service provision. One of the measures taken is to "unbundle" the ownership of infrastructure from the operations. This procedure, and the related regulatory issues, need to be planned carefully, irrespective of whether the service provider is a public or a private entity, or a combination of the two (Figure D.1). Privatization has been widely used as a vehicle to restructure transport and transport infrastructure markets. Consequently, public-private partnerships (PPPs) have been introduced as a mechanism for providing good quality transport and infrastructure 5Prepared by Lauri Ojala (Turku School of Economics and Business Administration) and Cesar Queiroz (World Bank) 6The entire transport, storage and communications sector accounts for 14 to 16 % of their GDP. 7Data on Baltic States' trade in transport services in shown in Chapter E. 40 services at a reasonable cost. The World Bank experience of PPPs and transport sector governance include the following. Government support is essential to mitigate the start-up risk for cautious investors/lenders. Private capital works best when leveraged with public funds for highway development. An integrated transport policy approach includes the liberalization of trucking Toll roads are not a substitute for a well-funded and managed public highway program. Private toll roads can exist only because of commercial revenue potential in specific highway corridors. Competition Competitive in the market Business Road transport activities with entry of practices, Shipping Competition new firms environment, Air transport EST safety, and Stevedoring Competition antitrust from Air transport LAT substitutes Right of access Rail in Estonia to monopoly Monopoly facility and facility access price Major ports Prices, quality, Competition for and service Air transport LIT Monopoly the market via obligation, activities concession or via contract Rail in Latvia lease Prices, quality, Rail in Lithuania and service Integrated Integrated Integrated obligation, Monopoly state-owned via statute monopoly monopoly monopoly Initial status Industry structure Options for competition Object of regulation Unbundling No Unbundling Figure D.1: Unbundling of activities and the options for competition and private sector involvement, and the approximate placing of selected transport service provision in the Baltic States in 2003 (right). Source: World Development Report 1994, The World Bank. The Baltic States have made considerable efforts in their EU accession preparations (see also Figure D.1). The EU objective is to improve market access and functioning, particularly in the rail sector and ports, and to eliminate the obstacles which remain in other sectors (in particular civil aviation and public transport in large cities); to introduce fair and efficient pricing, with the aim of reducing the distortions of competition between modes of transport and between Member States; and to monitor the implementation of Community legislation, particularly on State aid and competition. 41 The approximate placing of the main transport service provisions in Figure D.1. indicate that the Baltic States have successfully opened up most transport services to competition. The placing is based on the synthesis of the findings in this report. Sustainability concerns comprise, inter alia, (i) social sustainability such as traffic safety issues, and general work conditions, and safety at work; (ii) environmental sustainability, such as minimizing the negative external effects of transport, e.g. accidents, emissions, noise, congestion, land use8; and (iii) financial sustainability both within the public and the private sector. The key points of the public sector's financial sustainability comprise the following: · reduction of fiscal deficit, · enhancement of public savings, · fiscal consolidation/restructuring of public finances, · achievement of the Maastricht target9 for government fiscal deficit; · reform of the revenue system, strengthening of tax administration, lowering of taxes. Furthermore, the cross subsidies from freight and/or inter-city operations (road, rail) become increasingly difficult to maintain. In Public Service Obligation (PSO) agreements transparency is very important. In PSOs, governments and municipalities are to pay for un-economic services and for privileged passengers. Capital subsidies (i.e. money transfusions) need to be re-considered across transport subsectors. The EU standpoint is that the needs of European citizens should be met, emphasizing the quality of transport services. Most importantly, safety must be improved. The Commission has put forward proposals on safety in civil aviation and maritime transport, and will ensure that the action program on road safety is implemented. Since 2002, the safety of oil shipping in the Baltic Sea has emerged as an important issue involving EU, International Maritime Organization IMO, and the countries around the Baltic Sea, including Russia. Changing consumer preferences and business practices, and the impact of globalization on firms, has led the manufacturing and trading firms to search for more efficient strategic directions and operational practices. This is manifested in the rapid adoption of a range of new logistics solutions, such as the management of supply chains and outsourcing of logistics services. These have given rise to a growing consolidation of logistics and transport markets in Europe and US through large mergers and acquisitions, and this consolidation is likely to continue. The process has also profoundly changed the logistics markets in the Baltic States. Safety issues of international trade and transport have also emerged in an unprecedented way since September 11, 2001. As a consequence, a series of measures to monitor transport operations, vehicles, cargo units, shipments and related 8Chapter O. deals exclusively with Environmental issues in transport. 9The fiscal deficit less than 3.0 percent and public debt as a percentage of GDP within 60.0 percent. 42 documents have been introduced or will be introduced in the near future. These affect the operations in transport terminals such as seaports, airports and in border crossings. The unprecedented development of information and communication technologies has also profoundly changed the transport sector, both in passenger and goods transport. Vehicle and equipment technology has also developed rapidly during recent decades. Today, the most lucrative logistics businesses deal with high value-added services and various electronic commerce solutions, especially in the so-called business-to- business markets. As a result, the most innovative firms in logistics business tend to come from outside the traditional transport or logistics operators. In this setting, the role of the government in this sector needs to be reconsidered. At the same time, the subnational challenge involves issues such as increased motorization (with its attendant congestion, pollution, and accidents), and an intensifying polarization between the more developed and less developed regions in the country. The government is also expected to offer ­ or let somebody else offer - a good quality yet affordable passenger transport or mail delivery service throughout the country. In many cases, there is limited local ­ or national - government capacity to deal with the social, technical and environmental issues and with the financial demands. Often there is also limited access to external financing. D.2 The Baltic States' economic profiles This section gives a brief introduction to the economies of the three Baltic States, and the economic importance of the transport sector in these countries. Extensive reports on general economic development can easily be found elsewhere, and as this report aims at presenting the key findings in the transport sector, general country profiles are kept to a minimum. A map of the three Baltic States and their main transport network is shown in Attachment D.1. Main economic indicators for each country are included in the attached "Country at a glance" tables in Attachments D.2. through D.4. D.2.1 Estonia Estonia was one of the first Soviet republics to declare independence in 1991. Since then, the country has enthusiastically embraced market reforms and has made remarkable process in the transition to a market economy. Successive pro-reform governments moved rapidly to dismantle the old Soviet structures, push through monetary reform and privatize state companies for cash to strategic investors. These included the fixed rate of the Estonian kroon first to German mark, and then to euro. A rapid and effective privatization program was largely completed by 1997. More than seven years of macroeconomic stability based on a strong convertible currency, 43 the kroon, has helped attract substantial foreign investment, at first from neighboring Finland, followed by Sweden, Denmark, other EU countries, and the US. Estonia vigorously sought its place at the EU accession table. In the Luxembourg summit in December 1997 European leaders named Estonia as one of the "fast track" candidates for EU membership, and in April 1998 Estonia presented a first version of its National Program for the adoption of the acquis. On September 14, 2003, Estonia organized the first referendum on joining the EU of the accession countries. A clear majority approved the proposal, and Estonia will join the EU as from May 1, 2004. According to the Ministry of Finance, Estonia will get financing of 740 million euros from the EU in 2004-2006. At the same time, Estonia's contributions to the EU budget will amount to 230 million euros and net position will thus be 510 million euros. The August 1998 Russian financial crisis caused a temporary setback in Estonia's successful transition and economic expansion. The industries to suffer most were those with traditional markets in the CIS in the food, textiles, and chemicals sectors. At the same time, this gave impetus for industries to streamline and reorient their exports, mainly to EU markets. The economic development after 1999 has been very rapid. Statistics Estonia estimated the GDP to grow by 4.4 per cent in 200310. In 2002, Estonian GDP was 41.7 per cent of EU average on a purchasing parity basis. EU estimates that the compound average annual growth rate (CAGR) of Estonian GDP in 2003-2006 will be 5.5 per cent. In 2006, this would raise the GDP to an estimated 47.6 per cent of EU average in PPP terms. By 2002, 65.3 % of the GDP was produced by the service sector. Unemployment is lower than in the other Baltic States, and in 2003 it was 8.6 %. Estonia has rapidly attracted substantial foreign investments: in 1995, the FDI stock was USD 688 million and in 2002 it was already USD 4,226 million (according to UNCTAD data). The transport sector has attracted foreign investment both in rail, air and sea transport operations. Foreign partners are also engaged in stevedoring and storage activities in ports. Annual inflation has decreased from around 5 per cent in 2000 to around 3 per cent in 2001 to 2002. In 2003, private consumer deflator was at 1.8 %. In 2002, the Estonian parliament approved its first budget with a deficit since 1991. In 2003, budget expenditure is 2.5 billion euros, or about 8 % more in nominal terms than in 2002. The budget deficit is 0.3 % of GDP, which is the lowest of all EU Accession countries. Budget expenditure increases come mainly from costs of NATO membership, preparations for EU membership and costs from pension reform. With practically no budget deficit and Government debt at 5.4 % of GDP in 2003 Estonia clears the Maastricht criteria by a wide margin. 10EU Parliament has also compiled up-to-date data on the Baltic States economy at: http://www.europarl.eu.int/enlargement_new/statistics/default_en.htm 44 D.2.2 Latvia From the onset of its transition, Latvia has assiduously pursued closer relations with European and transatlantic structures, while carefully maintaining good neighborly relations with the Russian Federation. Latvia is actively participating in a number of international organizations, and pursuing regional co-operation in the Baltic Sea area. In December 1999 Latvia was invited to start EU accession negotiations. Latvia is one of the most advanced transition countries, with a well-developed service sector accounting for 70.6 percent of GDP in 2002. The country's prime location as a transit hub for east-west trade has led to a rapid expansion in transport and communications. The economy has a strong industrial backbone, inherited from the industrialization process initiated in the 1950s to supply the Soviet market. Latvia's transition to a market economy has been rapid. Price liberalization took place at the outset of the transition in 1992, and privatization of small and medium term enterprises, although begun only in 1994, was basically completed by mid 1998. Since 1998, Latvia has undergone the difficult final stages of transition. The Russian financial crisis in 1998 brought more forcefully into focus the inherent problems in Latvia's public expenditure management system, as well as the need to finalize the privatization process, and simultaneously to define the role of the state as a regulator of productive assets rather than as an owner. After 1998, Latvia's economy has expanded rapidly, and the real GDP growth has been between 5 and 7 per cent per year. Growth has been strong in nearly all production sectors. Trade has increased at a double digit rate between 12 to 17 %, of which exports have grown by over 20 % on a year-to-year basis in 2001 to 2003. GDP grew by 6.1 per cent in 2002, and in 2003 it is estimated to grow by 6.0 per cent, and forecast for 2004-2005 is over 5 % p.a. In 2002, Latvian GDP was 35.2 per cent of EU average in purchasing parity terms. EU estimates that the compound average annual growth rate of Lithuanian GDP in 2003-2006 will be 6.2 per cent. In 2006, this would raise the GDP to an estimated 41.2 per cent of EU average in PPP terms. While industrial and trade sectors have grown fast, growth in transport sector has remained modest (at around 2 %) as oil shipments continued to fall in 2003. The difficulties were mainly caused as the Latvian oil company Ventspils Nafta and Russian oil exporters did not succeeded in agreeing on oil supply contracts for 2003. Both domestic demand and exports growth have been behind the GDP growth. The rise in wages and increase in the number of employed persons have underpinned household consumption. Nominal wages have increased by 6 to 7 % per year, while the unemployment has remained high; it was 12.4 % in 2003. The budget balance was -2.7 %, and Government debt was 16.7 % of GDP in 2003 which are under the Maastricht criteria. 45 Latvia has also rapidly attracted foreign investments: in 1995, the FDI stock was USD 615 million and in 2002 it was already USD 2,723 million (according to UNCTAD). However, the transport sector has attracted relatively little foreign investment. Inflation has remained low in Latvia. In 2002, annual inflation rate was 1.4 % and in 2003 it reached 2.3 %, which is still the highest rate among the Baltic States. Latvia voted for EU accession in a referendum on September 20, 2003. In the final negotiations, Latvia concentrated on agricultural and budgetary issues. Latvia is estimated to receive 1.1 billion euros in 2004-2006 from the EU, while paying in 0.3 billion euros to the EU budget. D.2.3 Lithuania Since regaining its independence in 1991, Lithuania has made considerable progress in restructuring its economy. It adopted a program of economic stabilization and comprehensive market reforms. The initial tightening of fiscal policies was continued by the introduction of the national currency, the litas, in 1993 and a currency board was established in 1994. The litas was pegged against the US dollar and then to euro. The parallel program for structural reforms began with extensive liberalization of domestic prices, financial markets, non-agricultural foreign trade, and capital flows. The privatization program successfully transferred assets into private hands. A voucher scheme was followed in 1996 by a program of enterprise sales for cash, which has so far included several key utilities and infrastructure firms. Progress in privatization, combined with growth of new SMEs, raised the share of the private sector in GDP to around 70 percent. 1995-1997 was a period of rapid growth of exports and continued reorientation towards Western Europe. The growth of Foreign Direct Investment (FDI) has been very rapid: its stock was USD 352 million in 1995, exceeding USD 2,330 million in 2000 and USD 3,980 million in 2002. Accelerated privatization together with EU accession is likely to boost FDI further. However, the transport sector has attracted very little FDI. The rate of GDP growth was between 4 and 6 percent in 1996-98. In 1999, GDP fell around ­4 percent as a consequence of the Russian financial crisis. Lithuania had substantial trade links with the CIS, and as a result in 1999, export and import volumes fell, in spite of sustained trade flows to and from western markets. The government has managed to follow a moderate fiscal policy in 2001 and beyond, and has accelerated structural reforms. As a result, Lithuanian GDP grew at 4 per cent in 2000, and at over 6 per cent in 2001 and 2002. EU's provisional estimate of Lithuania's GDP growth in 2003 is 6.0 %, whereas Statistics Lithuania estimated the growth for 2003 at 8.9 per cent. In 2002, Lithuanian GDP was 39.1 per cent of EU average in purchasing parity terms. EU estimates that the Lithuanian GDP will grow by 6.4 per cent (CAGR) in 2003-2006. This would raise the GDP to 46 per cent of EU average in 2006 in PPP terms. 46 By 2002, 62.2 % of the GDP was produced by the service sector. Unemployment has been high, and in 2003 it was 12.3 %. The budget balance was -2.6 %, and Government debt was 23.3 % of GDP in 2003 which are under the Maastricht criteria. In late 2002 and early 2003, Lithuania has experienced deflation approaching an annual rate of 1 per cent. Lithuania's deflation is mainly due to a correction of exceptionally high food prices in early 2002, which have now come back. In addition, import prices in early 2003 remained steady due to the appreciation of the euro against US dollar. Consumer prices are expected to rise by 2.3 % in 2004. D.3 Transport sector highlights in the Baltic States D.3.1 Transport sector`s Gross Value Added Transport is an important sector in all EU Accession countries, but its relative economic importance is the largest in the Baltic States. 15.5 per cent of the Gross Value Added11 in Estonia, 14.5 per cent in Latvia and 13.7 per cent in Lithuania was produced by the transport, storage and communications sector in 2002 (Table D.1.) Table D.1. Structure of Gross Value Added by activities in 2002 in per cent of GVA in EU Accession countries (in 2001 for Hungary and Slovenia). Based on NACE classification and current prices. Source: Canstat statistical bulletin 1/2003, Central Statistical Bureau of Latvia nia Rep. nia kia Estonia Latvia Lithua Poland Hungary Cyprus Czech Romania Slove Slova Bulgaria Agriculture,hunting, forestry, fishing 5.4 4.7 7.1 3.2 4.3 3.7 13.1 3.3 4.2 12.5 4.3 Manufacturing 18.6 14.8 19.4 17.4 22.7 26.7 26.7 26.6 20.5 17.1 10.2 Construction 6.6 6.1 6.5 6.5 5.1 6.6 5.6 5.8 4.9 4.4 7.4 Trade and repair 14.3 19.9 18.0 20.9 11.4 14.7 12.1 11.5 13.2 8.2 12.9 Transport, storage and communications 15.5 14.5 13.7 7.8 8.4 9.0 11.1 7.1 10.2 13.8 9.8 Financial intermediation 4.5 4.6 2.3 2.2 3.5 4.1 1.6 4.3 5.6 3.2 6.6 Real estate,renting, business activities 11.3 11.1 8.1 13.7 17.7 12.5 10.2 14.7 13.8 17.2 14.5 Other activities 23.8 24.3 24.9 28.3 26.9 22.7 19.6 26.7 27.6 23.6 34.3 GDP: USD billion 6.5 8.4 13.8 189.3 71.0 69.5 45.7 22.0 23.7 15.6 10.2 Transport, storage communications in USD million 1009 1219 1891 14764 5962 6256 5078 1562 2415 2148 999 11Gross value added (GVA) is the value of output less the value of intermediate consumption; it is a measure of the contribution to GDP made by an individual producer, industry or sector. 47 Roughly 35 % of the sector's GVA is produced in transport, 35 % in storage and the remaining 30 % by communications. In other words, transport and storage produces 10 to 11 per cent of the countries' Gross Value Added or GDP. This can be seen in the breakdown of Estonian and Latvian data in 2001 (Table D.2). Table D.2. Transport sector's share of Estonian and Latvian GDP in 2001 and the approximate values for subsectors in per cent and USD million. Sources: Estonian MEAC, Latvian Ministry of Economics 2002. Estonia Latvia GDP USD 5.5 billion GDP USD 7.7 billion Subsector Share of Value in Share of Value in GDP in % USD million GDP in % USD million Transport, of which 5.6 % 310 5.5% 425 Road transport 3.1 % 170 Railway transport 1.4 % 75 Land transport (+pipeline) 4.2 % 325 Maritime transport 0.5 % 30 0.8 % 60 Air transport 0.2 % 10 0.2 % 20 Storage *) 5.5 % 305 5.5 % 425 Post &Communications 4.9 % 270 4.6 % 350 Transport and 16.2 % 890 15.3 % 1,180 Communications, total *) including freight forwarding, warehousing, stevedoring and travel agencies. While Lithuanian GDP breakdown is not available, the distribution of jobs between the subsectors is very similar than in Latvia, so the subsectors are likely to produce approximately similar shares of GDP. D.3.2 The transport sector in the Estonian Economy Estonia is an important transit route for Russia in its trade with western markets. Providing transit services for Russian and other CIS clients has resulted in huge investment in the transport infrastructure. The transport sector partly suffered and partly profited from the Russian crisis: on the one hand, Russia considerably increased its exports of oil and other natural resources, which benefited Estonian operators in oil trade; on the other hand, the devaluation of the rouble led to an enormous decrease in Russian imports, which led to losses to firms engaged in export to Russia. For Estonia as a whole, the increased oil transit revenues compensated for losses in other transport operations, and for the oil transit sector the period from 1999 onwards has been an exceptionally good one. Estonian GDP in fixed prices increased for the first time after re-independence in 1995, but that of transport, storage and communications had been growing since 1993. This was due to the rapid development of road transport and port facilities. Since 48 1996 the transport sector has seen an especially fast growth, mostly due to rapidly advancing transit trade, where the value added in transport has been more than 50%. Transport, storage and communications enterprises contributed some 12 percent to the Estonian GDP in 1999. In 2002, there were already over 7,000 enterprises in the sector, up from about 2,000 in 1999. Transport, storage and communications including the related government sector constituted 15.4% of GDP for 2000, and 16.2 per cent in 2001 (Table D.2). Trade in transport services is discussed in Section E.2. Investment in transport infrastructure in Estonia is directed mainly to roads and ports (Attachment F.1.) According to this data, the most of port investment is already completed, whereas the big road investment outlays are planned in 2002-2010. Because of rail privatization, the Government-funded investment in the rail subsector is low. D.3.3 The transport sector in the Latvian Economy Transport and communications is an important sector of the Latvian economy. In the recent years, it has contributed 15 to 16 per cent of the total value added in the country (Table D.2). The Ministry of Economics (MoE) estimates that some 2/3 of total demand for transport services is domestic demand and the remaining 1/3 is generated by external demand. Furthermore, the MoE estimates that the revenues of transport and logistics services to east-west transit traffic corresponded to 6.4 per cent of GDP in 2001, down from 10.2 per cent in 1996. This translates to approximately USD 500 million in both 1996 and 2001 in current prices and exchange rates. According to the MoE estimates, 66 per cent of this revenue is generated by water transport (including ports), 22 per cent by supporting and auxiliary transport activities and the remaining 17 per cent by land transport. Transit traffic issues are discussed in more detail Chapter J. In its transport sector development, Latvia recognizes the need to play a vital part in the development of EU's integrated Trans-European Network (TEN). Against this background, Latvia invested EUR 524 million in the main transport infrastructure in 1996-2002, of which EUR 254 million in railways, EUR 159 million in ports (excluding private sector investment), EUR 71 million in state roads and EUR 40 million in Riga airport12. (See also Attachment F.1.) 12As presented by Mr. Legdzins, Latvian MoT, in the Parnu seminar, November 24, 2003. 49 D.3.4 The transport sector in the Lithuanian Economy In Lithuania, the gross value added (GVA)13 of the transport, storage and communication sector was 12.6 of the total GVA value in 2001 and 13.7 per cent in 2002. According to data in Table D.1., this equals approximately USD 1,890 million, which means that Lithuania has the largest transport sector of the Baltic States. Economic activity is much more evenly located in Lithuania than in Estonia or Latvia, in which up to 75 per cent of economic activity is concentrated in the capital regions. In Lithuania, the main production and consumption areas are the Vilnius capital region, Kaunas and Klaipeda. These are all on the north-western Transport corridor IX, and well connected with road and rail and the main port of Klaipeda. For the transport sector this means that the demand for domestic transport and distribution is much higher than in Estonia or Latvia. Detailed data on domestic freight and passenger transport in Lithuania is shown in Attachment D.7. D.3.5 Transport markets in terms of transport work in the Baltic States Actual transport performance and demand is conveniently called transport work14. Unlike the number of tons or passengers, it indicates the size of the transport market, as a given transport performance needs to be matched with a corresponding capacity. From 1999 to 2002, the total freight transport work15 increased by 39 per cent in Lithuania, 25 per cent in Estonia and 17 per cent in Latvia. Compared with most EU Accession countries, the absolute size of the transport market is relatively small (Table D.3). The market for rail transport increased most in Estonia, but went 24 per cent up also in Latvia and Lithuania. In the two latter countries, road transport increased very rapidly, by 47 per cent in Latvia and 38 per cent in Lithuania from 1999 to 2002. In Estonia, the increase was only 10 per cent in that period. Transport work through oil pipelines increased by over 86 per cent in Lithuania, while the Latvian market contracted by over 16 per cent (Table D.2). In passenger transport, measured in passenger kilometers, road transport is by far the most popular means of transport. The declining usage of rail services for passenger transport is evident. Interestingly, air transport performed more passenger kilometers than railways in Estonia and Lithuania in 2002 (Table D.4). 13By comparison, the comparable GVA share in 2001 in Estonia was 16.4 per cent and in Latvia 15.5 per cent, which is almost identical as the GDP values in Table D.1. 14Transport work is typically measured as ton-kilometers for freight or passenger kilometers in passenger operations, that is, as one ton of cargo or one passenger transported one kilometer. 15Excluding maritime transport; see Chapters on Maritime transport and ports and Transit traffic. 50 Table D.3. Freight transport work by land and air transport in 1999 and 2002 in the Baltic States, Poland, Hungary and Czech Republic, million ton- kilometers. Source: EU Candidate States database 2003. Oil Total Railways Road pipelines Air 1999 11 274 7 295 3 975 .. 4 Estonia 2002 14 089 9 697 4 387 .. 5 1999 22 436 12 210 4 161 6 055 10 Latvia 2002 26 221 15 020 6 120 5 071 10 1999 18 219 7 849 7 740 2 627 3 Lithuania 2002 25 370 9 767 10 709 4 892 3 1999 30 846 7 734 18 599 4 457 56 Hungary 2002 29 838 7 752 17 143 4 912 31 Czech 1999 55 502 16 713 36 964 1 795 30 Rep. 2002 62 580 15 772 45 059 1 717 32 1999 309 670 55 471 70 452 19 417 94 Poland 2002 247 559 47 756 74 679 20 854 80 Table D.4. Passenger transport performance by mode in 1999 and 2002 in the Baltic States, Poland, Hungary and Czech Republic, million passenger- kilometers. Source: For Lithuania, Statistics Lithuania; other countries: Central Statistical Bureau of Latvia 2003, EU Candidate States database. Total Railways Road Air 1999 3 191 238 2 222 298 Estonia 2002 3 282 177 2 330 355 1999 3 590 984 2 368 238 Latvia 2002 3 443 744 2 361 338 1999 3 797 745 2 665 387 Lithuania*) 2002 3 068 498 2 046 524 1999 24 332 9 514 11 265 3 513 Hungary 2002 26 102 10 531 12 097 3 445 1999 19 957 6 954 8 649 4 354 Czech Rep. 2002 23 157 6 597 9 665 6 895 1999 65 260 26 198 33 250 5 629 Poland 2002 56 903 20 749 29 295 6 672 *) Data from Statistics Lithuania; only public transport There is virtually no passenger transport by sea in Latvia or Lithuania, whereas it is a very important activity in Estonia. This is mainly due to the strong passenger trade between Tallinn and Helsinki. Over 1.3 million domestic passenger travel by sea and 0.1 million by air to the islands of Saaremaa and Hiiumaa on the Estonian west coast. 51 D.3.6 Employment and wages The transport sector (including communications) employs around 9 to 10 percent of the total employed persons in Estonia; the corresponding share is 8 to 9 percent in Latvia and around 6 percent in Lithuania (Table D.5). Both these shares and the actual number of persons employed in this sector have remained very stable during the period 1995-99. The absolute number of employment overall and in transport, storage and communications has declined. This is partly because the number of self-employed persons and entrepreneurs has increased. The used statistical base is also slightly different. Table D.5. Number of employees in all sectors, and in transport, storage, and telecommunications (TSC), NACE classes 60-64 in 1995-2002 in thousands. Source: 1995-1999: Statistical offices of Estonia and Lithuania, Latvian MoT; Central Statistical Bureau of Latvia 2003. Estonia Latvia Lithuania Year Transport All sectors Transport All sectors Transport All sectors 1995 65,8 656,1 10,0 % 92,0 1046,0 8,8 % 95,1 1643,6 5,8 % 1996 64,7 645,6 10,0 % 84,0 949,0 8,9 % 94,8 1659,0 5,7 % 1997 59,4 648,4 9,2 % 82,0 990,0 8,3 % 95,6 1669,2 5,7 % 1998 58,3 640,2 9,1 % 79,0 989,0 8,0 % 96,9 1656,1 5,9 % 1999 62,7 614,0 10,2 % 82,0 968,0 8,5 % 105,1 1647,5 6,4 % 2000 57,0 573,0 9,9 % 79,0 940,0 8,4 % 98 1518,0 6,5 % 2001*) 54,0 578,0 9,3 % 78,0 962,0 8,1 % 86 1352,0 6,4 % 2002 55,0 586,0 9,4 % 86,0 989,0 8,7 % 87 1406,0 6,2 % *) Data for Lithuania in 2001 not fully comparable with other years A breakdown by transport subsectors for 1999 is shown in Table D.6. The main subsectors are road and rail transport, but in addition the supporting and auxiliary services employ some 15 to 20 percent of the total. This latter group comprises, for example, freight forwarding, stevedoring, customs brokerage and warehousing staff. Table D.6. Number of employees in all sectors, and in transport, storage, and telecommunications by subsectors, (NACE classes 60-64) in 1999 in thousands. Source: Statistical offices of Estonia, Latvia, and Lithuania Estonia Latvia % Lithuania % All sectors 614,0 699,5 1647,5 Transport, storage, communications 62,7 66,7 105,1 railways 16,3 24,5 % 18,3 17,4 % road and urban transport 20,1 30,2 % 44,6 42,4 % water transport 0,6 0,9 % 3,0 2,9 % pipeline 0,4 0,6 % 0,3 0,3 % air transport 0,6 1,0 % 1,6 1,5 % supporting and auxiliary activities 14,4 21,6 % 16,2 15,4 % post, courier, telecommunications 14,1 21,1 % 21,0 20,0 % 52 Transport sector wages are clearly above national averages in all three Baltic States (Table D.7). There are, however, marked differences between subsectors. This is exemplified using data from Latvia in 1996-1998, which, of the three countries, provides the best data for this purpose (Table D.8). Table D.7. Transport, storage and communication sector's and all sectors' average monthly nominal salaries (USD). Sources: for 1994-1999, Statistical Office of Estonia; Central Statistical Bureau of Latvia, and Statistics Lithuania; for 2000-2002, Central Statistical Bureau of Latvia 2003. Transport, storage, communication All sectors Estonia Latvia Lithuania Estonia Latvia Lithuania 1994 195 208 98 140 131 81 1995 271 253 148 207 167 120 1996 301 273 191 240 198 170 1997 309 301 234 249 203 195 1998 382 327 275 308 234 233 1999 356 321 299 285 242 247 2000 355 319 292 289 247 243 2001 370 319 292 312 254 245 2002 426 352 326 367 280 281 In Latvia, pipeline and water transport average wages are the highest, and they are almost twice as high as the following group, air transport average wages. The low- end subsectors include post and courier activities, rail and road transport (Table D.8). Table D.8. Transport, storage and communication sector's and all sectors' average monthly salaries in Latvia (in USD/month). Source: Statistical Office in Latvia. 1996 1997 1998 Railway 236 267 297 Road and urban electrified 158 173 191 Water 526 598 926 Pipeline 890 1011 926 Air 354 404 507 Supporting and auxialiry transport activities 384 437 475 Post and courier activities 129 142 158 An interesting phenomenon is that in Latvia, the average wages within transport tend to be higher in public sector entities than in the private sector. This is the case in all subsectors with the exception of water transport. In Estonia, the wages in transport and communications grew more slowly than the national average wages in 2001 and the growth rate slowed even more in 2002. However, productivity in the transport sector grows faster than labour costs. The total 53 number of persons employed in transport has reduced from 48,600 in 1999 to 44,200 in 2001. The number of persons employed in the telecommunications sector has remained almost stable at 10,000 persons from 1992 to 2001. One of the main reasons is that many of those who worked before as employees in companies have decided to become sole proprietors or have established their own small companies and thus do not appear in national statistics of employees any more. In 1999 a total of 1,699 transport and telecommunications companies were registered in the Commercial Register, but three years later the number had grown to 7,026, including 3,060 sole proprietors (Estonian MEAC). D.4 Transport Sector Projects and International Financial Institutions The Baltic States have financed many of the major transport sector projects with exclusive or partial funding either through International Financial Institutions (IFIs) or from other international organizations such as the EU. The main IFIs in this respect include EBRD, EIB, NIB, and the World Bank (in alphabetical order). The role of private sector finance also increased towards the end of the 1990s, especially in projects involving transport operations. IFIs have typically been involved in the financing of transport infrastructure projects in road, rail, sea, and air transport. The involvement of the four main financial institutions in the transport sector in the Baltic States is presented in more detail in this section in alphabetical order. The total transport sector funding through loans from the four institutions amounts to approximately 780 million euros (Table D.9). Table D.9. Approved EBRD, EIB, NIB, and World Bank loans in Transport Sector in the Baltic States. Sources: EBRD, EIB, NIB, and The World Bank. Loans Period EBRD 158 m EUR By end-year 2003 EIB 365 m EUR 1994-2003 NIB 156 m EUR By November 2003 World Bank (IBRD) 111 m USD 1993-2005 D.4.1 EBRD finance in the transport sector in the Baltic States16 EBRD's transport sector portfolio comprises mainly road and rail projects. Air transport and ports have had smaller shares, followed by multi-modal projects. As of December 31, 2002, EBRD had committed 2,866 million euros in a total of 78 transport projects. 16This section is based on the presentation of Mr. Urmas Paavel, EBRD. The EBRD website is found at: www.ebrd.org 54 The volume of EBRD finance in transport projects executed in the Baltic States is shown in Table D.10. The total volume of EBRD commitments was 143.5 million euros by the end of 1999, and 158.2 million euros in 2003. This is about 5 per cent of EBRD's total transport sector commitments. Table D.10. EBRD's commitments in 2003 in transport infrastructure projects in the Baltic States (Source EBRD presentation in Parnu Seminar) By subsector Number of projects EBRD Total Project Value Commitment (m EUR) Rail 2 63.9 188.7 Road 3 44.6 170.6 Air 3 26.1 28.6 Ports/Shipping 2 23.6 60.7 Total 10 158.2 448.6 By country Number of projects EBRD Total Project Value Commitment (m EUR) Estonia 3 37.1 63.5 Latvia 4 38.7 146.8 Lithuania 3 82.4 238.3 Total 10 158.2 448.6 The projects comprise mainly of the following. Railways projects support the restructuring broadly in line with EU Directives (Latvia), and facilitate sector privatization with technical assistance (Estonia). In Tallinn and Riga Airports, the aim is to improve access to region facilitating market-oriented economy and to implement a commercial approach to airport operations. Ventspils Port Terminal project has a Public-private approach to port investments, and it will promote East-West trade. Latvian and Lithuanian Road Projects deal with open tendering for civil works, road sector budgeting and sector cost recovery utilizing road user charges. D.4.2 EIB finance in the transport sector in the Baltic States1 7 The European Investment Bank's (EIB) mandate for the years 2000-2006 for CEECs totals 8,680 million euros, part of which is guaranteed by the EU. EIB's own resources for pre-accession projects for the years 2000-2003 amount to 8,500 million euros. The Baltic States' are included in this amount, but no country quotas exist as such. EIB's transport sector loans in the Baltic States are shown in Table D.11. 17This section is based on the presentation of Executive Vice President Mr. Sauli Niinistö, EIB. The EIB website is found at: www.eib.org 55 Table D.11. EIB financed transport projects in the Baltic States 1994 ­ 2003, million euros. Source: EIB Million EIB Project Year signed euros Estonia: Road Project 1999 15 Tallinn Airport Project 1997 10 Estonia- Railways Project 1996 16 Upgrading Air Traffic Services (ATS) 1994 20 Port of Muuga : Bulk Terminal 1994 15 Estonia total 76 Latvian Transport Infrastructure 2002 33 Riga International Airport Project 2000 10 Ventspils Port - Project Phase II 1999 8 Railways Project 1998 34 Ventspils Port Upgrading 1997 20 Latvia total 105 Lithuanian Highways Project 2001 50 Klaipeda Port, Phase II 2000 10 Lithuania -Railways Project 1999 18 Roads Project 1998 40 Lithuania -Railways Project 1996 22 Via Baltica 1996 20 Port of Klaipeda 1995 14 Upgrading of Vilnius Internat. Airport 1994 10 Lithuania total 184 All total 365 D.4.3 NIB finance in the transport sector in the Baltic States The Nordic Investment Bank (NIB)18 is a regional financial institution established and maintained by the five Nordic countries (in alphabetical order), Finland, Denmark, Iceland, Norway, and Sweden. NIB´s total loan commitments to the Baltic countries as of March 2001 was approximately 400 million euros, and in November 2003 it was already 620 million euros. NIB's involvement in the Baltic States transport sector has been mainly in road projects (Table D.12). NIB has been active in promoting the Via Baltica branch of Crete Corridor I. In 1995 the High Level Working Party of Via Baltica was established upon the initiative of NIB. The initiative resulted in the first Investment Program of Via Baltica at an amount of 200 million euros. Upon successful implementation of this program, a second Via Baltica Investment Program (Table D.13) has been developed for the years 2001-2006. It comprises EUR 553 millions for Via Baltica and EUR 102 million for access roads to Via Baltica. The implementation will continue until the closure of EU/ISPA program in 2006. 18The NIB website is found at: www.nib.fi; This section is largely based on the presentation of Executive Vice President Erkki Karmila, November 24, 2003 56 Table D.12. NIB's total commitments to the Baltic Sea transition countries by sector ­ as of November 2003 (mEUR). Source: NIB Baltic States Poland Russia Total % Energy sector 189.0 158.2 0.0 347.3 34 % Telecommunications 14.4 37.7 17.0 69.0 7 % Transport infrastructure 156.1 0.0 0.0 156.1 15 % Water and sewage 20.5 20.0 78.0 118.5 11 % Total infrastructure 379.9 215.9 95.0 690.8 67 % Municipal financing 60.0 0.0 0.0 60.0 6 % Manufacturing 12.5 0.0 25.5 38.0 4 % Other 167.0 20.0 55.4 242.4 24 % TOTAL 619.4 235.9 176.0 1031.3 100 % In the end-1990s, NIB was the main financier in the construction and activation of the new letter- and parcel-handling terminal for the Estonian Post Office. This 13 million DEM project also involved the Finnish, German, Norwegian and Swedish Post. Table D.13. NIB's major commitments to transport projects in the Baltic States as of November 2003. Source: NIB Via Baltica Road Loan in Lithuania, 1996 USD 6.7 million Lithuanian Gravel Road Programme in 2001 EUR 67.4 million Estonian Rural Road Development Programme in 2001 EUR 45.0 million Tallinn harbour development in 2003 EUR 40.0 million Klaipeda harbour development in 2003 EUR 4.3 million Total EUR 160 million In late 2003, the three Baltic States were invited to join the NIB, and they have already expressed their willingness to do so. After the required parliamentary process in all member states, the Baltic States are likely to join the NIB by or around 2005. D.4.4 World Bank finance in the transport sector in the Baltic States Data for the World Bank's program in the Baltic States is shown in "Country at a glance"- Attachments D.2.-4. They also show the volume of IFI loans in all sectors. The World Bank transport sector portfolio in Europe and Central Asia (ECA) is dominated by road projects (approximately 65 percent), followed by urban transport (approximately 20 percent) and rail projects (approximately 8 percent)19. 19For further information, see www.worldbank.org/ecspf/ecsin/transport.htm 57 Table D.14. World Bank/IBRD loans in the transport sector in the Baltic States in million USD. Source: The World Bank Country Subsector/ type Project IBRD loans Total project period in m USD cost in m USD Estonia Highway 1993-1997 12.0 26.9 maintenance Estonia Transport 2000-2005 25.0 49.5 Total Estonia 37.0 76.4 Latvia Highways 1995-2000 20.0 54.4 Total Latvia 20.0 54.4 Lithuania Highways 1994-2000 19.0 44.2 Lithuania Klaipeda port 2000-2002 35.4 56.9 Total Lithuania 54.4 101.0 Baltic States Total 111.4 231.9 In the Baltic States, the Bank's transport sector involvement is mainly in the road subsector, where the Bank has had projects in all three countries (Table D.14). Other important subsectors are ports and rail. The Bank has also been an advisor or facilitator in a number of small projects on Trade and Transport Facilitation or urban transport in all three Baltic States. In 1999, the World Bank Group, together with the private sector and other international organizations, launched the Global Facilitation Partnership for Transportation and Trade (GFP). This is an initiative to help in addressing a pervasive issue in numerous countries throughout the world, namely the obstacles to trade and international transport arising from cumbersome, often redundant, documentary procedures and controls20. D.5 European Union assistance to the transport sector in the Baltic States The European Union has taken an active role in assisting the Baltic States in social, economic and technological development in many sectors. In the transport sector, the main vehicles or initiatives during the 1990s have been the PHARE program; the identification of specific development corridors within the Trans-European Transport Networks (TEN-T); Transport Infrastructure Needs Assessment of the CEEC (TINA); and regional development programs such as INTERREG21. EU accession also means more economic support in transport infrastructure investment for the new member countries. The funds from EU to transport infrastructure before accession were EUR 28.9 million per year, of which EUR 24.1 million is from ISPA/Cohesion fund, and the remaining part from PHARE or European Regional Development Fund (ERDF) programs. After the accession, the funds available for accession countries will be approximately EUR 110 million per year, of which 80 million is from ISPA/Cohesion fund, and 30 million from ERDF. 20Its comprehensive website was updated in 2004; see: www.gfp.org 21A detailed evaluation of the multitude of EU assistance lies beyond this report; data on this can be found, for example, in EU's websites through www.europa.eu.int 58 Table D.15. Community co-financing from the EU in infrastructure related targets for the period 2004-2006. Means Contribution Estonia: Transport infrastructure 138.1 million Infrastructure Projects of environmental infrastructure or 37 % of the and local Reorganization of the hospital network total development Information society (e-government, e-citizen) Local development projects with socioeconomic impact Latvia: Transport 203.8 million Promotion of Environment or 33 % of the territorial Tourism total decisions Information and communication technologies Health care Education Social sectors when related to labor market Lithuania: Transport 347.1 million Social and Energy or 39 % of the economic Health total infrastructure Education Research institutions Labor market institutions Related social affairs sectors The Baltic States have also had access to the EU's 4th, 5th and 6th Research Framework Programs, the latest of which is running in 2002-2006. Their participation in these has been modest, indicating that research institutions and universities in the Baltic States still have a limited capacity to participate in international projects. When the Baltic States will become EU members in May 2004, the nature of EU's assistance to the new member countries will also change. For example, for the period 2004-2006, the Community co-financing in all sectors will amount up to 895 million euros for Lithuania, 626 million euros for Latvia and 371 million euros for Estonia. Only part of these will be directed to transport or infrastructure projects. The full utilization of these funds also requires active participation from the new member countries. (Table D.15 ) D.5.1 PHARE The PHARE program has had a substantial impact on the institutional development of all three states. A large number of PHARE-funded projects have been carried out in all transport subsectors, and in closely-related fields such as trade and transport facilitation, customs and border guard services. There was a resident PHARE mission in the Ministries of Transport of each of the three states throughout the 1990s. Since 1991, there have been more than 100 individual transport-related PHARE projects in the Baltic States. 59 D.5.2 TEN-T and TINA In the pre-accession phase, transport was identified as a priority issue and this will continue beyond accession. Priority of alignment laid down in the EU acquis puts emphasis on harmonization of land, sea and maritime transport rules, and in particular on technical, social, environmental and safety aspects. Other key priorities are physical transport infrastructure links and, more particularly, extension of TENs, as well as the negotiation and the conclusion of transport agreements between the EU and candidate countries to prepare for accession. In the 1990s, most cases existing infrastructures in candidate countries were unable to cater for future needs. For the CEECs and Cyprus the EU undertook a TINA exercise (identifying a backbone network for extension of the TENs into the accession countries and additional network components). The length of the network assessed was more than 18,000 km roads and 20,000 km rail; the main networks for road and rail transport according to TEN, TINA and the Helsinki meeting22 networks are shown in Attachment D.9. See also Attachment D.10. Preliminary cost estimations under the TINA exercise, for the completion of the total network, indicated that 91,000 million euros up to 2015 was required: 44,000 million euros for roads, 37,000 million euros for rail, and the rest for inland waterways, airports, seaport, river ports and terminals. In the TEN-T Invest report (2003), the figure is around 38,000 million euros for roads and 11,000 million for rail (Attachment F.1.) Most countries need to invest around 1.5% of GDP into transport infrastructure. Since the EU's budget cannot meet all those needs, there is a need to resort to Public- Private Partnerships (PPPs), national budgets and IFI loans to meet the costs incurred. All the Baltic Sea nations except Russia are included in the TINA project. In TINA and in TEN, important infrastructure links have been identified for both road and rail, whereas no comparable framework exists for the ports. Ferry lines are included neither in TEN nor TINA. For the other East European States the land corridors developed at the Conference of Transport Ministers in Helsinki are relevant. However, no corridors across the Baltic Sea were identified which link the various ports and the land corridors. In 2003, the concept of Motorways of the Seas was introduced in EU's transport policy to compensate for this handicap. For reference, a map showing some of the main population centers around the Baltic Sea is included as Attachment D.11. 22The Helsinki meeting refers to one of three EU-sponsored Pan-European Transport Conferences (Prague 1991, Crete 1994, Helsinki 1997). These meetings have taken major steps in the formation of the main transport network in Central and Eastern Europe. The Crete Conference identified the nine Pan-European Transport Corridors, where Via Baltica was named as the road component of Corridor I. The Helsinki Conference augmented these priority corridors i.a. by defining the east-west links between Corridors I and IX in Estonia and Latvia. 60 D.5.3 ISPA The European Union required all accession countries to draw up Strategies for Structural Policies for Pre-Accession (ISPA), outlining national policies for, inter alia, transport infrastructure development. An ISPA fund was established in June 1999 to provide additional finance for the reinforcement of the pre-accession process of the candidate countries. The ISPA regulation covers the years 2000-2006 and provides 1,040 million euros annually for all candidate countries, of which about 500 million euros is designated for the Poland and the Baltic States, for investment assistance in the transport and environmental sectors. When these countries enter the EU, the ISPA instrument will be phased out by the end of 2006, it will be replaced by, for example, European Regional Development Funds (ERDF). D.5.4 EU's Northern Dimension Policy and the transport sector The European Union approved the first Action Plan for the Northern Dimension (ND) at the in July 2000 and the 2nd Action plan in October 200323 covering the period 2004-2006. Geographically, the Initiative covers the northern corner of Europe, from north-west Russia to the Baltic countries, Poland and the Baltic Sea area. The 2nd Northern Dimension Action Plan sets out a framework of priorities, objectives and actions to be pursued in the implementation of the Northern Dimension in the external and cross-border policies of the European Union over the period. The document focuses on five priority sectors: economy and infrastructure, social issues (including education, training and public health), environment, nuclear safety and natural resources, justice and home affairs and cross-border co-operation. Within each of these sectors, it sets out strategic priorities and specific objectives, and indicates the priority actions to be pursued in achieving these objectives. The improvement of the transport infrastructure in the ND area is vital for the economic development of the region, with the key priorities being the development of a multi-modal transport system improving the connections within the region and with the neighbouring countries, the creation of an environmentally friendly integrated transport and communications market, the promotion of an efficient use of existing infrastructure, and the further realisation of the Pan-European transport network in partner countries. Safety levels within all modes of transport must be enhanced, in particular for maritime safety with regard to the use of double-hull tankers and sufficient safety classification in harsh ice conditions, including scientific research support. To help address the above priorities, ND partners will therefore work to achieve the following key objectives: 23The 2nd Action Plan at: http://europa.eu.int/comm/external_relations/north_dim/ndap/ap2.htm 61 To address bottlenecks and choke points in the Northern Dimension region, creating at the same time an environmentally friendly transport network integrating accession countries. The basis for such a work will be provided by the Commission revision of the Guidelines for the Trans-European Transport Network (TEN-T) and the Commission White Paper "European Transport Policy for 2010". To increase safety levels within all modes of transport. High priority will be attributed, in particular, to maritime safety, with a view to protecting the marine environment from accidents that threaten sea and coastal ecosystems as well as the socio-economic life of populations involved. Scientific research will support such activities. The Northern Dimension action plan 2004-2006 aims at strengthened implementation of Pan-European Corridors and Areas, notably Pan-European Corridors I and IA (Helsinki to Warsaw and to Gdansk, via Tallinn, Riga and Kaunas), and Corridor IX (Helsinki to St Petersburg, Moscow and Pskov, Kiev, and on to Chisinau and to Alexandropoulis), as well as the links from Kaliningrad and Klaipeda via Vilnius to Minsk. The Pan-European Corridors and Areas concept will be revised as, after enlargement, two thirds of the Corridors and Areas will be inside EU territory. D.6 Institutional framework in the transport sector in the Baltic States This section presents briefly the governance of the transport and communication sector and adherence to international transport conventions and inter-governmental organizations. It also indicates the adherence main non-governmental organizations. In all three countries, the Ministry responsible for transport is also dealing with telecommunications, but these activities are not covered in this report.24 D.6.1 International transport conventions The Baltic States have joined, generally speaking, all the main international transport conventions. In addition to multilateral conventions and treaties, they have made extensive bilateral agreements mainly in road and rail transport issues with Russia and other CIS countries. The adherence to main land transport conventions is shown in Attachment D.6. In air transport, the Baltic States have ratified or signed the main conventions, such as the Chicago, Hague, Geneva, Rome, Montreal and Warsaw Conventions, but not necessarily all the related protocols. 25 In rail transport, all three countries are members of the Organization for the Collaboration of Railways (ORC, a.k.a. OSJD), which is an intergovernmental organization mainly for Russia and CIS countries. The Baltic States and Finland share the same rail gauge as the Russian railways. 24 Estonia: www.mnt.ee/atp/eng/ ; Latvia www.lra.lt/index_en.html ; Lithuania 62 Latvia and Lithuania are members of OTIF,26 which oversees the Convention concerning International Carriage by Rail (COTIF) and the contracts on: the international rail transport law (passenger - CIV - and freight traffic - CIM); the carriage of dangerous goods (RID); the contracts of use of vehicles (CUV); the contract of use of railway infrastructure (CUI); the validation of technical standards and the adoption of uniform technical prescriptions for railway material (APTU); the procedure for technical admission of railway vehicles and other railway material used in international traffic (ATMF). As regards maritime conventions, the Baltic States have ratified or signed the main conventions27, but not necessarily all the protocols on: (i) Maritime safety, such as: Safety of Life at Sea (SOLAS); Training, Crewing and Watchkeeping (STCW 78); ships' Load Lines; Collision Prevention (COLREG); Safe Containers (CSC); and Search and Rescue (SAR), (ii) Maritime Pollution (MARPOL); and (iii) Other subjects, such as: Suppression of Unlawful Acts Against the Safety of Maritime Navigation (SUA); D.6.2 The Baltic States' participation in ECMT The European Conference of Ministers of Transport28 is formally part of the OECD. It is a Forum where Ministers discuss transport policy with all 40 members. Working Groups on different topics allow opportunities to develop policies in particular areas, and to prepare Ministerial decisions. Seminars and Conferences give opportunities to keep up with developments. A recent example of this is the work on Pan-European Transport Corridors and Areas that has continued at the seminar jointly organised by the ECMT and EC, EIB and UNECE on "Transport infrastructure development for a wider Europe" in Paris on November 27-28, 2003. At this event it was decided that the EC will take the lead in proposing a new Corridors and Areas concept in 2004. ECMT also collects statistical data that allows the development of harmonized indicators, and output includes policy and research publications, data, policy analysis, 25For details, see ICAO's website at: http://www.icao.int/cgi/eshop_conv.pl?GUESTguest 26 The Intergovernmental Organisation For International Carriage By Rail www.otif.org 27For details, see IMO's website at http://www.imo.org/Conventions/mainframe.asp?topic_id=148; Latvia accessed SOLAS and Estonia SUA Protocol on January 2004. 28Based on the presentation of Mr. Jack Short of the ECMT. ECMT website at: www.oecd.org/cem 63 and political conclusions. A concrete benefit is the Multilateral Quota, which allows international multilateral trucking. The Baltic countries have been active in ECMT work. Ministers frequently take the floor at the Ministerial, and staff has attended. Indeed all the Baltic Countries have quickly reached the maximum number of licenses by changing their fleets to the best quality vehicles from the safety and environmental viewpoints. One area in which some strengthening seems to be needed is in the number of experts, economists and others, where there does not seem to be as wide a choice as in other countries. According to ECMT, there seem to be few independent institutes of transport research and reflection in the Baltic region and perhaps some joint venture along these lines ought to be considered. D.6.3 The Baltic States' participation in TEDIM TEDIM was set up in 1995 as a public-private partnership program that concentrates on eliminating barriers to international trade and business, and promoting better transport links in the Baltic Sea region. The official members of the TEDIM Program are Ministries of transport of Estonia, Finland, Germany, Latvia, Lithuania, Poland and Russia. Denmark and Sweden also participate in TEDIM projects.29 Over the years, TEDIM has developed into an extensive cooperation network involving national ministries, public institutions and private companies. The Mission of the TEDIM Program is to strengthen the positive development of the Baltic Sea region by supporting logistics and creating an integrated information network within the framework of EU's Northern Dimension Policy. The TEDIM mission includes: · acting as a development forum for logistics cooperation between the EU and Russia, as well as between EU member states, · developing common Northern Dimension information management platforms, · education about new regulations and best practices in transport and logistics, · supporting development and use of telematics in transport and logistics. TEDIM's strategy for 2004-2008 covers TEDIM's mission, implementation of that mission, definitions of TEDIM development areas, and a description of the responsibilities of the member countries. The strategy as well as other publications are found in TEDIM's homepage. The TEDIM Program also has links with the European Union's Northern Dimension Policy (See section D.5.4.). 29TEDIM is an acronym of Telematics, Education, Development and Information Management. Tedim' homepage is at: www.tedim.com 64 D.6.4 Estonian Ministry of Economics Affairs and Communications In Estonia, transport and communications affairs are incorporated in the Ministry of Economics Affairs and Communications (MEAC) since its structural reform in 2000 - 2001. In the process the Ministry of Economy and the Ministry of Transport and Communications formed the new MEAC. MEAC elaborates and implements the state's economic policy and economic development plans in the fields of: industry, trade, energy, housing, building and transport. Following Deputy Secretary Generals sort under the Minister and the Secretary General of the MEAC: Deputy Secretary General of European Union and International Co-operation o European Union and International Co-operation Department Deputy Secretary General of Economic Development o Economic Development Department Deputy Secretary General of Maintenance of Transport o Transport Development and Logistics Department o Aviation and Maritime Department o Road and Railways Department Flight Accident Investigation Department o Independent from the CAA; established in 2001 D.6.5 Latvian Ministry of Transport and Communications The Ministry of Transport and Communications of Republic of Latvia includes six departments. In 2004, the staff comprises 112 officials and 36 contract employees. The main tasks of the Departments are as following: Road Transport Department o The largest department in the Ministry. It works out and implements state policies in the fields of road transport, roads and traffic safety. The main tasks of the department are: o Development of the road network, international routes, cargo and passenger carriage o Elaboration of strategic and state policies in traffic safety o Work out and coordinate road finance policies and legislation o Cooperate with foreign official institutions in the field of the road transport o Organize exchange of road carriage licenses with other countries Aviation Department o Determines the order of using the airspace. o Issues and annuls commercial licenses for air traffic services. o Works out air cargo regulations. o Deals with international organizations and cooperates in civil aviation safety issues. Railway Department o Prepares and implements railway policies. o Prepares legislation in compliance with Latvian and EU requirements. o Prepares and promotes reforms in the field of railway transport. 65 Maritime Department o Implements state policies in maritime processes, taking into account requirements of international conventions, EU legislative acts and standards on shipping safety, pollution prevention and sea traffic efficiency. o The Department has three units, which correspond to the main work directions: (i) Shipping safety and hydrographic; (ii) Ports; and (iii) International agreements. Department of Passenger Transportation o Works out legislative acts regulating domestic passenger transportation o Investigates the existing interaction and coverage of bus and rail route networks o Issues and annuls route certificates in long-distance bus routes; approves schedules o Calculates distribution of subsidies o Registers bus stations Department of Strategic Planning o Plans, administers, organizes and coordinates transport, communications and informatics development policies and strategies and implements D.6.6 Lithuanian Ministry of Transport and Communications The Ministry of Transport and Communications of the Republic of Lithuania consists of following departments: Transport Policy and Investment Department Waterways Transport Department Railways Transport Department Road Transport Department Civil Aviation Department Information and Communication Department D.6.7 Central administration in the transport sector In the three countries, the central administrations for road, railway, civil aviation and maritime are organized under the Ministries of transport. In addition, the Ministries govern a number of other offices which concern transport sector. Table D.16. presents Government bodies which are supervised by the Estonian MEAC. Central administration bodies have different legal forms. For example the Estonian Road Administration (ERA) is a government institution under the MEAC, which to a great extent involves private business in road management (ERA). In Lithuania, the Road Administration is a state enterprise (LRA). Air Traffic Management in Estonia is a state-owned corporation, and in Lithuania it is a state-owned enterprise. 66 Table D.16. The bodies supervised by the Estonian MEAC. Source: Estonian MEAC Boards Public institutions Foundations Estonian Civil Aviation Estonian Motor Vehicle Estonian Credit and Export Administration Registration Centre Guarantee Fund KredEx Estonian National Road Estonian Informatics Centre Enterprise Estonia Administration Estonian Railway Estonian Patent Library Estonian Accreditation Administration Centre Estonian Maritime State Infocommunication Administration Foundation Estonian Competition Board Inspectorates Estonian Centre for Standardisation Estonian Patent Office Technical Inspectorate Estonian National Estonian Energy Market Communications Board Inspectorate Estonian Consumer Protection Board In Lithuania, the State Road Transport Inspectorate and State Railway Inspectorate have been strengthened through personnel increases and the training to improve the qualification of staff in the Road Transport, Civil Aviation and Railway Transport departments of the Ministry of Transport and Communications has started. The actual division of work between regulating and enforcement bodies is found in sector specific organizations30. D.6.8 The main transport industry associations and labor unions in the Baltic States Well-organized industry associations exist in road transport31. They represent a large number of carriers and entrepreneurs, and they also have an institutional role in issuing IRU's road transport documents. The issuance of TIR Carnets and membership fees generate a steady cahs flow for the national associations. Trade unions have traditionally not been strong operators in the Baltic States, and this applies to the transport sector too. Their importance is, however, anticipated to increase in the future.32 In maritime, rail or air transport, there are no major national industry organizations, as the number of firms is small, and the market structure is very concentrated. In stead, there are strong lobby groups advocating transit traffic issues that cut across transport modes in each country. 30In road transport, ECMT, in maritime transport IMO and in air transport ICAO and IATA websites. 31Association of Estonian International Road Carriers (ERAA) at www.eraa.ee ; Latvijas Auto at: www.lauto.lv/ ;and LINAVA at: www.linava.lt 32See, for example: Confederation of Estonian Trade unions at www.eakl.ee; Free Trade Union Confederation of Latvia (LBAS); and Lithuanian Workers' Union. 67 National freight forwarding associations were established in 1993-1994. Estonian Estonian Freight Forwarders Association (EFFA) has currently 59 corporate members and the Latvian National Association of Freight Forwarders (LAFF) has 78 corporate members33. Lithuania has two freight forwarding associations: The Lithuanian National Freight Forwarders Association (LINEKA) based in Vilnius, and The Freight Forwarders Association in Lithuania based in Klaipeda. All four associations belong to international freight forwarders' association FIATA. The Latvian Logistics and Customs Brokers' Association has currently 24 corporate members, and it is also starting to have individual members34. The Lithuanian Association of Customs Brokers is a member of the Confederation of Lithuanian Industrialists. National logistics associations for individual members are only beginning to emerge, except for Estonian association which has several hundred members. Lithuania does not have a specific logistics association. Active Ship brokers' associations exit in all three countries. D.6.9 Other relevant initiatives in the Baltic Sea region Since the Baltic States' regained independence, a large number of business and policy-making initiatives in the region and in Denmark, Finland, Germany, Iceland, Norway and Sweden (in alphabetical order) have contributed to the economic and political development in the region. Transport sector development has been an important issue in the work of a number of these regional initiatives. These initiatives include, among others, (a) the Baltic Development Forum; (b) the Baltic Sea Forum, and (c) the Baltic Economic Forum.35 D.7 Transport sector research and education Vocational and higher education in the transport sector has traditionally been closely linked to transport subsectors in the Baltic States. In some areas, such as in maritime, aviation and in railways, this is a feasible arrangement. In the Baltic States, the educational system ­ especially in higher education - has undergone a profound restructuring since the regained independence. At the same time the attractiveness of teaching and university-connected research has declined markedly compared to other options available in the job markets for aspiring students. In some cases, government allowances for funds have not been adequate to maintain institutes, that have installed relatively high tuition fees, and some institutions of higher education have also funded their operations on private finance. As a result, the educational system has become more complicated. In areas where technological development is rapid, or which require relatively expensive training equipment, such as aviation and maritime education, it has been difficult to keep up with the increasing complexity and technicality of the issues (See Attachment D.12.). 33Estonia: see www.effa.ee Latvia: see www.laff.lv 34Latvia: www.lmba.lv Estonia: www.logi.ee 35a): www.bdforum.org/ ; b): www.baltic-sea-forum.org/en/ ; c): www.balticeconomicforum.com 68 In the Parnu seminar it was also mentioned that outsourcing of, for example, road and rail construction planning and execution, has created a severe shortage of civil engineers within the ministries and central administration. It was anticipated that universities or polytechnics can not produce enough civil engineers in the near term. One solution could be to reconsider the funds allocated to infrastructure projects, and to strengthen the engineering capacity in government entities through attractive terms of work. In transport-related research, the Baltic States' universities still lag behind in participating in international scientific communities in their respective fields. The number of research published in international conferences, journals or in books is very small. Most of the research is conducted in national languages, or within the Russian-speaking research community. The use of English is taking pace only gradually, as exemplified by Gedimino Technical University that has started to publish one issue out of six of the journal Transport (formerly Transport Engineering) in English. There existing university entities traditionally focus on mechanical engineering such as vehicle and engine mechanics and construction. Such entities can be found e.g. in mainly technical universities in Riga, Jelgava (Motor vehicle institute) (Vilnius (Gedimino) and Tallinn. Civil engineering has traditionally been well represented too. The number of students and new teachers in both areas has, however, remained small compared to the demand. There is a clear lack of logistics research and education that goes beyond transport, and which deals with manufacturing or trading firms' operations. In Europe, logistics has become available in both technical universities and business schools. In the Baltic States, logistics research and education needs to be strengthened considerably. The use of information technology in transport and logistics in general, and transport telematics applications in particular are other areas that needs considerably more research efforts and dissemination of findings. While educational and research entities need funds and support from the Ministry of Education, they also need to work more closely with other state agencies and private firms to be able to deal with relevant research issues in a changing world. In international contacts and research contribution, every effort should be made to take full use of available research grants and projects offered within EU's Framework program for R&D and other instruments for research available for accession the new member states. Also grants that allow teachers and researchers to spend time in universities abroad need to be utilized effectively36. 36For further references on educational systems, see e.g. http://www.euroeducation.net or The Estonian Ministry of Education at: http://www.hm.ee , Latvian Ministry of Education and Science at: http://www.izm.gov.lv, and Lithuanian Centre For Quality Assessment In Higher Education at: http://www.skvc.lt/wwwskvc/en/about_us.htm 69 E. Merchandise trade, FDI and the Business environment 37 Merchandise trade and trade in services are shown in monetary terms, and the major trading partners are identified. Foreign trade data shows a rapid reorientation of trade towards western markets. The most recent data on FDI in the transport sector is given in order to highlight the actual level (stock) of FDI in the three countries. Business environment is highlighted by data from BEEPS survey and from surveys among international freight forwarders. E.1 Merchandise trade Each of the three Baltic States shows substantially higher figures for merchandise import than export. This is partly due to the extensive arbitrage trade and related transit traffic. Trade orientation shifted towards the European Union during the 1990s. Roughly 70 percent of Estonian foreign trade (export + import) is with EU countries; the corresponding figure for Latvia is around 60 percent and for Lithuania 50 percent. After the EU accession, this share increases at least by 10 percentage points. Russian trade faltered after the devaluation of the Russian rouble in 1998, but in 2002, exports to Russia increased from all three countries. A breakdown of trade relations with the most important trading partners clearly illustrates differences in trade orientation of the three countries in 1999 and 2002 (Figure E.1, see also Attachment E.1). While Estonia is closely linked with Finland, Sweden and Germany, Latvia trades most with Germany, United Kingdom and Lithuania; most Lithuanian trade is with Russia followed by Germany and UK. Trade between the Baltic States has been relatively limited, except between Latvia and Lithuania. Since 1999, intra-Baltic trade has constantly intensified. Most traders are small firms measured by value of traded goods. In 2002, over 90% of Estonian, Latvian and Lithuanian exporters and importers traded for less than one million USD, and accounted for less than 17% of the total value of the national exports and less than 27% of imports in each country. (Attachment E.2.) In Estonia and Latvia, exporters and importers trading from USD 1 to 10 million increased their foreign trade share in 2000 - 2002. In Lithuania, traders exporting more than USD 50 million accounted for about 38% of the total exports in 2002. In Estonia the respective share of these large exporters was 17.8 % and in Latvia 11.5%. 37Prepared by Lauri Ojala and Tapio Naula, Turku School of Economics and Business Administration 70 1999 2002 FIN SWE FIN24 17 9.3 19.5% SWE 8.22 RUS 9.5 8.% .1% RUS % % % 18.8 % EST 9.2 % 15.3 % EST 7.4 % 8.7% 13.5 % 7.4% 9.3 % 11.9.9 % 2 % GER POL BLR GER POL BLR SWE FIN SWE FIN8. 10.7 % 19. 0% % RUS 10.5 % RUS% GBR 16.4 % LAT 10.5% 8.8 GBR 14.6 % LAT % 16.9 % 7.5%7.3% 15.5 % 8.4%9.8% 15.2 % 17.2 GER POL BLR GER POL BLR SWE FIN SWE FIN RUS RUS GBR 4.2% 4.2% % 21.9% DEN 6.2 % 12.8% 20.1 GBR 14.1 % 9.7% % 7.0 % 10.5 % LIT 11.3 16.0 % LIT 18.1 % BLR % 4.8% BLR GER 5.7% GER 17.2 POL 4.9 %POL ITA Figure E.1. The Baltic States four most important trading partners by value in 1999 and 2002. Source: National statistical offices; trade by origin of the products and by value Exports from the Baltic States largely depend on sea transportation. This is especially the case of Estonia and Latvia. Over half of Estonian and Latvian imports, and almost half of Lithuanian imports by weight is carried by rail, as shown in Figure E.2. The data excludes pipeline transport, which accounted for 46 % of Lithuania's and 4 % of Latvia's total imports by weight in 2002. 71 Exports Imports 00 % 12 % 90 % 16 % 15 % 18 % 6 % 26 % 80 % 3 % 34 % 70 % 31 % Air 60 % Road 59 % 50 % 48 % Rail 40 % 82 % 80 % Sea 54 % 30 % 50 % 20 % 10 % 25 % 26 % 12 % 0 % Estonia Latvia Lithuania Estonia Latvia Lithuania Figure E.2. General exports and imports by mode in 2002, percent of net weight of trade (excluding pipelines). Source: Statistics Lithuania (2003, 71). E.2 Transport services trade The transport sector generates significant positive cash flows to all three countries. In 2002, the positive capital flow (balance) in the trade of transport services was the highest in Latvia at USD 539 million, followed by Lithuania at USD 357 million and Estonia, USD 313 million. The positive balance is particularly important since the deficit in goods trade has rapidly grown larger, and in 2002 it was USD 1.1 billion in Estonia and around USD 1.4 billion in Latvia and Lithuania. The countries are net exporters of transport and storage services thanks to the substantial transit trade by pipeline and rail, extensive road transport operations between third countries (of especially Lithuanian carriers), and Estonian shipping companies' dominant market share in the lucrative Helsinki-Tallinn trade. Table E.1. Lithuania has increased its positive balance the most: from USD 59 million in 1996 to USD 357 million in 2002. In the same period, Estonia almost doubled its positive balance, whereas Latvia's balance remained almost unchanged. The development in Lithuania is mainly achieved by rail and pipeline transit operations with Russia and CIS, and by rapidly increasing international road transport business. Detailed data is shown in Attachment D.5. 72 Table E.1. Baltic States' services and goods trade balance in 1996, 1999 and 2002 in million USD, and the balance of transport service trade. Source: Statistics Estonia, Latvia and Lithuania Estonia Latvia Lithuania 1996 1999 2002 1996 1999 2002 1996 1999 2002 Balance of transport services trade, of which 174 321 313 533 522 539 59 186 357 Sea transport 109 192 232 388 306 335 88 91 137 Air transport 4 27 30 -15 -11 -4 1 16 26 Other transport 60 103 50 160 227 208 -30 79 194 All Services trade balance 519 564 489 380 336 545 121 305 543 All Goods trade balance -1 019 -822 -1 103 -791 -1 027 -1 444 -896 -1 405 -1 337 Goods and services trade balance -501 -258 -614 -411 -691 -900 -775 -1 099 -793 Transport services of all services trade, % 34 57 64 140 155 99 49 61 66 The development of cash flow balance is only part of the story. The development of transport sector's credits and debits reveal a markedly different pattern. While Latvia has the largest positive balance, the size of its internationally exposed transport sector has remained virtually unchanged in 1996-2002. Estonia has the lowest positive balance of the three, but its internationally exposed transport sector generated almost 2.5 times more cash flow in 1996 than in 2002. It also bought over 2.8 times more transport services from abroad in 2002 than in 1996 (Figure E.3). 1500 Credits = Cash inflow from other countries Estonia Latvia Lithuania 1000 500 llion M0 SDUi -500 Debits = Cash outflow to other countries -1000 96 97 98 99 00 01 02 96 97 98 99 00 01 02 96 97 98 99 00 01 02 19 19 19 19 20 20 20 19 19 19 19 20 20 20 19 19 19 19 20 20 20 Figure E.3 Credits and debits of trade of transport services of Estonia, Latvia and Lithuania in 1996-2002 in USD million. Source data from the Banks of Estonia, Latvia and Lithuania. 73 A few remarks on the structure and background of the data may be required. The net income (balance) is the sum of freight credits (earnings) received from abroad, less freight service debits paid to other countries. The data includes all forms of international freight services such as sea, road, rail, pipeline and air transport. Data on rail and road transport services trade is not available separately in the statistics, but they are included under the heading "Other transport". Data for port and stevedoring trade is found under the heading Sea transport and under the subgroup "Other". The data is sensitive to the way in which certain debits and credits are accounted for in the national accounts. This means that the nationality of the carrier, e.g. the ship or truck, is the deciding factor in whether a payment is recorded as a credit or a debit ­ irrespective of the route of the vehicle or vessel. Latvia has a high value of services sold but the lowest value of services bought. This is mainly attributable to the rail and (now closed) pipeline transit flow of oil and oil products, as indicated in the Sea transport "Other" class. The substantial flagging out of Latvian tonnage after 1998 can also be seen in the balance of payments data. Tourism ­ by sea, road, or air - is also an important source of services trade. Between Tallinn and Helsinki more than 3 million passengers make a trip every year, and about 3/4 of these are Finns38. As over half of the shipping market is in Estonian control, this has a very positive impact on the Estonian balance of payments. In Latvia and Lithuania maritime passenger transport is very limited. E.3 Foreign Direct Investment The level of Foreign Direct Investment (FDI) indicates the economic potential that a certain country possesses, but it also reflects the confidence that outside investors ­ mainly firms ­ have in a country's political and social stability. Through growing FDI the firms and industries in the receiving country also usually receive new technological and management know-how which is difficult or impossible to gain in other ways. Furthermore, because FDI tends to accumulate into profitable industries, industries or firms with a high level of FDI tend to be more profitable than peer firms or industries with less FDI. The development of the FDI stock in the Baltic States demonstrates vividly the economic potential within these countries. The FDI stock in 1991 was extremely low, but it has grown rapidly after 1998 (Figure E.4.). In 2002, the inward FDI stock was equivalent to 66 % of Estonian, 32 % of Latvian and 29 % of Lithuanian GDP. The transport sector was among the first industries to receive FDI, followed by manufacturing and telecommunications. After 1999, FDI in trade and manufacturing in all three countries and in financial intermediation in Estonia have grown very fast. 38Since most passengers are taking a round-trip, the Port of Tallinn handles over 6 million passengers. 74 5000 4000 Primary production and public administration*) Trade, Hotels and restaurants, 3000 Real estate, renting Mining, Manufacturing, Electricity, 2000 gas, water, Construction Financial intermediation 1000 Transport and storage and communication 0 Total outward stock -1000 1996 1997 1998 1999 2000 2001 2002 1996 1997 1998 1999 2000 2001 2002 1996 1997 1998 1999 2000 2001 2002 Estonia Latvia Lithuania Figure E.4. Foreign investment stocks by sectors in USD million 1996-2002. Sources: Central Banks of Estonia, Latvia and Lithuania. For detailed data, see Attachment E.3. The FDI stock in transport, storage and communications includes investment in telecommunications, which accounted for a substantial share of FDI in the late 1990s. However, this can not be distinguished from the available data. In Estonia, FDI in telecommunications, railways, airlines and terminal operations increased the FDI stock in the transport, storage an communications which was USD 137 million in 1998 and reached USD 906 million in 2002. This is equal to 14 % of Estonian GDP in 2002. Estonia also has a sizeable outward FDI stock. In some cases it is foreign-owned firms operating in Estonia that have re-invested abroad, but also domestic firms have started to internationalize. Total outward FDI stock in 2002 was USD 673 million, of which USD 144 million was in the transport, storage and communications sector. Latvian FDI stock in transport, storage and communications has remained at USD 320 to 390 million in 1996-2002. This equals 4.5 % of GDP in 2002. The corresponding stock in Lithuania jumped from just USD 78 million in 1996 to USD 680 million in 2002, which was 4.9 % of GDP. The privatizations of the Lithuanian shipping and airlines are bound to increase FDI even further. E.4 Measuring the business environment in the Baltic States Trade and transport facilitation is an issue of high priority in all three Baltic States. Public administration both at national and regional levels and the business communities have set in motion a number of projects to facilitate trade and transport. 75 The section presents key results of Business Environment and Enterprise Performance Survey (BEEPS) that was conducted jointly by the World Bank and EBRD. A Logistics Friendliness Survey was conducted for the purpose of this report by the Turku School of Economics and Business Administration in 2000 and in a revised form in 2003. Results of the 2000 survey were presented in the Riga seminar report. Results from both studies indicate that firms' perceptions on the business environment of the Baltic States have become more positive towards 2002, and they are currently on the average level of the other EU accession countries. E.4.1 Business Environment and Enterprise Performance Survey (BEEPS) The BEEPS survey examines a wide range of interactions between firms and the state. The data was collected from over 4,000 firms in 22 transition countries. Based on face-to-face interviews with firm managers and owners, BEEPS was designed to generate comparative measurements in such areas as corruption, state capture, lobbying, and the quality of the business environment, which can then be related to specific firm characteristics and firm performance (The World Bank Institute 2003). Table E.2. Qualitative Assessments of the Business Environment of selected countries in the BEEPS 2002 Survey, averages of country ratings with a scale of 1 (a minor obstacle) to 4 (a major obstacle). Source: The World Bank Institute (2003) Country Estonia Latvia Lithuania Poland Russia Belarus Slovakia Year 1999 2002 1999 2002 1999 2002 1999 2002 1999 2002 1999 2002 1999 2002 Finance 2.84 1.99 2.84 1.91 3.24 1.81 2.86 2.91 3.32 2.26 2.85 2.62 3.37 2.53 change 1999/2002 0.85 0.93 1.43 -0.05 1.06 0.23 0.84 Infrastructure 1.62 1.54 2.10 1.38 1.87 1.55 1.70 1.55 2.10 1.43 1.55 1.24 1.90 1.41 change 1999/2002 0.08 0.72 0.32 0.15 0.67 0.31 0.49 Taxation 2.70 1.99 3.27 2.80 3.36 2.78 3.15 3.17 3.47 2.64 3.35 2.95 2.96 2.43 change 1999/2002 0.71 0.47 0.58 -0.02 0.83 0.40 0.53 Regulation 1.79 1.79 2.19 1.95 2.66 1.74 2.17 2.32 2.29 1.77 2.17 2.32 2.08 2.05 change 1999/2002 0.00 0.24 0.92 -0.15 0.52 -0.15 0.03 Judiciary 2.10 1.85 2.61 1.56 2.71 2.16 2.35 2.47 2.38 1.88 2.30 1.98 2.26 2.50 change 1999/2002 0.25 1.05 0.55 -0.12 0.50 0.32 -0.24 Crime 1.99 1.70 2.37 1.62 2.90 1.91 2.43 2.26 2.70 1.80 2.34 1.73 2.59 1.93 change 1999/2002 0.29 0.75 0.99 0.17 0.90 0.61 0.66 Corruption 2.04 1.69 2.64 1.94 2.88 2.15 2.52 2.50 2.83 1.99 2.91 2.14 2.59 2.50 change 1999/2002 0.35 0.70 0.73 0.02 0.84 0.77 0.09 Average 2.15 1.79 2.57 1.88 2.80 2.01 2.46 2.45 2.73 1.97 2.50 2.14 2.54 2.19 change 1999/2002 0.36 0.69 0.79 0.01 0.76 0.36 0.35 The BEEPS survey instrument is structured around multiple objectives: 1) to measure managers' perceptions of the investment climate and their interactions with the state; 2) to develop quantitative indicators of various obstacles to business and aspects of market structure based on the direct experiences of firms, and 3) to obtain simple 76 measures of firm performance across a variety of dimensions that can then be related back to varying perceptions and experiences (Hellman and Kaufmann 2002, 7)39. The business environment is divided into 7 different "factors" in the BEEPS Survey. The respondents were asked to evaluate on a 4-point-scale how big of an obstacle a particular factor in the society is to their business. The scores between the Baltic States and other countries are presented in Table E.2 and in Attachment E.4.Between the two BEEPS surveys, the improvement in the business environment has been most noticeable in the Baltic Sea region, especially in Lithuania, Russia and Latvia. Estonia, which had already achieved a favorable perception in 1999, saw less improvement by 2002 compared with Latvia and Lithuania. The data indicates surprisingly similar levels of perceived obstacles in the business environment. For example the average score for Russia (1.97) is almost the same as for Lithuania (2.01), for Latvia (1.88) and for Estonia (1.79). A likely explanation can be found in the methodology of the survey. The respondents were not asked to evaluate the business environment of other countries, so each respondent replied only to his/her own country. Thus, the BEEPS results indicate the improvement in each country separately rather than give representative data for cross-country comparisons. Box E.1. Improving the business environment ­ the case of Latvia, Until 1998, the impact of administrative and regulatory procedures upon business environment in Latvia was not consistently monitored. As a result, complaints arose from both foreign investors and local entrepreneurs about recurring juridical problems in conducting business. In order to address these issues, the Ministry of Finance of Latvia and the Latvian Development Agency (LDA) commissioned a Study on Administrative Barriers to Investments in Latvia, prepared by the Foreign Investment Advisory Service (FIAS) of the World Bank. The Study evaluated problems related to employment, immigration, taxation, customs, purchase of real estate, construction, inspections, and other issues of importance to entrepreneurs. The LDA invited business representatives and government officials to seek solutions to the identified problems. The Prime Minister of Latvia established a Steering Group, which developed the first Action Plan to Improve the Business Environment. The Action Plan is based upon the "cycle of reforms" consisting of: 1) identification of problems; 2) dialogue between government and business community; 3) decision-making; 4) assessment and evaluation of impact. The Plan includes amendments to legal acts, revision and simplification of procedures, improvement of co-ordination among different institutions, preparation and publication of information as well as training of state officials. The Plan is a "live" document, as it is regularly updated by including new items and deleting those which have been implemented. The most significant results since 1999 have been achieved in the areas of enterprise registration, tax administration, inspections, customs and border-crossing, construction, real estate as well as expatriate residency. By October 5, 2003, 79 of 89 tasks included in Action Plan have been implemented. The latest "self assessment" study on administrative barriers was conducted by the LDA with the assistance of World Bank consultants in 2002. Source: Latvian Development Agency at: http://www.lda.gov.lv/eng/inner/aboutagency/fias/ Firms in transition economies are rapidly adopting more demanding business patterns and the improvements in the regulatory environment may therefore be perceived inadequate, even if they constantly improve, as indicated by Naula and Ojala 2002. 39The BEEPS dataset is available in the Internet at: http://info.worldbank.org/governance/beeps/ 77 A detail from the BEEPS data deserves to be brought out. The perception on judiciary environment in Latvia improved by 1.05 score points during 1999-2002 (see Table E.2). Background to the very positive development is shown in Box E.1. Government owned agencies - such as the Estonian Investment Agency, the Latvian Development Agency and the Lithuanian Development Agency have an important role of monitoring and promoting the business environment.40 E.4.2 Logistics Friendliness Survey 2003 How "easy" or "difficult" individual countries are perceived to be as trade and transport partners can be analyzed in a number of ways. Trade and transport operations invariably involve numerous partners both in the public and the private sector, such as banking and insurance agents, in addition to various logistics service providers. In addition, the trading partners (buyers and sellers or consignors and consignees) evaluate the practicalities often on a case-by-case basis. Logistics Friendliness Survey 2003 was conducted among international freight forwarders in order to illustrate how "easy" or "difficult" individual countries are perceived to be from a logistical point of view. The results are well in line with the findings with the earlier survey reported in Ojala and Queiroz 2001. The survey was conducted in November 2003 - January 2004 by approaching 3,300 freight forwarders through e-mail around the World. Each respondent linked to a questionnaire website containing a group of nine (9) predetermined countries out of 68 countries in the study. They were asked to evaluate seven statements in view of: Transport time Customs procedures Timeliness of shipments Professionalism in freight forwarding International freight costs Overall evaluation of logistics friendliness Domestic collection and delivery costs The respondents answered on a 7-point scale according to whether they agreed with the statement (7 = totally agree...1 = totally disagree). The statements were formulated positive by nature, such as "Overall, I consider these countries logistically easy to cope with". Incidentally, 68 usable responses were received, which is 2.1 per cent of the total sample. It is a low figure, but response rates in large web-based surveys seldom exceed 5 per cent. As a result, each country received up to nine ratings. 40Estonia: www.investinestonia.com Latvia: www.lda.gov.lv Lithuania: www.lda.lt 78 Figure E.5 presents the survey results of the overall evaluation "logistics friendliness" of countries against the data of the Corruption Perception Index (CPI) collected by Transparency International41. In the CPI, the lowest level of perceived corruption is assigned 10, whereas the highest level is assigned 1. The average results show that the Baltic States rank among other EU accession countries. 7 "Logistically easy to cope with" Correlation coefficient = 0.716 6 Estonia 5 Lithuania Latvia 4 The Baltic States EU Other accession countries 3 CIS Other countries 2 Least corrupt 1 1 2 3 4 5 6 7 8 9 10 Figure E.5. The ranking of countries in the Logistics Friendliness Survey 2003 against their Corruption Perception Index in 2003. Sources: Transparency International 2003 (CPI data); Naula and Ojala 2004 (survey data). Figure E.6. presents the survey results of the overall evaluation "logistics easiness" of countries against the PPP corrected data on GNI per capita. The placement of countries is very similar as in Figure E.5. Despite the simplified concept used, the correlation between logistics friendliness and the CPI on one hand, and the GNI per capita on the other, is striking. The less perceived corruption there is in a country, the easier it is to arrange the logistical practicalities with that country. Similarly, the higher the level of GNI per capita, the same occurs. This is no surprise, but the strong correlation between the logistical friendliness and CPI (0.716); and GNI/capita (0.821, respectively) is noteworthy42. 41see: http://www.transparency.org 42The correlation in the 2000 survey between the logistical friendliness and CPI was (0.845); and GNP/capita (0.784, respectively). In the 2000 survey, the question was formulated slightly differently. See Riga seminar report, Ojala and Queiroz, eds. 2001, 44-47. 79 The results are indicative, since they are based on a small number of observations (68 responses, up to nine evaluations per country), which are subjective assessments by professional freight forwarders. The data is shown in Attachment E.5. 7 "Logistically easy to cope with" Correlation coefficient = 0.821 6 Estonia 5 Lithuania Latvia The Baltic States 4 EU Other accession countries CIS 3 Other countries 2 GNI per capita 2002 Purchasing Power Parity International dollars 1 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 Figure E.6. The ranking of countries in the Logistics Friendliness Survey 2003 against their GNI/capita in PPP terms in 2002. Sources: The World Bank, Data and Statistics (GNI data); Naula and Ojala 2004 (survey data). According to the survey results, the Baltic States are perceived as fairly easy countries in a logistical sense. Compared against the CPI ranking and GNI/capita data, the Baltic States show exceptionally good performance, and they have received substantially higher marks than other former Soviet Republics. On the other hand, the Baltic States lag behind the typical EU countries. 80 F. The Transport Sector in the Baltic States and EU Membership This section presents European Commissions latest comprehensive standpoint of the progress that the Baltic States have made in meeting the requirements in the transport policy and customs chapters of the acquis. It covers the sectors of road transport, railways, aviation, maritime transport, inland waterways; and that of the customs. The text is based on the latest comprehensive monitoring reports on Accession countries made available by the EC in November 200343. The monitoring reports were a continuation of the extensive final progress reports published in 200244. Box F.1. Areas, where the accession countries were required enhanced efforts by the EC in November 2003 Free movement of goods, services, persons and capital and related internal market acquis; particular efforts are required in Estonia, Latvia, Poland, the Czech Republic and Slovakia. Market surveillance - an essential component of the functioning of the internal market - must continue to be strengthened in all countries. EU public procurement rules have not been put in place in the Czech Republic, Estonia, Latvia, Hungary, Malta and Poland. In financial services, Poland, the Czech Republic, Latvia, Lithuania, Slovakia, Estonia and Cyprus in particular need to make enhanced efforts In competition policy, Latvia, Slovenia, the Czech Republic, Malta, Poland and Slovakia must accelerate preparations In agriculture and fisheries, all acceding countries must give greater priority to the completion of preparations, in applying common market organizations, in setting up Paying Agencies and implementing the Integrated Administration and Control System and agricultural trade mechanisms, in applying EU-funded rural development measures, and in the veterinary and phytosanitary field. In taxation, Latvia, Poland, Slovakia, Estonia, Malta, Slovenia and Lithuania must accelerate preparations Financial control shows deficiencies in the Czech Republic, Cyprus, Hungary, Poland, Latvia, Lithuania, Estonia, and Slovakia. In social policy and employment, the Czech Republic, Malta, Poland and Estonia have more work to do on one or another aspect of this broad field. In environment policy, Estonia, Malta, the Czech Republic, Cyprus, Hungary, Poland, Slovakia and Cyprus all have gaps to be filled through enhanced efforts. Source: EU's weekly note, November 11, 2003 at: http://europa.eu.int/comm/enlargement/docs/newsletter/latest_weekly_fi.htm#B 43Based on EU's Comprehensive Monitoring reports in 2003; at: Estonia: http://www.europa.eu.int/comm/enlargement/report_2003/pdf/cmr_ee_final.pdf Latvia: http://www.europa.eu.int/comm/enlargement/report_2003/pdf/cmr_lv_final.pdf Lithuania: http://www.europa.eu.int/comm/enlargement/report_2003/pdf/cmr_lt_final.pdf 44These are available at: Estonia: http://europa.eu.int/comm/enlargement/report2002/ee_en.pdf Latvia: http://europa.eu.int/comm/enlargement/report2002/lv_en.pdf Lithuania: http://europa.eu.int/comm/enlargement/report2002/lt_en.pdf 81 EC transport legislation aims at improving the functioning of the Internal Market by promoting efficient and environment- and user-friendly transport services. Member States are required to adopt and implement legislation concerning technical and safety standards as well as social standards. In order to further develop the European Single Transport Market, EC legislation also includes rules on market liberalization. An important aspect of EC maritime policy is the establishment of Union-wide maritime safety standards. In summary, the Baltic States ­ and especially Lithuania - have adopted the main elements of the acquis, but further progress is needed in some secondary legislation and overall implementation of transport sector legislation. In addition, administrative capacity requires further strengthening, both in qualitative and quantitative terms, in particular in the rail and the road sector. In November 2003, alignment in the transport chapter was reportedly delayed in Estonia and Latvia, together with six other accession countries. In other areas, enhanced efforts were required by a number of countries. See Box F.1. The Customs Union acquis consists almost exclusively of legislation which is directly binding on the Member States and does not require adoption into national law. It includes the Community's Customs Code and its implementing provisions; the Combined Nomenclature, Common Customs Tariff (Community Integrated Tariff (TARIC) system) and provisions on tariff classification, customs duty reliefs, duty suspensions and certain tariff quotas; and other provisions such as those on customs control of counterfeit and pirated goods, drugs precursors and cultural goods and on mutual administrative assistance in customs matters as well as Community agreements in the areas concerned, including transit. Member States must ensure that the necessary enforcement capacities, including links to the relevant EC computerised customs systems, are in place. It should also be noted that customs duties collected at EU's external borders are remitted to the EU rather than national governments. This also means that the procedures are subject to Commission inspections, and are not governed by national legislation. F.1 EC's assessment on Estonia The extension of the trans-European transport networks has been defined. While the necessary implementing structures in this area are in place, the administrative capacity requires further strengthening, both in qualitative and quantitative terms, in particular in the rail and the road sector. In the land transport sector, Estonia is completing the implementation of its commitments with regard to legislative alignment with the road transport acquis. Framework legislation is in place and in line. Alignment with the fiscal and social acquis has been completed, except for checks of driving time and rest periods. The volume of the checks has to be increased for volumes to reach acquis requirements. In the technical field, legal alignment is largely complete, except for some implementing legislation. Further alignment is needed with regard to technical road-side inspection, 82 transportable pressure equipment as well as speed-limitation devices. Implementing measures in the road transport area are proceeding as foreseen. The necessary administrative structures in this area are in place. Estonia has agreed to a transitional arrangement put forward by the EU concerning gradual reciprocal access to the cabotage market in the road haulage sector (for a maximum duration of five years). Adoption of the revised rail transport acquis of February 2001 is taking place, and the process remains to be completed with regard to track access charging, capacity allocation and the interoperability directives. In light of the imminent transformation of the Railway Administration, procedures and task allocation should be reviewed and training of staff should be pursued. The independence of the allocation and charging functions remains to be ensured, in particular with regard to the privatized integrated railways. On inland waterways transport, legislative alignment has been completed. Administrative structures in this area are in place and satisfactory. In the area of air transport, all relevant framework legislation has been adopted and is essentially in line with the acquis, but some modifications are needed, notably with regard to ground handling, slot allocations and accident investigation. Implementing legislation is still being adopted in order to complete alignment with the acquis. The administrative capacity is satisfactory. Full membership of the Joint Aviation Authorities remains to be achieved, and particular efforts should be made in order to become a full member before accession as required by the acquis and irrespective of the setting up of the European Aviation Safety Agency (EASA). In the field of maritime transport, framework legislation is in place and in line with the acquis. However, the adoption of implementing legislation needs to be accelerated, in particular in relation to the acquis adopted under the "Erika" packages, and with regard to the latest amendments to the acquis on passenger ships, fishing vessels, marine equipment and port reception facilities. The relevant administrative structures in this area are in place. The strengthening of the management system of the Estonia Maritime Administration needs to continue. According to statistics for 2002 under the Paris Memorandum of Understanding, the percentage of Estonian flag vessels detained following Port State control was 6.7%. This compares with an average for EU-flagged vessels of 3.5%. However, there are strong indications that the situation is deteriorating, in that the number of Estonian flag vessels being detained is rising sharply. Estonia needs to urgently address this issue with a view to reversing this trend of deteriorating detention rates. Estonia's customs legislation is largely in line with the acquis as it stood in 2001. Implementation of the provisions in the 2002 and 2003 acquis will take place upon accession, when the EC customs legislation becomes directly applicable. National provisions superseded by the acquis are to be repealed at the time of accession and agreements on mutual administrative assistance in customs matters are to be amended as necessary. 83 Administrative and operational capacity of the customs is partly in place. Although a functioning customs administration is in place, the current absence of duties on industrial products does not allow Estonian customs to function in the same way as in EU Member States. Such duties will be introduced only at the time of accession. As a result, tariff classification, rules of origin, customs procedures with economic impact, temporary admission and duty reliefs are major areas where expertise is lacking. Therefore, in these areas extensive training is necessary and ongoing. Estonia should continue to carry out its plans for reorganisation in terms of closure of customs offices, and redeployment of staff as a result of accession, when the volume of customs work will decrease as a result of the conversion of external to internal trade and the land frontier with Latvia becomes an internal border. Measures to complete the development and implementation of the computerised customs system and solve all the other interconnectivity-related issues are ongoing and on track. However, the Estonian authorities must ensure that the remaining work, including delivery of hardware and software and testing, is completed according to schedule, especially as regards the integrated tariff system and adaptation of the declaration processing system which needs to be connected to it. Attention should be paid to ensuring that the Estonian authorities are fully able to manage and maintain these systems effectively after accession. Conclusion on Estonia Estonia is essentially meeting the commitments and requirements arising from the accession negotiations in the trans-European transport networks, road transport, inland waterway and rail transport, and is expected to be in a position to implement the acquis from the time of accession, provided that the current pace of progress is maintained. In completing preparations for membership, Estonia must complete the transposition of the railway acquis and strengthen administrative capacity. In the area of road transport, Estonia needs to adopt implementing legislation and further reinforce its administrative capacity. Estonia is meeting the majority of commitments and requirements in the area of air transport, where legislative alignment remains to be completed. Estonia needs to accelerate its efforts to become a full member of the Joint Aviation Authorities before accession. In addition, Estonia is partially meeting the commitments and requirements in the area of maritime transport, where legislative alignment remains to be completed and remedial action must be taken without delay in order to improve the detention rates of Estonian flag vessels. Estonia's customs legislation is largely in line with the acquis, but the administrative and operational capacity customs is only partly in place. 84 F.2 EC's assessment on Latvia As far as the trans-European transport networks are concerned, the necessary administrative capacity (in both qualitative and quantitative terms) needs to be reinforced beyond its present level in order to prepare for the significant investments that will be needed in transport infrastructure. Within the land transport sector, the transposition of the road transport acquis continues. The framework legislation has been transposed. Some implementing legislation, especially in the social and technical fields, remains to be adopted. Two transition periods have been granted to Latvia in this area. The installation of tachographs for vehicles registered before January 2001 and operating exclusively on the domestic market is to be accomplished before January 2005, and the introduction of the financial standing criterion for domestic road transport operators needs to be completed by January 2007. Latvia has agreed to a transitional arrangement put forward by the EU concerning gradual reciprocal access to the cabotage market in the road haulage sector (for a maximum duration of five years). Administrative capacity is essentially good, although improvement is required in several areas such as roadside technical inspections, dangerous goods transport and social regulations. However, as regards roadside checks and roadside enforcement, Latvia still has to implement its concept on control in road transport. In particular the staffing structures and the coordinating role of the Ministry of Transport needs to be clarified, and an adequate number of specialist roadside units need to be put in place. In the field of rail transport, transposition is taking place according to schedule, but the interoperability acquis remains to be transposed and existing legislation needs to be modified regarding charges, cross-subsidy and licensing. In the framework of the ongoing reorganization process, the capacity of the Railway Inspectorate and the Railway Administration, as well as the relevant department of the Ministry of Transport, should be strengthened further. However, in particular as regards track access charging and capacity allocation, procedures and task allocation should be reviewed and training of staff should be pursued. The independence of the infrastructure allocation and charging function remains to be ensured. On inland waterway transport, legislative alignment is completed. Administrative structures in this area are in place and satisfactory. In the area of air transport, the relevant legislation has been transposed and is essentially in line with the acquis, but some modifications are needed, notably with regard to ground handling. Implementing legislation is still being adopted. Administrative capacity needs further strengthening. Full membership of the Joint Aviation Authorities remains to be achieved through the implementation of the Action Plan. Enhanced efforts are needed in order to become a full member before accession as required by the acquis and irrespective of the setting up of the European Aviation Safety Agency (EASA). In the field of maritime transport, framework legislation is now in place and in line with the acquis. However, the adoption of implementing legislation remains to be completed, notably as regards Flag State and Port State control, Vessel Traffic Management Information System (VTMIS), system of mandatory surveys for the safe 85 operation of regular Ro-Ro ferry and high-speed passenger craft services, marine equipment and fishing vessels The reinforcement and reorganization of the maritime administration must be pursued and must lead to a more effective oversight of the work of classification societies, to an upgrading of Port State Control and to a better division of tasks between the Maritime Department and the Maritime Administration. According to statistics for 2002 under the Paris Memorandum of Understanding, the percentage of Latvian flag vessels detained following Port State control was 6.25%. This compares with an average for EU-flagged vessels of 3.5% in 2002. The Latvian flag has now been moved from the black list to the grey list of the Paris MOU. As regards customs legislation, Latvia is essentially meeting the commitments and requirements arising from the accession. Implementation of the remaining provisions will take place upon accession, when the EC legislation becomes directly applicable. Serious concerns remain concerning operational and administrative capacity of Latvian customs. This involves especially the area of computerisation and interconnectivity, where significant delays endanger the correct operation of the transit system, with effects for the entire Community as well as partner countries in the Common Transit System. The Latvian authorities must take urgent action to ensure the necessary transfer of knowledge and experience by the time of accession to enable them to avoid disrupting the operation of the customs union. The computerised transit system must be made operational, including connection to traders, in time for accession. The number of specialised staff must be increased significantly, particularly for a short-term period of testing and deployment training. The existing computerised entry-processing system must be upgraded to an EC-compatible version that can be linked at least to the Master tariff system by the date of accession. Unless immediate remedial action is taken, Latvia will not meet the requirements for membership in this area and there is a serious risk of disruption of the smooth operation of Community systems at the time of accession. Conclusion on Latvia Latvia is essentially meeting the commitments and requirements arising from the accession negotiations in the areas of trans-European transport networks, road transport, rail transport, inland waterway transport and maritime transport, and Latvia is expected to be in a position to implement the acquis in these areas from the time of accession, provided that the current pace of progress is maintained. In completing preparations for membership, Latvia must complete the transposition of the railway acquis, in particular as regards interoperability. In the areas of road and maritime transport, Latvia needs to adopt implementing legislation and further reinforce its administrative capacity. Latvia is meeting the majority of the commitments and requirements arising from the accession negotiations in the area of air transport. Latvia needs to strengthen administrative capacity and enhanced efforts are required in order to become a full member of the Joint Aviation Authorities before accession. As regards customs legislation, Latvia is essentially meeting the commitments and requirements arising from the accession, but serious concerns remain with the operational and administrative capacity of Latvian customs, especially in the area of computerisation and interconnectivity of customs systems. 86 F.3 EC's assessment on Lithuania As far as the trans-European transport networks are concerned, the necessary administrative capacity (in both qualitative and quantitative terms) needs to be reinforced beyond its present level in order to prepare for the significant investments that will be needed in transport infrastructure. Within the land transport sector, the transposition of the road transport acquis continues. The framework legislation has been transposed. Some implementing legislation, especially in the technical field, remains to be adopted, notably for technical road side inspections and transportable pressure equipment. Two transition periods have been granted to Lithuania in this area. The installation of tachographs for vehicles produced before 1987 and operating exclusively on the domestic market is to be accomplished by December 2005, and the introduction of the financial standing criterion for domestic road transport operators needs to be completed by January 2007. The necessary administrative structures in this area are in place, with the State Road Transport Inspectorate performing key supervisory and control functions. However, as regards the implementation of social rules, the level of checks has to be increased in order to meet acquis requirements, and attention needs to be paid to the co-operation with the Labour Inspectorate and the Police. Administrative capacity should be strengthened in the Ministry of Transport, the Road Administration, the State Road Transport Inspectorate and the Labour Inspectorate. Lithuania has agreed to a transitional arrangement put forward by the EU concerning gradual reciprocal access to the cabotage market in the road haulage sector (for a maximum duration of five years). Transposition of the rail transport acquis remains to be completed with regard to the revised railway acquis of February 2001, in particular the provisions such as separation of accounts between infrastructure manager and operator(s), charging, capacity allocation and rail regulatory functions, as well as the interoperability directives. In the framework of the ongoing reorganization process, the capacity of the State Railway Inspectorate and the other railway administrations needs to be further strengthened. On inland waterway transport, legislative alignment is completed. Administrative structures in this area are in place and satisfactory. In the area of air transport, the relevant framework legislation has been transposed and is essentially in line with the acquis, but some modifications are needed with regard to licensing. Implementing legislation is still being adopted. Lithuania has been granted a transitional arrangement on the use of Kaunas International Airport by noisy aircraft until the end of December 2004. Administrative capacity needs some further strengthening. Full membership of the Joint Aviation Authorities remains to be achieved, and efforts will need to be made in order to become full member before accession as required by the acquis and irrespective of the setting up of the European Aviation Safety Agency (EASA). In the field of maritime transport, framework legislation is in place and in line with the acquis. However, the adoption of implementing legislation remains to be completed, in particular in relation to the acquis adopted under the "Erika" packages, 87 and with regard to the latest amendments to the acquis on passenger ships, fishing vessels. The relevant administrative structures in this area are in place, and the ship inspection system has been set up. However, the Lithuania Maritime Safety Administration needs further strengthening. Lithuania has increased systematic port state control inspections. According to statistics for 2002 under the Paris Memorandum of Understanding, the percentage of Lithuanian flag vessels detained following Port State control was 6.25%. This compares with an average for EU- flagged vessels of 3.5% in 2002. The Lithuanian flag has been moved from the black list to the grey list of the Paris MOU. In addition, Lithuania adopted in January 2003 a complementary action plan in order to further reduce the detention rate of Lithuanian flagged ships. Lithuania's customs legislation is largely in line with the acquis except, among others, with regard to the application of simplified procedures. Concerning administrative and operational capacity, a functioning customs administration is in place; however, some significant delays have occurred in the development of interconnectivity and operational capacity. Lithuania should continue to carry out its Business Strategy and Operational Management Plan for 2003, which already involved reducing the large number of small customs posts. The action plan for reorganisation in terms of closure of customs offices and redeployment of staff as a result of accession, when the volume of customs work decreases owing to the conversion of external to internal trade, has been approved and should be carried out. Enhanced measures must be taken to complete the development and implementation of the computerised customs system and solve all other interconnectivity-related issues. In particular, Lithuania must speed up the development, procurement and implementation of the contingency solutions for two accession-essential projects, namely the Tax Calculation Module and the Tariff Quota and Surveillance System: apart from the contractual arrangements needed to procure the necessary services, which have been finalised, work on these contingency solutions had not begun during the reporting period. In addition, the software necessary to link the entry-processing system to the integrated tariff system must be developed or procured without delay. Conclusion on Lithuania Lithuania is essentially meeting the commitments and requirements arising from the accession negotiations in the transport sector, and is expected to be in a position to implement the acquis from the time of accession, provided that the current pace of progress is maintained. In completing preparations for membership, Lithuania must complete the transposition of the railway acquis, in particular as regards interoperability, and strengthen administrative capacity. In the areas of road and maritime transport, Lithuania needs to adopt implementing legislation and further reinforce its administrative capacity. In the area of air transport, Lithuania needs to strengthen administrative capacity and become a full member of the Joint Aviation Authorities before accession. Lithuania's customs legislation is largely in line with the acquis up to 2002 except, among others, with regard to the application of simplified procedures. A functioning customs administration is in place; however, some significant delays have occurred in the development of interconnectivity and operational capacity. 88 F.4 Planned Transport sector investments into TEN-T network One key element in preparing for the EU membership is investment in transport infrastructure. While substantial investments have already been made in practically all transport subsectors, there is still major investment need in the near future in especially roads, and to lesser extent in rail and port infrastructure (Table F.1). Table F.1. Baltic States' Investment in TEN-Transport network in 1996-2010 (actual data for 1996-2001). Source: PLANCO 2003-TEN-Invest report 2003. 1996-2001 2002-2005 2006-2010 Total Roads Estonia 60 196 130 386 Latvia 24 100 150 274 Lithuania 126 144 45 315 Railways Estonia 42 24 10 76 Latvia n.a. n.a. n.a. n.a. Lithuania 90 328 340 758 Ports Estonia 102 128 60 290 Latvia 66 n.a. n.a. 66 Lithuania 42 108 210 360 Airports Estonia 30 4 5 39 Latvia 24 8 0 32 Lithuania 12 36 45 93 All total 618 1,076 995 2,689 A recent study commissioned by the EC (TEN-T Investment 2003) summarized the infrastructure investment needs and projects for all accession countries. The data contained in the report was partially collected in 2002 and early 2003. After the data collection, a number of projects have been prepared and initiated, some of which are not included in the TEN-T Invest report. These include projects that include private sector investments, or investments made by state-owned enterprises in e.g. ports and airports. However, the magnitude of the investments is covered well in the study. Compared to investment in other Accession countries, the pattern seems to be rather similar: the main part of realized and planned investments is in roads, followed by railways. Understandably, port investment is not significant in landlocked countries such as Hungary, Slovakia or the Czech Republic, but airports tend to need rather substantial investments. (See Attachment F.1; for Estonia also Attachment F.2.) F.5 Preparing the Estonian transport sector for EU membership45 The Estonian transport policy is characterized by extensive privatization of the operator services and the infrastructure, regulation of competition between the modes of transport through prices and taxes and infrastructure policies favoring international connections. 45Based on the presentation given by Mr. Andres Tint, Deputy Secretary General of the Ministry of Economic Affairs and Communications, Estonia. Parnu seminar, November 24, 2003. 89 In anticipation of the EU membership, Estonia has revised its transport sector legislation, and as of December 2003, the following Acts have been passed: Road Transport Act Public Transport Act Road Traffic Act Railway Act (adopted 19.11.2003) Maritime Safety Act Port Act Aviation Act Estonia has also committed itself to a number of transport infrastructure projects in the short term, as shown in Attachment F.2. F.6 Preparing the Latvian transport sector for EU membership46 The Government has initiated a National Transport Development Program for 2000- 2006 and specific plans of action such as the Program for Port Development. The key goal of the National Transport Development Program is to ensure the planned development and maintenance of an efficient, sustainable, integrated, environmentally friendly, well balanced, multi-modal transport system, able to meet the constantly growing demand of the national economy, of international trade, and of its citizens for a transport service, whilst at the same time ensuring quality, safety, firm guarantees and reasonable costs. F.7 Preparing the Lithuanian transport sector for EU membership47 Lithuania will join the European Union in May 2004, and the country will use this time for full completion of preparations for the membership. While preparing its transport sector for the EU membership Lithuania had to achieve the following objectives: full harmonisation of EU legislation; implementation and enforcement of regulations; alignment with EU technical and quality standards; preparation for management of EU funds; preparation for participation in the EU work. Talking about the harmonisation of legislation it should be mentioned that this process in Lithuania is almost completed and the national legislation is in line with the EU 46 Based on Mr. Vigo Legzdins, State Secretary of the Ministry of Transport, Latvia. Presentation given in the Parnu seminar, November 24, 2003. 47 Ms. Liudmila Lomakina, Secretary of the Ministry of Transport and Communications, Lithuania. Presentation given in the Parnu seminar, November 24, 2003. 90 legislation. Nevertheless, there are still some fields where the harmonisation should be finalised. In the railway sector the priority is given to the reform ­ the restructuring of railways and to the implementation of the first railway package. For the successful implementation of the reform it is necessary to improve the legal basis, therefore until the end of this year it is planned to approve the Law on the Railway Transport Reform, as well as to supplement the Railway Transport Code. At the level of the secondary legislation the legal acts on railway infrastructure charging and capacity allocation should be adopted taking into account the requirements of non- discriminatory access to the railway infrastructure. The adoption of all these documents will create legal conditions for the liberalisation of railway market after the completion of the railway sector restructuring by 2006. (See Attachment F.3.) In road transport there remains to be adopted only some implementing legislation in the technical field. The main issues of development of the air transport remain the objectives of market liberalisation, flight safety and security intensification and decreasing of the negative impact on the environment. In the maritime sector at present the implementation of maritime safety requirements from Erika I and Erika II packages is of great importance. In the Comprehensive Monitoring Report on Lithuania's preparations for membership presented by the European Commission in this year it was stressed that Lithuania is essentially meeting the commitments and requirements arising from the accession negotiations in the transport sector, and is in a position to implement the acquis from the time of accession. Nevertheless, Lithuania must complete the transposition of the railway acquis, in particular as regards interoperability; adopt implementing legislation in the areas of road, maritime and air transport and further reinforce its administrative capacity. For the elimination of these gaps we have not much time left, but we believe that in transport sector we will successfully meet these challenges. Besides the legal approximation Lithuania pays a great attention to the implementation and enforcement of the legislation. For this reason the administrative capacities are strengthened, in recent years a number of new staff has been hired, the numerous training courses for staff are held each year as well. Particular attention is given to the implementation of social rules in road transport and increase of checks in order to reach the required level of 1 percent of working days. At present time the checks reach about 30 percent of the required level. Maritime transport is of great importance to Lithuania. Issues of maritime safety are very important and implementation of Erica package is one of the priorities for Lithuania. Since 1999 Lithuanian flagged vessels' detention rate has fallen from 10 percent to 6 percent in 2002. The rate of ships inspected in Klaipeda State Seaport has risen from 9 percent in 1999 to more than 22 percent in 2002. This result was attained by the improvement of capacity of the Lithuanian Maritime Safety Administration. Operation in the European Community market means not only a free and unrestricted service delivery, but also equal conditions to all operators, meeting the same technical 91 and quality standards, standards for operational activities as well as standards for infrastructure. Implementing the quality, traffic safety and environmental measures for all transport modes is important. Following the terrorist attacks that shook the world over the recent years, travellers and cargo shippers are selecting routes and places of destination very carefully. They want to be sure that the place, where they are going to step or to which their consignment of goods will arrive, is reliable and safe. Therefore, a great attention is paid to security matters, as well as to application of modern information technologies in transport, thus enhancing the competitiveness and efficiency of transport. There is no doubt that not only transport operators have to meet the high requirements. For reaching the common efficiency of activities the whole transport chain has to meet equally set standards. Therefore the infrastructure development is a very important aspect for meeting the EU standards. Lithuania can be proud of its developed transport network. This field was always paid a great attention in Lithuania. In 2002 many important investment projects were implemented many of them are still undergoing. A further improvement and upgrading the Via Baltica, implementation of Rail Baltica and other transport development projects towards international quality standards is justified not only due to increasing traffic or enhanced national and regional development but also in a wider European context. High quality transport routes through Poland and the Baltic countries are vital for the trade with Eastern Europe and will enhance competitiveness, economic growth and employment. After joining the EU, Lithuania will implement the EU regional policies and will be able to receive the support from the EU Cohesion and Structural Funds. Following the experience of countries receiving the support of the EU Funds one may notice a particular focusing on the infrastructure development, where a lion's share of resources from the Cohesion Fund and a part of European Regional Development Fund are allocated for the financing of transport infrastructure programmes. Preliminarily, in 2003-2006 it is foreseen to allocate about 300 million euro for the transport infrastructure projects. Therefore, the management of EU funds is a very important aspect of the membership accession. From the Structural Funds it is planned in transport sector to finance the measures, which are necessary for the regional local development, it means that they should enable a good approach to the trans-European transport corridors, improve an access of remote regions to industrial, business and tourism areas, regulate urban traffic, reduce transport congestions, improve transport infrastructure so that it would meet the proper requirements of tourism and small and middle scale business. Transport plays an important role for Lithuania's economy, however after joining the EU and under the open market conditions transport will become a much more important sector enabling sustainable free movement of people and goods, giving new opportunities to operators and consumers for access of higher standard services. 92 G. Roads and road transport 48 Key findings Traffic safety has improved but fatalities and accidents still at a high level. Road design and construction work is carried out by the private sector. The private sector is gaining share in road maintenance. Second Via Baltica Programme 2001-2006 has a budget of 655 million euros. Other road projects in 2002-2010 may exceed 200 million euros. Rapid fleet renewal of both private and commercial vehicle stock. Competition on international road transport intense, less so domestically. Road freight transport is fully privatized. MAINTENANCE OF ROAD DESIGN AND CONSTRUCTION WORK INFRASTRUCTURE OF ROAD INFRASTRUCTURE 2003 2003 2000 2000 1990 1990 ESTONIA LATVIA LITHUANIA ESTONIA LATVIA LITHUANIA PUBLIC SECTOR PRIVATE SECTOR Figure G.1: The roles of the private and the public sector in road infrastructure management The first sections in this Chapter deal with the road administration and road infrastructure sector, and the latter part presents findings on road transport services. In road administration, there has been a shift towards more efficient working practices, and both organizational and institutional arrangements in the road sector in all the three countries. Whereas the maintenance of the road infrastructure is still mainly a public sector responsibility, the design and construction is today entirely carried out by the private sector (Figure G.1). These contracts are increasingly being awarded through competitive bidding (or equivalent) procedures. 48Prepared by Lauri Ojala and Tapio Naula (Turku School of Economics and Business Administration) and Cesar Queiroz (World Bank). Unless otherwise stated, the source is the pre-seminar questionnaire. 93 G.1 Road networks In each country, approximately 20,000 km of roads is owned and maintained by the national road authorities, which are part of central government. Local government, which means primarily the municipalities, owns and operates 21,243 km of roads in Estonia, 38,968 km in Latvia and 52,097 km in Lithuania (Table G.1). The length of the road network and its reach is, generally speaking, adequate, but the quality of the road network is not. Especially rural and secondary roads and some access roads are in need of maintenance and upgrading. Table G.1: The ownership and maintenance of road network in Estonia, Latvia, and Lithuania by end of year 2002, by road length in kilometers. Ownership Maintenance Estonia km km Central Government 16 443 7 778 Local and Town Government 21 243 21 243 Private Sector 7 622 national roads: 8 665 private owners: 7 522 Other roads (forest and land roads) 9 860 All road network 55 168 Latvia Central Government 20 279 20 279 Local and Town Government 38 968 38 968 State forest industry 6 320 6 320 Private Sector 3 500 3 500 All road network 69 067 69 067 Lithuania Central Government 21 335 21 335 Local and Town Government 52 097 52 097 Private Sector < 1000 km - All road network excl. private sector 73 432 Since 2002, the share of road maintenance that is contracted out to the private sector has increased rapidly especially in Estonia. G.2 Safety issues in road traffic Traffic safety is a serious concern in all the three countries and the number of fatalities in road traffic is very high. 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 (Attachment G.1.) Slight overall safety improvement can be seen when exploring the statistical data on traffic accidents in relation to traffic volumes. Table G.2 presents key indicators on road traffic accidents versus selected traffic volume variables. 94 Table G.2: Road traffic accidents and fatalities relative to traffic volume. Source: Dominic Haazen, The World Bank. Fatalities and Injuries: Fatalities per: Number per Number of Number of 100 M km 100 M km 100,000 100,000 100 10,000 km killed injured travelled travelled vehicles population accidents of roads Estonia 1999 232 1 691 23 3,64 42 17 16 49 2000 204 1 843 23 3,17 37 15 14 43 2001 199 2 444 29 3,04 40 15 11 42 2002 224 2 852 - - 46 16 10 47 Latvia 1999 604 5 244 - - 86 25 14 96 2000 588 5 449 59 7,76 79 25 13 94 2001 517 5 852 57 6,16 67 22 11 82 2002 518 6 300 63 6,45 64 22 10 83 Lithuania 1999 748 7 696 66 7,73 62 21 12 100 2000 641 6 960 67 7,35 50 18 11 86 2001 706 7 103 60 7,13 51 20 12 95 2002 697 7 427 45 5,18 47 19 11 94 The time series of road fatalities in the three Baltic State and the CEE countries average from 1980 to 1999 in Attachment G.2. shows a downward trend that has continued till 2002 in average terms- except for the increase in Estonia in 2002 (see also Attachment G.3.) Despite this overall downward trend, road safety record is poor especially in Latvia and Lithuania. Table G.3. shows the Lithuanian example of the distribution of persons killed and injured between different types of road users.49 Table G.3. Number of Lithuanian road users injured and killed in road accidents, 1999-2002, Source: Ministry of Transport and Communication of Lithuania (2002, 20) Road users 1999 2000 2001 2002 Killed Injured Killed Injured Killed Injured Killed Injured Drivers 226 2056 173 1779 192 1878 194 1951 Passengers 161 2700 155 2398 163 2435 162 2651 Pedestrians 269 2328 235 2116 253 2141 239 2091 Bicyclists 62 512 72 629 94 614 94 699 Other 5 50 6 38 4 35 8 35 Total 723 7646 641 6960 706 7103 697 7427 Reviewing the Lithuanian data in Table G.3. and considering the increasing number of vehicles, a tendency of decreasing accident rate can be observed, particularly in reference to pedestrians. The decrease has been the result of the implementation of 49A comprehensive analysis on traffic accidents in Lithuania is "Road Traffic Accidents in Lithuania - 2002", published by the Ministry of Transport and Communication. 95 traffic safety measures, especially traffic safety campaigns promoting reflectors. However, there has been an increase in accident rate involving cyclists. In Estonia, pedestrian-motor vehicle collisions account for 28% of the total accidents. Roughly two thirds of these accidents occur in the dark. In 2002 every third pedestrian collision victim was a child under age of 15. Drunken walking, red light infringement and insufficient use reflectors are common causes of pedestrian-motor vehicle accidents. Of all accidents, almost every sixth driver of a motor vehicle was under the influence of alcohol. Drinking and driving is prohibited but it is a very serious problem. In 2002, 255 Estonians under the age of 15 were involved in traffic accidents (227 in 2001), including the 180 cases of children causing the accident (169 in 2001). The number of children injured as passengers in a vehicle also increased, partly because children safety equipment is rarely used. Multiple vehicles accidents presently account for one fourth of all the accidents and the number is increasing because of deficient traffic enforcement and escalating traffic volume. This type of accidents is commonly associated with traffic violations in crossing intersections, passing and driving speed. Young drivers 21 to 34 of age are at the greatest risk. The number of bike and motorbike accidents in Estonia increased by 19% in 2002 from the previous year. Every third biker or motor biker causing the accidents was under 15 years of age. More than a quarter of the Estonian fatalities occurred on the main roads, which account for 3.1% of the total road network. Almost every sixth accident on the main roads was a fatal one. The number of accidents is the highest on the Tallinn­Narva road and on the Tallinn­Tartu­Voru­Luhamaa road. The Estonian National Road Safety Program for the years 2003 ­ 2015 targets at decreasing the number of fatalities on the roads down to 100. The program includes development of community road safety programs and states of measures for improving the road safety combining development of traffic education, campaigning, drivers' education quality improvement and different planning and constructional measures for the main roads and urban area traffic regulation and organization. More detailed information about the program is available on Estonian Road Administration's web site at www.mnt.ee. In Latvia, about 50% of all serious accidents in 2002 were collisions of vehicles with vulnerable road users (pedestrians, bicyclists, moped riders and motorcyclists). These accidents usually have serious and fatal consequences for vulnerable road users: 34.9% of all killed and 26.9% of all injured were pedestrians; 11.4% of all killed and 10.9% of all injured were riders of motorcycles, mopeds and bicycles; Since 1997 the number of killed and injured bicyclists increased by 20% average. 96 In Latvia, the targeted number of maximum road traffic deaths (457) was not reached in 2002 (518 registered). The National Program on Road Traffic Safety suffers from adequate funding, which hinders implementing the planned safety improvement measures: Education and training of road users Various campaigns on the traffic safety Improvement of the road quality Improvement of the road traffic safety in darkness Safety improvements for vulnerable road users Control of road traffic users Road audit Technical control, registration and certification of vehicles Rescue service and emergency in road traffic accidents In Lithuania the National Road Traffic Safety Program has been adopted for 2002- 2004. New Road Traffic Regulations came into force April, 1 2003. The Regulations include mandatory use of headlights in autumn-winter period, prohibition to use summer tires in winter, mandatory seat belts for passengers seated on the rear seats and prohibition of using mobile phones during driving. Each year, traffic safety campaigns are held targeting to influence on road users' behavior. Pedestrian walkways, cycle tracks, metal crash barriers, reconstruction of dangerous intersections and lighting dangerous road sections are examples of technical measures to improve the road safety. G.3 Vehicle stock Motorization of the Baltic countries has been rapid: the number of vehicles grew by 60% - 80% in 1992-1998, and it has continued especially in Latvia and Lithuania (Table G.4). In Estonia, the passenger car stock has actually declined after year 2000, which is mainly attributable to the withdrawal of old cars from the vehicle stock. By comparison, motorization in Poland process has been slower but it started earlier (Table G.5.). The number of passenger cars has risen particularly fast in Lithuania. In 2002, there were 340 passenger cars per 1,000 population. This is close to the EU level: there were 350 cars per 1,000 population in Denmark, 380 in Finland and 420 in Sweden and over 500 in Germany. Also the absolute number of passenger cars in Lithuania has grown from less than 0.8 million in 1996 to almost 1.2 million in 2002 According to data gathered by ECMT, over 93,000 first registrations of brand new road vehicles were recorded in Lithuania in 2002. The figures for new registration in Estonia was 14,700 and 8,200 in Latvia in 200250. 50ECMT Quartely statistics at: http://www1.oecd.org/cem/stat/conjonct/3rdQ.htm 97 Table G.4: Vehicle Stock in Via Baltica countries 1995-2002, thousand vehicles. Source: Estonian, Lithuanian, Polish statistics offices and Latvian Road Transport Safety Directorate Thousand vehicles Lorries and Passenger special Trailers and cars Buses vehicles Motorcycles semi-trailers Estonia 1996 406,6 6,7 71,3 4,7 29,3 1998 451,0 6,3 80,6 6,1 35,8 2000 463,9 6,1 82,1 6,7 37,5 2002 400,7 5,3 80,2 7,3 37,4 Latvia 1996 379,9 17,3 72,9 18,4 45,9 1998 482,7 11,5 84,9 19,4 51,6 2000 556,8 11,5 97,1 20,7 55,5 2002 619,1 11,2 102,7 22,2 59,0 Lithuania 1996 785,1 15,5 * 104.6 19,4 - 1998 980,9 15,2 * 114.5 19,3 - 2000 1 172,4 15,1 * 110.4 19,8 - 2002 1 180,9 15,4 * 115.8 21,0 - *) Lorries, road tractors, special purpose vehicles Trends concerning the stock of commercial vehicles are mixed. The number of buses and coaches has actually declined from the peak of 1990, while the number of trucks and other goods vehicles has increased. Vehicle fleet renewal is discussed in Section G.10.2. Table G.5: Passenger cars per 1,000 population in Via Baltica countries 1995-2002. Source: Estonian, Lithuanian, Polish statistics offices and Latvian Road Transport Safety Directorate Estonia Latvia Lithuania Poland 1995 265 131 197 195 1996 285 152 217 n.a. 1997 304 174 246 n.a. 1998 324 200 275 230 1999 333 219 308 240 2000 338 234 334 259 2001 298 248 325 272 2002 294 264 340 289 G.4 Management of roads and road construction This section focuses on the ownership, private sector participation, institutional arrangements, and economic analysis in the road sector. 98 6000 1991 5000 2000 4000 2002 3000 2000 1000 0 Estonia Latvia Lithuania Figure G.2: The national road administration employees in Estonia, Latvia and Lithuania 1991-2002. Road construction companies have been privatized entirely in Estonia, Latvia and Lithuania. Privatization of road administration has been a clear trend in the 1990s in the three countries. At the same time, the number of employees in road administration has declined (Figure G.2). In Latvia and Lithuania, the structure has changed very dramatically. However, the effects of the improved efficiency of the personnel and higher competence in the road network administration can now be seen in better quality of the works done and more efficient planning and management instruments. Road maintenance in Estonia and Lithuania has been so far within the responsibility of regional road administrations, whereas in Latvia, some municipalities also have their own maintenance enterprises for routine maintenance. Competitive bidding in contracting out is used almost exclusively in rehabilitation, reconstruction and new construction in all three countries. In Estonia and Lithuania, international tenders are organized for projects bigger than 5 million euros. Practically all rehabilitation, reconstruction and new construction work is carried out on the basis of competitive bidding in all the three countries. The force account has traditionally taken care of almost all maintenance, whereas contractors have carried out capital improvement. Contractors are selected by a process of international competitive bidding. The capacity of the local construction industry is reportedly adequate to ensure competition. In IBRD projects, the standard bidding documents are in accordance with the policies and procedures laid down in the IBRD Guidelines. Procurement under PHARE or ISPA is carried out according to FIDIC rules. 99 Table G.6. Road maintenance by force account and contracts in Estonia by road districts and their regions, from December 1, 2003. Source: ENRA Force Account Contracted Contracted (km) (km) % 1. Harju Road District (Harju *, Jarva, Rapla) 0 3 495 100 % 2. Kagu Road District (Voru, Polva, Valga) 1 246 2 271 65 % 3. Laane-Viru Road District (Laane-Viru, Ida-Viru) 1 141 934 45 % 4. Parnu Road District (Parnu, Laane, Viljandi) 1 424 2 010 59 % 5. Saarte Road District (Saare, Hiiu) 1 088 473 30 % 6. Tartu Road District (Tartu, Jogeva) 1 257 1 104 47 % Total: 6 156 10 287 63 % * Harju County is the Tallinn Capital region, and also the head office location In Estonia, the former 15 Road Districts (RD's; one in each county in Estonia) were consolidated into seven RDs as of January 1, 2003. In April 2003 the RDs were reduced to six. The RDs carry out summer and winter maintenance both by force account and contract with private contractors (and, in one case, a joint stock company). In mid-2003, about 58 percent of the national roads (in terms of km) have routine maintenance contracted out, but this share will reach 63 % in December 2003 (Table G.6.). In Latvia, a five year contract for the routine maintenance has been applied from the year 1998, based on unit cost (performance-based contract for the winter maintenance of main roads since the winter 1999/2000). In Latvia, contractors take care of both maintenance and capital improvement. The procurement of road works is made according to the law "On Public Procurement" and all contracts above 50,000 LVL are procured using competitive bidding. The contract is normally awarded to the bidder who has passed the qualification criteria and who has offered a technically acceptable bid at the lowest price. Competition in 2000 has increased substantially due to the over capacity of industry in comparison to the annual budget for road rehabilitation. In Lithuania, routine maintenance is mainly carried out by the force account of regional road administrations. In addition, for the performance of some works, regional road administrations have sub-contractors, selected on a tender basis using unit cost contracts. Road construction companies were privatized just after the restoration of independence, and at present they are private companies with fairly modern equipment and technologies. In competitive bidding, the Lithuanian companies often have a priority in that they are able to offer lower prices for sufficiently high quality works. G.5 Economic analysis In Estonia, a Pavement Management System (EPMS) is used for economic analysis of new road construction and reconstruction but not for rehabilitation or routine road maintenance. The system was developed in co-financing with the EU Phare program. 100 It uses HDM which provides a priority list of road sections to be repaired. The priorities have criteria for IRI, traffic density, defects and modules of elasticity. The sections are prioritized on to figures: the sum of priorities and the feasibility factor. A study of the Estonian road user costs will be concluded by the year 2004. In Latvia, Pavement Management System (PMS) Bellman and Road Data Base were introduced in 1996 in co-operation with Danish Road Directorate. Presently, methods of economic analysis are only applied for new road construction. Road sections to be repaired are selected on the basis of pavement damages and traffic intensity. In Lithuania, economic analysis is used to determine which road sections should be repaired and what level of repair should be done. Following types of methods are used: HDM 3, HDM 4, Bridge Management System (BMS), and DAVASEMA. In 2002, economic analysis was used to evaluate all new road construction and 90 % of the periodic road maintenance and the rehabilitation reconstruction. G.6 Technical issues G.6.1 Implementation of new techniques In Estonia, no significant changes have been implemented in road technology since 2000. In road rehabilitation, a cold stabilization with bitumen emulsion or oil shale bitumen, using RAP, was introduced by the year 2000. As result of the growing traffic volumes the cement or cement-bitumen stabilization is becoming more essential. The stabilized base is usually overlaid with 5-10 cm of asphalt concrete, depending on traffic volume. On high volume roads the stone mastic asphalt (SMA) has been used as the wearing coarse of the asphalt pavement since 2001. Geotextiles and geonets for prevention of reflective cracking are planned to be used for rehabilitative roads. Several test sections were constructed in Estonia during 2000-2002 to study surface dressings with different bituminous and stone materials in order to find the most appropriate and economical technology for certain pavement and traffic conditions. The tests will be concluded for final analysis by the year 2007 when the constructed test sections will be worn out under the traffic. The development of a BMS has started in Estonia. The Technical Center of Estonian Roads purchased a US-origin software PONTIS in 2002, which is now in trial use. In Latvia, no significant technical improvements have been introduced since 2000. Recycling, remixing and cold emulsion methods have been introduced earlier in the previous 5 years. The Road Administration is ready to use the PMS. However, no pertaining information is being collected on the road network due to the lack of finance. The Bridge Management System is at a stage of implementation. In Lithuania, technologies such as recycling of old pavement, pavement remixing, cold emulsion, have also been implemented before 2000. Further development of PMS has also been carried out. More recent improvements include: 101 A secondary use of milled asphalt concrete: Remixing in special mixing plants and adding 2-3% of special bitumen emulsion for simple asphalt pavement Adding milled asphalt concrete mixture granulate up to 30% in the production of asphalt concrete mixture Setting up wearing courses of slurry seal Pavement recycling with complex binder (concrete+bitumen emulsion and foaming bitumen) for setting up subgrade courses Setting up stabilized subgrades through the use of cement Lime stabilizing of extremely wet soils when setting up embankments G.6.2 Road quality measuring In Estonia, roughness is measured on main and basic roads (up to 1,500 km) every year, on basic roads (2,400 km) every second year and on local roads (4,600 km) every third year. One Roadmaster unit is used for measuring the roughness. The device and the measuring vehicle are annually calibrated in Finland. Measuring results of the device are compared to the measuring results of Finnish roughness measurement devices. Necessary calibration values are calculated and calibration certificate is issued by an independent consultant company. Average roughness values of Estonian State road network in 2003 show a notable positive development: main roads IRI = 2.9 mm/m (3.7 mm/m in 1998); basic roads IRI = 4.4 mm/m (4.1 mm/m in 1998); local roads IRI = 4.9 mm/m (4.9 mm/m in 1998); all roads IRI = 4.4 mm/m (4.5 mm/m in 1998). Roughness values on the roads to be rehabilitated are usually between 4.0...8.0 mm/m. In Estonia, other performance measures used are: bearing capacity, measured with Dynatest FWD device. Currently 5,500 km of roads are measured with 100 m step (all roads where AADT is over 500 vehicles/day). E modulus is calculated and used as one criterion for evaluation of the pavement condition. Data is used in project, program and network level. rut depth is measured since 2001 and it is used as criteria for pavement condition evaluation. Rut depth is also a criterion for higher summer speed sections. manual pavement distress inventory is done every spring for 4,000 km of paved roads. During the inventory a detailed data is collected about different distresses (transfer cracks, narrow and wide longitudinal cracks, narrow and wide joint cracks, alligator cracking, potholes, raveling and edge break). Based on collected distresses a defect sum is calculated and it is used for evaluation a pavement condition; Ground Penetrating Radar (GPR) is used for project level analyses before and after rehabilitation/reconstruction actions. 102 In Latvia, regular IRI was performed on the state roads till 2002 but due to the lack of finance this measuring was interrupted. The Latvian Road Administration is performing calibration of roughness measuring devices independently. Mean IRI values in the state main road network are about 3 mm/m, 1-2 mm/m for new pavements, and 4-7 mm/m for road sections to be reconstructed, in dependence of the traffic intensity at a road section (AADT). Visual inspection is also used to detect eight various damage types. In Lithuania, a regular road roughness survey is carried out on motorways (400 km) every year, on other main roads (1,430 km) every second year and on national roads (4,880 km) every third year. A laser prophilograph is used. The calibration of device is made on test sections. The standard IRI values are defined in Lithuanian road construction standards. After arrangement of new pavement the following values shall not be exceeded: main roads: IRI = 1.5 mm/m national roads: IRI = 2.5 mm/m district roads: IRI = 3.5 mm/m A typical IRI of new pavement on motorways is about 1.0 mm/m and on national roads about 2.0 mm/m. Typical IRI values of pavement to be rehabilitated are: motorways: IRI = 2.5 - 3.5 mm/m. main roads: IRI = 3.5 - 4.5 mm/m. national roads: IRI = 4.0 - 5.0 mm/m. Other performance measures in Lithuania are pavement strength, road defects, cracks, potholes, patches, ruts, pavement leakage, edge cracks and cross-profile defects. G.6.3 Improvements in quality control In Estonia, certified supervisors manage all works for state roads. Two third of them are independent consultant companies or independent supervisors. The improved equipment, technical standards and procedures have also contributed to improved quality control (asphalt tons management, ground penetrating radar for quality measurements etc). In Latvia, a quality system certified in compliance with the ISO standard has been introduced. Building supervisors, project managers and subcontractors work in accordance to it. Hence, building supervision provides a recording of regular quality inspection. In Lithuania, independent consultants carry out the supervision of road and bridge works during the implementation of investment projects since the year 1997. The independent consultants give a lot of practical advice for road and bridge construction. Since 1991, a substantial quality assurance level has been achieved. All main contractors have set up modern quality control laboratories with adequate quality control systems. They aim to be certified for ISO 9001 and ISO 2002. 103 G.6.4 Cost and quality development of road maintenance There are significant differences in road maintenance unit costs between the three countries (Table G.7.) The unit costs have increased since 1991. For example in Lithuania the increase for surface treatment was 50 % and 108 % for routine management from 1991 to 2002. However, the unit cost for asphalt concrete was 20% lower in 2002 than in 1991. The increase results partly from a general increase of prices and partly from the increased quality requirements. Table G.7: Basic unit costs of asphalt concrete, surface treatment and routine maintenance in 2002. Estonia Latvia Lithuania Asphalt concrete, USD/m3 112 138 96 Surface treatment USD/m2 0.92 1.28 3.00 Routine maintenance of paved roads USD/km 1,260 2,644 2,700 In 1991, the Latvian Road Administration changed its requirements on periodic maintenance works within the state road network when moving from the Soviet standard system GOST to the Swedish system ROAD 94. The adoption of this system was completed in 2001. The cost level remained the same for 10 years and fell from 1998 to 2000 due to increased competition within Latvian road construction industry and improved technical equipment used. After year 2000, costs rose 15 % mainly due to the increased quality requirements of ROAD 94. G.6.5 Research and innovation in road management In Estonia, research and innovation activities are incorporated into the Department of Technical Policy, a part of Estonian Road Administration since 2001. The main task of the department is to determine the practical need of the road-related research, need of compilation technical standards and procedures and to develop annual and long- term research and development programs. Research projects are given out for research organizations for implementation. The main research partners are the Transportation Institute of the Tallinn Technical University, the state owned Technical Center of Estonian Roads Ltd. and a private engineering bureau "Stratum". Currently following projects are under compilation: Development of the Estonian flexible pavement design procedure with incorporation of the Falling Weight Deflectometer measurement data Implementation of Ground Penetrating Radar for pavement design and quality control improvement Evaluation of different surface dressing technologies Harmonization of terminology of existing Estonian road related legislative acts Norms and procedures including the upgrade of Estonian highway design norms. In Latvia and Lithuania, universities, State-owned companies and private firms participate in road research. 104 Road design standards have been adopted from various sources. All three countries increasingly apply standards, such as the Eurocode, used in the EU. In addition, national standards and to some extent old Soviet codes are used. Compared to national standards, the EU codes allow more detailed road design and improved road safety, such as in the form of constructing wider intersections in relation to traffic intensity. G.7 Road financing A main effort to mobilize revenues from road users has occurred in countries seeking admission to the EU (the accession countries). All accession countries are heading toward reaching the minimum EU levels of fuel and annual vehicle taxation. In general, road user revenues in accession countries are much higher than what would be needed to carry out adequate maintenance of their roads (Table G.8.), which is also the case in the EU countries. A comparison between road expenditures and the gross national product in 36 countries shows that, on average, road expenditures were about 1.2 percent of GNP in 1998. The percentages in that year, for the Baltic States, varied from 0.9 to 1.3 percent. Thus, of the Baltic States, only Lithuania compares favorably with the average for those 36 countries in terms of this measure. There is a significant 56 percent difference between the percentages for Estonia and Lithuania. Table G.8. Road User Revenues and Maintenance Expenditures in Accession Countries in Million USD in 1999-2000. Source: Queiroz, Cesar (2002) A review of alternative road financing methods, The World Bank, data based on: NEI Road Transport Charges, Country Reports. Road User Maintenance Maintenance Actual per Revenues Expenditure Expenditure Required in % Actual Required Bulgaria 597 43 213 20 Czech Republic 1,939 165 533 31 Estonia 94 10 45 22 Hungary 342 153 341 45 Latvia 105 59 53 111 Lithuania 176 48 69 70 Poland 4,907 364 933 39 Romania 1,279 115 213 54 Slovakia 121 72 171 42 Slovenia 310 72 64 113 After Lithuania abolished its Road Fund in 2002, Latvia is the only one to have a functioning Road Fund. Its State Road Fund is regulated by the Cabinet of Ministers, which determines the main principles for planning of the State Road Fund expenditures. The Advisory Body of the State Road Fund includes several road user organizations, such as the Latvian Public Bus Transport Association, the Automobile Owner Union of Latvia and the Latvian Automobile Dealers Association. The Road 105 Fund is however considered not effective, because it can cover only one third of the required financing. In the Baltic States, fuel tax is the biggest source of funding for road maintenance and construction (Table G.9.). Vehicle tax is presently not collected in Estonia (since 2003) or in Lithuania. Table G.9: Total expenditure in road maintenance and construction and the sources of funding in 2002. Expenditure on road maintenance Sources of funding - % share and construction in 2002, m USD Fuel tax Vehicle tax Other taxes Estonia 77.3 88.1% 11.9% - Latvia 46.2 83.4% 16.6% - Lithuania 159.4 50.9% - 49.1% The income from fuel tax is not fully allocated for road infrastructure purposes. Estonian National Road Administration can receive up to 75% of this income. 70 % of the remaining goes to the central road administration, which manages all the investments. The local organizations receive the remaining 30% for roads maintenance (See Box G.1.) The sharing of funds between the central and local levels is similar in Latvia (72 % central/28% local) and Lithuania (75% central / 25 % local). 80 80 70 70 60 60 Estonia 50 50 Latvia Lithuania 40 40 World market crude 30 30 oil Normal sales price 20 20 10 10 0 0 1995 1998 2000 2002 1995 1998 2000 2002 Figure G.3. Actual fuel prices in Estonia, Latvia and Lithuania in US Cents per liter in selected years. Diesel = left graph; Super Gasoline = right graph. Numerical data shown in Attachment G.4. Source: Metschies 2003 While the tax rate in June 1999 on gasoline was the equivalent of USD 0.22 per liter in both Estonia and Lithuania, it was USD 0.27 per liter in Latvia. Latvia also has the most expensive diesel fuel (See Attachment G.4). Estonia has had the cheapest Super Gasoline. Diesel prices were almost identical till 2000, but in 2002, Estonia has the cheapest diesel fuel and Latvia the most expensive. 106 The tax rate on fuel, however, is not indicative of the sum, which the road administration will be allotted for its road network. Although Lithuania had the lowest overall tax rate on fuel of the three countries, Table G.10. shows that it has the largest network in kilometers and the highest comparative budget per kilometer. Although the 1990s brought an increase in private sector involvement in infrastructure investments in many countries, such a development has not occurred in the road systems of the Baltic States, as there are no toll roads in place in these countries. Table G.10. Road Network Comparison and Macroeconomic Indicators. Source: Road administration publications from respective countries, 1999, Lithuanian MoTC amendments (November 2, 2000). Estimated GNP Length of budget for Budget per Road density, roads, km of road, per Average annual 1998 National network, 1999 1999 capita, GNP growth, (km/million road 1999 (km) (USD (USD/km) 1998 1997-98, (%) people) network million) (USD) Estonia 16,430 47 2,861 3,390 6.4 30,576 Latvia 20,329 64 3,148 2,430 6.1 27,188 Lithuania 21,161 116 5,482 2,440 5.6 19,909 Two tolled facilities, however, are currently under consideration for private sector financing in the Baltic States: a fixed link to the island of Saaremaa in the Baltic Sea (Estonia's largest island), and an additional crossing of the Daugava River at Riga, in Latvia. Tunnel and bridge options are being discussed in both cases. However, the willingness of users to pay has not yet been fully assessed for either of these projects. Furthermore, the economics of these projects do not seem very robust: the Saaremaa fixed link, for example, would yield an economic rate of return of 10 percent at best. Finally, it is significant that the governments in the Baltic States have been using the considerable revenues collected from road users for the funding of governmental activities other than roads. This is illustrated in Box G.1. Revenues collected from road users with the expenditure on roads in the three Baltic States are shown in Figure G.4. The data is not fully comparable, since the Estonian figures comprise the entire road network, whereas data from Latvia and Lithuania cover public roads only. 107 $200 $150 million$100 Total revenue from road users US$ Total road $50 expenditures $0 Estonia Latvia Lithuania Figure G.4: Revenues from road users compared with road expenditures 1999; Estonia = entire road network, Latvia and Lithuania = public roads. Sources: For Estonia, MOTC data April 2001; for Latvia and Lithuania: Road administration publications, 1999. Box G.1. Road finance issues in Estonia In Estonia, the road budget is composed of state treasury allocations, European Union (ISPA) allocations, and loans from International Financial Institutions (IFI), namely the World Bank, Nordic Investment Bank (NIB), and European Investment Bank (EIB). The Road Act's §16 and §45 provisions establish earmarking of 55% excise tax revenues in 2001 to be used for roads, 65% in 2002 and 75% in 2003. However, tight fiscal policy of the Ministry of Finance has not allowed for increase of the treasury allocation for roads according to the Road Act provisions. In 2000, out of the total road budget of 795 million kroon (USD 47.3 million), 599 million was used for routine maintenance of the network. Out of total 2001 budget of 777 million kroon (USD 43.9 million), only 485 million was used to maintain the network, as more funds were dedicated for local counterpart financing to IFI loans. The 2002 maintenance situation was even more difficult. The 2002 total allocation for roads increased significantly to 1,118 million kroon (USD 74.8 million) while only 464 million kroon was used for maintenance. The 2003 total allocation also increased significantly, to 1,513 million kroon while only 465 million kroon was used for maintenance. The total 2004 allocation of funds for roads is projected as 1,739 million kroon, including 488 million kroon for maintenance, which is lower than the 2000 road maintenance expenditures. Note: Currency conversion to USD is indicative. As kroon is pegged to euro, the changes in allocations from one year to another reflect real changes in disposable budget allocations in euro terms. Source: Estonian Road Administration G.8 Via Baltica Via Baltica stretches from Helsinki to Warsaw and is part of Corridor 1, which is one of nine priority multi-modal transport corridors linking Central and Eastern Europe with Western Europe. The Corridors were identified at the second Pan-European Conference of Ministers of Transport in Crete in March 1994. Via Baltica has been 108 numbered E67 in the Pan-European road network. The total distance of Via Baltica is 930 km. (See Attachment G.5.) In January 1996, the High Level Working Party on Via Baltica, set up on the initiative of the Nordic Investment Bank at the request of the G-24 Transport Working Group under an authorization of the Prime Ministers of the Via Baltica countries, i.e. Estonia, Finland, Latvia, Lithuania and Poland, recommended a five year investment program for up-grading and reconstructing of the Via Baltica route. The estimated cost for the Program was USD 180 millions. The Program was approved in principle by the governments concerned. A Monitoring Committee was set up according to the Memorandum of Understanding signed by the Transport Ministers of the Via Baltica countries and the European Commission in order to monitor and co-ordinate the joint work of Program implementation. The Committee has consisted of representatives of the countries concerned and the European Commission. The Swedish Government provided the chairmanship for the Committee and the Finnish Government the secretariat. The First Investment Program 1996-2000 is estimated to cover investments of a total cost of about EUR 200 millions, or about 15% more than originally estimated. Work under the Program came to an end in year 2002. The following is a summary of what has been achieved under the First Program: 110 km of new roads have been built and 333 km of existing roads have been rehabilitated or resurfaced, 28 bridges and viaducts have been constructed, repaired or strengthened, all countries have initiated specific traffic safety programs, signing of Via Baltica as E 67 has been arranged, and roadside services have been developed along the route by the private sector. Via Baltica is developing well and is often cited as an example of a successful regional co-operation on the development of transport facilities. Via Baltica has embarked on its Second Investment Program, including investments amounting to 655 million euros for a period of 2001-2006, of which 112 million euros is for investments in access roads to Via Baltica. G.9 Road transport industry Road transport services for freight have been fully privatized in all three Baltic States Figure G.5.). All long-distance bus services are operated by private firms in Estonia and Latvia, whereas in Lithuania, municipalities operate some long-distance bus services. In Latvia, the whole inter-urban road transport industry of freight is privatized. 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 which are joint-stock companies. Over 50 entrepreneurs operate long-distance bus services, of which over 15 on international routes. 109 ROAD FREIGHT TRANSPORT LONG-DISTANCE BUS SERVICES 2003 2003 2000 2000 1990 1990 ESTONIA LATVIA LITHUANIA ESTONIA LATVIA LITHUANIA Figure G.5: The roles of the private and the public sector in road transport services. (Long-distance bus services and road freight transport services) Lithuanian goods transport by road is now fully privatized, after the reorganization of state transport companies. Bus and coach companies were separated from state transport companies and were initially owned by municipalities (municipalities hold 100 of stock) - there were 47 companies of this kind in 2000, but since then, most have been operated by private firms. G.10 Market characteristics in road freight transport In most countries, the demand for domestic and especially for international road freight transport tends to grow faster than GDP. This has definitely happened in the Baltic States. Especially in Lithuania, the performed transport work in international road transport has grown substantially since 1999. (Figure G.6.) While domestic transport work has grown more modestly in Latvia and Lithuania since 1999, it has grown extremely rapidly in Estonia since the third quarter of 2002. G.10.1 Market structure and firms size in road transport Road freight companies in all EU and EU Accession countries are typically small or micro firms having one or a couple of trucks. They are often run by entrepreneurs employing a handful of people in addition to themselves. The cost and market structure in road transport is such that the most efficient size of the firm occupied in pure road haulage is often limited to what a single entrepreneur can operate. If a firm has ten to fifteen trucks, that number may not be enough to sustain the administration and office staff needed to run the firm of that size. The necessary economies of scale after often reached with a fleet of 30 or more trucks. 110 3000 2500 2000 EST national LAT national LIT national 1500 EST internat LAT internat 1000 LIT internat 500 0 9 9 0 0 1 1 2 2 3 3 -199 -199 200- -200 -200 -200 -200 -200 -200 -200 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Figure G.6. Transport work in national and international road freight transport in million tonkilometers by quarters in 1999 - Q3/2003. National transport excluding, international transport including cabotage. Source: ECMT. In Estonia, companies own 6.1 trucks on average, which is well above the average in the other EU accession countries (4.4) and in the EU (5.2) (see Table G.11). In 2003, about 1,600 road freight companies were active in Estonia, and they employed 9,700 people. In Estonian passenger transport market there were 306 private and 3 municipal-owned companies, 162 of which operate internationally (IRU 2003). Table G.11: Trucks, buses and coaches in international and national traffic. Source: IRU (2003) Road Transport Fact Files: Estonia, Latvia and Lithuania Estonia Latvia Lithuania Trucks in international traffic 4 600 5 455 12 707 Trucks in national traffic *) 3 200 3 868 131 801 Trucks, average per company 6,1 4,4 3,4 Buses/coaches in international traffic 435 693 895 Buses/coaches national traffic 2 155 1 093 16 404 Buses&coaches, average per 2,0 2,9 1,8 *) The definition used in Estonia and Latvia differs from the one in Lithuania; data is not comparable. In Latvia, road freight companies are of the same average size as in other EU candidate countries. Small companies operate especially in the domestic market (IRU 2003). In 2003, 1,100 firms were licenced for international and 1,300 for domestic road freight transport. 111 Over 200 Latvian firms were licences for international bus transport and over 110 firms for domestic transport. In 2002, the Latvian road transport sector employed 24,800 persons, of which 10,700 in road freight transport. Lithuania's truck fleet in international traffic is almost three times the size of Estonian and over two times the size of Latvian fleet. In 2003, there were 2,490 road freight firms, which employed 19,900 persons in Lithuania. At the same time, there were 48 public bus transport firms that employed 6,500 persons. The regional market is characterized by a majority of small and medium size carriers with a high level of competition. Baltic road freight carriers face fierce competition especially from Polish, Russian and other CIS carriers. There is a clear differentiation of services and equipment between firms that are engaged in western traffic and the firms that are engaged in eastern traffic. Technical regulation in western traffic requires up-to-date and more expensive equipment. This constitutes a cost differencial that typically makes the most modern trucks uncompetitive in eastern trades. G.10.2 Fleet renewal through tighter environmental regulation According to data gathered by ECMT, almost 7,700 first registrations of new goods transport vehicles were recorded in Lithuania in 2002. The figure for Estonia was 2,400 and 1,900 in Latvia in 200251. In Estonia, in 1999 and 2000 were only 1,400 new goods vehicleswere registred. The pace of fleet renewal had stayed roughly the same throughout1999 - 2002, and during the three first quarters in 2003 in Latvia and Lithuania. Table G.12. Truck fleet of Latvia's national road carriers' association in 2000-2002; actual number of trucks. Source: The Baltic Course Magazine, data from Association of Estonian International Road Carriers and Latvijas Auto. Estonia Latvia Truck type 2000 2001 2002 2000 2001 2002 EURO 1 180 180 170 398 437 446 EURO 2 1,100 1,450 1,600 1,049 1,185 1,269 EURO 3 0 350 600 0 738 1,196 Other 2,070 2,180 2,240 3,919 3,079 2,632 Total no. of trucks 5,350 4,160 4,610 5,366 5,435 5,543 The enforcement of tighter environmental standards has effectively pushed the carriers to renew their vehicle fleet used within the EU and in trade with EU. The effect is achieved through multiplicators for more environmental friendly vehicles and the additional bonuses awarded for these. Table G.12 shows the rapid fleet renewal in 51ECMT Quartely statistics at: http://www1.oecd.org/cem/stat/conjonct/3rdQ.htm 112 Latvia. According to the MEAC, over 52 per cent of Estonian trucks in international traffic were in class EURO 2 or higher in 2003. In the least developed countries in Europe, such as Moldova, for example, over 95 % of trucks were in EURO 0 class, and only a handful were in the EURO 2 class in 2003. EURO 0 class vehicles can still be used in CIS trades. G.10.3 Cost competitiveness in road transport Cost competitiveness is a crucial issue for road haulage firms, and competition has reduced cost differentials to a minimum. This is seen in Table G.13., which indicates operating costs for carriers from the Baltic States, CEE and the EU. For reference, data for Moldovan carriers is also shown, as their operational costs are among the lowest in Europe because of the very low wages. However, the lack of finance, equipment and transport permits effectively hinders Moldovan carriers to utilize their cost advantage. Table G.13. Annual cost of operating a 20 ton truck in international traffic for 200,000 km per year in 2001 (2002 for Moldova) in euros. The figures do not include overhead costs as they vary a lot from one firm to another. Sources: IRU and for Moldova: Ojala 2003. Costs in euros/year Estonia Latvia Lithuania Moldova CEE EU Personnel 11 500 13 000 12 000 6 400 16 000 56 600 Depreciation 14 000 16 000 14 700 14 000 16 200 11 500 Tax/toll/licenses 6 600 7 500 7 000 10 600 4 100 2 400 Insurance 2 100 2 300 2 200 3 600 2 400 3 000 Interest 2 500 2 800 2 600 7 000 3 200 3 600 Fuel 20 600 23 500 21 700 18 000 18 600 21 700 Tyres 2 100 2 800 2 200 3 000 1 200 1 800 Repair/Maintenance 1 700 1 900 1 700 3 000 2 100 4 800 Other 20 600 12 200 13 900 3 400 16 200 15 600 Total (less overheads) 81 700 82 000 78 000 69 000 80 000 121 000 As carriers from EU accession countries enjoy a distinct cost advantage over EU carriers, the accession treaty bans carriers from accession countries from entering in cabotage traffic in old member states for a period of up to five years. In a rough simplification, the trucking industry in CEEC's ­ including the Baltic States - comprises four types of operator: (i) operators with multilateral permits in European trades with equipment complying to higher EURO standards, (ii) operators with aging equipment in non-EU trades using bilateral permits, (iii) domestic operators with modern equipment for efficient distribution or heavy transport and (iv) domestic operators with old equipment. Competition is intense in all groups, and overcapacity is persistent at least in groups (ii) and (iv). Despite low operational costs, profitability is usually poor. Operators in group (i) are often subcontractors to major international logistics firms. 113 G.11 Road Transport permits G.11.1 Usage of ECMT transport permits The so-called CEMT52 permits allow trucks to engage in international transports in ECMT countries. These permits are issued by European Conference of Ministers of Transport, which is organized under OECD. ECMT comprises all European and CIS countries, with Armenia being an observer member. CEMT permits are needed to engage in international road transport between the member countries of the ECMT. This does not apply to road transport of EU carriers within the EU, since intra-EU road transport has been liberalized for member countries53. The permits are mostly used in traffic between EU and non-EU countries. In addition to the CEMT permits, non-EU countries use bilateral agreements to regulate the volume of traffic between them. The CEMT permits are issued either for one year or as a short-term basis for single roundtrips. The permits are either multilateral, which allow for traffic within the entire ECMT area, bilateral for traffic between two specified countries, or for transit, which allows for passage through an ECMT country to another country. Furthermore, the permits are tied to the emission standards of the vehicles. These are called EURO 0, 1, 2 or 3 class of vehicles. EURO 0 is the least environmentally friendly category, and EURO 3 the "best" category now effective (See Table G.14). The even tighter EURO 4 class will be effective on June 1, 2005. Table G.14. Emission standards EURO 1 to EURO 4 for heavy duty vehicles used in ECMT countries. Source: ECMT EURO 1 EURO 2 EURO 3 EURO 4 ECMT scheme "Green" "Greener and "EURO 3 safe" "EURO 4 safe" safe" Date of application Oct. 1, 1993 Oct. 1, 1996 Jan. 1, 2000 June 1, 2005 CO g/kWh 4.9 4.0 2.1 1.5 HC g/kWh 1.23 1.10 0.66 0.46 Nox g/kWh 9.0 7.0 5.0 3.5 Small particles; g/kWh2 0.4 0.15 0.1 0.02 Multiplicator for basic 2 4 6 n.a. quota Bonus % on top basic 10 % 20 % 40 % n.a. quota Note: EURO 0 class is the least environmentally friendly category below EURO 1 standards 52In the industry, the licence is generally referred to as CEMT permit, using the French acronym. 53However, cabotage traffic will not be allowed for new members for a period up to five years. 114 Table G.15. presents the number of Multilateral road transport permits for the Baltic States and selected other countries. The EURO 0, 1, 2 or 3 class permits are issued by the European Conference of Ministers of Transport (ECMT). The permits allow trucks to engage in international transports in ECMT countries. However, vehicles in the EURO 0 class are no longer allowed into EU countries. Table G.15: ECMT multilateral quota for 2003 in selected countries ­ the number of licenses by type of vehicle. Source: European Conference of Ministers of Transport, Multilateral Quota, CEMT/CS/TR/(2002)14/Final, 2002 Estonia Latvia Lithuania Poland Russia Belarus Ukraine Finland Green lorries Annual licences (x2) - - - - - - - - Short term licences (x2) - - - - - - - - Bonus 10% - - - - - - - - Greener and safer lorries Annual licences (x4) 428 222 - 590 451 509 392 176 Short term licences (x4) 48 336 - - 2304 - 480 480 Bonus 20% 72 42 - 98 107 85 72 36 EUR3 and safer lorries Annual licences (x6) 313 578 1075 252 840 294 319 874 Short term licences (x6) 72 720 - - - - - Bonus 40% 91 182 307 72 240 84 91 250 Total licences Annual 741 800 1075 842 1291 803 711 1050 Short term 120 1056 - - 2304 - 480 480 G.11.2 Usage of Carnet TIR The TIR Carnet is a customs guarantee document used in road transport in Europe that allows the truck to cross the border without a cargo inspection by the customs. The TIR system is maintained by the International Road Transport Union (IRU). The TIR guarantee practices with customs were very diverse during the 1990s in all Baltic States, and only after 1997-98, these arrangements have found smooth and well-functioning forms. It could be mentioned that the TIR Carnet and the ATA Carnet54 were not recognized by the Latvian customs as late as 1997, even though Latvia had ratified these conventions much earlier. Table G.16: Number of TIR carnets issued by IRU to national associations Source: UNECE http://www.unece.org/trans/new_tir/div/carnets.htm 1994 1995 1996 1997 1998 1999 2000 Estonia 16 500 32 000 41 000 63 000 77 000 61 500 79 600 Latvia 27 400 45 100 71 400 106 200 111 300 88 500 127 500 Lithuania 31 700 62 000 105 700 177 000 195 000 178 000 247 000 Czech Republic 138 900 87 950 66 050 63 450 41 400 34 750 32 550 Finland 4 300 9 200 28 200 65 500 36 500 20 700 17 000 Germany 109 400 95 000 77 200 67 500 41 500 31 250 41 400 Hungary 307 600 313 500 267 300 261 450 234 000 180 400 150 600 Poland 215 950 291 700 367 300 317 350 323 100 293 000 244 500 Russian Federation 121 000 110 000 145 000 191 500 218 000 174 350 236 800 Sweden 15 000 17 000 19 900 6 700 7 600 5 300 4 900 115 G.12 Interurban and international bus transport There is competition on both domestic and international routes, which helps keep frequency and quality relatively high and prices low. The equipment used is comfortable, typically 5 to 10 years old long-distance buses bought second hand in, for example, Germany or from other EU countries. Table G.17. gives an indication of interurban bus fares between some major cities in this region. The cost of a bus ride is relatively affordable. For example, the normal fare for a 600 km ride between Tallinn and Vilnius is USD 27, which is equivalent to US 4.5 cents/passenger km. Table G.17. Example of Long-distance bus fares and approximate distances in scheduled traffic of a major operator, December 2003. Source: www.eurolines.ee (1 USD = 12.96 EEK in December 4, 2003) Distance km Tallinn 110 305 375 415 495 550 605 USD 5.0 Parnu 195 265 305 385 450 495 one 15.4 6.9 Riga 70 110 150 230 300 way 18.5 10.8 3.1 Bauska 40 120 190 230 20.1 13.1 5.0 2.0 Pasvalis 80 150 190 21.6 15.4 6.6 3.5 1.4 Panevezys 70 150 23.9 18.5 8.5 5.4 3.5 2.1 Ukmerge 80 27.0 22.4 13.5 8.5 6.2 4.8 2.7 Vilnius In Latvia, the number of domestic lines has remained rather stable since 1999. By contrast, 52 international bus lines existed in 2002 compared to just 37 in 1999 (Latvian Transport Statistics 2002). See also Table G.18. Table G.18. Number of passengers, passenger-kilometers and average length of journey in Latvian bus transport in 2002. Source: Latvian Transport Statistics 2002 Year 2002 Number of Passengers carried Million Average length bus lines (thousands) passenger-km of journey International bus lines 52 593 170.3 287 Interurban bus lines 374 18,149 858.3 47 Suburban bus lines 1,091 28,604 409.9 14 Urban bus lines n.a. 126,187 921.9 7 54ATA Carnet is a document that exempt goods of customs duties in temporary import; these include e.g. items sent for repair, trade fairs or demonstration purposes. 116 Apart from scheduled traffic, chartered long-distance bus travel has become a popular form of tourism in the Baltic States. The destinations are typically in Western Europe, and the annual passenger volumes have increased rapidly during the past years. In Estonia, for example, there were over 3.0 million passengers in domestic and 0.4 million passengers in international non-scheduled bus traffic in year 2000, and the volume is increasing. By contrast, some 6.0 million passengers traveled on domestic highway lines in scheduled bus traffic, but only 0.3 million traveled in international scheduled bus traffic. The most important destination or origin in scheduled international bus transport is Russia (Estonian quarterly transport statistics 2000). G.13 Regulatory issues in road transport services Regulatory issues in road transport deal mainly with safety, environmental effects and market entry and exit. These issues are also at the heart of the regulatory discussions between the EU and the accession countries. Tariffs for the carriage of goods are a contractual issue between the shipper and the carrier, and it is not regulated in any of the three countries. The entry of foreign vehicles is regulated through bilateral agreements in all three countries. There are no transit fees in the Baltic States. Country-specific regulatory issues are described in the following subsections. By April 28, 2003 Latvia and Lithuania entered the INTERBUS agreement regulating international bus services together with other 11 signatories including mainly CEE countries. Estonia is planning to join INTERBUS too in the near future. After the EU membership, bus operators from the Baltic States are allowed to operate within the Territory of the EU practically unrestricted, provided they have an operating license from their own country. G.13.1 Estonia The establishment of goods and passenger transport enterprise in Estonia takes place according to the laws of setting up a business, and these requirements are the same for both Estonian and foreign companies. To start a regular passenger service, an entrepreneur either must have a commercial line permit from the city, parish, or county governments to operate urban, parish or county bus lines, or must conclude a public service agreement with them. A regular long distance bus service and international bus service can be operated only with line permits issued by the Ministry (MEAC). The carrier can operate regular international bus lines only if he has at least two years' experience in international occasional passenger services. In Estonia, the town council, according to the proposal of City Government, sets common bus ticket prices of urban passenger transport. On county and parish bus lines the kilometer tariff, i. e. price per kilometer, is set respectively by the county government or the parish council. 117 On national long distance lines and on international bus lines, as on commercial lines, the carrier sets the kilometer tariffs. The operators also set the tariffs for taxi services. There are relatively low registration or road user charges for heavy vehicles in the Baltic States. In Estonia, the Heavy Vehicle Tax Act entered into force on January 1, 2003. Before that, heavy trucks were not taxed. According to the current legislation, overweight freight can only be transported in the case of an indivisible load. For transportation of such loads, one must apply and pay for the permit of the Estonian National Road Administration, the fee depending on the weight of load, axle load and other peculiarities of the freight. Policemen or road officials carry out the checking of vehicles with 15 mobile and 2 stationary weighing machines in border stations. G.13.2 Latvia The entry to the road transport market is basically free in Latvia, but registration requires a sound financial situation, a good reputation, and professional skills. The license to deal with international conveyances is given only to companies registered in Latvia. Carriage of passengers requires a special authorization (a license). This is issued by the Road Transport Administration for international and domestic long- distance carriage; and by a City or Regional Council for the carriage within the corresponding city or region. Latvian transport companies freely set the tariffs and fees for freight services. The maximum fares on regular passenger services (except on international routes) that are subsidized from the state or the special state budget are established by the Minister of Transport. Fares (tariffs) for regular passenger services within urban and regional routes are fixed respectively by a City Council or a Regional Council. Fares for regular passenger services within international routes are established by a carrier in conformity with international agreements and in co- operation with a partner company within the framework of the contract. All other fares for regular passenger services are set by the carrier. Fares for the carriage of passengers and luggage by taxi car shall be established by the respective City, or a Regional Council. The opening of new routes (lines) or the alteration or closure of existing ones requires an authorization by the MoT on intercity or international routes; or by the respective City, or Regional Council on urban and regional routes. There are certain dues for heavy vehicular transport that are decided by the Cabinet of Ministers. Both mobile and permanent weighing stations are used. 118 G.13.3 Lithuania In Lithuania, there are no restrictions on the establishment of a road transport company. The companies wishing to obtain licenses to engage in international transport have to fulfill the corresponding EU and ECMT requirements. In passenger transport, the municipalities set tariffs for the carriage of passengers on local regular routes, whereas the carrier sets the tariffs on long distance routes in agreement with the State price and energy control commission. Tariffs for the carriage of passengers on occasional routes are free. The charge of LTL 50 (USD 12.5) per year as a stamp duty is applied for the issue of a license. The owners of goods vehicles (trailers and semi trailers included) pay an annual road user charge for the vehicles, according to the total (maximum permissible) weight ranging from LTL 100-300 for up to a 3.5 ton vehicle to LTL 1,000-3,000 for vehicles over 24 tons. Up until 2002, one of the sources of the Lithuanian Road Fund was the road user tax for vehicles exceeding the permitted dimensions (with or without a cargo), axle load or the total weight. The tax was paid on each occasion, upon obtaining the relevant permission from the State Road Transport Inspectorate. The weight control is fairly effective since stationary scales are used, and in addition, random weight checks are also carried out. In January 2002, the Government approved the new amounts and payment procedure of the charge for road transportation with the vehicles exceeding the permissible dimensions or when the permissible axle load and/or net weight of vehicle is exceeded. By the end of 2002, the Government Decree on Rules on the licencing of road transport activities were amended so that a road transport firm may not increase its vehicle stock by more than 20%. This provision is applicapble until 30 April 2004. As regards the financial standing requirement of road carriers, (according to the EU Directive 96/26), Lithuania was granted a transitional period until 2007 by the EU for vehicles operating excusively in the domestic market. G.14 Conclusion Traffic safety is a serious concern in all the three countries and the number of fatalities in road traffic is very high. 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. Slight overall safety improvement can be seen when exploring the statistical data on traffic accidents in relation to traffic volumes. 119 Motorization has been very rapid in Latvia and Lithuania. The number of vehicles registered in Estonia has even diminished slightly, but in effect the vehicle fleet has been radically renewed in all three countries. The Baltic States have organized distinctive individual road administrations and have has chosen a different means for the collection and distribution of the funds required to maintain the national road networks. While Latvia and Lithuania established road funds in 1994 and 1995, respectively; Estonia does not have a road fund. Lithuanian Road Fund was abolished in 2002. The Latvian Road Fund has an advisory board, which includes representatives of the public. In 1999, road expenditure per kilometer in Estonia and Latvia was at about the same level (USD 2,861/km and USD 3,148/km, respectively), while in Lithuania they were about twice as high (USD 5,482/km). Nevertheless, a common concern in the three Baltic States is that the current level of funding for roads is lower than that needed to maintain their national road networks. If adequate funding is not available, it is likely that there will be an increased backlog of periodic maintenance, resulting in a greater need for reconstruction later. Another main concern in the Baltic States is that resources have been concentrated on the main corridors at the expense of secondary and rural roads. In all three Baltic States, road transport services for freight have been fully privatized. All long-distance bus services are operated by private firms in Estonia and Latvia. In Lithuania, municipalities operate some long-distance bus services, but private operators predominantly run the services. In a rough simplification, the trucking industry in CEEC's ­ including the Baltic States - comprises four types of operator: (i) operators with multilateral permits in European trades with equipment complying to higher EURO standards, (ii) operators with aging equipment in non-EU trades using bilateral permits, (iii) domestic operators with modern equipment for efficient distribution or heavy transport and (iv) domestic operators with old equipment. Competition is intense in all groups, and overcapacity is persistent at least in groups (ii) and (iv). Despite low operational costs, profitability is usually poor. Operators in group (i) are often subcontractors to major international logistics firms. 120 H. Railways 55 Key findings on Rail transport: Infrastructure and operations remain the responsibility of the public sector in Latvia and Lithuania, whereas Estonia has privatized its railways. The Railways have improved their management and have turned profitable. Cargo traffic has increased almost entirely thanks to transit traffic. Transit traffic of mainly Russian oil and oil products to ports dominates in Estonia and Latvia, transit over land is significant in Lithuania. Performed passenger kilometers are at their lowest level in 2002. In 1999-2002, freight revenue per ton-kilometer has remained unchanged in Estonia and Latvia, but has increased slightly in Lithuania. Labor costs in absolute terms have remained the same in Estonia and Lithuania and increased substantially in Latvia despite sizeable personnel reductions. Railway restructuring has been prepared in all three countries, including privatization in Estonia. In Latvia a small part of freight and passenger transportation on state owned infrastructure has been performed by newly established private companies. Railway services in Lithuania are owned by the public sector (Figure H.1). MAINTENANCE AND CONSTRUCTION RAILWAY SERVICES OF RAILWAY INFRASTRUCTURE 2003 2003 2000 2000 1990 1990 ESTONIA LATVIA LITHUANIA ESTONIA LATVIA LITHUANIA PUBLIC SECTOR PRIVATE SECTOR Figure H.1. The roles of the private and the public sector in rail transport services. (left: freight and passengers) and in maintenance and construction of rail infrastructure (right). Estonia has privatized its railways in a process where Edelaraudtee was transferred to private ownership by February 2001. Eesti Raudtee (Estonian Railways) was eventually privatized in 2001, with the Government retaining a 34 % share in Estonian Railways Ltd. Both processes were problematic, and the developments seriously affected the working of the Government and the Estonian privatization agency. The political debate at that time was close to reverse the anticipated privatization of Estonian Railways. Railway restructuring has been a politically problematic process also in Latvia and Lithuania. 55Prepared by Tapio Naula and Lauri Ojala, Turku School of Economics and Business Administration 121 H.1 Volume of rail operations Cargo traffic shows a downward trend for both Latvia and Lithuania for the period 1997-1999. From year 2000 on, both the volumes and the transport work performed have picked up and have clearly exceeded the record levels in 1997. In Estonia, cargo traffic has increased continuously from 1996, and reached a peak volume of 42.6 million tons in 2002. The increase in freight traffic comes solely from transit traffic. Domestic and other international rail traffic has declined during the same period (Table H.1 and Table H.2, see also Attachment H.1.) Table H.1. Passenger and freight volumes on Baltic States' railways in 1997-2002. Source: Estonian, Latvian and Lithuanian Ministries of Transport and Communications and The Baltic Times (Dec 11-17, 2003, 7) unit 1996 1997 1998 1999 2000 2001 2002 Estonia Freight transported Million tons 24,8 29,0 31,9 37,4 39,7 38,9 42,6 Freight transport work Billion tonkm 3,9 4,8 5,8 12,2 7,8 8,2 9,3 Passengers transported Millions 6,7 5,6 6,7 6,8 7,3 5,5 5,2 Passenger transport work Million passengerkm 309 262 237 238 263 183 177 Latvia unit 1996 1997 1998 1999 2000 2001 2002 Freight transported Million tons 35,3 41,0 37,9 33,2 36,4 37,9 40,1 Freight transport work Billion tonkm 12,4 14,0 13,0 12,2 13,3 14,2 15,0 Passengers transported Millions 35,1 33,0 30,1 24,9 18,2 20,1 22,0 Passenger transport work Million passengerkm 1 182 1 148 1 057 984 715 706 744 Lithuania unit 1996 1997 1998 1999 2000 2001 2002 Freight transported Million tons 29,1 30,5 30,9 28,8 30,7 29,2 36,7 Freight transport work Billion tonkm 8,1 8,6 8,3 7,8 8,9 7,7 9,8 Passengers transported Millions 13,2 11,2 10,6 10,6 8,9 7,7 7,2 Passenger transport work Million passengerkm 889 766 715 693 611 533 498 Transit traffic has been the backbone of rail operations in all three countries. The main commodities transported are crude oil and oil products. The demand for rail transit of these products over Baltic States' territory is, however, determined by the developments in Russian oil exports and the routes suitable for that traffic. This has also caused substantial variations in Latvia rail volumes (Figure H.2; See Chapter J). 122 5000 4500 4000 3500 3000 Estonia 2500 Latvia Lithuania 2000 1500 1000 500 0 999 -1 999 -1 -2000 000 -2 -2001 001 -2 002 -2 -2002 003 -2 -2003 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Figure H.2. Transport work in international rail freight transport in million tonkilometers by quarters in 1999 - Q3/2003. Source: ECMT quarterly statistics. Transit traffic generates 84 per cent of cargo volumes for Latvian railways. For Estonian Railways Ltd., 83 per cent of traffic volume in 2002 was transit traffic. In 2002, 75 % of its turnover was geographically related to Russian Federation (Estonian Railways Ltd, 2003, 48). Estonian transit traffic from Russia and other CIS countries goes solely to ports, as does 90 % of Latvia's transit traffic. In Lithuania, the pattern is markedly different. 57 per cent of Lithuanian railways' freight traffic is transit from Russia or other CIS countries. Only 21 per cent of the traffic is to ports, and 36 per cent is inland transit to and from Kaliningrad. Lithuania also has a much higher percentage of domestic rail transport than Latvia or Estonia. Table H.2. Distribution of rail traffic by type in 2002 in per cent of freight tons. Source: Estonian, Latvian and Lithuanian MoTCs Freight inland export import inland transit Passengers inland internatio through 2002 ('000 tons) transit ports ('000s) nal Estonia 42 613 9 % 1 % 6 % 0 % 83 % 5 185 98 % 2 % Latvia 40 100 6 % 2 % 9 % 10 % 74 % 21 960 98 % 2 % Lithuania 36 650 18 % 12 % 13 % 36 % 21 % 7 234 80 % 20 % In 2002, passenger traffic measured in passenger kilometers reached its lowest levels in all three countries since 1996. In Estonia and Latvia, passenger traffic is almost entirely domestic traffic. 20 % of passengers in Lithuania are in international traffic. The downward trend in passenger traffic is caused by a combination of factors. In most interurban routes, bus and coach transport offer more departures at affordable prices, while private car ownership has increased in all countries. The level of rail service in terms of schedules, wagon quality and speed of transport is inferior to road- 123 based alternatives. Especially in Estonia, a number of lines have been also been closed after the railways were privatized. H.2 Organization In Estonia, rail operators pay track access charges, unless they own the rail network. Operating licenses for the management of railway infrastructure or for the provision of railway transport services have been granted to ten enterprises56, the most important of which are the following: Estonian Railways Ltd. (Eesti Raudtee Ltd.) owns track to the Eastern, South-Eastern and Western direction and operates freight traffic on that infrastructure. Edelaraudtee Ltd. operates passenger traffic on Eastern and South-Eastern direction and pays fees to Estonian Railways Ltd. It also has freight traffic over its own infrastructure from Tallinn to Viljandi and to Moisakula on the Latvian border. Elektriraudtee Ltd. mainly operates local passenger commuter traffic in the Tallinn area and it pays fees to Estonian Railways Ltd. EVR Express which operates passenger traffic to Moscow and St. Petersburg; 49 per cent of its share belong to Estonian railways, and the remaining 51 per cent to private investors. Latvian Railway (LDz) is the state joint-stock company, the Government of Latvia owning all shares; ownership rights are exercised via the Ministry of Transport, Shareholders Meeting and the company. Since 2002, a small part of passenger transportation has been performed by a private company "Gulbenes-Aluksnes banitis". Since February, 2003 freight transportation has been performed also by private operators "Baltijas ekspresis" and "Baltijas tranzita serviss". JSC Lithuanian Railways (LG) is a joint stock company, and all its shares belong to the State. The ownership rights are exercised via the Ministry (MoTC), Supervisory Board, and Managing Board of the Company. Estonian Railways, LDz and LG are members of UIC57. Because they have limited combined transport of road units by rail, none of the railways belongs to UIRR58. H.3 Rail transports' financial performance In 2002, the aggregate turnover of the three railways was USD 540 million compared to approximately USD 350 million in 1999. Revenues of railway companies in all three countries have steadily increased and operations have recently been profitable (Table H.3). 56Only enterprises, which are providing infrastructure management or transport services are railway undertakings in the sense of the Estonian Railway Act. 57International Union of Railways http://www.uic.asso.fr 58International Union of combined Road-Rail transport companies, www.uirr.com 124 Table H.3. Financial data for Baltic States' railways 1997-2002, in USD million. Source: The Ministries, Estonian and Lithuanian railways 1997 1998 1999 2000 2001 2002 2003 Estonian railways Ltd. revenue - - 91,6 94,9 91,3 117,3 - Estonian railways Ltd. net profit 0,1 3,1 7,3 2,2 8,1 14,0 - Subsidies to passenger transport* 4,8 10,2 13,3 13,7 10,8 14,2 12,9 State budget investments** 4,7 4,5 5,3 0 - - - Latvian railways revenue - - 146,7 159,3 161,2 188,6 Latvian railways net profit 1,5 0,8 -2,0 5,7 4,0 14,3 Subsidies to passenger transport 1,2 1,6 2,1 2,0 2,0 3,2 3,7 Latvian State budget investments 0 1,7 3,4 0 - 5,3 0,8 Lithuanian railways revenue - - - - 151,6 232,4 - Lithuanian railways net profit 11,8 0,2 -6,4 1,7 - 1,6 - Subsidies to passenger transport 3,3 6,0 3,5 1 1,2 1,2 - Lithuanian State budget 6,8 12,3 1,8 0,9 - - - *) operations and infrastructure **) without investment to rail Administration Despite the positive development, freight revenue/tonkm in Table H.4 is a very low figure in international comparison. The numbers reflect the nature of the traffic: practically all Estonian and Latvian freight revenue is from transit traffic of liquid bulk, which uses mainly Russian rolling stock. Here, the Estonian and Latvian railways do not perform any cargo handling activities. The revenue is more like a transit fee rather than freight in a traditional sense. More domestic traffic and "genuine export/import" and a higher reliance on its own rolling stock are reflected in almost double as high relative revenues in Lithuania. Table H.4. Freight and passenger revenue data for Baltic States' railways, in USD million and USD per ton or passenger kilometer in 1999-2002, Sources: Estonian, Latvian and Lithuanian MoTC, Estonian Railways Ltd. 1999 2000 2001 2002 Freight revenue mUSD 91.7 95.3 * 91.8 ** 91.3 USD/ tonkm 0.013 0.012 0.011 0.012 Estonia Passenger revenue mUSD 3.4 3.5 2.4 n/a USD per passenger km 0.014 0.013 0.013 N/A Freight revenue mUSD 119.9 136.1 146.4 170.0 USD/ tonkm 0.010 0.010 0.010 0.011 Latvia Passenger revenue mUSD 20.6 19.4 17.6 19.1 USD per passenger km 0.021 0.027 0.025 0.026 Freight revenue mUSD 122.3 133.7 127.0 199.0 USD/ tonkm 0.016 0.015 0.016 0.020 Lithuania Passenger revenue mUSD 18.4 15.6 13.9 16.9 USD per passenger km 0.024 0.020 0.020 0.025 *) of which Estonian Railways Ltd contributed m USD 70.0 **) Estonian Railways Ltd only, Source Annual report 2002, http://www.evr.ee/files/eng_fin.pdf 125 Data for revenue/passenger kilometer in Table H.4 shows relatively low figures in international comparison ­ especially in Estonia. More interestingly, the absolute value of revenue/passenger kilometer has not changed much during 1999 and 2002. This reflects a situation where the modest raises in ticket prices have not compensated the declining railway usage. This is partly due to the rapidly increasing car ownership and competition of long-distance bus transport. Subsidies to passenger traffic are discussed in more detail later in this Chapter. Table H.5: Data on labor force of the Baltic railways, 1999 ­ 2002, number of personnel, labor cost in USD million and the percentage share of revenue. Source: Pre-Seminar questionnaire, Estonian Railways Ltd. Estonia Latvia Lithuania Labor Labor Labor Number Labor costs as Number Labor costs as Number Labor costs as of costs % of of costs % of of costs % of Personnel m USD revenue Personnel m USD revenue Personnel m USD revenue 1999 n/a 28.7 31.3 16550 44.3 30.2 16718 58.7 n/a 2000 5592 27.6 29.1 15319 53.1 33.3 15618 52.4 n/a 2001 5013 27.1 29.7 15193 51.6 32.0 14334 52.2 34.4 2002 3602*) 27.5*) 23.4*) 14699 55.6 29.5 13096 53.0 22.8 *) Only for AS Eesti Raudtee; Source Annual report 2002, http://www.evr.ee/files/eng_fin.pdf Wage level has increased rapidly in all three countries, and this affects the railways too. In Lithuania, for example, the workforce was reduced by 22 per cent while aggregate labor costs decreased by 10 per cent from 1999 to 2002. In Estonian and Lithuanian railways, aggregate labor costs in USD have decreased slightly. During the same period in Latvia, however, labor costs rose by 26 per cent while the number of employees decreased by 11 per cent (Table H.5). H.4 Rail infrastructure Rail network density in Latvia is 37.4 km per 1,000 km2 of land area, which is a fairly high figure for a European country. The corresponding figure for Lithuania is 26.0 and for Estonia 21.4 km per 1,000 km2. . H.4.1 Rail infrastructure projects Lithuania plans to invest 835 million euros in rail infrastructure during 2004-2015. This is more than five times the amount to be invested in roads. In Estonia, the emphasis is different; rail transport investments during the period accounts only for 15 per cent, or 22 million euros, of the investments in road infrastructure. Latvia has invested 264 million euros in its railways in 1996-2002, but its future investment plans were not shown in the TEN-T Invest report. TEN-T investments by transport form are presented in Attachment F.1. 126 Rail Baltica is a blueprint for a new, European standard high-speed railway line between Berlin, Warsaw, Kaunas, Riga and Tallinn, linking also Helsinki via ferry. The construction is planned to start in 2008 in three phases. The first section (Warsaw ­ Kaunas) is scheduled to be completed in 2010, the second section (Kaunas-Riga) in 2014, and the third section (Riga-Tallinn) - in 2016. If realized, the project would be the biggest single transport infrastructure project in the Baltic States. According to preliminary estimates the total investment needed is approximately 3.9 billion EUR, of which over 2.5 billion in the Baltic States. The investment estimates per each country's territory are as following: Estonia 800 million EUR Latvia 950 million EUR Lithuania 800 million EUR Poland 1,360 million EUR So far, pre-project studies on Rail Baltica have been prepared but no proper economic feasibility study exists. Judging by the current volumes of cargo and passengers in the north-south direction by road, air or rail, it is not obvious, that there will be enough transport demand to justify such a large investment. The European Commission ranked the Rail Baltica project on the 27th position of the 29 most urgent projects suggested for financing. Only 13 projects will be chosen for implementation starting before 2006 (See Attachment D.8. on projects proposed by the Van Miert group). Rail Baltica is mentioned in the Trans-European transport network (TEN-T) as the only project plan involving the Baltic States. H.4.2 Rail infrastructure maintenance In Estonia, major maintenance and reconstruction works on the track are carried out by outside contractors. For overhauls and repairs of the rolling stock the railway companies have their own depots but those works are partly contracted out as well. According to the Latvian Railways, LDz: "Regulation on ordering works, supplies and services", all works, supplies and services, the value of which exceed 5,000 LVL (USD 8,350), should be ordered through tender. Lithuanian railways (LG) performs track replacements and maintenance as well as track relaying and upgrading. Own labor force at the depots repairs LG rolling stock: the same applies to assemblies, whenever possible, but certain types of repairs are contracted to local and foreign contractors. Separation of rail services from infrastructure maintenance is near the finish; the creation of a unit of infrastructure maintenance and management and a unit of infrastructure property were planned to take place on December 31, 2003. In summary, outside contractors are used in Estonia and Latvia, whereas own staff is predominantly performing rail infrastructure maintenance in Lithuania. 127 H.5 Regulatory issues The Estonian railway companies are free to set their own rates for freight transport but the tariffs for passenger transport are approved by Estonian railway Administration, which is under the supervision of Ministry for Economic Affairs and Communications. Foreign railways are allowed to use the infrastructure of the national railways in Estonia, if they either establish a subsidiary in Estonia or conclude an appropriate agreement with an owner of the infrastructure. One such operator is the Russian rail transport firm LinkOil, which carries heavy fuel oil from Russian oil refineries (for example from Kirisi) to the port of Tallinn. According to the Latvian Railway Act, a railway company is allowed to set up its own freight tariffs. The Latvian rail operations and infrastructure have been separate units within the LDz railways company. According to the Restructuring program of LDz, a complete separation of the two entities will take place after 2003. This will also allow other operators to enter the markets for rail operations and infrastructure. The Latvian Railway Act allows foreign railway operators to use the national rail infrastructure, but before operating on railways, each has to receive the license for operation from the Railway Administration, and a certificate of safety from the railway infrastructure authority. In 2003, Lithuanian railway companies are able to set their own rates for goods transportation. The public authority ­ The State Commission of Prices and Energy ­ approves the methodology for setting of maximal levels of tariffs for passenger transportation. In 2003, JSC ,,Lithuanian Railways" is still under restructuring process. In early 2004, it performs both activities: transportation by rail and infrastructure management. Two structural units, one for infrastructure maintenance and management; and another unit for infrastructure property were about to be formed by December 31, 2003. Later on, and after creating the necessary legal and financial conditions, there is a plan to create the State Company of railway infrastructure. Currently, no foreign railways use the infrastructure of the national railways in Lithuania. LG undertakes the transportation of freight of the customers of foreign railways within the national railway. However, the agreements with the neighboring railways allow them to enter the territory of Lithuania but only up to 50 km for freight and up to 80 km for passenger trains. EU membership is reshaping the regulatory framework for the Baltic States' railways. It affects especially Latvia and Lithuania, since the process of restructuring the rail transport sector is still ongoing. Overall, the administrative capacity and regulatory bodies need to be strengthened in all three countries. 128 H.6 Passenger transport and Public Service Obligation issues All three Governments provide subsidies for the railway operators. Subsidies for passenger traffic in Latvia and Lithuania have been 1 to 2 per cent of revenue, and 10 to 15 per cent of turnover in Estonia including certain infrastructure expenditures (Table H.3). The basis for the subsidies is the decision by Estonian government that specifies the conditions and rates for the subsidy. Local authorities do not subsidize railway transport. (see Table H.6.) For Edelaraudtee in 1999, the average ticket revenue was 1.7 US cents per passenger whereas the costs per passenger were 9.3 cents. In 2001, the ticket income was 1.9 cents while the cost was 15.0 cents per passenger. In other words, only 12 per cent of costs were covered by ticket revenue in 2001. For Elektriraudtee, 41 per cent of costs (4.9 cents/passenger) were covered by ticket revenue (2.0 cents/passenger) in 2001. Table H.6. Passenger transport by rail in Estonia (million passengers and train kilometers) and Government subsidies in USD million 1997-2003. Source: Estonian MEAC Subsidies USD Million 1997 1998 1999 2000 2001 2002 2003 Edelaraudtee AS 4.8 7.9 9.6 9.4 7.3 10.3 9.0 Elektriraudtee AS 0.0 2.2 3.6 4.4 3.5 3.9 3.6 Total 4.8 10.2 13.3 13.7 10.8 14.2 12.9 Passengers (millions) Edelaraudtee AS 3.1 3.2 3.6 1.7 1.5 Elektriraudtee AS 3.4 3.4 3.6 3.6 3.4 Total 6.5 6.6 7.2 5.3 4.9 Train kilometers, millions Edelaraudtee AS 2.5 2.5 2.5 1.3 1.3 Elektriraudtee AS 1.1 1.1 1.2 1.2 1.3 1.5 Total 3.6 3.6 3.7 2.5 2.6 The Latvian Railway Act envisages the State and municipalities to put orders on socially required passenger transportation and to cover the difference between the operator's expenses and revenues. Since many inland passenger transportation routes are socially necessary but are unprofitable railway operators cannot compete with road carriers who have been receiving state subsidies for a number of years. A proper subsidy mechanism should also prevent cross-subsidies from freight transportation. In 2003 the State budget has allocated USD 0.99 million (US cents 4.4 per passenger) as a subsidy to the inland transportation of passengers. The Latvian state budget in 2002 allocated USD 5.3 million for the repair and modernization of the passenger rolling stock. In 2003, USD 0.8 million was allocated for this purpose. Latvian municipalities do not finance passenger rail transport. In Lithuania, the Railway Transport Code introduced the PSO concept in 1996. Because of limited financial sources of state and municipalities budgets, it is not fully implemented yet. The losses of Lithuanian railways in passenger transport are about 129 90-100 million Litas (USD 27 to 30 million). According to the Law on Transport Privileges USD 1.2 million in 2001 and 2002 was covered from the state budget. With aim to revitalize passenger transportation by rail services, the project ,,Creation of well-balanced passenger transportation system in Lithuania" will take place in 2003-2004. It is funded by a Kingdom of Netherlands grant. The main objectives of this project are to assist Lithuania to implement the PSO concept; to eliminate cross subsidies, and to promote passenger transportation by rail. After Lithuania will join to the EU, the market of passenger transportation by railways will be liberalized. The Draft Government Decision on the Order on Organizing of Competition for Selection of Operators to Implement Public Services Obligations and on Conclusion of PSO Contracts and its Cancellation are currently under preparation. H.7 Conclusion With regard to railways, the principal needs are to continue with railway restructuring in especially in Latvia and Lithuania, including efforts to separate commercial operations from rail administration, and in all three countries to reduce over-capacity, rationalize tariffs, raise levels of safety, and improve railway service. Rail transport demand was propelled by oil and petroleum transit trade. Continued growth may be limited, as oil transport arrangements develop in Russian territory. Passenger transport volumes were at their lowest level in 2002 since 1990. Developing passenger rail transport remains a challenge, as private cars and bus transport offer an increasingly competitive substitute to rail. All railways have improved their management and have turned profitable. Freight revenue per ton-kilometer remained unchanged in Estonia and Latvia, but increased slightly in Lithuania. Passenger services are operated at loss in all three countries. The number of railway staff has been reduced in all three countries. In Estonia, the privatization of railways has radically changed the management and organization of railways. However, labor costs in money terms have remained the same in Estonia and Lithuania and increased substantially in Latvia despite personnel reductions. Rail infrastructure ownership and railway operations remain the responsibility of the public sector in Latvia and Lithuania. Estonia privatized its railways in 2001. Rail infrastructure maintenance and construction is entirely run by the private sector in Estonia, and most of this work is privatized also in Latvia. These duties are still carried out by the state-owned Lithuanian Railways. Railway restructuring was politically a problematic process in Estonia. It has also been one of the most difficult restructuring processes in Latvia and Lithuania. 130 Lithuania plans to invest 835 million euros in rail infrastructure in 2004-2015. This is far more than Latvia. In Estonia, Government investment in rail is very small because rail infrastructure and operations have been privatized. The Baltic States have put considerable political weight to the Rail Baltica project. It is a blueprint for a new, European standard high-speed railway line between Berlin, Warsaw, Kaunas, Riga and Tallinn. The construction is planned to start in 2008. If realized, it would be the biggest single transport infrastructure project in the Baltic States, estimated at 3.9 billion euros, of which over 2.5 billion in the Baltic States. So far, no economic feasibility assessments have been presented. Current cargo and passengers volume in the north-south direction do not readily justify the investment. 131 I. Maritime transport and ports 59 Key findings: The ports have shown very good economic results during the past few years. Stevedoring and shipping companies have been privatized almost completely. Further strengthening of the Maritime Administrations is needed. Seafarers are well employed despite diminishing national fleets. Shipping and ports have attracted substantial FDI. Frequent liner shipping services are available in all the countries. This Chapter outlines the structure and operations of the maritime and ports sector. Because of its great importance for all Baltic States, transit traffic of Russian oil is discussed in Chapter J. PORT INFRASTRUCTURE PORT SERVICES (STEVEDORING) 2003 2003 2000 2000 1990 1990 ESTONIA LATVIA LITHUANIA ESTONIA LATVIA LITHUANIA PUBLIC SECTOR PRIVATE SECTOR Figure I.1. The roles of the private and the public sector in port infrastructure management and cargo-handling services in ports. The Government owns port administrations in the large ports of the Baltic States, whereas smaller ports or harbors may belong to municipalities, or as in Estonia, they may be privately owned (Figure I.1). Private companies carry out the port work (stevedoring, warehousing). The situation has remained unchanged since 2000. I.1 Port and waterway infrastructure Ports are important transport nodes for all three Baltic States, especially in transit traffic, yet despite the relatively large volumes, there are very few major ports in the Baltic States. The only ports with a cargo turnover of 1 million tons in 2003 are Tallinn, Kunda and Parnu in Estonia, Ventspils, Riga and Liepaja in Latvia, and Klaipeda and Butinge in Lithuania. (Table I.1., See also Attachment I.1.) 59 Prepared by Lauri Ojala, Turku School of Economics and Business Administration 132 In 1999-2002, slightly over 50 percent of the cargo in Latvian ports comprised crude oil and oil products: the corresponding figure was over 40 percent for Estonia and over 30 percent for Lithuania. Table I.1. Cargo traffic in major seaports in Baltic States, and for reference the Ports of St. Petersburg and Kaliningrad in 1995-2002, millions of tons. Source: Estonian, Latvian and Lithuanian MoTC, Port statistics Year 1995 1996 1997 1998 1999 2000 2001 2002 Port of Tallinn 13.0 14.1 17.1 21.4 26.4 29.3 32.3 37.8 Other Estonian ports 1.7 3.2 6.1 6.0 8.0 10.5 9.0 9.0 Estonian ports Total 14.7 17.3 23.2 27.4 34.4 39.8 41.3 46.8 Port of Ventspils 29.6 35.7 36.8 36.0 34.1 34.8 37.9 28.7 Port of Riga 7.5 7.5 11.2 13.3 12.0 13.4 14.9 18.1 Port of Liepaja 1.4 1.6 2.3 2.3 2.3 3.0 3.3 4.3 Other Latvian ports 0.5 0.3 0.4 0.7 0.7 0.6 0.8 1.1 Latvian ports Total 39.0 45.0 50.7 52.3 49.0 51.8 56.9 52.2 Klaipeda State Seaport 12.7 14.8 16.1 15.0 15.0 19.4 17.2 19.7 Butinge Oil Terminal - - - - 0.7 3.5 5.1 6.2 Lithuania Total 12.7 14.8 16.1 15.0 15.6 22.9 22.3 25.9 Baltic States' total 66.4 77.1 90.0 94.7 99.0 114.5 120.5 124.9 St. Petersburg 17.1 16.0 20.6 21.6 28.2 32.4 36.9 42.7 Kaliningrad 4.6 5.4 5.9 4.4 4.1 4.3 5.8 9.5 Only the Port of Tallinn has significant international passenger movements, with around 6 million passengers in 2000-2002. There are no other ports in the three Baltic States, which operate more than 200,000 passengers in international traffic per year. In Estonia, the islands of Saaremaa and Hiiumaa generate domestic ferry traffic, where the travel distance is approximately 40 km. In 2001, 1.3 million passengers and 0.3 million tons of cargo was carried by the state-owned Saarte Liinid AS. I.2 Port organization and activities The prevalent port management practice in the Baltic States is the landlord port, where the owner of land area is either the Government or the Municipality, whereas private companies carry out cargo handling operations. The landlord type of port is the most common arrangement as 75 percent of EU ports also fall into this category. Independent stevedoring companies, shipbuilding and ship repair yards operate within the port area on the basis of land lease contract agreements concluded with the Port Authority. The Port companies use the superstructure: handling and ship repair equipment, warehouses and etc. 133 Table I.2. Income statement data from major ports in USD million in 1999-2002. Source: Pre-seminar questionnaire, Port statistics 1999 2000 2001 2002 Port of Tallinn Revenue 52.6 55.1 51.2 66.0 Costs 30.8 29.0 28.3 37.1 Depreciation 8.9 7.5 7.5 10.6 Tax 0.3 0.0 0.0 0.0 Profit 19.0 28.1 24.4 29.0 Freeport of Riga Revenue 12.9 16.6 24.8 33.2 Costs 6.6 9.5 14.8 15.4 Depreciation 1.6 2.4 6.0 6.6 Tax 0.7 0.5 0.7 0.7 Profit 3.4 2.2 0.3 8.5 Klaipeda SSA Revenue 22.7 28.2 24.8 32.5 Costs 8.0 11.7 14.3 15.1 Depreciation 3.5 5.0 5.7 6.8 Tax 0.0 0.0 0.0 0.0 Profit 10.3 11.5 4.8 15.0 The port authorities in major ports have shown very good economic results in 1999- 2002, and the preliminary data for 2003 is also very good. (Table I.2.) Labor costs account, on average in 1999-2002, 19 per cent of revenues in Riga, 16 per cent in Tallinn and 12 per cent in Klaipeda. I.2.1 Estonian ports All included, there are 101 ports in Estonia both publicly and privately owned, 31 of which provide operations related to international merchant marine. There are two public limited companies, which operate public ports: the Port of Tallinn and Island's Lines, and the state is the sole shareholder of these two companies. (See also Box I.1) Saarte Liinid AS (Island's Lines) operates small ports of Roomassaare, Virtsu, Kuivastu, Rohuküla, Heltermaa, and Sviby, which maintain coastal traffic and ferry connections between the mainland and islands of West-Estonia. The Port of Tallinn consists of four constituent harbors: the Old City Harbor, the Muuga Harbor, the Paljassaare Harbor, and the Paldiski South Harbor. In the Port of Tallinn, the Old City Harbor is the main port for passenger traffic with about 6 million passengers per year. It also provides Ro-Ro and Lo-Lo services, and has a container and general cargo terminal. Muuga Harbor handles liquid and dry bulk, general, and reefer cargo, and has facilities for Ro-Ro and container handling. It also has storage areas for vehicles and timber. Construction of both a new container terminal, with the capacity of 250,000 TEU per year, and of a new steel terminal is 134 under way. Paljassaare Harbor has terminals for both liquid and dry bulk and for general cargo, including a reefer complex. The Paldiski South Harbor handles mainly scrap metal, timber, dry bulk, peat and Ro-Ro cargo. A new quay for peat handling is being constructed. The Port of Tallinn operates as a classic landlord port owning only the infrastructure. The superstructure and equipment are owned and operated by private firms. Other ports and their facilities are privately owned. In some ports, of which the biggest are Parnu, the north western port of Paldiski and the Miiduranna port, municipal authorities together with private companies have shareholding interests. A container terminal in Muuga was financed jointly by Port cash flow, and by financial instruments from the operators, which include Rotterdam-based Europe Containers Terminals (ECT) and Estonian logistics groups. The two-berth terminal has been in operation since 2001. Box I.1. Developments in small ports in the Baltic States Captain Paavo Arpiainen has been observing the Baltic bulk shipping from the bridge wing for about 10 years. During this time he has conducted several hundred voyages and visited practically all small ports in the region. Shipments are often spot-based and come on a short notice, and they may include ports in the entire Baltic Sea. According to Captain Arpiainen, the level of port infrastructure and cargo handling equipment in small Baltic ports ­ not to mention the large ones - has improved significantly since the early 1990s. Especially wood handling ports and terminals are well fitted with appropriate equipment and stevedores' working arrangements allow flexible loadings. In some cases it seems that they have even over-invested in cranes and cargo handling equipment, as the capacity utilization rate is often low over the entire year. Berthing procedures and pilotage are mainly managed in a smooth manner in Baltic States' ports. Documentary formalities before discharging have not developed so well, but a good trend is visible also there. However, difference between Russian and Baltic ports today is remarkable in all these aspects. In Finnish ports trade arrangements are normally smooth and well working. In wintertime, however, ice or wind conditions cause delays and make bottlenecks in which berthing and discharging capacities do not always fit. Source: Based on an interview with Captain and M.Sc. (Econ.) Paavo Arpiainen in December 2003 I.2.2 Latvian ports Latvia has three large ports ­ Ventspils, Riga, and Liepaja ­ and seven small ports. Port land may be a property of the state, local government or other legal entities or physical persons. Only the state and local government are entitled to buy port land and it is forbidden for the Port Authority to sell the port land. Port waters are the property of the state and both these and state land is assigned into the possession of the respective port authority. This excludes that state land which serves as railroad infrastructure: these areas are administered as part of the state public railroad infrastructure. Quays at the ports of Riga, Liepaja, and Ventspils are the property of the state or local government, but port superstructure and equipment (warehouses, cranes, forklifts etc.) are privately owned. The land belonging to the state or local government may be let or leased to private companies on the basis of contract agreements concluded with the Port Authority. In 2003, the Government has wanted to take a stronger position in the 135 management of the ports of Riga and Ventspils, which has caused some unrest between the port management and the Government. Ventspils port deals mainly with oil and chemical cargo. Maximal draught in the river navigation channel is 15.0 m. Riga port handles mainly general cargo and bulk cargoes, but it also turns over oil products and reefer cargoes, and caters for passenger ships. Maximal draught in the river navigation channel is 10.6 m. Liepaja port handles the transshipment of timber, metals, bulk and liquid cargo, Ro/Ro, and fish. Maximal draught in the river navigation channel is 9.5 m. Seven small ports handle small tonnage ships and minor commodities. Port Authorities in Latvia are non-profit organizations. The financial resources at the disposal of the Port Authority may be used only for the maintenance and development of the port and its infrastructure and for performing its functions. Port Authorities finance new public investments in Latvian ports. Neither the Port Authority, the state nor local Governments subsidize ship or cargo handling activities in the port. Within the framework of the Public Investment Program, Government has provided sovereign guarantees for loans aimed at the development of the infrastructure. The Port Authorities repay the loans. I.2.3 Lithuanian port organization In Lithuania, the land territory, the port waters, the hydrotechnical equipment, the quay-walls, the navigation channel and routes, the aids to navigation and other infrastructure objects belong to the State. Klaipeda State Seaport Authority is responsible for the management of state - owned objects that are within the territory of the port and the Port Authority is responsible for the reconstruction and modernization of the port infrastructure. Independent stevedoring companies, as well as shipbuilding and ship repair yards, operate within the port area, on the basis of land lease contact agreements concluded with the Port Authority. The Port companies use the superstructure - handling and ship repair equipment, warehouses and etc. ­ and all stevedoring companies are private. There are eight specialized stevedoring companies in Klaipeda Seaport: Klaipeda Stevedoring Company (KLASCO) is the largest in Lithuania, handling more than half of the cargo through the port, which comprises a general cargo port, an international ferry terminal and a container terminal, which opened in 1999. In 1999, a local consortium led by Vialogas acquired a 90 percent stake in KLASCO for LTL 200 million (USD 50 million). The company is in the process of expanding its terminal facilities with a bulk fertilizer, liquid foodstuff and liquid gas terminals. In Lithuania, the operation of port infrastructure generates a profit which is invested in port facilities. Revenues from port activities (mainly from port dues and land leasing) balance the financing of new public investment in Port of Klaipeda. 136 I.2.4 Cost comparison of Baltic Sea ports Baltic Ports Organization (BPO) compared vessels' dues and charges in a number of Baltic Sea ports in 2002. According to the study, it is complicated to compare the total cost for vessel calling at the port in different countries due to the differences in the revenue structure and form of ownership of the ports, different pricing system in different countries and differences in tariffs, which are in some cases negotiable and in other cases totally non-negotiable. (Table I.3) For this reason, the results do not show which port is the most expensive and which port is the cheapest in the Baltic, but it gives valuable indications of cost differentials. For the objective comparison of transport costs, the total cost of the logistical chain of different transport corridors, not its separate components, must be compared. Table I.3. Costs for one port call in euros in 2002 in selected Baltic Sea ports for different types of traffic. Source: Port Pricing, Working Group Final Report, BPO Communication Committee 2002 Vessel type Tallin Riga Venstpils Klaipeda St.Petersburg Helsinki Stockholm Swinousjie Wismar Bulker (1) 5 080 8 216 7 785 7 732 10 173 16 871 6 730 6 283 5 006 Bulker (2) 30 889 63 583 59 705 60 023 60 222 117 878 40 520 60 265 n.a. Container 1 964 2 216 2 337 1 777 6 669 2 394 2 286 n.a. 1 771 General cargo 3 210 3 987 3 745 4 508 6 251 10 604 3 961 3 792 3 950 RO-RO 10 122 13 159 14 304 7 912 14 008 5 934 8 659 21 258 3 981 Tanker (1) 78 888 87 618 81 893 102 327 n.a. 126 653 n.a. n.a. n.a. Tanker (2) 22 662 21 379 20 446 26 558 29 213 52 647 15 997 28 855 15 165 Passenger 4 714 5 350 n.a. n.a. 6 098 6 674 6 624 n.a. n.a. Cruise (1) 14 074 25 556 n.a. n.a. 43 434 41 342 16 680 16 946 22 682 Cruise (2) 9 311 n.a. n.a. n.a. 10 842 16 048 8 628 n.a. n.a. No. of calls No. of pax Ice Vessel type Gross tons Net tons per year per call class Cargo tons Flag Bulker (1) 5 381 2 626 1 1B 6 700 non EU Bulker (2) 41 643 23 068 1 1B 55 000 non EU Container 2 658 1 256 52 1A 190 TEU non EU General cargo 2 900 1 533 2 1B 3 000 non EU RO-RO 18 205 5 462 52 A EU Tanker (1) 72 120 36 268 1 1B 110 000 non EU Tanker (2) 17 521 9 371 5 1B 29 000 non EU Passenger 10 002 4 851 363 1319 *) 1B Cruise (1) 59 652 29 017 5 1 600 Cruise (2) 28 258 9 144 3 350 *) in & out per 363 calls: 478,669 incl. 23,933 children and 8,290 drivers However, the study concluded that in landlord type of ports the share of port dues in total revenue is larger than the share of cargo charge, rental fee and other charges. In that case the port authority uses its own equity to invest into the construction and reconstruction of new quays, terminals etc. In municipal and state ­owned ports the town or the country covers the larger part of the investments into the development of the port infrastructure. 137 I.3 Maritime services All three countries inherited a part of the former Soviet Union's commercial fleet. Having first been organized as state owned enterprises in 1991 they remained as an important part of each country's national seafaring. The Baltic States are relatively small shipping nations (Table I.4). In 1998, their tonnage ranks between 73 and 77 in the world measured by total tonnage under national flag, but their rank has fallen to around the 100th by 200260. Table I.4. Merchant Fleet owned or registered by the Baltic States as of January 1st, number of ships and their gross tonnage (1,000 grt) in 1997-2002. Sources: Pre-seminar questionnaire Estonia Latvia Lithuania Total 1997 No 78 70 70 218 1000 grt 447 580 366 1393 1998 No 83 37 72 192 1000 grt 500 333 366 1199 1999 No 63 78 1000 grt 241 397 2000 No 62 70 79 211 1000 grt 233 517 412 1162 2001 No 64 57 83 204 1000 grt 253 434 361 1048 2002 No 46 41 87 174 1000 grt 160 362 376 898 NOTE: Due to separate data sources, data is not fully comparable The national fleet in Lithuania has remained relatively stable till 1999. In Latvia, the national tonnage was radically transformed in 1998/1999, when the bulk of the competitive tonnage was flagged out, as a result of which the remaining fleet is very old. In Estonia, the national fleet was substantially reduced in 1999. In both countries, that development has continued till 2002 and 2003. Table I.5. Merchant fleet by flag of registration of the Baltic States as of December 31, 2002, by their gross tonnage (1,000 grt) in 1997-2002. Source: Review of Maritime Transport 2003, UNCTAD in 1000 grt Total fleet Oil Bulk General Container Other tankers carriers cargo **) ships types Estonia 357 9 33 117 .. 199 Latvia 89 4 .. 3 .. 82 Lithuania 435 7 80 196 .. 153 CEE & CIS *) 16,028 2,055 2,178 5,588 326 5,880 *) Central and Eastern Europe and former USSR **) Including passenger/cargo ships 60Shipping Statistics Yearbook 1998, ISL, Bremen 138 Data in Table I.4. is not fully comparable, as it may contain data on ship either owned or registered in the Baltic States. For this reason, for example the reduction of Latvian national fleet does not show up. Table I.5. has data by flag of registration. I.3.1 The most important shipping companies61 Estonia Tallink Grupp AS is the major passenger and ferry shipping operator, with net sales of 191.5 million euros and 1,900 staff in FY 2002/2003. Its net profit has been at or over 10 % of turnover during the past four years. Its main business is the ferry traffic between Tallinn and Helsinki, but it has also lines to Stockholm and Kapellskar in Sweden.62 Its fleet comprises eight ships, of which two are fast catamarans and one is a Ro-Ro ferry. The Estonian Shipping Company (ESCO) is the oldest shipping company in Estonia. It was privatized in July 1997 and acquired by American, Norwegian and Estonian investors, and the privatization was completed in 1999.63 In July 2003, ESCO divested the business operations but not the vessels of its daughter company ESCO Eurolines OÜ to English shipping company Mann & Son Holdings. In November 2003, ESCO managed 11 vessels and employed 330 persons, of which 45 are administrative staff and the rest is seagoing personnel. ESCO's container operations started under the name TECO Lines in February 2004. This is a joint undertaking of the Norwegian Tschudi & Eitzen and Samskip of Iceland . 64 Latvia In 2000, the Latvian Shipping Company (LASCO; Latvijas Kugnieciba) owned and/or operated a fleet of 49 vessels - tankers, reefers, gas carriers, and dry cargo vessels. The company's turnover in 1999 was USD 191 million. In 2001, Latvian Government owned the majority stake and terms for privatization were accepted. This fourth privatization round of LASCO was problematic, but it eventually succeeded. The three previous attempts to sell the company contributed to the collapses of governments. After privatization, the Latvian Shipping Company was registered as a joint stock company on June 5, 2002. The largest shareholder is Venstpils Nafta with a roughly 1/3 of the shares. LASCO reported a net profit of USD 17.2 million for the first nine months of 2003. For fiscal year 2002, LSC Group reported losses of USD 54.4 million. In February 2004, its fleet comprised 30 product and chemical tankers, two LPG gas tankers, 5 reefer vessels, and one Ro-Ro/general cargo vessel. 65 61Further shipping firms can be found at, for example, http://directory.fairplay.co.uk 62The group's website is found at: www.tallink.ee 63Tschudi & Eitzen Holding AS, www.tschudi-eitzen.com/esco.html, 64See www.eml.ee ; TECO Lines, see www.teco.ee 65See also: www.latshipcom.lv 139 Lithuania The Lithuanian shipping company (LISCO) is the largest shipping company in Lithuania. In 2001, 76.4 per cent of its shares were bought by the Danish DFDS Tor Lines for USD 47.6 million. Following that, LISCO acquired 75 % of shares in Baltijas Keltu Terminalas, a cargo handling firms, and 100 % in Krantas Travel, a travel agency, and 48.6 % in Krantas Shipping, a water transport firm. In 2003, it operates as LISCO Baltic Service (LBS), and its principal business is carriage of cargo and passengers by ferries and ships. It has 7 Ro-Ro/pax ferries and 6 multipurpose vessels. It operates ferry lines from Klaipeda to Kiel and Sassnitz (GER), and to Karlshamn (SWE). The main cargoes carried are trailers, containers, and general cargo. In 2003, LISCO and its subsidiaries employ 700 persons. 66 Klaipeda Transport Fleet, a reefer operator, was established in 1987 by order of the Minister of Fisheries of the former USSR. In 1993, the 20% of state capital was privatized by the employees and in 1995 it registered its name as Klaipeda Transport Fleet Ltd. It owns 16 ships and employs almost a thousand people. In 2000, its turnover was over 71 million litas (USD 18 million). I.3.2 Dry bulk shipping in the Baltic States The dry bulk flows in the entire Baltic Sea amount to approximately 150 million tons.67 In a rough estimate, about 40 per cent of these volumes are transported within the Baltic Sea, another 40 per cent is traded within Europe, and the remaining 20 per cent involves deep-sea transport. The main commodities in the Baltic dry bulk market are iron ore, coal, grain, fertilizers and limestone. These are also suitable for large bulk ships up to 100,000 tons. The largest shipments in the Baltic Sea do not exceed 150,000 tons, because draught restrictions in the Danish straits and lack of appropriate berths and handling capacity limit the maximum size of ships. The Baltic Sea dry bulk seaports that have the highest cargo turnover include Gdansk/Gdynia, St. Petersburg, Klaipeda, Riga and Tallinn. Other big dry bulk ports are often connected to an industrial plant such as a steel or iron ore works or energy plants using coal (e.g. Lulea and Oxelosund in Sweden, Raahe and Pori in Finland; all turning over 5 million tons or more in 2003). A considerable part of Baltic States' bulk trade is carried on spot basis on small bulk vessels, generally in the 1,000 to 5,000 dwt range. Especially steel or energy plants also use ships or barges up to 10,000 tons in intra-Baltic trade on a long-term basis. This micro-bulk market for small ships is a mix of numerous commodities68. Also limestone and coal/coke are sometimes transported in small quantities (See Box I.2.). 66See www.lisco.lt 67The total seaborne trade in the Baltic Sea in 2002 was approximately 350 million tons including liquid bulk and general cargo. Approximately 30 % of this is handled in the Baltic States' ports. 68Such as raw wood, pulp and sawn logs, wood chips and saw dust, granite blocks, crushed stone, gravel and sand, steel and non-ferrous scraps, grain, malt, fertilizers, feldspar and blasting grit. 140 Box I.2. Shipping markets of minor bulk cargoes in the Baltic States A large part of the dry bulk trades within the Baltic Sea is carried by ships in the 1,000 to 5,000 dwt range . Typical of this micro-bulk trade is the demand for great flexibility between voyages. The tonnage is mainly employed under single-voyage clauses on spot basis within the Baltic Sea. A typical micro- bulk ship in the Baltic trades makes about 70 ­ 80 cargo voyages per year sailing about 40,000 miles of which 30 ­ 40 % in ballast condition. A 1,000 dwt ship carries about 60,000 ­ 80,000 tons or m3 and a 3,000 dwt ship around 250,000 ­ 300,000 tons or m3 in a year. In terms of transport work, they produce around 2 or 6 million ton-miles each, respectively. The fleet of micro bulkers that regularly operate in the Baltic Sea comprises about 150 ships. Ship operators work hard to build continuous series of loaded voyages, which means different cargo types and short ballast legs or loadings in the same port immediately after discharging. Here, ships' own cargo handling equipment is often a valuable asset. Vessels are often old and of traditional construction, and they have to be capable to load different cargoes with different requirements. Cargo voyages inside the Baltic Sea are short and allow only a limited period for preparation for the next loading, which is typically known very late. All preparations have to be done by the very few ­ typically four to six - crew members. In this market factors such as fairway and berth depths, availability of cargo handling equipment and rather short distances mean that economies of scale of ships is not as important as in dry bulk markets in general. This partly explains why such a large number of small ports exist in Estonia, and relatively many also in Latvia. On heavy winters all Baltic coasts are covered with ice and even on normal winters there are ice restrictions in all Finnish ports and also in ports up to the Gulf of Riga. This means that ice navigation skills and ice classed tonnage are also needed. Ice breaker assistance is often in short supply in the Baltic States, which can make scheduling of voyages an imaginary effort. Most of the tonnage is owned and operated by small or medium-sized German, Dutch, Danish, or Norwegian shipping companies. The crews are mostly from the Baltic States or CIS countries. Russian is increasingly used on board and in navigational communication. Independent of the shipping company or flag of the vessel, the crew, VTS operators, ice breaker officers or pilot organizations are switching fluently into Russian along eastern Baltic Sea coast from Vyborg to Gdansk. As a consequence, non-Russian speakers may find it difficult to maintain a general view of what is going on at sea. Source: Based on an interview with Captain and M.Sc. (Econ.) Paavo Arpiainen in December 2003 I.3.3 The main liner shipping routes in the Baltic Sea The ferry services between Tallinn and Helsinki have expanded rapidly during the last years. There were relatively very few ferry services to and from Latvia and Lithuania in the 1990s. In 2002 and 2003, a number of new liner shipping routes or route configurations have emerged that better connect Baltic States' ports to port in southern Baltic Sea and European continental ports. The significance of Ro-Ro ferry lines has become greater since each Baltic State is clearly oriented to the European Union in foreign trade, and Baltic transport companies operate widely in the European Union area. Intermodal transport connections facilitate both accompanied transport units and trailer traffic. Transport and freight forwarding companies are increasingly forced to provide a scheduled service because of market demand. Ferry connections provide an alternative routing when reliability of transit time is important. For example, the Tallinn-Helsinki route carries about 150,000 cargo vehicles or units per year. The traffic is generally well balanced in both directions. Over 60 % of the units are trailers accompanied by a tractor and driver. Unaccompanied trailers and 141 other units make up the remainder. Most of the traffic is between Finland and the Baltic States or Hungary. This means that transit cargoes to or from Poland, Germany or Italy in the south or Russia in the east do not use this route. In 2004, liner shipping connections are fairly well developed, and routes have relatively high frequency. Compared with year 2001, for example, the situation has improved substantially (Ojala and Queiroz 2001, 147). Vessels on the routes have successively been renewed, and sub-standard vessels have been phased out from the market (Table I.6). Table I.6. Selected liner shipping routes in 2004 connecting the Baltic States. Source: Shipping lines and port information. Port Port(s) of call Frequency Operator Nation Type Tallinn Helsinki (FIN) >15/day several EST,FIN Pax/RoRo Tallinn Stockholm (SWE) 1/day Tallink EST Pax/RoRo Paldiski Kappelskar (SE) 1/day Tallink EST Pax/RoRo Paldiski Turku-Kiel-Hamburg 1/week Mannlines UK Ro-Ro Paldiski Kiel-Aarhus-Gdansk 1/week Mannlines UK Ro-Ro Muuga Helsinki-Antw.-Rdam 2/week TECO EST Ro-Ro Muuga Felixstowe (GBR) 1/ 14 days TECO EST Ro-Ro Muuga Bremerhav-Hamburg 1/week TECO EST Ro-Ro Muuga Fredericia (DEN) 1/ 14 days Hacklin FIN Container Tall-Riga-Klaip. DEN, GER, BE, NE several/ w Unifeeder DEN Container Tall-Riga-Klaip. Bremerhav-Hamburg 2/ week Teamlines GER Ro-Ro Riga-Klaipeda Sweden 2/week Stena Line SWE Pax/RoRo Riga Stockholm (SWE) 3/week Rigasealine LAT Pax/RoRo Riga Sweden 2/week LASCO LAT Ro-Ro Riga Germany 2/week LASCO LAT Ro-Ro Riga Hull, Ipswich (GBR) 1/ 14 days Rix Baltic LAT Container Liepaja Karlshamn (SWE) 3/week ScandLines DEN Pax/RoRo Ventspils Nynashamn (SWE) 5/week ScandLines DEN Pax/RoRo Ventspils Travemunde (GER) 2/week VentLines LAT Pax/RoRo Klaipeda Sassnitz-Rostock GER 2/week LISCO LIT Ro-Ro Klaipeda Fredericia (DEN) 1/week LISCO LIT Ro-Ro Klaipeda Karlshamn (SWE) 1/week LISCO LIT Ro-Ro Klaipeda Sweden, Denmark 2/week DFDS DEN Ro-Ro I.3.4 The passenger shipping route Tallinn-Helsinki The Tallinn-Helsinki route epitomizes Estonia's transformation from a Soviet republic to a thriving market economy. The development of the route is also a testimony of competition in transport services. In the early 1980s, the 60 km long route was served once a day ­ at most - by one Russian passenger ship. It was essentially the only link between Finland and Estonia 142 but it carried no cargo. The passengers, 0.2 to 0.3 million per year in the mid 1980s, were almost exclusively Finnish tourists. With the customs and border checks, the trip could take over 8 hours and the trip itself had to be paid at least 4 weeks in advance to allow for visa arrangements. After the regained independence the passenger volume jumped to 2 million in 1991 and to 3 million in 1992 despite the still time-consuming visa application procedures. Competition between shipping companies ensued, and by 1997 the volume had surpassed 5 million passengers. Over half a dozen competitors had entered the route. By 1999, conventional passenger ferries with a travel time of 3.5 to 4 hours carried their peak of 5 million passengers. Catamarans and hydrofoils, making the voyage in 1.5 hours, carried almost 1 million passengers in 1998. The largest catamarans also carry cargo. The ferries are the main freight connection between Estonia and Finland. Tallinn total Silja Line/SeaWind Viking Line Tallink Eckerö Line Vana Tallinn etc Linda Line Nordic Jet Line 7 000 000 6 000 000 5 000 000 Tallinn total ss4 000 000 Tallink Pa 3 000 000 2 000 000 Silja Line/SeaWind Viking line 1 000 000 0 /89 /90 /91 /92 /93 /94 /95 /96 /97 /98 /99 /00 /01 /02 12 12 12 12 12 12 12 12 12 12 12 12 12 12 Figure I.2. The number of passengers by shipping lines in Helsinki-Tallinn trade. Source: Silja Line www.portoftallinn.com/bpoconference/presentations/14 In 2002, the corresponding volumes were 4.2 million by conventional ships and 1.8 million by fast ships. In 2000, also a helicopter service with modern equipment entered the business with a travel time of 19 minutes and 10 departures per day with a ticket costing four to five times that on fast ships. The cut-throat competition by ferry lines, hotels and travel agencies keeps fares and unit freights very low, and service quality is good. In summer months, there are over 30 passenger ferry departures a day, and in the wintertime at least half that number. Port of Tallinn has had some 6 million passenger movements per year in 2000-2002. Over 95 per cent of passengers through the Port of Tallinn are on the route to Helsinki. Approximately 2/3 of the passengers are Finns, making typically a one-day trip to Tallinn. The number of individuals actually traveling is closer to 3 million per year, as most passengers are counted as both incoming and outgoing passengers. 143 The total traffic reached its peak in 2001. Helsinki-Tallinn route had 5.3 million passengers in January-November 2003, which is 0.35 million passengers less than in the same period in 200269. The price difference especially in alcohol and tobacco between Estonia and Finland has been driving much of the tourism, even though the Finnish import quotas have been rather strict70. How the EU membership and the related changes in taxation and import quotas effect this trade remains to be seen. I.4 Regulatory issues in port and maritime transport Private sector participation in port operation has reached a significant dimension over the last decade. This has been driven by broader trends within the transport sector as well as by a new understanding of the general role of the public sector in the provision of infrastructure services. The countries that have led this reform process have been able to attract significant private capital investment to refurbish infrastructure assets and to modernize cargo- handling equipment. Under private management, ports have significantly improved performance with regard to service quality and reduction of handling costs. Whether these initial achievements - largely driven by competitive tendering of concessions - can be sustained in the long term, will depend heavily on the ability of port authorities to stimulate effective intra port competition. Driven by the emergence of multi-modal transport networks, regional competition will gain relevance and thus the need for regional and multi-modal assessments of competitive structures will require port authorities to coordinate on a broader scale. Furthermore, increased globalization of the port, terminal, and shipping industry means that new competition conditions appear which require governments and public port authorities to monitor the market across national boundaries. In such a context, the role of an effective public regulation of the sector will become critical to optimize the efficiency of the new partnerships developing between the public and private sectors on the one hand, and between ports, terminal operators and shipping lines, on the other. In the maritime sector, the main regulatory issues include manning of the vessels, safety at sea and in ports, as well as keeping up with the inspection of the technical requirements of vessels. The inspection involves both national and foreign vessels through Port State Control. According to the Paris Memorandum of Understanding (MOU), the percentage of vessels registered in the Baltic States detained following Port State control was over 6 % in 2002. This compares with an average for EU- flagged vessels of 3.5%. However, there are strong indications that the situation is deteriorating, in that the number of Baltic States' vessels being detained is rising sharply. The countries need to urgently address this issue with a view to reversing this trend of deteriorating detention rates. In 2003, both Lithuania and Latvia have now been moved from the black list to the grey list of the Paris MOU. 69Finnish Board of Navigation, monthly statistics, January-November 2003. 70Along with Estonia's membership in EU, Finland lowered its alcohol tax on March 1, 2004, and loosens its import quotas on alcohol and tobacco as from May 1, 2004. 144 The main international maritime standards on safety, manning, loading and cargo inspection are in place. Since 2001, regulation on security issues in ports and at sea has been initiated mainly by the Unites States. The measures include, among others, the International Ship and Port Facility Security Code (ISPS) and the Container Security Initiative (CSI). The Baltic States ports have started to implement these, as all ports have to comply to ISPS by July 2004. The maritime authorities of Russia, Finland and Estonia decided to establish a VTMIS in the Gulf of Finland, which is scheduled for start-up in July 200471. The system resembles the one used in air traffic. The traffic is under constant surveillance, since the VTS centers do not only receive ships' reports but they also monitor their movements in the passages, and instruct them in danger situations. The relevant administrative structures in the maritime area are in place, but management systems of Maritime Administration need to be strengthened in all three countries. The training of seamen and officers and their availability for national vessels and for the landside duties requiring nautical expertise is a problem in all three countries. Even if the wages paid to seamen are high compared to the national level, they are far below salaries in similar international jobs. Especially for officers it is fairly easy to take employment on foreign-flagged vessels. I.5 Conclusion Key findings of the seminar in this sub-sector were: (a) ports have shown strong economic results during the past few years; (b) stevedoring and shipping companies have been almost completely privatized; (c) further strengthening of the maritime administration is needed; and (d) the size of merchant fleets registered in the Baltic States have diminished. Governments own the land occupied by large ports of the Baltic States while smaller ports may belong to municipalities or. Private companies generally carry out port work such as stevedoring and warehousing. The only ports of the Baltic States handling a million tons or more of cargo annually are Tallinn, Kunda and Parnu in Estonia; Ventspils, Riga and Liepaja in Latvia; and Klaipeda and Butinge in Lithuania. Only the port of Tallinn has significant international passenger traffic, and there is domestic ferry traffic in Estonia. The major ports of Tallinn, Riga and Klaipeda handle relatively diverse traffic while the traffic of Ventspils is mainly oil and chemicals, and the traffic of Liepaja 71The Finnish Maritime Administration at: www.fma.fi/e/functions/vts/vtmis.php ; The acronym VTMIS (Vessel Traffic Management and Information Services) is used for the various telematics and information systems developed to enhance the safety and effectiveness of the maritime traffic. Also the term Offshore VTS has been used in the same context (VTS = Vessel Traffic Service). 145 comprises principally timber, metals and bulk liquids. The major ports as well as the privately-run cargo handling operations in them have been very profitable. Private sector participation in port operations has increased significantly in recent years, driven by increased opportunities made available as the role of public authorities has become more limited. The total seaborne trade in the Baltic Sea is over 400 million tons. The Baltic States share of this total is about 30 percent. Individual ships in the Baltic Sea do not exceed 150,000 tons because of draft restrictions in the Danish straits. The fleet of especially Latvia and to lesser extent, that of Estonia, have declined in recent years, while the size of Lithuanian fleet has remained stable. Despite this, Baltic seafarers are well employed in ships sailing under foreign ownership or flags. Operations of Ro-Ro ferry lines have increased significantly and a number of EU- based shipping companies have formed joint ventures in the Baltic States. In the maritime sector, the main regulatory issues include manning of the vessels, safety at sea and in ports, as well as keeping up with the inspection of the technical requirements of vessels. The inspection involves both national and foreign vessels through Port State Control. There are indications that the situation is deteriorating, and the countries need to urgently address this issue. In 2003, both Lithuania and Latvia have now been moved from the black list to the grey list of the Paris MOU. The workshop on maritime and port issues in the Parnu seminar prioritized the most important development areas as follows: (1) information flows and systems, (2) maritime safety (especially that of ISPS), (3) infrastructure development and (4) environmental protection. Other issues that were mentioned included EU Transport Policy, transit traffic, cargo security, competition of ports and shipping as well as institutional development. 146 J. Transshipment of Russian oil via Baltic ports72 Russia and a number of CIS countries have large resources of oil located far away from regions of consumption. Oil and gas exports are estimated to account for around 40 per cent of Russia's total exports and nearly 10 per cent of its GDP. Table J.1. shows Russian oil production, refining and exports and their forecast until year 2010. If realized, the volumes of crude oil export would double from the year 2000 level. Russia also exports around 50 million tons of oil products annually. Domestic oil consumption in Russia has fallen drastically from 250 million tons during Soviet times to around 130 million tons today. As a result, the difference between domestic and export prices of oil in the beginning of 2003 was more than 20 USD/barrel, when world-market price has been around USD 30/barrel. In 2002, 55 per cent of Russian oil was exported by sea, 40 per cent through pipeline and 5 per cent by railway (Liuhto 2003, 54). In addition, 20 million tons of crude oil from Central Asia was transported through Russia in 2002. Table J.1. The development of oil production, refinement and crude oil export in Russia in million tons in 1997-2002; forecast for 2003-2010. Refining includes domestic consumption. Source: The Russian Energy Ministry. 1997 1998 1999 2000 2001 2002 2003 2004 2005 2010 Production 305.6 303.3 305.0 323.5 348.1 377.0 397.0 419.0 448.0 510.0 Refining 197.2 163.3 174.2 179.0 186.0 182.0 195.0 200.0 206.0 214.0 Crude oil exports 108.4 140.0 130.8 144.5 162.1 195.0 202.0 219.0 242.0 296.0 Construction of new export facilities on Russian territory has intensified due to constraints in the oil export logistics, Russian national security thinking and the aim to lower the payments of transit fees of oil transport. J.1 Main export routes of Russian oil Currently Russia has three main oil export corridors to the West. The first is the Druzhba-pipeline system to Eastern Europe and Germany, and the second is through the Transneft pipeline system to export terminals in the Black Sea. The third route is sea transport through terminals in Baltic seaports, where oil is transported by pipelines or by rail. In the latter route, the destination is typically Rotterdam, but also other main oil terminals are used, including Fortum's refineries in Southern Finland. 72prepared by Matti-Mikael Koskinen and Lauri Ojala, Turku School of Economics and Business Administration 147 The Druzhba-pipeline with a nominal annual capacity of 60 million tons traverses Belarus on its way to the West. The northern line of this pipeline runs through Poland to Germany and the southern line passes through Ukraine, Hungary and Slovakia before ending in the Czech Republic. The capacity of the northern pipeline is in full utilization, but the southern end currently has some capacity left. The main Russian oil export ports in the Black Sea region are Novorossiysk with an annual transshipment capacity of around 45 million tons and Tuapse with a 10 million tons capacity in 2002. Possibilities to further expand exports through the Black Sea are restricted also by congestion and traffic limitations in the Bosporus Strait, where large tankers in loaded condition are allowed to traffic only during daylight. Port of Primorsk is the main export corridor in Russian territory in the Baltic Sea. It relies on the newly constructed Baltic Pipeline System (BPS). In addition, oil is transported via ports of St. Petersburg and Kaliningrad. Historically, the largest amounts of Russian and CIS export oil have been transshipped through Baltic States' ports either via local pipelines connected to the Transneft pipeline system or by rail. J.2 Economic importance of transit traffic to the Baltic States Transit fees are an important source of revenue for the three Baltic States and companies operating in them. The GDP shares of transit revenues are estimated to be between 5 and 10 per cent in the Baltic States (Laurila 2002, 26). It is, however, difficult to measure correct volumes of transit goods since trade statistics issued by Ministries of transport, statistical offices, port authorities and operators in different countries tend to have incompatible methods in providing data. In Estonia the share of transit traffic in the GDP was 5.6 per cent in year 2000 (Statistical Office of Estonia). Taking into the account the additional services created through the transit trade, the general impact of transit is estimated to be 7-8 per cent of the Estonia's GDP (Purju et al. 2003, 285). In Latvia the contribution of oil transit business to GDP has been declining from around 9 per cent in 1993 to the current estimate of 6 per cent (Kaarnite 2003, 308). The total contribution of transport, storage and communication into the Latvian GDP was 14.5 per cent in 2002. The transport sector and transit traffic plays an important role in the Lithuanian economy, too. In 2000 about 8 per cent of GDP was created in the transport sector, of which a large part is related to the transit traffic (Gatautis et al. 2003, 332). Competition for transit cargoes between Baltic ports has increased not only due to new Russian export facilities, but also because of Russian companies aspire controlling stakes in companies operating oil export facilities in the Baltic States. Oil transit has - until the shutting down of Ventspils crude oil pipeline in early 2003 - constituted the largest segment of transit cargoes in all three Baltic States. 148 J.3 Oil export infrastructure in the Baltic Sea Region J.3.1 Oil pipelines to ports and terminals The map in Attachment J.1. shows the oil transport infrastructure of the Baltic States and North West Russia. Pipeline is a cost efficient means of transportation for liquid bulk products up to several thousand kilometers, when the volumes are high enough. Baltic Sea ports or oil terminals connected to pipelines include Primorsk in Russia, Ventspils in Latvia, Butinge in Lithuania and Gdansk in Poland. The Baltic Pipeline System (BPS), owned by Russian oil pipeline monopoly Transneft, leads to the port of Primorsk. Initially in 2001, it had an annual capacity of 12 million tons of crude oil. In 2003, the pipeline and the terminal had an annual export capacity of 18 million tons of crude oil. This is likely to reach 42 million tons in 2004, and it is forecasted to exceed 70 million tons by the end of the decade. One of the oil terminals in St. Petersburg is also connected via pipeline to the Kirishi refinery. This oil products pipeline has an annual capacity of 2.6 million tons. The Polotsk-Ventspils crude oil pipeline leading to the Latvian port of Ventspils was put into operation in 1968. Its annual capacity is 14 to 16 million tons, depending on the source. Parallel to it runs an oil product pipeline with a capacity of 4 million tons. The Lithuanian oil export terminal Butinge is served by a pipeline with a capacity of 13 million tons of crude oil. The Butinge terminal is owned by AB Mazeikiu Nafta, of which a controlling stake of 53.7 per cent belongs to the Russian oil company Yukos. J.3.2 Rail transportation to ports and terminals Rail transport has traditionally been used for oil products, since these are more expensive than crude oil and can thus carry the higher transport cost. Recently the volume of crude oil carried by rail has grown especially in Tallinn and also in Ventspils after the closure of the crude oil pipeline to that port. In Estonia, the share of transit traffic by rail through ports was 83 per cent in 2002. Rail transit relies solely on the existing railroad network. With the ever increasing volumes, terminal operators have invested heavily in wagon handling equipment. In ports of Tallinn, Riga, Liepaja and Klaipeda rail transportation is the only economically possible means of oil transit transportation. Despite the oil product pipeline, transshipped oil is mainly carried by rail also to the port of St. Petersburg. 149 J.3.3 Terminal and harbor infrastructure Russian ports Primorsk oil export terminal, owned by the state pipeline monopoly Transneft, started operations in December 2001. The port has a berth for two vessels of 100,000- 150,000 dwt and has a maximum draught limit of 15.3 meters. The port requires the use of double-hulled tankers, but vessels with double bottom or sides may be used in certain conditions. Currently the terminal has a storage capacity of 500,000 m3. The port of St. Petersburg is navigable for tankers having a maximum draught of 11 meters. Together with length limitations the current maximum size of vessels is around 40,000 tons. Petersburg oil terminal, the largest in the port, has storage capacity of 214,000 m3 and appropriate facilities for railcar handling. The Port of Kaliningrad was opened for the international vessel traffic in the beginning of the 1990s. The port areas are connected to the Baltic Sea by a 42 km long channel. Maximum draught to the port is 8.0 m. The largest oil terminal operator in the port is a subsidiary of Russian oil company LUKoil. Estonian ports Tallinn is the biggest and most important transit port in Estonia. The Muuga harbor is the main cargo harbor in the Port of Tallinn and its cargo volume accounts for approximately 90 per cent of Estonian transit. The port is able to serve vessels with maximum draft of 15.3 meters and deadweight of 120,000 tons. Several terminal companies are offering services for railcar discharging and storing of oil. The biggest operator is Pakterminal AS, which has storage facilities for over 250,000 m3, of which 213,000 m3 are owned by the firm. It is half-owned by Vopak, a listed Dutch firm and Trans Kullo Ltd, an Estonian investment firm. The second largest oil terminal operator in Tallinn is Eurodek Group with a total storage capacity of 215,000 m3. Estonian Oil Service (E.O.S), the third largest operator, concentrates on transshipment of fuel oils. The storage capacity of the company's twenty-eight tanks is 175,000 tons. Another company, Oiltanking Tallinn, is focusing on the transit of oil products. This terminal offers storage capacity of 84,000 m3. Latvian ports Ventspils is Latvia's most important oil transit terminal, serving vessels up to 120,000 dwt and 15 meters of draught. After the completion of the reconstruction and modernization works, the services and equipment of the port correspond to modern technical, safety and environmental protection standards. After the completion of the dredging works in the sea entrance channel and the port area, the largest vessels capable of entering the Baltic Sea can be accepted by the port. The total tank farm capacity exceeds 1,300,000 m3. 150 The largest terminal operator is JSC Ventspils Nafta. The largest shareholders of the company are JSC Latvijas Naftas Tranzits (42 %) and the Republic of Latvia (39 %). Ventspils Nafta, in turn, is the largest owner of LASCO, a shipping company, with 1/3 of the shares. Port of Riga is the main general cargo port in Latvia and ranks second in oil products transport after Ventspils. Approximately 80% of cargo turnover at Riga port involves transit freight to and from CIS. The draught limitation of around 11 meters in the approaching channel restricts the maximum vessel size to around 40,000 dwt. Plans for a new oil product terminal are under consideration. The Port of Liepaja is the third largest port and growing due to the status as a special economic zone. A former Soviet naval base, it is now a business port turning over 3 million tons in 2001. Oil products cover more than 80 per cent of the liquid cargoes. Lithuanian ports Klaipeda State Oilport was constructed in 1959 in order to export Soviet heavy fuel oil. The oil terminal is operated by Klaipedos Nafta Ltd. and it has an annual capacity of 7 million tons. Vessel draft in the port is limited to around 11 meters and the maximum vessel size is thus about 40,000 dwt. Butinge oil export / import marine terminal, close to the Lithuanian border and owned by AB Mazeikiu Nafta, was opened in 1999. It is connected to Mazeiku refinery with a crude oil pipeline with an annual capacity of 13 million tons. The loading principle is an offshore loading buoy, which initially had problems with oil spills. The terminal's storage capacity is 254,000 m3. The terminal is capable of loading vessels with draught up to 15.3 meters and 120,000 dwt. J.4 Oil transshipment volumes in the Baltic Sea Region The volume of oil and oil products handled in ports has almost doubled from 53.6 million tons in 1997 to almost 100 million tons in 2002 (Table J.2). In the port of Tallinn oil and oil products turnover has tripled and most other ports have also increased their cargo volumes. Sharply declining volumes throught the port of Ventspils, due to the closure of the crude oil pipeline, have increased the use of rail transport and the share of oil products is growing through that port. The port of Primorsk is a crude oil export terminal. Most of the volumes shipped through St. Petersburg consist of oil products. In port of Tallinn large scale transshipment of crude oil started in 1999 reaching nearly 7 million tons in 2002. 151 Table J.2. Oil and oil products cargo turnover 1997-2003 in million tons. Figures for 2003 are from the period January-August. Source: Port Authorities and Latvian MoT*. 1997 1998 1999 2000 2001 2002 2003 1-8 Primorsk - - - - no data 12.2 9.5 St. Petersburg 5.8 6.4 7.4 7.4 9.0 10.6 No data Tallinn 8.1 11.1 14.5 17.8 21.0 24.3 15.9 Ventspils 27.1 26.0 24.3 26.3 28.7 20.1 * 13.2 Riga 2.1 2.0 2.2 2.8 3.4 5.2 * 3.5 Liepaja 0.3 0.1 0.2 0.4 0.5 0.7 * 0.5 Butinge - - 0.7 3.5 5.1 6.2 7.5 Klaipeda 3.6 2.2 3.9 5.2 5.1 6.7 4.4 Kaliningrad 0.9 0.9 0.9 1.0 1.9 4.7 No data Gdansk 5.7 8.1 7.0 5.8 7.0 5.7 6.6 Total 53.6 56.8 61.1 70.2 81.7 96.4 The major part of oil transit volumes in ports of Riga, Liepaja and Klaipeda are oil products. At the moment the Butinge marine terminal handles only crude oil. The exception is the port of Gdansk, where the turnover consists of both loaded and discharged oil cargoes. J.4.1 Competition between the Baltic Sea ports Competition between the Baltic seaports for transit freights has intensified. All Baltic States have taken measures to modernize basic port infrastructures, to provide modern superstructure (terminals), to increase sector privatization and commercialization as well as to improve transport logistics and storage facilities. The major Russian oil companies have successfully played off the Baltic ports against each other and pressed down transit fees. In addition, Russia has increased its own direct sea transports through St. Petersburg and its other Baltic Sea ports, Kaliningrad and Primorsk oil terminal. Russian Federation has recently reformed its Railway Tariff Policy in order to create favorable conditions for freight carriage to Russian ports. Therefore freight transport to Russian ports has become cheaper compared to similar freight carriages towards Russia's land border. Cost of transport through land borders (e.g. Latvian ports) is 2 to 4 times higher compared with transport via Russian ports (Latvian MoT). 152 J.4.2 Tanker freight markets and the Baltic Sea ports73 Tanker freights also affect inter-port competition, because different ports can handle ships of various sizes. Because of economies of scale, unit freight decreases also ubstantially when the ship size increases. Freight levels are subject to fluctuations in world tanker markets, and they are also affected by the volume and distance of each individual shipment. In addition, ice conditions in severe winters ­ as in winter 2003 - have a dramatic effect on vessel availability, and, as a consequence to freights, in the Gulf of Finland. Tanker freights from Ventspils, Butinge and even Tallinn tend to follow very closely the overall market rate as indicated by the North Sea ­ UK and European Continent freight index. Reported freight rates from the Russian oil terminal of Primorsk follow the North Sea freight rate level most of the year, but as Figure J.1 shows, the ice-season raises freights considerably. In the beginning of 2002, the freight rate level was 100% higher for vessels capable of navigating in ice of the eastern Gulf of Finland. Freight fixtures reported in summer later that year were again in line with basis freight rates in North Sea. For the first quarter of 2003, the reported five fixtures from Primorsk to UK Continent quote 550 000 tonnes in volume. That volume represents a fifth of the terminal capacity in that time period and give a clear indication of the freight rate level. Between January-April 2003, ice-situation prevented most of the crude oil fleet from operating in the area and rates rose accordingly. North Sea-UK Continent Primorsk-UK Continent 400 350 300 250 WS 200 150 100 50 0 2.1.2002 25.1.2002 19.2.2002 14.3.2002 10.4.2002 3.5.2002 29.5.2002 25.6.2002 18.7.2002 12.8.2002 5.9.2002 30.9.2002 23.10.2002 15.11.2002 10.12.2002 10.1.2003 4.2.2003 27.2.2003 24.3.2003 16.4.2003 Figure J.1. Freight rate comparison Primorsk-UK Continent vs. North Sea-UK Continent for a 80 000 ton vessel. Freight quoted as World Scale equivalent (WS), (Koskinen and Ojala 2003). 73Based on Koskinen and Ojala (2003) 153 As many shipowners withdrew their vessels from the Primorsk trade in winter 2003, only the four well ice-strengthened Aframax-tankers (in the 80-120,000 dwt range) of Fortum Shipping and Knutsen OAS were capable of continuing in the market with a few smaller vessels, including Fortum's two handy-sized tankers. A Fortum executive commented the situation in the market as follows: "Now that we have seen a more severe winter the freight rates have high because of insufficient supply of ice-strengthened tonnage... Winter 2003 was a bonanza not likely to be seen again, shipowners were in a dominant position on the market and charterers had to pay the extra costs." For the shipper, the cost of transporting one ton of oil from Primorsk to the main market in Central Europe can thus be estimated using an average of USD 5 per ton as the flat rate at World Scale 100. This equals USD 0.6 million for a 120,000 dwt tanker. In the winter 2002, the freight rates of WS 200 caused transport costs of around USD 10 per ton, whereas with the very high WS 400 freight rates in winter 2003 the cost of transport amounted to around USD 20 per ton. According to shipping industry sources, the freight rates in January-Feruary 2004 were almost at the same level as in the previous winter, despite the relatively mild winter in 2003/2004. This reflects the persistent lack of appropriate tanker tonnage suitable for winter navigation. J.5 Conclusion Russian oil production and exports are forecast to increase substantially over the coming years, which is a source of optimism for the Baltic ports handling oil transit cargoes. Insufficient oil export capacity in Russian and bottlenecks caused by weather conditions in main export ports of Novorossiysk and Primorsk should allow the Baltic States' ports to stay in competition, if transport economics were the only argument. Almost 80 per cent of exports of Russian oil go to Europe. With limited market growth potential in Europe, Russian oil companies give high priority to new markets in the United States and Far East (Efimova et al. 2003, 169).The current Russian oil transport infrastructure supports neither of these potential new markets. Transporting oil through Baltic Sea ports to Northern America is usually not economical because the water depth in the Danish Straits limits the maximum tanker size to 120,000 dwt. Plans to construct a deep-sea terminal in Murmansk for vessels over 300,000 dwt and a privately-funded crude oil pipeline have been disrupted by the Yukos affair after the arresting of its CEO Mr. Khodorkovsky in October 2003. On the other hand, only few ports are able to handle vessels of that size in the world, let alone in the US Atlantic coast. The major part of oil imports to US take place with vessels in the size class of 80,000-120,000 dwt (Lloyd's Shipping Economist 2002, 21). The expansion of the Baltic Pipeline System, with the planned terminal in Murmansk serving up to 70 million tons, would add more than 100 million tons to Russian crude oil export capacity by the end of the decade. 154 Developments in South Caucasus also affect the future routing of oil from that region, which now partly uses ports in the Baltic Sea region. Oil pipeline from Azerbaijan through Georgia to the Turkish port of Ceyhan is expected to be completed in 2007 or 2008. Its initial capacity is 11 million tons, but it is planned to reach 45 million tons per year. When operational, it will carry most of Azerbaijan's oil ­ over 10 million tons per year - directly to the Mediterranean without transiting Russian territory. The proposed facilities and Russia's policy to concentrate cargo to ports within the Russian territory may lead to declining crude oil transit volumes in the Baltic States' ports. The oil product export terminal under construction in Vysotsk in the Russian part of Gulf of Finland will have an annual capacity of more than 10 million tons. When operational in 2004 or 2005, it is likely to affect oil products volumes through the Baltic States' ports, and especially those through the port of Tallinn. 155 K. Civil aviation 74 Key findings: The aviation infrastructure and management remains the responsibility of the public sector. The major airline in Lithuania is state-owned. The State owns over 50 % the airline in Latvia and 34 % in Estonia. The airlines have recently turned profitable after years of negative results. Several major airlines operate from major airports. Passenger traffic has steadily increased. Airports have attracted substantial investments. Cargo traffic remains low. K.1 Aviation infrastructure Air infrastructure management remains the responsibility of the public sector in all three countries (Figure K.1), but the ways in which civil aviation administrations and airport administrations have been organized differ to some extent among the three countries. The provision of air transport services has been partially privatized in Estonia and Latvia, where the airlines have been transformed to joint ventures with established international carriers and other investors. SCHEDULED AIR TRANSPORT AIRPORT INFRASTRUCTURE 2003 2003 2000 2000 1990 1990 ESTONIA LATVIA LITHUANIA ESTONIA LATVIA LITHUANIA PUBLIC SECTOR PRIVATE SECTOR Figure K.1. The roles of the private and the public sector in airport infrastructure and scheduled services (freight and passengers). 74Prepared by Tapio Naula and Lauri Ojala, Turku School of Economics and Business Administration 156 K.2 Organization of civil aviation administration Civil Aviation Administrations (CAA) executes the aviation policy at the national level and the co-operation with other states and international aviation organizations. CAAs are under the authority Ministries of Transport (MEAC, MoTC) in the Baltic States. The bodies that manage air traffic are in government ownership in all three countries. In Estonia and Lithuania these services are provided by state own enterprises. Estonian Air Navigation Services was transformed from a stage agency into a state- owned company in 1998 after reorganization of Estonian airport management. The transformation of Estonian civil aviation administration from 1991 to present day is an illustrative case and it is shown in Attachment K.1. K.3 Air transport markets in the Baltic States The three Baltic States have around 600,000 air passengers each, of which half use national carriers. The airports could handle 4 to 5 times that amount. The passenger throughput has increased from the mid 1990's at all the three airports, whereas the cargo volumes have remained low (Table K.1). Table K.1. Passenger throughput (thousands), cargo volumes handled (tons) and number of aircraft movements at Tallinn, Riga and Vilnius airports. Source: A-Z World Airports, http://www.azworldairports.com/ Passengers '000s 1995 1996 1997 1998 1999 2000 2001 2002 Tallinn (TLL) 367 431 502 555 552 560 573 606 Riga (RIX) 491 497 531 555 562 574 623 633 Vilnius (VNO) 356 371 411 462 481 522 584 635 Cargo tons 1995 1996 1997 1998 1999 2000 2001 2002 Tallinn (TLL) 2 488 3 997 5 590 5 992 5 326 4690 4543 4292 Riga (RIX) 3 918 3 912 4 281 4 907 4 408 4 658 5 209 6 580 Vilnius (VNO) 9 253 6 724 5 845 5 260 4 962 5 599 4 947 4 069 Aircraft movements 1995 1996 1997 1998 1999 2000 2001 2002 Tallinn (TLL) 13 784 16 695 21 455 24 951 23 591 23358 23633 26226 Riga (RIX) 15 695 16 298 16 964 19 483 19 387 18 070 18 910 18 676 Vilnius (VNO) 10 510 11 482 13 792 16 711 18 185 17 277 18 362 17 124 Table K.2. presents an indication of the Baltic passenger market divided into groups by the main geographical areas of departures and arrivals. The Estonian passenger volumes seem to be oriented into Scandinavia and Finland whereas transit flights from and to European cities dominate for Latvia and Lithuania. 157 Table K.2. Passenger traffic volumes by market area, indication for 2003. Source: Presentation of Günther Sollinger, airBaltic, Baltic Development Forum Summit Oct 5-7, 2003 in Riga. Passangers Total Scandinavia/ Europe/ Europe/ Intercontinent (x 1000) Finland nonstop TRF Tallinn (TLL) 601 183 177 191 50 30% 29% 32% 8% Riga (RIX) 611 112 185 258 56 18% 30% 42% 9% Vilnius (VNO) 575 87 188 254 46 15% 33% 44% 8% Total 1,787 383 550 703 152 21% 31% 39% 8% The major airlines often operate to the Baltic States through code-sharing arrangements. Table K.3. shows the airlines present at Tallinn, Riga and Vilnius airports and their online destinations. Some of the major courier services have scheduled parcel/courier flights to Tallinn, Riga, and Vilnius. Table K.3. The number of online destinations and the main airlines operating at major Baltic airports. (Source: Presentation of Günther Sollinger at Baltic Development Forum Summit Oct 5-7, 2003 in Riga). Tallinn (TLL) Riga (RIX) Vilnius (VNO) Online destinations 13 16 14 Major airlines Finnair Lufthansa Finnair Scandinavian Airlines British airways Scandinavian Airlines Czech Airlines Czech Airlines Czech Airlines Polish Airlines Finnair Lufthansa Austrian Airlines Aeroflot Austrian Airlines Estonian Air Polish Airlines Polish Airlines Air Baltic Lithuanian Airlines 158 K.4 Organization of Airline services The Baltic airlines operate regional passenger routes, often in co-operation with their equity partners as feeder carriers to the larger partners' hubs. None of the Baltic carriers are partners of the major airline alliances Star Alliance or OneWorld. In addition to Estonian Air, airBaltic of Latvia, and Lithuanian Airlines, there are also some small regional or domestic carriers that operate in the Baltic States. An indication of the financial performance of the national carriers is shown in Table K.4. Table K.4. Baltic States' major airlines: passenger volumes and turnover 1996-200275. Source: Airline Business, January 2001 and the airlines. No. of passengers 1996 1997 1998 1999 2000 2001 2002 Estonian Air 472 000 216 000 280 000 269 000 285 000 *292,000 *320,000 AirBaltic 106 300 151 400 173 652 194 224 216 548 **248,710 **262,212 Lithuanian Airlines 229 000 225 800 210 000 200 000 244 000 n.a. n.a. Turnover mUSD 1996 1997 1998 1999 2000 2001 2002 Estonian Air 22 22 30 34 43 *45 *57 AirBaltic 23 36 38 38 42 44 48 Lithuanian Airlines 47 50 ***52 ***49 ***55 57 n.a. *Estonian Air, Annual report 2002, http://www.estonian-air.ee/shared/failid/AnnualReport_2002.pdf, read 10.10.2003 **Air Baltic, http://www.airbaltic.com/public/22531.html?year=2001, read 10.10.2003 ***Lithuanian airlines, Annual reports, http://www.lal.lt/pdf The Estonian Government holds 34% of the shares of the national airline Estonian Air. The two other shareholders were initially Scandinavian Airlines (SAS) with 49 % of shares and Baltic Cresco Investment Group Ltd. from Estonia with 17 %. In September 2003, SAS sold its stake to the Maersk Air, which is part of the A.P. Moeller Group from Denmark, one of the largest transport firms in the world. All the other (five) air carriers in Estonia are privately owned. None of the companies receive subsidies, except for the governmental support on domestic airline connection with some of the islands. The Latvian Government owns a 52.6% share in the national airline "Air Baltic Corporation" (trade name airBaltic). Other shareholders are Scandinavian Airlines (SAS) with 47.2 per cent and Transaero Airlines (Russia) with 0.2 per cent. The Latvian Government (Minister of Transport) appoints four out of seven members of the supervisory board (including the Chairman). Air Baltic Co. (shortened as airBaltic) operated at profit in 2001-2002 for the first time after several years of losses. It receives no subsidies, nor does the law grant such. 75Lithuanian Airlines' turnover in 2003 was USD 75 million. 159 In Lithuania the national airline, Lithuanian Airlines, is owned and operated by the Government. The airline operated at a profit for the first time in 2002. It anticipates a profit of USD 0.75 million in 2003 against revenues of USD 75 million (Airline Business, Dec. 2003). It is, however, not subsidized. Air Lithuania, which operates as a regional carrier, became a subsidiary of Lithuanian Airlines in 1996. After the unsuccessful privatization bid in summer 2003, Lithuanian Airlines has announced a three-year restructuring plan. To help fund restructuring, the carrier is attempting to sell off its 50.8 % holding in catering firm Aerochef-LAL, its 52 % share in tour operator AIP and regional subsidiary Air Lithuania during early 2004 (Airline Business, Dec. 2003). Scandinavian Airlines has confirmed its intentions to participate in the Air Lithuania tender (The Baltic Times, Jan 8-14, 2004). There are no scheduled air cargo aircraft in operation by the Baltic carriers. Freight is typically carried as so-called belly airfreight, i.e. on passenger routes. The major express freight operators (such as DHL, UPS, FedEx and TNT) are all represented in the three Baltic States. The supply of express freight and courier services is comprehensive. The Baltic States have also attracted some airline investment in anticipation of their EU membership, and in view of prospects for liberalized air transport markets. One example is Aero Airlines, in which Finnair holds a 49 % stake. Finnair has plans to develop Aero Airlines as a low-cost carrier for regional and domestic Finnish routes. The geographical proximity between Tallinn and Helsinki has also enabled a frequent helicopter service between the two cities. Since May 2000, the route is operated under JAR regulations by a Finnish firm Copterline Oy. It operates 14 daily flights in both directions. The flight time is 19 minutes. A regular single fare is 128 to 198 euro. This is four to five times the fare on fast ferries crossing the strait in 1.5 hours. Since May 2000, the firm has operated over 17,000 scheduled flights. K.5 Airport services In Estonia, the right to operate services is assigned on the basis of bilateral air transport agreements. Airport slots are reportedly equally and freely accessible to all airlines. Government-owned companies operate Estonian airports. The main airport Tallinn received state subsidies until 1999, but after that, it has operated with income finance. Since 2001, it has shown profits (Table K.5.) Table K.5. Net sales and profit, and no. of passengers of Tallinn Airport Ltd 1999- 2002, and forecast for 2003. Source: Mr. Loik, Tallinn Airport. 1999 2000 2001 2002 2003* Net sales USD million 8.2 9.6 11.1 11.8 13 Net profit USD million -0.3 -0.5 0.6 1.6 2.9 Passengers Millions 0.55 0.56 0.57 0.61 0.71 160 In Latvia, the assignment of landing rights is organized according to the Bilateral Air Services Agreement (BASA), the "Law on Aviation" and existing Air Policy, introduced by respective Ministerial regulations. As a result foreign airlines have completely free access to 3rd -4th air freedom operations. Riga International Airport is operated as a Government-owned Joint Stock Company, but the local municipality owns Liepaja International Airport. Riga airport is not subsidized by the Government and operates at a profit whereas Liepaja airport is subsidized by the local government to support an absolutely essential level of operations and certain development. Basis for assigning landing rights in Lithuania is BASA and the "Regulations for the Use of the Airspace of the Republic of Lithuania", as adopted in January 1997. Foreign airlines as well as Lithuanian airlines must obtain a permission to operate commercial flights to/from the territory of the Republic of Lithuania. Three Lithuanian international airports (Vilnius, Kaunas, and Palanga) are Government-owned companies. The Lithuanian Government owns 67 of shares in Siauliai airport and the remaining 33 of shares are owned by the Siauliai municipality. Vilnius, Kaunas and Palanga airports operate at a profit, but Siauliai airport operates at a loss. Airports are not subsided by the Government. K.6 Regulatory issues The key regulatory issues in civil aviation for the three Baltic States can be summarized as follows: · Progressive liberalization with EEA and CEE - competitiveness · slot allocation and its new institutions: coordination committee and airport coordinator; · JAA technical requirements and administrative procedures; · appointment of an independent accident investigator; · improved statistics; · market monitoring instead of approval procedures at the CAA K.7 Aviation infrastructure financing The main international airport in Estonia, Tallinn Airport, has financed the reconstruction costs from EBRD and EIB loans, from its net assets, from PHARE assistance and from assignments from the state budget. Regional airports mainly use state budget allocations for their construction and improvement activities. The Development Plan of Regional Airports for 2000-2006, on the assumption that the number of passengers will rise, provides for the gradual diminution of state support to the regional airports, while investments from their net assets will rise, together with private investment and assistance from EU funds. 161 In Latvia, the main source of funding for the construction and improvement of the infrastructure at Riga International Airport is a Passenger Departure Tax introduced by the Cabinet of Ministers' Decision, devoted solely to developing the infrastructure of the airport. This tax is part of the special state budget. The financial resources of the JSC "Riga International Airport" are a further source of funding. Loans from international financial institutions and commercial banks are used to secure the funding during project implementation. For Liepaja airport subsidies from the local government are the main source for the maintenance of the facilities. In Lithuania, construction, and improvement is funded through the airports' own means and/or through loans of foreign investors. Table K.6. Passenger and landing fees in Baltic States' major airports in 2003 in USD. Source: Mr. Loik, Tallinn Airport, Seminar Presentation, November 25, 2003 Riga Vilnius Tallinn Budapest Stockholm Prague Warsaw CPH Helsinki Passenger fee 23 17,4 15 16,9 15 14,7 13,4 13 12,6 USD/passenger Riga Vilnius Tallinn Landing fee 623 796 576 Airport fee for a Boeing 737-500 Passenger fee 1,462 1,118 973 for a turnaround; 60 % load factor Total 2,085 1,914 1,549 USD Passenger fees of selected airports are shown in Table K.6. According to that data, the fees are in line with a number of other airports that have much higher traffic volumes. Passenger fees is Riga airport are the most expensive in this table. K.8 Conclusion In Estonia and Latvia, the airlines have been transformed into joint ventures with established international carriers and other investors, whereas Lithuanian air transport privatization has not yet been successful despite several attempts. The Civil Aviation Administration (CAA) in each of the three countries falls under the Ministry responsible for transport. Estonia runs its Air Traffic Management (ATM) as a state-owned corporation, Lithuania as a state-owned enterprise, while the national CAA is in charge of ATM in Latvia. There are 600,000 air passengers per year in each of the Baltic States, of which roughly ½ use national and ½ use foreign carriers. The volume has increased at all key airports, especially in Vilnius. Cargo traffic is modest in each country. Major foreign airlines in many cases operate to the Baltic States through code-sharing arrangements. The Baltic States have attracted some airline investments in anticipation of their EU membership. 162 The right of foreign airlines to operate air services in the Baltic States is based on bilateral agreements with various governments. This practice will continue with non- EU countries. In intra-EU air traffic, which now stands for over 2/3 of all traffic, EU regulation will be followed. Assignment of slots for service is often granted freely. The key regulatory issues for Baltic States civil aviation can be summarized as follows: (a) progressive liberalization (increased competitiveness) of air services in relation to EU countries; (b) airport slot allocation; (c) technical requirements and administrative procedures of the Joint Aviation Authority; (d) appointment of an independent accident investigator; (e) need for improved statistics; (f) greater reliance on market forces vis a vis approval procedures at the CAA, and (g) harmonisation of air navigation systems in view of EU's Single European Sky initiative. Airport reconstruction has been financed with EBRD and EIB loans, EU's PHARE program, own resources ­ mainly passenger fees - and with state budgetary assistance. The main weaknesses identified in civil aviation of the Baltic States are (a) limited administrative capacity of regulators; (b) small and fragmented markets: (c) lack of individual strategies for particular markets; (d) large number of air carriers compared with the modest market size; (e) prevalence of "two aviation worlds" in terms of technology and regulations; and (f) diminished access at EU airports for all air carriers of the Baltic States. The main challenges identified in aviation are: (i) progressive liberalization of air transport within the EU; (ii) slot allocation and its new institutions: coordination committee and airport coordinator; (iii) meeting JAA technical requirements and administrative procedures; (iv) the need for an independent accident and incident investigator; (v) improved statistics; (vi) market monitoring instead of governmental approval procedures. The most important development areas in civil aviation of the Baltic States include: (a) in all three countries, strengthening administrative capacity and complete legal harmonization with EU; (b) in Estonia, airport privatization and restructuring including privatization at Tartu and certain other airports; (c) in Latvia, reconstruction of Riga airport including a new terminal, runway extension and category II facilities; (d) in Lithuania, CAA restructuring, fleet improvement, reconstruction of Vilnius airport including terminal and runway extensions, and at Palanga airport runway rehabilitation and improved landing system. 163 L. General transport support services76 Key findings Infrastructure or regulatory issues no major concern for logistics providers. The supply of logistics services is wide and generally of good quality. Advanced IT is becoming increasingly important in Baltic logistics services. Well above half of the logistics market is served by international logistics firms, which is still less than in many EU countries. This chapter offers an update on recent developments in markets of transport support services of the Baltic States from the providers' point-of-view. These services refer mainly to transport of unitized cargo, small shipments and parcels. TRANSPORT SUPPORTING SERVICES 2003 2000 1990 ESTONIA LATVIA LITHUANIA PUBLIC SECTOR PRIVATE SECTOR Figure L.1. The roles of private and public sectors in Transport Supporting Services (freight forwarding, warehousing and storage, customs brokerage and travel agencies). In all three countries, freight forwarding, warehousing and other logistics-related services have been privatized entirely (Figure L.1). In general, there seems to be a relatively steady supply of these services, and the quality of the services has improved substantially during the 1990s. This was also indicated by the BEEPS and logistical friendliness surveys. L.1 Cost and quality of logistics services matters Cost and quality of transport and logistics services matter for trade competitiveness. Even if tariff and non-tariff barriers to trade were removed, cross-country evidence suggests that the penalty of high shipping costs will continue to hold down growth rates and income of countries with poor international transport links. Furthermore, 76prepared by Tapio Naula and Lauri Ojala, Turku School of Economics and Business Administration 164 inefficient internal transport systems sharpen economic inequalities within countries, with hinterland regions being disconnected from international commerce. Two questions that immediately arise in this context are why some countries pay more for transport services than others, and what governments can do to improve the transport competitiveness of trading firms. Transport costs can affect economic growth in several ways. First, higher transport costs reduce rents earned from the exports of primary products, lowering an economy's savings available for investments. They push up import prices of capital goods, directly reducing real investments. Second, all things being equal, countries with higher transport costs are likely to devote a smaller share of their output to trade. Those countries are also less likely to attract export-oriented foreign direct investment (FDI). Since trade and FDI are key channels of international knowledge diffusion, higher transport costs may lead an economy to be farther removed from the world technology frontier and slow its rate of productivity growth. Third, transport costs affect a country's selection of trading partners. If export markets largely consist of poor, slow-growing markets and there are significant costs (including transportation) of switching to richer and faster growing markets, countries may be constrained in their growth potential. Especially after the Russian crisis in 1998, the Baltic States were quick to reorient their trade to the west. For the Baltic States, the great potential of shifting trade towards the rich and large EU market epitomizes these switching costs. They have also attracted substantial FDI thanks to their rapid economic growth, low-cost production base, and effective removal of administrative non-tariff trade barriers. Controlling for a large number of socioeconomic, geographic, and institutional factors, Radelet and Sachs (1998) found that developing countries with lower shipping costs experienced more rapid growth of manufacturing exports relative to GDP in the period from 1965 to 1990. When exploring the relationship between shipping costs and overall economic growth across economies, the study concludes that a doubling of the cost of transportation is associated with slower annual growth of slightly more than one-half of a percentage point. Thanks to rapid restructuring, opening up of the economy and trade, and consistent investment in transport infrastructure, the Baltic States have boosted their economies, yet they have also succeeded in dramatically improving the quality of logistics services and keeping their costs at a relatively low level. L.2 Tendencies in European logistics markets The demand for transport and other logistics services is always derived from the demand generated by trading partners, who are in the business of accommodating the needs of their customers, which may be commercial end-users or consumers. 165 Since the 1980s, transport markets in all developed countries have been transformed profoundly through deregulation, privatization, and technological development (notably in information and communications technologies) and through adaptation to customers' changing logistical needs. This has brought about new types of logistical operators and markets. In many cases the physical handling and transportation of materials is subordinated to the management of supply chains. Consequently, the transport sector has come to support the wider logistical operations, rather than the other way round. This is manifested in how major European or global logistics companies are organized (Table L.1). Table L.1. Turnover in billion euros and number of employees of selected European logistics firms in 2002. Source: Company data Company name Turnover, No. of employees Headquarters in billion euro Deutsche Bahn Group*) 21.9 250,000 Germany DHL Group **) 21.6 150,000 Germany A.P.Moeller / Maersk 20.5 60,000 Denmark TNT 4.4 43,000 Netherlands Kuehne & Nagel 6.1 19,000 Switzerland Geodis 3.3 23,500 France ABX 2.9 15,000 Belgium DFDS 2.4 10,000 Denmark Frans Maas 1.0 7,000 Netherlands *) Schenker, the road-based part of DB, had a turnover at 6.2 billion euros and 36,000 staff. **) The road-based logistics operator of DHL operated in 2002 under the name Danzas. They are building up geographically wide networks of entities capable of matching specific transport (and related logistics) demand in time and space with real-time allocation of capacity to do the job profitably. This is a daunting challenge, but the leading operators have made substantial progress towards achieving this goal. This development affects mostly international cargo movements, but they have many repercussions for domestic transport markets too. L.3 Assessing the impact of joining the EU on logistics costs The cost impact of joining the EU is of particular interest for all the operators in the logistics markets. The impact can be assessed in a number of ways and on many levels. A large number of studies on macro level impacts have been conducted by the EU, the Accession countries and many organizations, such as The World Bank, OECD and UNECE. Also sectoral studies using macro or industry level data analyze e.g. the welfare effects for the different stakeholders. Industry organizations, such as the IRU in road transport, have also actively reported their views on the economic impact of EU enlargement. 166 For the purposes of this report, however, an ad hoc inquiry was made in the Parnu seminar. Table L.2. presents the key findings of the Transport Services and Trade Facilitation workshop, which was attended by 12 participants, including the two moderators. The Baltic participants were civil servants, so no private sector representatives were present. Table L.2: The impact of the EU membership on logistics costs as identified in the ad hoc inquiry at the Seminar workshop on Transport Services and Trade Facilitation, Parnu, November 25, 2003. Increasing logistics costs: Decreasing logistics costs: Overall cost impact: EU-regulations in social and Synergies from combing cargo environmental fields volumes Estonia: slightly positive New bureaucracy burden for SMEs Less customs formalities Latvia: slightly negative The EU fuel tax minimums, Shorter lead times "Time- Lithuania: slightly heavy vehicle tax based Management" positive The workshop participants did not have access to any quantitative data or analysis during the session, so the summary reflects their intuitive expectations. The outcome suggests that the overall impact was expected to be positive. The anticipated cost impact for Latvia was slightly negative, because of the relative large SME sector, which will have to adapt to the new EU regulations. The combined views on Estonia and Lithuania were more positive. The causes believed to decrease logistics costs were typically indirect ones or opportunities such as shorter lead times or operational synergies. In order to benefit form these changes the private sector needs to seize these opportunities. By contrast, the reasons expected to raise logistics costs were more formal or direct ones, such as impact on vehicle or fuel tax, social and environmental regulation or increased bureaucracy. In summary, the Government and related administrations need to follow closely the regulatory and operational environment and to participate actively in the preparation of new EU legislation. They also need to communicate the developments nationally and implement the regulations effectively. L.4 The role of freight forwarders and customs brokers L.4.1 The market structure International mergers and acquisitions of the logistics providers have profoundly restructured the market in Europe. The major logistics providers in the Baltic States are also mostly owned or controlled by international operators. The freight forwarding and logistics market in Europe, both in EU and CEEC's, has been very fragmented. The traditional picture of the freight forwarding market is increasingly blurred with many companies operating in interlocking segments such as postal and courier services and third party logistics. The 10 largest companies account 167 for only 10% - 20 % of the total European freight forwarding turnover depending on which definition is used, but in the Baltic States this concentration is higher, with the ten largest companies holding almost half of the market (Naula 2002). Figure L.2. exemplifies the strong growth of Baltic firms in the field of supporting and auxiliary transport services using Estonian data. The total net turnover of these Estonian firms roughly tripled between 1996 and 2001, exceeding clearly the growth in the entire transport sector. The development indicates the structural change in the logistics market, where buyers of logistics services look for more comprehensive "one-stop-shopping", also known as third party logistics solutions. 1200 Number of employees: 1000 not classified 800 250 and more USD 100-249 600 50-99 20-49 million 400 10-19 1-9 200 0 1996 1997 1998 1999 2000 2001 Figure L.2: Net turnover development of Estonian firms in transport supporting services by firm size in 1996-2001 in USD million.77 Source: Statistical Office of Estonia, Statistical Database. A more detailed examination of the financial data by firm size reveals significant differences in the management strategies in this sector in Estonia. The firms with 20- 49 employees seem to prefer investing in real assets in their operations, whereas the group of firms with 50-99 employees appears to follow an opposite strategy. Attachment L.1. illustrates the development in major balance sheet components of Estonian supporting and auxiliary transport firms by firm size. L.4.2 Transport and logistics services available During the 1990s, the geographical coverage of transport and freight forwarding services improved dramatically. Industry sources as well as indications from foreign firms established in the Baltic States confirm this very clearly. The overall quality 77Estonian supporting and auxiliary transport activities, NACE classification I.63: including cargo handling, storage, warehousing and other supporting transport activities and travel agencies. 168 improvement of these services includes timeliness, accuracy of documentation, customs operations and absence of fraud. The development and the current status of the geographical coverage of freight forwarding services could be summarized as follows: Scheduled transport services are widely available to and from the most important trading partners of the Baltic States. Demand for scheduled export traffic lines (routes) is increasing (see Attachment L.2.). Transport via international terminals or logistical hubs is increasing. Baltic trucking companies work frequently as subcontractors producing the haulage between cargo terminals and domestic collection / distribution Such developments epitomize the underlying character of all transport markets: demand for transport services is always derived demand. Consequently, the service providers have to develop their service offerings along with the changing needs of their customers, that is, the shippers. A large number of general freight forwarding firms provide transport services by land, air, and sea. Rail freight forwarders are more specialized in this transport form. A wide variety of services are available in all three countries, such as: customs clearances / brokerage customs consulting domestic distribution customs bonded warehousing warehousing for customs cleared goods "pick and pack" Electronic Data Interchange (EDI) Cargo surveys Companies practicing foreign trade increasingly take the opportunity to outsource basic logistic functions instead of producing the services themselves. This development has various reasons, but the search for greater efficiency seems to be the main motivating factor. Transport users have traditionally had departments operating with self-owned equipment, but as maintenance costs for aging trucks in their own account transport rise, outsourcing transports becomes a more attractive alternative. This was also shown fro Estonia by Vainu and Vensel (2001). Table L.3. The share of customs clearances and domestic deliveries made on behalf of customer by a large freight forwarder in percentage of all import shipments. Source: company data. % of all Customs brokerage Domestic distribution 1997 2000 2003 1997 2000 2003 Estonia 96 75 70 50 85 85 Latvia 20 65 70 40 55 65 Lithuania 12 70 n.a. 20 80 n.a. 169 Table L.3. shows customs clearances and domestic deliveries made on behalf of customers as a percentage of the total number of import shipments by a large freight forwarder operating in the entire Baltic region. The share of distribution especially in Lithuania and Latvia has increased rapidly, indicating movement into outsourcing of logistic services. This can have a significant impact on general transport economics whilst consolidation of services creates synergies and greater efficiency. The Russian economic crisis in 1998 made some companies keep smaller inventories. This has, in part, increased the demand for less-than-truckload (LTL) transports mainly to and from the EU area. Products are more often sold to the customer when transport is ordered. Inventory carrying costs are also increasing due to higher safety requirements in stock keeping facilities. Manufacturing companies in foreign ownership often also adopt logistics practices from the mother companies, preferring outsourcing in their logistics (Naula 2002). L.4.3 Viewpoints of International Logistics Providers in the Baltic States This section presents the key findings of a study of 15 international third party logistics providers operating in the Baltic States the Baltic States. The sample group included 5 logistics providers in each Baltic State: Estonia, Latvia and Lithuania.78 International transportation is clearly the most important servive for large logistics providers (Figure L.3). Partly, this reflects the openness of the Baltic economies. The largest logistics service providers are also foreign-owned which also explains the high orientation to international services. Figure L.4: summarizes the general swift in shipment size in favor for groupage transportation. Further, the improvements in geographical service coverage, higher frequencies and service quality were commonly considered to attract the logistics buyers to use services for shipments under 3,000 kilos. The groupage transportation was also found to substitute air cargo services especially in the capital regions. Standard services (such as basic scheduled transport) accounted for 80 % of all sample companies' sales in 2000. (Figure L.5). The remaining share of tailor made services (20 %), both in short and long term customer relationships were foreseen to increase. 78Naula 2002; the full "AdLog" study can be retrieved from www.tedim.com 170 45 Support services 40 Warehousing services 35 Domestic transportation euros30 International transportation 25 n illio 20 m 15 10 5 0 Estonia Latvia Lithuania Figure L.3: Turnover of the four largest road-based logistics firms in each of the Baltic States. Turnover in the main business areas in million euros in 2000. Source: Naula 2002. The combined turnover of the four main firms was 43 million euros in Estonia, but only about 22 million euros in Latvia and Lithuania. (Table D.1). A rough estimate based on the breakdown in Table D.2., the four largest road-based freight forwarding firms have a 30 to 40 per cent market share in that business. In Latvia, the corresponding share is below 20 per cent and in Lithuania probably only 10 per cent. This indicates that market consolidation is the highest in Estonia, and the lowest in Lithuania. This coincides with the fact that FDI in transport and export of transport services were the highest in Estonia, too. Structural change Shipment Possibilities to transport load demand size add value Full unit loads (-) low Partial unit loads (-) > 3000 kg average Groupage cargo (+) < 3000 kg high Air cargo (-) average Figure L.4: The structural change in demand for different load types in unitized and groupage international transportation in 2000-2003. Source: Naula and Ojala 2002, 21 171 The majority of the sample companies expressed a wish to move more into long term and tailored customer relationships. Better long-term profitability was mentioned as the most common reason. A tailored service concept was seen as a way to tie the customer to the logistics provider. 4 companies 9 companies Tailored services Standard services 8 companies Customer Customer relationship relationship short long Figure L.5: The detected transition in logistics customer relationships in 2000­2003.79 Source: Naula and Ojala 2002, 22 Key account management (dedicated contact person and a tailored customer service profile), IT-solutions connecting the customer and the logistics provider and the sales and technical support from agent/partner network were seen as important tools to create a "logistics partnership". Demand for these services was expected to increase. L.5 Customs services During the recent years the number of customs clearances has risen in all three Baltic States whereas the number of persons employed by the customs boards has remained constant (Table L.4) Simultaneously, the quality of customs services ­ as indicated by shippers and logistics providers - has clearly improved. Other areas of improvement in general transport support services which were mentioned as areas needing improvement include (e.g. in the response from Latvia) relationships with Russia, border crossing, data exchange system between ports, border crossing points, and customs warehouses. EU membership will profoundly affect the customs. Extensive preparations have taken place in administrative processes, customs codes, statistics and the organization of the Customs. However, the abolition of much of documentary and cargo inspection procedures will make a substantial number of customs staff redundant. 79) 6 out of the 15 interviewed sample companies expected a change in more than one direction 172 Table L.4: Development of customs number of employees, customs posts, customs warehouses, border crossing points and total number of import and export declarations processed by customs services in the Baltic States. Source: Estonian, Latvian and Lithuanian Customs services 1995 1996 1997 1998 1999 2000 2001 2002 Estonia 1 108 1 177 1 341 1 417 1 381 1 341 Employed Latvia 1 946 1 888 1 890 1 753 1 726 1 720 persons Lithuania 3 075 3 223 3 148 3 075 3 107 3 109 3 085 2 967 Estonia 75 86 82 83 83 71 Number of Latvia 149 164 218 211 199 167 customs posts Lithuania 68 74 73 73 71 74 70 72 Number of Estonia 53 69 92 106 111 140 customs Latvia 151 warehouses Lithuania 98 109 104 101 88 87 95 104 Number of Estonia 18 22 22 22 22 22 border crossing Latvia 55 54 53 53 53 52 points Lithuania 56 56 56 55 55 56 - 47 Declarations Estonia 0,4 0,5 0,6 0,6 0,6 0,7 processed Latvia 0,6 0,7 0,8 0,9 0,8 1,0 million Lithuania 1,5 1,6 1,9 1,9 1,6 1,8 2,2 2,6 The approaching membership date has allegedly seriously affected the motivation of customs as well as border guard staff in border crossing points. As a result, delays in border crossings started to increase in autumn 2003, as was pointed out by Mr. Kari Peltonen, head of Schenker's Baltic operations, in the Parnu seminar. The national freight forwarding associations have also raised the issue with the relevant authorities. The logistics industry, exporters and importers are concerned how the EU customs practices will flow in intra-EU trade after May 1, 2004. All border formalities before that date are carried out by the current system. In reality, a period of perhaps several months of "learning by doing" will follow. This period is likely to be substantially longer than when Austria, Finland and Sweden joined the EU in 1995. According to EC's latest assessment in November 2003, customs legislation is largely in line with the acquis in all three countries. The administrative and operational capacity of Estonian customs is only partly in place. In Lithuania, a functioning customs administration is in place; however, some significant delays have occurred in the development of interconnectivity of IT systems and operational capacity. Serious concerns remain with the operational and administrative capacity of Latvian customs, especially in the area of computerization and interconnectivity of customs systems. The volume of customs clearances in the Baltic States has increased considerably while the number of people involved in customs clearance or processing has remained stable. The quality of the custom services has also improved. The principal areas needing improvements are border crossings where excessive delays occur; data exchange systems between ports and custom warehouses; and improved customs relations between Baltic countries and Russia. 173 Customs practices have generally improved in the Baltic countries during recent years. Each of the countries has adopted the Automated System of Customs Data Management (ASYCUDA). However, it will not be used in intra-EU trade, so its main usage in the future will be in trade with non-EU countries. The implementation of EU's customs systems is required, but progress has been slow especially in Latvia. L.6 Logistics center developments L.6.1 Background and definition In recent decades both manufacturing and trading companies have radically restructured their logistics flows. Here, centralization of distribution has been an especially powerful trend in many industries. Countries such as Singapore and the Netherlands have been very successful in luring logistics activities to their ground, increasing the economic well being in those regions. The most successful logistics centers have certain superior features, such as good location in a node of major trade and transport flows, excellent infrastructure, favorable legislation, rule of law, supporting industries, capable logistics companies, and effective yet flexible authorities. The success of such logistics centers has inspired many less-advantaged regions to seek to develop similar features to lure companies to position logistics activities on their ground (See Figure L.6.) Coherence of the Logistics Centre/Village Virtual Networked Tangible Local Project by local Bicycle "Local administration Activities couriers Network?" or an individual risk Taxis investment the National of Network(s) Evolutionary PR activities, of specialised development regional or service of the logistics village Scope International national providers co-ordination Management Global hub created raphic Global A Network of global by superb location of Logistics information and business Centres flows envioronment Geog Figure L.6. Conceptualization of logistics centers with examples of activities that they can perform. Source: Vafidis and Ojala 2000. Logistics as an activity can be assessed on the same principles as other operations, namely costs, quality, flexibility, speed, and reliability. As the requirements of 174 efficiency constantly increase, many companies using logistics services have re- organized their production and logistics. In manufacturing, centralization of logistics activities in parallel with postponement and mass customization promise great potential improvements in cost efficiency and customer service levels. Such centralized logistics concepts require dependable logistics services, the provision of which is often outsourced to third party providers. The impact of this in the Baltic States is described in Chapter M. Wholesale and retail firms depend on consolidation of transport flows and centralization of value adding activities. Consolidation is particularly important for small outlets and outlets in scarcely populated areas, where transport frequencies would otherwise be unbearably low. The 50-50 joint Baltic venture of Swedish ICA and Finnish Kesko announced in December 2003 exemplifies this. By joining forces, the two retails chains attempt to gain a 25 per cent market share in the grocery business in the three countries. For companies, centralization of logistics offers many benefits but it also means large investments. Investment in a specific location in facilities, personnel, equipment, and information systems may also be risky. For instance, if transport sector workers at a company's European distribution center strike, deliveries to the whole continent may be halted. Therefore companies will be very careful in assessing the pros and the cons of a region before making a decision as to what logistics activities will be based there. L.6.2 Public versus private sector aspirations in logistics centers Regions aspiring to lure companies to locate their activities on their territory tend to market good logistics infrastructure, transport and information connections, political stability and favorability, supporting industry and a customer base in the region, well- known logistics service providers, and references of successful alliances in the region. The public sector usually provides the basic infrastructure, city planning and other administrative services. Companies appreciate a stable and political atmosphere when they decide on where to locate their facilities. The public sector, be it the Government, county government or the municipality is often eager to promote their own location as a logistics center. One of their key activities is regional or municipal planning. Lucrative land areas suitable for real estate development may be a natural incentive for them to be active in this respect. These efforts are typically connected to an existing port or a major land transport concentration and airport in their region. The obvious local partners in developing logistics centers are the port and/or airport authorities and firms providing stevedoring, storage and transport services. Small local transport providers, such as small freight forwarding or road haulage firms or entrepreneurs have seldom capacity to engage in such development projects. 175 European logistics industry has been profoundly restructured through mergers and acquisitions during the past decade. As a result, the competition between the big providers offering a wide range of logistics services has grown more intense. The competition is not only local but also international, as key customers need logistics services for a wide geographical area rather than one country. To cater for these needs, logistics firms have built up extensive international distribution networks including advanced IT systems that can be linked to customers IT systems. Big logistics firms are not always eager to promote a specific location in public- private projects, especially if that means cooperating with main competitors. It is also difficult to attract big industrial or retail/wholesale firms to engage themselves into logistics center development in a specific location, unless they have a direct interest in the location through, for example, land ownership. In general, they want to stay flexible in the choice of location, as changes in the firms' strategy or ownership may alter their location preferences on a short notice. In addition, the users of logistics services are the paymasters, and they expect the transport and logistics industry to take care of their own development efforts. L.6.3 Status of logistics center development in the Baltic States The Baltic States are not alone in developing logistics centers: similar developments abound in Finland, Sweden, Denmark, Germany and Poland too80. Logistics center projects have been initiated at least in Tallinn, Parnu and Paldiski in Estonia; Riga and Liepaja in Latvia; and Klaipeda, Kaunas, Vilnius and Panevezys in Lithuania81. Using the framework in (Figure L.6), the geographic scope of these logistics centers could be categorized as national or in some cases local. As to their internal coherence, they mostly aspire to create a network of (some of the) existing logistics providers in the region together with public sector participation. Raising funds for the projects has been difficult. Indeed, most of the projects do not even have a solid budget. There are cases where tangible development ­ such as real estate development or construction of superstructure ­ takes place locally, such as in Klaipeda and Liepaja. In those cases, the work is conducted through the Free or Special Economic Zone entities rather than through a specific logistics center consortium. Nationally, much of transport infrastructure development in the Baltic States is targeted at the main transport corridors and nodes. This means that the general prerequisites for transport and logistics operations are improving in the main ports and transport nodes irrespective of local logistics center developments. 80See, for example, www.netloc.net, For cooperation between some European logistics centers or so- called Freight Villages; see also: www.freight-village.com/ 81Liepaja and Klaipeda projects were briefly described in the report of the Riga Seminar, see Ojala and Queiroz, eds. 2001. The Lithuanian logistics center developments are described briefly in e.g. documentation of the Netloc project at www.netloc.net 176 Regional Distribution. Centers are also established by shippers, that is, by manufacturing or trading firms. These do not necessarily seek locations within specified logistics centers, but seek locational advantages in relation to the market that they intend to serve (See also Chapter M. and Box M.1.) The restructuring of the logistics industry in Europe described above is one of the reasons, why many of the logistics center developments in the Baltic Sea Region have not progressed as well as the public sector had hoped. In many cases, in the Baltic States and elsewhere, the cooperation in logistics center developments between the interested parties has not worked well, either. It is difficult to strike a balance between sometimes conflicting commercial and political interests. It may be that the least common denominator for the stakeholders is some form of joint PR campaigns or other marketing efforts. There have also been efforts to create networks of logistics centers in the Baltic Sea region, but so far, their economic or operational impact has been negligible. L.7 Conclusion Key findings of the seminar concerning transport related services are as follows (a) infrastructure limitations and regulatory issues are not major concerns of those firms providing transport related services in the Baltic States; (b) the supply of transport related services in these countries is adequate and generally of good quality; (c) advanced information technology is becoming increasingly important to companies providing transport related services in the Baltic countries; and (d) well over half of the transport related services in the Baltic States are provided by international firms. The principal transport related services provided are freight forwarding, customs brokerage, customs service, warehousing services, insurance, and banking. In all three of the Baltic States, these services are almost entirely privatized and the general quality of services is good and improving. The overall quality of these services in terms of timeliness, accuracy of documentation and the absence of fraud, has improved dramatically during the past ten years, especially since the mid 1990s. The volume of customs clearances in the Baltic States has increased considerably while the number of people involved in customs clearance or processing has remained stable. The quality of the custom services has also improved. The principal areas needing improvements are border crossings where excessive delays occur; data exchange systems between ports and custom warehouses; and improved customs relations between Baltic countries and Russia. Much of customs clearance work will not be needed in intra-EU trade. As a consequence, many customs, customs brokers and freight forwarding staff will become redundant. Logistics firms and freight forwarding associations report that this has affected the work motivation, and caused delays. 177 Unreasonable delays at border crossings have been a common and persistent problem in all three Baltic States. Special efforts are required to minimize these delays. In late 2003, persistent borders crossing delays affected the trade with EU countries, which is increasingly depending on tight delivery schedules and dependable service. The change to EU customs procedures on May 1, 2004 is also likely to cause disturbances. Customs practices have generally improved in the Baltic countries during recent years. Each of the countries has adopted the Automated System of Customs Data Management (ASYCUDA). However, it is not used in intra-EU trade, so its main usage in the future will be in trade with non-EU countries. According to EC in November 2003, customs legislation is largely in place in view of EU enlargement, but the administrative and operational capacity of the customs is not yet compatible with EU practices. This applies especially Latvia. Also Estonia has to start collecting customs duties, which means a major change in customs operations. Credible international insurance services as well as banking services are in place in all three Baltic countries. Some restructuring of these services is expected, especially in Latvia and Lithuania, in the near future. Competition in the provision of these services is increasing, a trend that has had the effect of reducing costs of insurance services. 178 M. Viewpoints of logistics users82 Key findings: Transport infrastructure is no longer a major concern (hinder) for shippers. Regulatory environment remains a hinder for SMEs. Advanced logistics solutions are gaining ground when EU time approaches. Large firms increasingly centralize their logistics activities. There is a need for systematic monitoring of logistics efficiency. This chapter summarizes the findings of two recent studies in order to highlight how logistics users evaluate the logistics environment in the Baltic States. The first study concerns international manufacturing and trading firms that have established operations in the Baltic States (Section M.1). The second one presents the key results of a survey on Baltic wholesaling and retailing firms (Section M.2). The findings of these two studies are synthesized in Section M.3. M.1 International firms' logistics operations in the Baltic States This section discusses the key findings of a study (Naula and Ojala 2002) focusing on 15 international firms' distribution solutions to the Baltic States. Firms of this type and size are known to have the ability and the knowledge to adopt the most efficient logistics arrangements available. Figure M.1. presents the used analytical framework Logistics buyers' strategies were studied through the key logistics planning components: materials flow, information flow, logistics organization and distribution channel - during four stages of their business presence in the Baltic markets. Establish Samsung Entrance market Present EU-time Philips position (anticipated) Procter&Gamble ABB A. Materials flow Siemens Logistics providers Electrolux Unilever B. Information flow Volvo Parts company Regulatory environment Hilti cases C. Logistics organization Robert Bosch Kesko Food Infrastructure ICA Baltic D. Distribution channel GNT York Int. Hydro Texaco Figure M.1: The Framework of analysing strategies of logistics users. Source: Naula and Ojala (2002). 82prepared by Tapio Naula and Lauri Ojala, Turku School of Economics and Business Administration 179 M.1.1 Materials flow International physical distribution In the early phase of market entrance the studies firms preferred to operate from outside the Baltic States when distributing their products to the Baltic States markets. Exporting individual shipments via customs terminals seemed to be a suitable pattern for market entry, but much less used in later business stages (Figure M.2). When establishing market position, some of the case firms moved slightly more into warehousing on Baltic regional and country level. Relatively few changes were made between the first two business stages. Presently case firms prefer direct physical distribution often directly from factories and central European warehouses. Such patterns have significantly increased in the very recent years. Market Establishing Anticipated entrance market Present EU time position ~ 1994-1996 ~ 1996-1999 ~ 1999-2000 ~ 2004 Distribution from Factories or central warehouses to consignees directly Distribution from country specific warehouses in each Baltic State. Distribution from one regional warehouse located in one of the Baltic States serving all three countries. Distribution by exporting individual shipments to Baltic States via dispatching and receiving terminals. Number of observations: 0 - 6 7 - 12 13 - 18 > 19 Figure M.2: Changing physical distribution patterns of 15 international firms (max. 3 observations per firm) in the Baltic States. Source: Naula and Ojala 2002 Faster border crossing could have enabled the firms to distribute from one Baltic regional stock in the mid 1990'. Customs documentation made this option very complicated (Figure M.3) and expensive to operate and therefore it was little used. Customs rules in intra-EU trade reduce the steps in this process from 15 to eight. 180 May 2004 COLLECTION COLLECTION TERMINAL TERMINAL EXP. CLEARANCE INT. TRANSPORT INT. TRANSPORT TERMINAL TERMINAL STOCK - IN Before EU CLEARANCE IN RELEASE ORDER After EU STOCK - IN STOCK OUT RELEASE ORDER DISTRIBUTION STOCK OUT TERMINAL EXP. CLEARANCE INT. TRANSPORT TERMINAL IMP. CLEARANCE DISTRIBUTION Figure M.3: Distributing goods via a warehouse in one of the Baltic States serving all three countries. Comparison of the steps of the process before and after EU membership. Source: Naula and Ojala 2002 Domestic physical distribution The 15 case firm's cargo volumes concentrated in the capital regions in Latvia and Estonia. Harju region around Tallinn is the most important cargo destination in Estonia for all the case firms (71 % on average) followed by Tartu and Parnu. Riga's dominance is striking: on average 80 % of the case firms' Latvian volumes are destined here. The next most important regions are Daugavpils and Ventspils. Lithuanian volumes are distributed more evenly between Vilnius, Klaipeda and Kaunas. Their volumes average 49 %, 23 % and 18%, respectively. The high concentration may lead to inefficiencies in domestic distribution. The case firms have typically outsourced domestic transportation to logistics service providers. These consolidate several consignments in one transportation unit. Especially in Estonia and Latvia the volumes destined outside the capitals Riga and Tallinn may not be sufficient to offer affordable and frequent distribution services. M.1.2 Logistics organization The 15 firms were centralizing their logistics organizations into regional and European units (Figure M.4). The motives were mostly business driven, such as altering business culture, market demand and efforts to reach cost efficiency. The organization was often made as "thin" as. 181 At the market entrance stage, all the business functions (sales, administration, warehousing, logistics) were typically present locally. Very often, a local agent was used. This is a usable way to enter a small and new market. A shift towards a more centralized organization followed suit. Nine out of the 15 firms considered centralizing all functions other than operational sales outside the Baltic States in the anticipated EU time. Market Establishing Anticipated entrance market Present EU time position ~ 1994-1996 ~ 1996-1999 ~ 1999-2000 ~ 2004 All functions centralized except local sales Marketing function is centralized - other functions are locally present Marketing, logistics and part of administration are centralized All functions are locally present Number of observations: 0 - 6 7 - 12 13 - 18 > 19 Figure M.4: Changing organizational patterns of 15 international firms in the Baltic States (max. 3 observations per firm). Source: Naula and Ojala 2002 The development of the logistics organization was also closely linked to the distribution channel in general. In some cases a firm needed to have certain functions present locally because of a relatively fragmented customer base with large number of customers. M.2 Baltic Wholesaling and Retailing firms 481 wholesaling firms in Estonia, Latvia and Lithuania were asked to fill out an Internet based questionnaire in Naula, Ojala and Sara 200283. 25 usable responses, or 5 per cent of the total sample, were received. M.2.1 Marketing channels The respondent firms were asked to identify their main and secondary marketing channels in 2002 and in the anticipated EU time ( Figure M.5). The arrows represent shiftings in individual firms' marketing channels. 83Naula, Ojala and Sara (2002); available at: www.tukkk.fi/markkinointi/log/baltic_survey 182 Marketing channels Primary Secondary Now EU Now EU Direct sales to consumer 8 7 5 4 end users Direct sales to business or 7 6 6 7 institutional end users Sales to retailers 6 5 5 6 Sales to other wholesalers 4 5 8 6 or agents No answer 0 2 1 2 Figure M.5: Primary and secondary marketing channels of Baltic wholesaling and retailing firms before and after joining the EU in the Logistics Survey On Wholesale Operations. Comparison between present time and the anticipated EU time does not show drastic changes in the respondent firms' first priority marketing channels. In second priority marketing channels more changes can be seen. However these shiftings are rather incoherent and do not seem to be following any specific trends. M.2.2 Materials flow The anticipated EU accession may well increase the share of Baltic regional warehousing compared to country based warehousing, as indicated by Figure M.6. The results of this survey do not however reflect such general development. Some of the firms that currently distribute directly from a factory or a distribution centre outside the Baltic States expected to expand distribution to the other Baltic States. This indicates some development in the direction of multinationally integrated logistics configurations. 12 10 10 10 8 8 8 7 7 Today 6 EU-time 4 2 0 Directly from From country From Baltic regional Factory/DC warehouse warehouse Figure M.6: Physical distribution channels of Baltic wholesaling and retailing firms. Source: Naula, Ojala and Sara 2002. 183 M.2.3 Evaluation of the logistics environment The respondent s were asked to evaluate the performance of logistics providers in their country and the hindering effects of local regulatory environment and transport and telecommunications infrastructure in 1993 to 2002 and in 2005. A significant improvement in logistics providers' performance in the Baltic States can be seen since the beginning of the 1990's (Figure M.7). At present most of the respondents perceived logistics providers' performance as somewhat positive or very positive. In the anticipated EU time, the situation is expected further to improve: none of the respondent firms expect somewhat poor or very poor performance of their logistics providers. The respondents perceived some improvement in the regulatory environment of the Baltic States during the last ten years, and further improvement was expected with the anticipated EU accession (Attachment M.1.). Curiously, although most of the respondents predicted improvement due to the EU accession, some expected the regulatory environment to become more hindering to materials flow. This may be related with concern over EU regulations, which are not familiar to locally operating firms and therefore a potential source increase in logistics costs. Transport and telecommunications infrastructure was no longer considered as a major hinder to logistics activities (Attachment M.2). The firms experienced that extensive development has taken place in the Baltic countries' infrastructure since 1993. The hindering effect is further expected to diminish in the European Union time. 30 25 20 No answer Very poorly Somewhat Poorly 15 Neutral Somewhat well 10 Very well 5 0 1993 1996 1999 2002 2005 Figure M.7: Wholesaling/retailing firm's evaluation of logistics providers firms in the Logistics Survey On Wholesale Operations. Source: Naula, Ojala and Sara 2002. 184 48 % of the respondents expected that the share of logistics costs of their turnover remains the same after joining the EU. 33 % of the firms forecast a decrease - and 19 % expected an increase in these costs. Wholesaling firms are likely to achieve cost savings in logistics from the implementation of the common European customs zone because many of them are involved with import activities M.3 Shifting Focus from Transport Infrastructure to Efficient Logistics M.3.1 Perception of the transport infrastructure and the regulatory environment The level of transport and telecommunications infrastructure is no longer a hindering factor for logistics buyers. In the early 1990's the key issues in logistics was to find the access to transportation capacity and how to cope with border crossing formalities. Today, the focus is clearly on adopting efficient logistics solutions in accordance with corporate policy - powered by reliable and high-quality logistics services. The international logistics users still perceive the regulatory environment somewhat hindering logistics in Latvia and Lithuania but not in Estonia. Small and medium sized firms also see these issues more as an impediment to their business than the internationally operating ones; two thirds of the studied SMEs considered the regulatory environment still as hindering. The results suggest that joining the EU will facilitate logistic operations. EU era favors firms, which are already familiar with doing business in the EU. However, EU membership will substantially increase regulation and bureaucracy for domestic firms in the Baltic States that have been accustomed to very low level of regulation. The logistics hinders in Latvia and Lithuania were related to trade and transport documentation. The documentation requirements in Latvia and Lithuania may be workable if logistics services are produced for own account. M.3.2 From transport infrastructure to advanced logistics Freight transport is often presented as a multi-layer model that illustrates the hierarchical nature of a transport system. The layers are in interaction through market relations involving demand and supply sides. The lowest level, the transportation infrastructure provides capacity to traffic markets. Market operators, such as shipping lines, form the demand side of the traffic market by using the infrastructure and operating the transport flow with vessels, vehicles and other transportation units. The materials flow of individual logistics buyers forms the demand on the transportation market (Figure M.8). 185 Entrance Establish EU-time market Present position (anticipated) Advanced Notfeasible EE Logistics logistics X S CM LV LT concepts LV EE LT users EE LV LT . Advanced logistics . services market . . Material flow X . . . Transport market . . . Transport flow X . . . Traffic market . ongeraconcern Policy makers Infrastructure X Nol Figure M.8: The 15 firms' main concerns during their stages of market presence against the four layers of freight transport Source: Naula and Ojala 2002; adapted from OECD 1992. The model is added with a fourth layer - logistics concepts. The materials flow, the information flow, the logistics organization and the distribution channel are integral parts of these concepts. Market conditions prevail also between the upper two layers. An advanced logistics solution typically requires active involvement of a third party logistics provider together with firms' internal resources. Infrastructure issues and availability of logistics services were not any longer seen as problematic issues for the logistics users in the Baltic States (Attachment M.1). The key issue now is the possibility to integrate logistics operations into their European- wide supply chains. EU membership will make this task much easier. The removal of customs borders in EU trade will enable firms to centralize physical distribution activities and connect their supply chains better. The results indicate that major logistics buyers in the Baltic States are planning major changes in the anticipated EU time. Direct distribution from European logistics centres by using cross docking concepts is a likely model in the near future for large firms. Fewer products will be kept available in country specific warehouses. See also Box M.1. 186 Box M.1. Locating European Distribution Centers after EU Enlargement A recent study by Cap Gemini Ernst&Young, a consultancy, analysed the effects of EU enlargement on the location of European Distribution Centers (EDC) in several industries. Based on the location decision criteria for distribution centres used in the study, the countries that provide the best locations for investing in distribution centres included Belgium, Germany and the Netherlands. These leaders were followed by countries such as Bulgaria, Czech Republic, Denmark, France, Hungary, Ireland, Luxembourg, Poland and the United Kingdom. The Baltic States and Finland come only after these, and for example Sweden, Austria and Romania ranked among the last-in-line. Northern Europe is an area that usually cannot be covered by a central European distribution centre. Traditionally Finland is the country where most distribution centre investments have gone. Part of Finland's attractiveness is that it can be easily used for export to Russia. In terms of attractiveness in locating regional distribution centres in Northern Europe the following ranking applied in the study: 1. Denmark; 2. Lithuania; 3. Latvia; 4. Finland; 5. Estonia; 6. Sweden. Based on this ranking the authors expected that Lithuania and Latvia will be the preferred locations for Northern Europe regional distribution centres. Latvia was also seen as an excellent starting point for export to the Russian market. Finland however is likely to keep an important position since (1) Sweden and Norway are not easy to reach from Estonia, Latvia and Lithuania and (2) Finland has a better ranking than Sweden regarding distribution centre attractiveness. Although Denmark has a good ranking it will hardly be used as Northern Europe regional distribution centre since the other Northern European countries are hard to reach from Denmark. Source: European Distribution Centres on the move? Cap Gemini Ernst&Young 2003, Utrecht. EDC investments of following industries were covered: Chemicals; Automotive; Pharmaceuticals & Biotech; High Tech & Electronics Industry; Consumer Products Industry; as well as Research & Development Centres and Distribution Centres covering all industries. The presented trend exhibits the overall positive development in the logistics environment of the Baltic States. Today's situation is challenging for policymakers, because many of the actions that further improve the logistics environment seem to be out of the immediate sphere of political influence. Active involvement and co- operation with non-governmental organizations on industry level is therefore likely be the fruitful way to maintain the connection to the end users of advanced logistics services. A concrete co-operation project could be to start systematically monitoring firms' logistics efficiency. A periodically conducted survey would serve as a valuable source of information for identifying needs for further improvement. Joining the European Union is likely to increase intra-Baltic trade and regional cooperation in distribution. It is yet unknown to what extent firms will centralize their logistical business activities to be managed from distribution centres outside the Baltic States. 187 N. Urban transport 84 Key findings: Urban transport services are mainly provided by the public sector. Private providers are mostly used in Estonia. As elsewhere, public sector subsidies are a key part of finance. EU membership opens urban transport in big cities for tenders. Rapidly growing private car usage undermines urban transport usage. N.1 Organization Both urban transport infrastructure and service provision remains in the public administration domain in all three Baltic States. Urban bus and trolley services are offered by a limited number of private companies, but their share of the overall market is small. This reflects in part the poor profitability of these services for private firms while at the same time maintaining good service levels, availability, and coverage. On the other hand, good quality yet affordable mobility is very much in the public interest (Figure N.1). URBAN TRANSPORT INFRASTRUCTURE URBAN TRANSPORT SERVICES 2003 2003 2000 2000 1990 1990 ESTONIA LATVIA LITHUANIA ESTONIA LATVIA LITHUANIA PUBLIC SECTOR PRIVATE SECTOR Figure N.1. The roles of the private and the public sector in urban transport infrastructure and services. N.2 Urban areas in the Baltic States Riga is the largest city in the Baltic States with over 0.8 million in the Riga region (Rigas rajons), while the city has 0.75 million inhabitants. Other major cities are Vilnius (0.55 million) and Tallinn (0.4 million). Three cities in Lithuania, Tarto in Estonia and Daugavpils in Latvia have over 0.1 million inhabitants (Table N.1). For this reason, the main urban transport operations are in the capital areas85. 84Urban transport issues were not presented in the Parnu seminar, nor did they have a workshop session of their own, as was the case in the 1st seminar in Riga in November 2000. This Chapter is compiled by Lauri Ojala based on the Parnu pre-seminar questionnaire and other relevant material. 85Public transport enterprises from Tallinn and Riga belong to the non-Governmental International Association of Public Transport; at: http://www.uitp.com/home/index.cfm 188 Table N.1. Key data on main cities and town in Estonia, Latvia and Lithuania in 2002. Unit Estonia Latvia Lithuania Land area km2 45 227 64 589 65 300 Population 1000 inhabitants 1 361 2 346 3 482 Population density persons/km2 32 38 56 Urban population % 69 70 67 Tallinn 400 Riga 747 Vilnius 554 Tarto 101 Daugavpils 113 Kaunas 379 Major cities Population Narva 69 Liepaja 88 Klaipeda 194 in '000s Kohtla-Jarve 47 Jelgava 66 Siauliai 135 Parnu 45 Jurmala 55 Panevezys 122 Viljandi 21 Ventspils 44 Rezekne 38 Car ownership has increased rapidly in Latvian and Lithuanian towns, as shown in Table N.2. Car ownership is Tallinn ­ as in Estonia as a whole ­ has decreased, but according to the Ministry (MEAC), this is more because old and redundant vehicles have been removed from the vehicle registry. Car ownership also reflects differences in income level. Against that background it is no surprise that most cars per population are in Klaipeda and the least in Daugavpils. Table N.2. Passenger cars per 1000 inhabitants in major cities in the Baltic States in 1998/1999 and 2002/2003. Source: Pre-Seminar Questionnaire. 1.1.1999 1.1.2003 31.12.1998 31.12.2002 Riga 206 286 Vilnius 269 376 Daugavpils 154 192 Kaunas 280 367 Jelgava 179 239 Klaipeda 362 429 Jurmala 230 309 Siauliai 281 345 Liepaja 161 214 Panevezys 290 362 Rezekne 176 235 Total Lithuania 277 341 Ventspils 226 277 Total Latvia 198 266 1999 2002 Tallinn 396 335 N.3 Service operations Private and municipal companies operate local (urban, suburban and county) traffic in Estonian. In Tallinn, there are two municipal companies in Tallinn (Tallinna Autobussikoondis Ltd. (Tallinn Bus Company Ltd.), and Tallinna Trammi- ja 189 Trollibussikoondis Ltd. (Tallinn Tram and Trolleybus Company Ltd.), both of which Tallinn City Government owns 100% of the shares), In Parnu the Parnu ATP Ltd. is 50% owned by the Parnu City Government. Local and inter-city rail passenger services are provided by the private company Edelaraudtee Ltd. In addition, Elektriraudtee Ltd. ­ a subsidiary of Estonian Railways Ltd. ­ provides passenger conveyance by electric train in Tallinn and Harju County. In conclusion, suburban lines and county lines are mainly served by private companies; inter-city lines are operated by private companies only. Local authorities administer the passenger transport in towns (bus stops, bus shelters, bus ticket offices, etc), and most town bus stations and terminals serving long distance bus lines are municipal. The owner of Tallinn Bus Terminal is the private company MootorReisi Ltd., which operates international bus lines under Eurolines brand. In Latvia, more than twenty bus companies, and two tram and one united tram and trolley firms cover domestic passenger conveyance, and domestic passenger conveyance by train is carried out by Latvian Railways. Conveyance in the cities is carried out by twenty bus companies, of which three are municipal city electric conveyance companies. In Lithuania local passenger carriage 46 bus and coach, and 2 trolleybus companies, under the ownership of municipalities carry out service. Private carriers provide their service both within and outside the areas served by the municipal carriers. N.4 Regulatory issues The Estonian Public Transport Act entered into force on October 1, 2000. It is the basis of public transport management and harmonized with the EU legislation. Insufficient public funds are an obstacle to increasing public transport effectiveness. 75% of buses are more than ten years old, and the second-hand buses purchased from abroad require repair work. The costs for repair personnel and spare parts are high. A continuous increase in urban transport costs and the increasing use of private cars has led to a decline in the usage of public transport. In 1990-2000 public transport in Estonia developed into a free market economy: the Line permit system in bus traffic in Estonia was applied as early as 1991. At first the rules for issuing line permits for international bus services were established and the Ministry of Transport and Communications issued the permits. In the same year the Ministry established the new passenger transport rules. Step by step the line permits were also issued by Local authorities and County Governments for local bus lines, and the relevant legal basis was elaborated. The Estonian MEAC indicates that the necessary urban bus line operator is chosen by public competition and all bus companies have equal possibilities to participate in the competition. In Tartu, an international public transport firm, Connex, has already won tenders, where it employs about 200 persons, of which 150 drivers in 2003. 190 In Latvia, access to regular passenger conveyance is determined by law according to the road transport subordinate regulations of Cabinet of Ministers. The right to carry out regular passenger conveyance by the buses ­ to service a certain route ­ is given according to the results of a contest, in which all the licensed conveyers regardless of ownership have the right to participate. According to the number of conveyers the private companies dominate in city route conveyance, but according to the figures for conveyance the municipal enterprises service more than 70% of the market. According to the Lithuanian MoTC, the attempt is made to apply equal conditions of business competition both for the municipal and the private carriers. N.5 Financing In Estonia, there is a common ticket price for all public transport modes (bus, tram, trolley bus), which is subsidized by the public sector. The town council, according to the proposal of City Government, sets common bus ticket price and also the prices of period tickets (10-day-tickets, monthly tickets and quarterly tickets). County Governments set the tariffs on suburban and County bus lines, which are subsidized by the state or the local Governments. MEAC sets tariffs on local and inter-city rail lines. The public transport prices are different in different towns and counties. All inter-city bus lines and some local lines are operated without subsidies from the state or the municipalities and ticket prices are set by the operators. As the aim in Estonia is to keep the urban traffic ticket price at a level acceptable for the population, and to develop advantageously urban transport as opposed to individual transport, the price of a ticket does not cover the costs of urban transport for the operators. Therefore urban and county urban public transport are subsidized from the state budget. For the year 2001 126 million kroons have been planned for public bus line transport (town and county lines): that is the level of the year 2000 and constitutes 30% of transport costs. Public urban transport is subsidized up to 38 million kroons by local authorities (Table N.3.) See also Box N.1. Public transport (bus, tram, trolley bus) subsidies in Tallinn are 240 million kroons and this is fully allocated from the city budget. Public urban transport in some cities is also subsidized up to 38 million kroons by local authorities. For purchasing new buses annually 10 million EEK are allocated on an average from the state budget. These finances are foreseen for the lines with heavy passenger flow i. e. for purchasing new buses used on urban lines on the basis of lease and license contract. As 75% of buses in use are more than 10 years old, the finances allocated from the state budget are evidently insufficient. Therefore the companies purchase from their own assets buses that have been used in western countries, especially in Scandinavia, which are good for another 5-7 more years. 191 Box N.1. Urban transport in Helsinki: savings through competitive tendering Bus services were opened up to competitive tendering in Helsinki in 1997 when the relevant EU provisions entered into force. The companies chosen to operate the routes in question were those whose tenders were overall the most attractive economically in addition to meeting the other conditions set. Assessment of what is most attractive economically is based on a points system which takes account of the overall price, the quality of the equipment as well as the quality and environmental system used. Contracts are generally awarded for five years. The number of operators providing bus services declined from seven to five during the first competition round. After the 6th round, HKL Bus (Part of the City of Helsinki's transport enterprise, HKL) still accounts for 45 % of the market. The three next-biggest are Suomen Turistiauto Oy (a company owned by the City of Helsinki) and foreign-owned Connex and Concordia have 16.5 to 17.6 per cent of the market each. The first four rounds of competitive tendering brought a reduction of over 17% in operating subsidies. In the next two rounds, the reduction was less. All in all, the first round of competitive tendering for all bus services resulted in the annual total paid in operating subsidies being reduced by around 13.5 million or nearly 16%. In 2004 and 2005, the municipal subsidy to HKL will be 47 % of its revenue. Surveys of passenger satisfaction are conducted regularly and show that competitive tendering has improved quality. The most important factor seems to be a considerable improvement in and replacement of vehicles. The quality and environmental certificates obtained by the service operators as well as the bonuses payable for quality have likewise helped raise the standard. On the other hand, competitive tendering has also had negative effects: changing cooperation partners makes it more difficult to organise functions and the consequences of competitive tendering lessen drivers' job-satisfaction. The importance of price as a selection criterion has led to the lowest tender being accepted in 35 out of 38 cases. However, price and the quality of transport equipment do not depend on each other. Every other successful tender included also the best equipment. By 2002, all internal bus services in the metropolitan region have been opened to competitive tendering. Preparations are in progress to open also tram and metro services in Helsinki to tendering. In the case of rail-borne transport, competitive tendering is postponed into the future and will depend in part at least on EU decisions and obligations. In November 2003, a rolling stock company was founded by four municipalities in the capital region owning 65 % and the state-owned rail corporation VR owning the remaining 35 %. This will enable tendering of the services while rolling stock ownership and maintenance are kept with the firm, which commences operations in 2004. An important matter to be developed has been that of creating uniform regulations or agreeing on the ground rules to be applied in competitive tendering arranged by different bodies. Another important matter is to proceed through trials to more encouraging contracts than the present ones. On the whole, the present tendering process works well and there is no reason to change its basic structure. Source: City of Helsinki; and Public Transport in Helsinki 2002, City of Helsinki, available at: http://www.hel.fi/HKL/english/07_hklinfo/jl_eng.pdf The ticket prices in Latvia for city conveyance are determined by the corresponding municipality, and in Lithuania, the municipalities also fix ticket prices and tariffs for town transport. Municipal enterprises in Latvia work at a loss, caused by the fact that these enterprises service a basic route net where certain categories of passengers have fee relief determined by the state and municipalities. Unfortunately the expenses caused by these reliefs are not defrayed to conveyers to the full amount, and losses result. In most cases the private conveyers work without losses because they service routes 192 which have different servicing conditions (there is no fee relief and in many cases higher fee ­ tariffs). In Latvia, the conveyance expenses of certain categories of passengers with fee relief (determined by the state from 1994) are partly defrayed to conveyers from the state budget but this compensation does not relate to all nominated categories of passengers. For certain passenger categories, determined by the state, subsidies must be provided from the municipalities budget, but some categories do not have subsidies at all. The subsidies for regular passenger conveyance in the countryside were introduced in 1996, but in the cities only in 1999. These subsidies are provided from the state special budget ­ the state motor road fund. The corresponding municipalities are responsible for conveyance in the cities, and thus the bulk of subsidies are formed by the subsidies from these municipalities budget. Table N.3. Allocations for urban transport infrastructure and public transport equipment in 2002 in USD million. Source: Pre-Seminar questionnaire; data gathered from municipalities. City/town Municipal budget Other funds State budget TOTAL Tallinn Estonia 24.4 24.4 Narva Estonia 0.1 0.1 Tartu Estonia 2.4 2.4 Parnu Estonia 0.8 0.8 Riga Latvia 8.2 10.0 2.6 20.8 Jelgava Latvia 0.3 0.3 0.2 0.8 Kaunas Lithuania 21.1 0.0 34.6 55.7 Klaipeda Lithuania 8.8 14.7 32.0 55.5 Panev zys Lithuania 16.1 - 14.2 30.3 Siauliai Lithuania 2.9 - 21.9 24.8 Vilnius Lithuania 22.6 8.4 140.9 171.9 The improvement of the institutional management of public passenger transport is an important task for the Lithuanian government. It plans to adopt a new law on Public Transport activities in 2001, which will provide the implementation of a new regulatory model. The model is intended to ensure equal rights and responsibilities for private and municipal carriers through PSO agreements, in which all the conditions of passenger transport will be strictly determined. Most Lithuanian municipal carriers work at a loss because they receive limited subsidies from the municipalities' budget. A significant part of the vehicle stock is obsolete and the finances allocated for renovation are insufficient, whilst private carriers who compete with municipal ones often apply more attractive services and tariffs. The right to service a specific route is given according to the result of a (tendering) process, and all licensed conveyors irrespective of ownership are entitled to participate in this process. 193 N.6 Conclusion In the urban transport sub-sector of the Baltic States, both infrastructure and service provision remain in the public administrative domain. Urban bus and trolley services are offered by a limited number of private companies but their share of the overall market is small. The dominance of publicly owned operators reflects in part the poor profitability of these services for private firms when required to maintain good service levels. Good quality service affordable to the public is clearly in the public interest. In Estonia, both municipal and private companies operate urban, suburban and county services. There are two municipal companies in Tallinn. In Parnu, the bus company is 50 percent owned by the government and 50 percent owned by other investors. Rail services are provided in Estonia to local and intercity passengers by a private company and a subsidiary of Estonia Railways. In Latvia, over twenty bus companies, two tram firms and one united tram and trolley company provide passenger services. Three of the companies are municipally owned. In Lithuania, there are 46 bus companies and two trolley bus lines, all under municipal ownership. In addition, private bus companies provide services in Lithuania both within urban areas and beyond urban centers. A number of regulatory issues concerning urban transport face the Baltic States. In Estonia, parliament adopted the Public Transport Act in 2000 providing the legal basis for public transport activity including harmonization with EU requirements. Public transport was made part of the free market economy with local authorities issuing permits, under competitive bids, to private firms for bus services. Latvia, too, has made provision for issuance of permits to private bus lines. Any licensed firm is allowed to compete for a permit to operate a bus service. Nevertheless, about 70 percent of the urban market is served by municipal companies. The Lithuania Ministry of Transport and Communication attempts to reach a fair balance between municipal and private companies in the provision of urban transport services. Lack of public funds for urban transport in Estonia is the main obstacle to increased effectiveness of services in that country. Three fourths of the buses there are more than 10 years old and repair costs of buses have steadily increased as the buses have aged. Inability to finance new buses is attributed to the decline in passenger traffic levels and consequently revenue. Subsidies are provided, in all three Baltic States, to companies providing municipal passenger services. In the Baltic countries, the market for urban transport services is eroding at the same time that increased motorization-induced traffic congestion is exerting pressure on the operating costs and service quality of urban transport providers. Prevailing fares and financial assistance in the form of subsidies are insufficient to finance good quality services. No stable source of adequate funding has been found for urban transport. 194 O. Environmental issues in the transport sector 86 Key findings on Environmental issues: Environmental issues' importance as part of EU Transport Policy will increase. Pricing of transport externalities becomes an issue also for the Baltic States. Based on data at hand, transport sector's aerial emissions of CO, CO2 and NOx are relatively high in the Baltic States considering the volume of operations. The aerial emission of CO, CO2 and NOx in the countries around the Baltic Sea have been decreasing since the mid-1990s. The increasing maritime traffic calls for better traffic monitoring and surveillance systems and capabilities to cope with maritime pollution. The Baltic States need to improve their environmental monitoring and statistics. A multitude of inter-governmental organizations exist both internationally and in the Baltic Region, participation in which requires a lot of resources. Dialogue with environmental NGO's on transport issues will intensify. Environmental issues have also become an integral part of all sectors of the society, and the environmental impact of the transport sector is growing in importance. It has also been one of the key drivers of EU's Transport Policy87. Most infrastructure plans need to contain an assessment of their environmental impact before they can be put to practice. This applies to all major road, railway, port and airport planning. Such projects can affect sensitive habitats of flora and fauna. They may have adverse separation effects that affect the quality of life and disturb the mobility of inhabitants or the real estate markets. The other side of environmental concerns is the impact of traffic itself. The main environmental impacts of transport are usually divided into the following groups: Aerial emissions of CO2, NOx (mainly NO2), SO2 and small particles Noise Congestion Accident costs These place a burden on the society, and because their true cost is usually not borne by the user, they are called transport externalities. Determining the true costs of some (negative) externalities is difficult, at this time, and "making polluters pay", i.e. charging fees or environmental taxes from users or end-users of transport services, is correspondingly difficult. One way to approach the cost of externalities is through the marginal cost principle. The marginal external costs of transport use correspond to the costs caused by an additional transport user that are not borne by the user himself but by others. These 86Prepared by Lauri Ojala, Turku School of Economics and Business Administration 87See e.g. the EU White Paper on transport policy at: http://europa.eu.int/comm/energy_transport/library/lb_texte_complet_en.pdf 195 costs consist not only of costs in the monetary sense, but also of, for example, time losses, pollution, noise and so on. Costing externalities is, however, beyond this report, but the topic is discussed extensively elsewhere. Table O.1. Transport fatalities, casualties and accidents in the EU by mode. Source: Calculating Transport Accident Costs, EU Commission (1999) at: http://europa.eu.int/comm/transport/infr-charging/library/crash-cost.pdf Mode Fatalities Casualties Total socio- Fatality risk per 106 economic costs, passenger km in Billion euros **) UK ***) Road (1995) 45,000 3,450,000 162.0 (car) 0.004 (bus) 0.0004 Rail (average 88-92) 1,300 4,700 2.7 0.001 Aviation 86 *) 183*) 0.5 0.0003 Inland waterway and 180 234 1.8 0.006 Maritime *) *) In 1995 within EU; Transport Accident Costs and the Value of Safety, ETSC, 1997 **) Within EU; source: Transport Accident and Incident Investigation in the EU (2001); European Transport Safety Council (ETSC) at: http://www.etsc.be/accinv.pdf ***) in 1996; UK Department of Transport Data on noise, congestion and separation effects in the Baltic States are not readily available. Accident costs are not discussed in this Chapter, but data on road traffic accidents and road safety are provided in the road transport Chapter. Accidents and related cost occur also in other transport modes, but the human and economic impact of road transport accidents is by far the largest (Table O.1). O.1 Aerial emission in the Baltic States This section shows data on emissions of transport in the Baltic States. The most recent data available is from the 1990s, but it gives an order of magnitude of the problem, and gives a reference point with some other countries in the Baltic Sea Region. Depending on the country, the transport sector typically produces 40 to 60 per cent of all NOx emissions, 20 to 40 per cent of CO2 emissions, and 10 per cent of SO2 emissions. (See Attachment O.1. and O.2.) Most ECMT Member countries have still to identify, in quantitative terms, measures for the transport sector that will make a sufficient contribution to meeting the economy wide targets set under the 1997 UN Kyoto Protocol on reducing emissions of CO2. In February 2004, however, the Kyoto Protocol itself is not yet ratified, as e.g. the United States is not likely to ratify it and Russia has recently sent mixed signals whether or not it will ratify the Protocol. Especially in the western countries there have been striking improvements in the emissions of air pollutants from new vehicles over the last decade and two further rounds of significant cuts have been agreed in the EU in respect of CO, NOx, 196 hydrocarbons, particulate matter and benzene. Important work in this direction is also undertaken by the UN/ECE Inland Transport Committee. However, at least for the medium term, air quality with respect to NOx, ozone and particulate concentrations remains a problem in many locations at a local and sometimes regional scale. The influence of prevailing weather patterns and topography, as well as traffic conditions, make the nature of air quality concerns specific to location. In most transition economies, including the Baltic States, developing strategies to reduce CO, hydrocarbon, NOx and particulate emissions from both new and existing vehicles remains a challenge. In Estonia, stricter requirements were established for imported vehicles and the quality of liquid fuel in 1996. Exhaust gas rates have to be brought into compliance with the relevant EU requirements; higher taxes have been imposed on used vehicles and on vehicles with more powerful engines. Different measures have been implemented to promote the use of public transportation. The system of technical inspection of vehicles has improved as well. In recent years the Estonian automobile fleet has grown mostly on account of increasing numbers of used cars: ca 80% of them are more than 8 years old and buses are even older, 12-15 years old. At the same time, Russian-built vehicle stock has largely been replaced by used and new western cars. Table O.2 Emissions into the ambient air from Estonian sources of pollution, thousand tons per year. Source: Transport and Communications 2001, Annual report by the Estonian MoTC 2002 Emissions of pollutants Year PM SO2 Nox CO Carbohydrates P P T P T P T P T 1990 268.5 238.8 13.1 22.6 45.1 59.9 374.2 14.7 70.4 1995 113.1 110.3 8.3 14.8 27.2 27.2 215.1 6.5 41.0 1998 69.8 100.9 9.2 14.9 31.1 26.4 254.3 5.7 48.0 2000 59.5 91.5 4.4 15.3 29.0 19.4 100.2 7.6 14.0 Data source: Information and Technical Centre of the Ministry of the Environment P ­ stationary sources of pollution ; T ­ transport; PM ­ Particulate material (small particles) Although transport related pollution in Estonia remains below the permitted European levels, the NOx and CO emissions exceed the limit values of the level of pollution in the city centres in Tallinn and some other major cities. The worst times are the rush hours during summer months. In Tallinn, transport related pollution constitutes more than 90% of the total environmental pollution, caused by the skyrocketing number of automobiles. 197 O.2 NATURA 2000 NATURA 2000 is a network of protected areas in the European Union covering fragile and valuable natural habitats and species of particular importance for the conservation of biological diversity within the territory of EU. Intensification of agriculture as well as infrastructural development, fragmentation of natural areas and pollution pose threats to natural habitats, that may lead to a decrease in the local population sizes of many species. The main objective of the NATURA 2000 network is to ensure the survival of species that are threatened or rare throughout Europe. Two main EU directives related to nature protection - the so-called Birds Directive and Habitats Directive - form the legal basis for NATURA 2000. These legal EU documents ensure the protection of certain natural habitats, flora and fauna, as well as the creation of the above-mentioned European network of protected territories. All EU member states share these legal obligations to protect territories included into the NATURA 2000 network. The construction of new transport infrastructure is among the activities that may conflict with the objectives of NATURA 2000. However, no projects in the Baltic States were mentioned among the major transport projects in the accession countries that were highlighted in a recent NGO report conflicting with these objectives. 88 O.3 Baltic 21 Agenda for sustainable transport Baltic 21 is a joint, long-term effort by the 11 countries of the Council of the Baltic Sea States (CBSS). These countries differ widely as far as economic, social and environmental preconditions are concerned, but they agree on the long-term goals they wish to attain for the region as a whole89. The goal of Baltic 21 with regard to sustainable tranportation in the Baltic Sea Region consists of two components: To minimize the negative environmental effects, the consumption of non-renewable resources and use of land for transportation purposes, to protect human health and the environment, in particular the sensitive ecosystems of the region. To retain the ability of transport to serve the economic and social development of the Baltic Sea Region. According to Baltic 21, the ideal regional indicators for sustainable transportation support the monitoring of progress and indicate whether the region is on the "right way" or not, since they are derived from agreed on goals or desired trends. The ideal indicator set: 88The NGOs were Transport and Environment, WWF, BirdLife International, Friends of the Earth Europe and CEE Bankwatch Network, and the report is found at: http://www.panparks.org/Newsroom?&file=cikkek&sid=54 89See: http://www.ee/baltic21/publicat/R1.htm 198 covers all three dimensions of sustainability: environment, economy and social aspects, is based on available data and is comparable in time and among countries or regions and, can easily be understood not only by experts. The "right way" can be characterised by effective and efficient measures (process oriented indicators or "response" indicators) or by their results (outcome oriented indicators). While the outcome is directly linked to agreed on goals, the choice of adequate measures and policy instruments is under intensive discussion and depends on the particular political, cultural and economical situation of each country. However, the measures considered to be important in the Baltic Sea Region have not yet been defined. O.4 Maritime environment and Helsinki Commission (HELCOM) The Convention on the Protection of the Marine Environment of the Baltic Sea Area, 1992 (entered into force on 17 January 2000), operates under the name Helsinki Commission (HELCOM)90. See Box O.1. In October 2002 HELCOM compiled a detailed inventory on the current state of maritime transportation, and the outlook for the future91. It expects that the amount of goods being transported each year in the Baltic Sea will eventually double from roughly 500 million tonnes to 1,000 million tonnes, including a tripling in general cargo and container traffic as well as oil transportation. Based on data on ship accidents in the Baltic Sea, HELCOM has identified three high- risk areas: the Gulf of Finland, the South-western part of the Baltic including the Danish Straits, and the entrances to harbors. These areas are all characterised by limited space for maneuvering, high ship densities, and a high risk of grounding due to varying water depths.92 An overall assessment of the statistical risks of ship accidents in the Baltic Sea is to be elaborated on the basis of accident inventories, in combination with detailed accident scenarios covering the main oil transport routes and entrances to major oil terminals. According to the 25 June 2003 HELCOM Ministerial declaration93, the members will intensify efforts to ensure the safety of navigation and emergency capacity in the Baltic Sea Area, by making maritime safety an absolute priority for all Baltic Sea Governments, especially taking into account seasonal weather conditions. The declaration also confirmed the commitment to fully implement the obligations set out in the HELCOM Copenhagen Declaration (i.e. the Declaration on the Safety of Navigation and Emergency Capacity in the Baltic Sea Area). 90 See: http://www.helcom.fi/helcom/convention.html 91See:http://www.helcom.fi/proceedings/bsep92.pdf 92See e.g. http://www.helcom.fi/proceedings/bsep87.pdf 93See: http://www.helcom.fi/helcom24/MinDec.pdf 199 Box O.1. HELCOM data on airborne pollution in the Baltic Sea The annual atmospheric nitrogen deposition of emissions from transport and other sources into the Baltic Sea is estimated at 230,000 tonnes per year, accounting for around 25% of the total nitrogen input. Emissions from shipping on the Baltic Sea are a major source of nitrogen. Approximately 560 tonnes of lead enters the Baltic Sea each year through atmospheric deposition - about a third of the total input. About a fifth of the total inputs of mercury and cadmium are airborne. The deposition rates for pollutants are generally highest in the southwestern waters of the Baltic Sea, and decrease northwards. Airborne pollution reaches the Baltic from many countries outside the region, particularly the United Kingdom, France, the Netherlands and the Czech Republic. HELCOM Countries except Russia have had intentions to designate the Baltic Sea as a Particularly Sensitive Sea Area (PSSA), taking into account the sensitivity of the Baltic marine environment. Russia has been invited to join the efforts in enhancing co-operation within the framework of IMO. The availability of adequate emergency capacity was also addressed, and the meeting adopted HELCOM Recommendation 24/9 "Ensuring adequate emergency capacity". Currently, the emergency capacity is not fully adequate in any of the countries in the Baltic Sea region, and it is clearly inadequate in the Baltic States. O.5 Conclusion Environmental issues have become an integral part of policymaking in all sectors of the society. In the transport sector, environmental issues have relevance in a number of fields. Environmental assessments have become standard practice in all infrastructure planning through legislation. This type of regulation is getting increasingly stringent in the EU, which will also be adopted in the Baltic States. Tighter emission controls of vehicles have already been imposed on private and commercial vehicles, and these regulations ­ such as the adoption of EURO 4 class of trucks in 2005 - will also grow more rigorous in the near future. The Baltic States have had relatively high aerial emission of transport in relation to the volume of traffic, and efforts need to be intensified to meet ever increasing requirements through renewal of fleets. 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World Bank, World Development Indicators, http://devdata.worldbank.org/data-query/, read 5.2.2004. World Development Report 1994, Infrastructure for Development, The World Bank, Washington, D.C. 205 Attachment C.1. List of Participants Name Title Organisation INTERNATIONAL ORGANISATIONS: 1. Roger W. Grawe Country Director World Bank 2. Luisa Velardi Sr. Transport Specialist World Bank 3. Dominic S. Haazen Sr. Health Specialist World Bank 4. Cesar Queiroz Lead Highway Engineer World Bank 5. Lauri Ojala Professor of Logistics TSEBA 6. Tapio Naula Researcher TSEBA 7. Sauli Niinisto Vice President EIB 8. Ann-Louise Aktiv Vimont Senior Loan Officer EIB 9. Kari Peltonen Regional Director Schenker East Oy Ab 10. Jack Short Secretary General ECMT 11. Lauri Johnson Vice President NIB 12. Yngve Soderlund Deputy Regional Manager NIB 13. Erkki Karmila Executive Vice President NIB 14. Urmas Paavel Head of Mission EBRD 15. Matti Ylosjoki Sr. Adviser TEDIM Secretariat ESTONIA: 1. Meelis Atonen Minister MoEAC 2. Marika Priske Secretary General MoEAC 3. Andres Tint Deputy Secretary General MoEAC 4. Signe Ratso Deputy Secretary General MoEAC 5. Priit Enok Counsellor to the Minister MoEAC 6. Anti Moppel Head of Transport Development MoEAC and Logistics Department 7. Heldur Vaher Councellor of Transport MoEAC Development and Logistics Dep. 8. Tonis Laks Head of Structural Funds MoEAC Division 9. Priit Vene Head of Transportation and MoEAC Traffic Division 10. Margit Markus Head of Aviation and Maritime MoEAC Department 11. Aveli Karja Executive Officer of Transport MoEAC Development and Logistics Dept 12. Tiit Kaurla Executive Officer of EU and MoEAC International Cooperation Dept 13. Andres Uusma Head of Budget and Financial MoEAC Control Department 14. Rein Loik Chairman of Management Board Tallinn Airport Ltd. 15. Einari Bambus Director of Development Tallinn Airport Ltd. 16. Jaan Tamm CEO; Chairman of Estonian Air Navigation Services Management Board 17. Tiit Soorm Head of Development Department Estonian CAA 18. Raivo Vare CEO; Ex-Minister of Transport Pakterminal Ltd and Communications of Estonia 19. Enno Lend Vice-Rector Tallinn College of Engineering 20. Valev Reinhold Assistant Professor Tallinn College of Engineering 21. Oleg Epner Director General Railway Administration 22. Erkki Laving Head of Development Department Railway Administration 206 23. Reimo Pettai Head of Intern. Ministry of Foreign Affairs Cooperation Division 24. Urmas Kase Head of Development Division Parnu County Government 25. Juri Laving Head of Chair of Transport and Tallinn Technical University Logistics; Professor 26. Arvo Veskimets Deputy Director General Maritime Administration 27. Riho Sormus Director General Road Administration 28. Peeter Skepast Deputy Director General Road Administration 29. Ulle Karjane Head of Program Department Road Administration 30. Mart Puust Head of Loan Program Department Road Administration 31. Toomas Ernits Traffic Safety Department Road Administration 32. Viivi Perri Loan Program Department Road Administration 33. Arge Sau Loan Program Department Road Administration LITHUANIA: 1. Zigmantas Balcytis Minister MoTC 2. Liudmila Lomakina Secretary of the Ministry MoTC 3. Rimante Briedyte Director of Int. Relations and MoTC European Integration Dep. 4. Vidmantas Kairys Director of Civil Aviation MoTC 5. Albertas Aruna Director Transport Investment Directorate 6. Virgaudas Puodziukas Director General Road Administration 7. Sigitas Dobilinskas Director General Klaipeda State Seaport Authority 8. Evaldas Zacharevicius Director Lithuanian Maritime Safety Administration LATVIA: 1. Roberts Zile Minister MoTC 2. Vigo Legzdins State Secretary MoTC 3. Arnis Muiznieks Director of Aviation Dep. MoTC 4. Austris Caunitis Director of Foreign Relations MoTC Department 5. Andrians Lublins Director of Passenger MoTC Transportation Department 6. Gints Peka Expert of the Association Passenger Transport Association 7. Linda Balti a Chairwoman of the Board SC "Pasazieru vilciens" 8. Peteris Romans Deputy Director of Strategic MoTC Planning Department; 9. Inta Rozensteine Deputy Head of Unit of State MoTC Programs and Statistics 10. Baiba Pope Senior Officer of Maritime Dep. MoTC 11. Maris Pekalis Head of Unit of Road Transport MoTC 12. Juris Iesalnieks Director Railway Administration 13. Ansis Zeltins Director Maritime Administration 14. Guntars Sprogis Head of Development Project Unit Airport "Riga" 15. Igors Kabaskins Vice-Rector for Research and Transport and Development Affairs Telecommunication Institute 16. Edgars Strods Deputy Director of Transport Riga City Council Department 17. Anna Butuzova Senior Officer of the Transit MoTC Policy Department 18. Sarma Kocane Head of Public Relation Unit MoTC 207 Attachment C.2. Program of the 2nd Seminar on Restructuring of the Transport Sector in the Three Baltic States The Estonian Ministry of Economic Affairs and Communications The World Bank Scandic Hotel RannaHotell , Ranna puiestee 5, Parnu, Estonia November 24 and 25, 2003 Seminar language: English Theme for Day 1: Transport Sector and EU Membership 10:00 Registration Coffee Opening plenary session chaired by Mr Cesar Queiroz, The World Bank 11:00 Welcoming Statement Mr M. Atonen, Minister of Economic Affairs and Communications (MEAC), Estonia 11:10 An Overview of Economic Development and Transport in the Baltic States Mr R.Grawe, The World Bank 11:30 An Overview of Latvian Transport Sector Mr R. Zile, Minister of Transport, Latvia 11:50 An Overview of Lithuanian Transport Sector Mr Z. Balcytis, Minister of Transport, Lithuania 12:10 An Overview of Estonian Transport Sector Mr M. Atonen, Minister of MEAC, Estonia 12:30 Discussion Coffee 13:10 Press Conference 13:30 Lunch hosted by The World Bank Afternoon plenary session chaired by Mr Riho Sõrmus, Estonian Road Administration 15:00 Experience in Transport Sector Restructuring Mr C.Queiroz, The World Bank 15:20 Transport Policy Challenges in the 21st century Mr J.Short, ECMT, Secretary General 15:50 Coffee break 16:10 Experience of International Financial Institutions Mr S. Niinisto, EIB, Vice President 16:30 Mr U. Paavel, EBRD, Head of Mission 16:50 Mr E. Karmila, NIB, Executive Vice President 17:10 Preparing the Transport Sector for EU Membership Mr V. Legzdins, Latvia, State Secretary Mrs L. Lomakina, Lithuania, Secretary of the Ministry Mr A. Tint, Estonia, Deputy Secretary General 18:00 Discussions Coffee 18:30 Concluding remarks Mr M. Atonen, Minister of MEAC, Estonia 20:00 Dinner hosted by Mr M. Atonen, Minister of EAC, Estonia 208 Theme for Day 2: Transport Policy Directions for the Future Plenary session chaired by Mr Anti Moppel, MEAC, Estonia 9:00 Pre-seminar questionnaire highlights Mr L. Ojala, Turku School of Economics 9:20 Transport Education and Research Mr I. Kabaskins, Transport and Telecommunication Institute, Latvia 9:40 Development of Airports Mr R.Loik, Tallinn Airport Ltd., Estonia 10:00 Experience of a major logistics provider Mr K. Peltonen, Schenker group, Finland 10:20 Instructions for the Modal Sessions, Mr. L. Ojala, TSEBA 10:30 Coffee break 10:45 Modal Workshop Sessions: Lessons Learned and Policy Directions Roads and Road Transportmoderated by Mr C. Queiroz, The World Bank Main themes e.g. : Traffic Safety, Road Finance, Infrastructure needs Rail, moderated by Ms L. Velardi, The World Bank Main themes e.g. : Lesson learned from restructuring, rail sector finance, Rail Baltica Ports and Maritime Transport, moderated by Mr L. Ojala, TSEBA Main themes e.g.: Matching demand and supply of port and maritime services, Maritime safety and security Aviation, moderated by Mr J. Tamm, Est. Air Navigation Services Main themes e.g.: Airport infrastructure needs, regulating the air services industry Transport Services and Trade Facilitation, moderated by Mr K. Peltonen, Schenker group Main themes e.g.: The impact of EU membership on competition, costs, service level and structure of logistics industry, Customs issues 12:30 Buffet lunch hosted by The Estonian MEAC 13:30 Preparing the slides of workshop results by groups Plenary session chaired by Mr Virgaudas Puodziukas, Lithuanian Road Administration 14:00 Presentation of Workshop results by groups: Roads, Rail, Ports, Aviation, Trade Facilitation 15:30 Concluding remarks and seminar closure Mr R.Vare, Chief Executive Officer, Pakterminal Ltd., Estonia 209 Attachment C.3. Questionnaire for the Baltic States Transport Seminar Management of Road Infrastructure 1. Who owns and maintains the road network in your country by the end of year 2002? Ownership Maintenance Central Government _____km _____km Local Government _____km _____km Private Sector _____km _____km 1. Is economic analysis used to determine which road sections should be repaired, and what level of repair should be done? What kind of economic analysis is used (HDM or other)? 2. What percentage of last year's (2002) road maintenance, rehabilitation, and reconstruction was subject to economic analysis? Is economic analysis also used for new construction? 3. How much of the road maintenance and construction industry has been privatized (including both construction/maintenance and design/engineering institutions)? 4. How many staff were employed by your road administration by the end of year 2002? 5. How much contracting on the basis of competitive bidding was used in 2002, including maintenance, rehabilitation, reconstruction, and new construction (on a dollar-equivalent basis, and as a percent of the annual budget)? 6. To what extent was road design and supervision of works contracted by end-2002 (on a dollar-equivalent basis, and as a percent of the annual budget)? 7. If routine maintenance is contracted, what kind of contracts are used (e.g., lump sum or unit cost)? Are performance-based contracts used for road maintenance? Please give length (km) of roads under each type of contract (by the end of 2002). 8. Please indicate, for types of road work done under the authority of your administration, the amount which was done by force account and by contractor in 2002: Force Account94 Contractor Capital Improvement _____km _____km Maintenance _____km _____km 9. For work which is done by contractor, please describe the method by which your administration selects a contractor (e.g., national competitive bidding, international competitive bidding). Is the capacity of the local construction industry adequate to ensure competition? 10. What was the amount of expenditures in road maintenance and construction in 2002? 11. What is the structure of the road user charges that apply? For the year 2002, what was the total amount of road user charges that was collected? Please indicate the breakdown. What percentage is from fuel taxes? 12. How much of the road user charges is transferred to the national road administration, and how much for local road organizations? 13. Is there a formal Road Fund that is more than an accounting mechanism? If yes, does it have a Board with representation of the road users? Is the Road Fund effective in providing sufficient funds for roads? 14. What new technologies have been introduced since 2000 (e.g., recycling, remixing, cold emulsion, road and bridge management systems, use of HDM4 to set priorities for road maintenance/rehabilitation)? 15. Is a regular road roughness survey carried out each year for the main road network? If so, for how many kilometers? Please describe the methodology used to calibrate your roughness measuring devices. What are the typical IRI (in m/km) values obtained on (i) new or recently rehabilitated/reconstructed pavements, and 94 "Force account" is otherwise known as "direct labor," "departmental forces," or "direct work." 210 (ii) pavements about to be rehabilitated? Do you use other performance measures to gauge the quality of your roads, pavements, etc.? If so, please describe. 16. Have there been improvements in quality control (if so, what are they)? Are independent consultants hired to supervise road and bridge works? If so, to what extent? 17. What changes in the cost and quality of road maintenance have occurred since 1991? For example, are unit costs lower or higher? Do road treatments last longer? Please give basic unit costs of works carried out in 2002, e.g., asphalt concrete US$----/m3, surface treatment US$----/m2, routine maintenance of paved roads US$----/km. 18. Please briefly describe how your administration incorporates research and innovation into the planning, design, construction, maintenance, and operation of roads. 19. Please specify how research activities are organized within the road sector; as separate R&D entities (which?) under road administration, or other agencies, or within the private sector? 20. In what ways has restructuring allowed your administration to provide better quality roads? 21. What additional reforms would improve your ability to provide better quality roads? 22. Please compare the design standards currently adopted in your country with those used in EU countries such as Denmark, Finland or Sweden. 23. Please provide a brief description of the road safety situation in your country. 24. What initiatives have been considered to improve road safety? Which have been implemented? How have they impacted safety levels? 25. Speeding: What initiatives have been considered to decrease speeding? Which have been implemented? How have they impacted levels of speeding? 26. Seatbelt Usage: What is the percentage of seatbelt use? What campaigns exist to increase seatbelt use? 27. Reporting: Which of the following factors are recorded in accident reports: Speeding? Seat Belt Usage? Role of alcohol? What other factors are recorded? 28. Please provide the following Road Safety data: 1999 2000 2001 2002 Number of road transport accidents involving personal injury Number of injured Number of killed Total number of vehicles in the country of which ­ passenger cars Estimated vehicle-km run Road Transport Services 1. What is the number and distribution of the size by number of vehicles of road transport firms in your country (most recent data available) in a) road freight transport, b) bus transport, c) taxi services? 2. How many people are employed in a) road freight transport companies, b) bus transport companies, and c) taxi service? Using most recent data available, please indicate the size of companies (by number of vehicles). 3. How much of the inter-urban road transport industry (trucking, buses) has been privatized? 4. What type of operating license or training is required for establishing a) domestic road haulage company, and b) internationally operating road haulage company? 5. What type of operating license or training is required for establishing a) a domestic bus company and b) an internationally operating bus company? 6. Are passenger rates set freely by the companies, or by the Government in inter-city traffic? 7. What is the structure of transit fees for foreign trucks and buses? Are there special reciprocal arrangements with some countries? 211 8. What is the structure of license registration and heavy vehicle charges, and have these changed since 2000? 9. What are the maximum axle weights and maximum total weights for different vehicle categories? 10. Are there special charges for vehicles with heavy loads? How effective are weight controls? What kind of weigh stations are used? 11. How are road transport related social aspects (driving and rest hours) being checked (e.g. through roadside checks and checks at premises of undertakings)? Are the minimum EU levels of these checks ensured? Railways 1. Please provide the following traffic statistics over the past four years (1999-2002): a) Freight ton-km = ___________ Freight train-km = ______________ b) Passenger pax-km = _________ Passenger train-km = ______________ 2. Please provide statistics for revenues, in local currency for a) passengers and b) freight. (Estonia and Lithuania: in millions of kroons or litas; in Latvia: in thousands of latis). Local Currency at end-year 1999 2000 2001 2002 Passenger revenue Freight revenue 3. Please provide statistics over the past 4 years (1999-2002), for total labor cost (wages) in local currency (and dollar equivalent) for the railway company/companies. Please indicate how many people are employed by the railway company/companies. 4. Please provide a short description of the main facilities and equipment possessed by the railway company / companies. 5. To what extent are the railways publicly or privately owned? Please describe the ownership structure and the legal form of railway companies. 6. If public, please provide the income statements of railways for years 1999-2002 in local currency (Estonia and Lithuania: in millions of kroons or litas; in Latvia: in thousands of latis). 1999 2000 2001 2002 Revenue Costs Of which labor costs Result before depreciation Depreciation Result after depreciation Financial revenue Financial costs Net income after financial costs Extraordinary costs Net income before tax Tax, etc. Profit 7. Does the Government provide a subsidy for railway operators? If so, please give order of magnitude and describe the motivation for the decision to provide subsidies. Do other local authorities provide a subsidy for railway operators? a) Are parts of the service regulated under Public Service Obligations (PSOs)? If so, please provide the method applied. b) Are these parts of service concessioned by competitive tender? 8. If public, are tracks and rolling stock repairs and overhauls done by force account or by contract to outside contractors? 9. Are the railway companies able to set their own rates, or must they get approval from the Government? 10. Are the rail operating system and the infrastructure owned and operated jointly, or are they operated as separate companies? If so, please give the track access charges? 212 11. Can foreign railways operate on the national rail infrastructure? If so, please indicate the fee structure. Please give the track access charges. Air Infrastructure and Services 1. Is the national airline owned and operated by the Government? What is its ownership structure? 2. Please provide the income statement of the national airline(s) for the years 1999-2002. 1999 2000 2001 2002 Revenue Costs Of which labor costs Result before depreciation Depreciation Result after depreciation Financial revenue Financial costs Net income after financial costs Extraordinary costs Net income before tax Tax, etc. Profit 3. Is the national airline subsidized? If yes, give order of magnitude and describe the motivation for the decision to provide subsidies. 4. What is the basis for assigning landing rights and which authority issues these? 5. Do foreign airlines have free access to landing rights in major airports? 6. Are the airports operated by a Government-owned company, or under a concession to a private company? If public, does it operate at a profit or a loss? Is it subsidized by the Government? 7. What is the source of funding for construction and improvement of airports? Ports 1. Please provide traffic statistics and activity reports over 1999-2002, as well as a short description of main facilities and equipment. 2. Are the port facilities publicly or privately owned? Are they operated by Governmental entities or private companies? Please make the distinction between infrastructure, superstructure (e.g., warehouses) and equipment in each case. 3. Please provide the income statement of port authorities for the past four years (1999-2002) (Tallinn, Ventspils, Riga, Liepaja, Klaipeda, Butinge) Name of the port: 1999 2000 2001 2002 Revenue Costs Of which labor costs Result before depreciation Depreciation Result after depreciation Financial revenue Financial costs Net income after financial costs Extraordinary costs Net income before tax Tax, etc. Profit 4. Is any of the ports subsidized by the Government? If yes, to what extent? 213 5. Are new public investments financed by revenues from port activities or by Government budget? Please give recent examples of new investments and their financing. 6. Are yard and trucking operations public or private? Please provide a brief description. 7. What is the average dwell time in hours, in the port? Name of the port: Export Import General Cargo Containers Roll on- Roll off vessels 8. What are the main causes of undue delays under the following heads - Customs, late arrival/presentation of manifests/bills of lading, banking requirements under payment terms, unavailability of connecting transport, exchange controls, pre-shipment inspection, tardy take-up by consignees, etc.? 9. How many staff are directly employed for port activities? How does this compare with 5 years ago? Please make the distinction between clerical jobs, port-workers and seamen hired under the general labor laws, dock- workers and seamen benefiting a special status. Port authority Stevedoring firms Number of In 1998 In 2002 In 1998 In 2002 Administrative staff Port workers under labor laws Stevedorers Seamen 10. What are the main performance indicators available as regards ship waiting time, handling performance, dwelling time of cargo? How does this compare with 5 years ago? As far as regional competition is concerned, what is the situation in terms of port charges, quality, performance, and reliability? 11. How many signatures are required by Customs in clearing goods through the port? To what extent can the process be considered modern and efficient? 12. What is the approximate proportion of declarations for which supporting documents - invoices, certificates of origin, way-bills, bills of lading etc. - are inspected? What is the approximate proportion of consignments/containers which are physically inspected? Maritime Transport 1. How is the maritime administration organized? 2. Please name the main maritime conventions that your country has adhered to (ratified) by the end of year 2002. 3. What are the main maritime policy issues currently being discussed? Please summarize recent progress in this area. 4. How is inspection of maritime safety issues (both seaside and portside) functioning? Please summarize main issues and recent progress. 5. Please provide statistics of the merchant fleet of ships over 100 GT (by number, gross tonnage, and type) for 1999-2002. 6. Please provide statistics of seafarers (by number and job description) for 1999-2002. Urban Transport Infrastructure and Services Roads and traffic 1. In the largest cities, are major urban roads in municipal or state ownership? If split ownership, could you estimate percentages for each for the capital and a small sample of cities? 2. What are the financial arrangements for funding the maintenance, rehabilitation, upgrading and expansion of urban roads for both state-owned and city-owned road network? Is it done through national road fund allocations? Local road fund? Municipal budget? Please cite amounts spent by the local and/or national institutions in 2001 and 2002. 3. Is there a system for charging for on-street parking in any major city? How many pay-parking spaces are there in the capital and any other large city? How many parking spaces are controlled through time limits? 214 What technology is being used for pay parking? What is a typical hourly charge for short and long term parking? Who manages the program? 4. Are there commercial off-street parking garages? What are their hourly rates? Are they privately owned and operated, municipally owned and privately operated, or municipally owned and privately operated? 5. Please cite car ownership per 1,000 population for major cities and nationally. What are the growth rates in car ownership over the last 5 years? 6. What are the traffic growth rates over the last 5 years in the main cities? Public transport services 7. What is modal split between the car and public transport services (percent of daily travel by public transport and by car)? Is this changing or stable? 8. What is the market breakdown between public-owned and private-owned public transport operators? Please indicate if the answer is in terms of vehicles in service, or in terms of passengers carried (both should be included if available). 9. Please provide a table showing summary operating statistics for municipal transport companies in the capital city for 2001-2002 (total and in-use fleet by vehicle type, vehicle-km of service by type, staff, passengers carried). 10. In terms of frequencies and travel speeds of public transport services, have there been changes for the better or worse in the capital and major cities, in the period 2001-2002? 11. Please provide a summary financial statement for municipal transport companies in the capital city for 2001- 2002. The table should show: (1) operating costs broken into wages, energy, parts, miscellaneous, depreciation and financial costs; and (2) operating revenues, broken into fare revenues, other business revenues, subsidies and compensation from the municipality, and subsidies and compensation from the state. Please explain sources of subsidy. 12. Please indicate the current public transport fare per trip for the capital city and one other main city. Cite the price of a monthly ticket, if available. Cite discounted fares for school children, students, pensioners, etc. 13. Who sets general and discount fares in public transport services: the operators, the municipality, or the state? If state and/or municipality, is there a formula for compensating the operators for revenue losses. 14. How often are fares adjusted? Is there a specific adjustment formula? 15. Are city transport operators legally separate companies or are they municipal departments? In either case, how are they regulated? Through the budgetary process, service agreement or a negotiated contract? If there is tendering of services, do public-owned companies bid and win contracts? 16. How are private operators regulated? Simple licensing, open tenders? Do they pay any fees? Do they receive any subsidies? Must they serve passengers claiming discount fares? 17. Who sets fares for private operators? 18. If there is contracting for services, who monitors the performance? 19. Is there a national association of urban passenger transport operators? Do they publish statistics for member companies? City-based Transport Institutions 20. Is there a separate public transport authority in the capital city, established to regulate public transport services? Separate urban roads authority or directorate? Combined? If none of the above, is all transport handled through municipal departments? 21. At the state level, who is responsible for regulating urban transport? If a ministry, is there a separate department? With which functions? 215 General Transport Support Services (freight forwarding, customs brokerage, banking, insurance, customs) 1. Is there free and timely movement across borders to neighboring countries, or are there delays at customs posts? If delays, how long needed to cross the border by road? By rail? 2. Is there a credible international insurance system available for international shippers? 3. Are banking facilities adequate to facilitate payment transactions, both domestically and abroad? 4. What are the main areas of general transport support that need improvement? 5. What were the main changes during 1999-2002 in the legal and regulatory framework relating to provision of logistics services? 6. What are the key obstacles to effective transport and logistics services? Agent, Forwarder, Customs Broker, Multimodal Transport Operator Association 1. In communication with your customers, to what extent do you use a) the Internet, b) EDI, and c) e-mail, satellite communications? 2. Are facilities for such uses satisfactory? 3. Do you use any of the FIATA standard transport documents? If so, which and to what extent? 4. What proportion of your inward consignments are subject to physical inspection by Customs? Are these also subject to inspection by other control agencies? Exporters/Importers Association 1. In communication with your customers, what are your main means of communication - post, telephone, express delivery, fax, EDI, Internet, satellite, other? 2. Do you have difficulties in using any of these communication methods? If so, in what respects? 3. Do you have regular, significant difficulties in: Customs clearance Exchange control? If so what sort? 4. What proportion of your import consignments are submitted by Customs to: Documentary inspection? Physical inspection? What is your view of the efficiency of any physical inspections ? Customs 1. What is the average time from submission of the import entry to release of goods from your custody, in maritime trade for a) conventional general merchandise, b) containerised cargo, and c) roll-on/roll-off vehicles at i) export and ii) import? 2. What are the corresponding times for road-based consignments at main land frontier posts at a) export, and b) imports? 3. What are the corresponding times for airfreight consignments of a) documents, b) non dutiable and de minimis, and c) dutiable, goods? 4. Are the times in the previous three questions static, increasing, or decreasing? 5. Do you consider any of these release times unsatisfactory and if so which? What do you see as the main causes? 6. Do you separate procedures and documentation to give "release" of goods from physical controls from those for "clearance" of the transaction following the satisfaction of fiscal requirements? 7. Are your paper forms aligned on the UN standard documentary system? 216 8. Are you using or planning to use computers in any operations? If so which? Do/will these include direct data exchanges? If so, with whom? Do you use UN/EDIFACT messages? 9. Do you use/plan to use ASYCUDA or any other proprietary Customs system? If so which? Are you satisfied with a) the product, b) post-implementation support, and c) technological top-up? 10. How many disputes are lodged with/recorded by Customs annually? What is the largest single focus of difference - valuation, classification, temporary importation compliance, other? 11. Do you have an active Customs/Trade Consultative Committee? Chamber of Commerce 1. What is your membership? Is this statutory or on a voluntary basis? 2. Do you offer advice to exporters and importers on: National and foreign Customs requirements? Foreign standards, dangerous goods regulations, etc.? Payment systems, including documentary credits? Containerised, multimodal transport? 3. Do you have specialist committees for questions related to: Customs? Commercial banking? Transport? Communications? Electronic commerce? 4. Do you run courses on any of these subjects? If so, which? 5. Do you have regional Chambers of Commerce, and if yes, in which cities/regions? Department/Ministry of Trade/Industry 1. Do you have any existing institutional focus for dealing with such trade facilitation tasks as the simplification and standardisation of documents and formalities, the shift from paper to electronic commerce, and the revision of the national regulatory framework affecting goods in international movement? If so, of what sort and with what objectives? 2. Are you aware of, and/or active in, current WTO enquiries into the nature and needs of international trade facilitation? 3. Is the Department able to offer rapid, efficient Customs clearance of goods as an inducement to overseas companies considering direct inward investment in manufacturing? 4. How far does the Department consult small and medium sized companies on the extent to which their overseas trading performance and prospects are affected by Customs and other import/export formalities? 217 Attachment D.1. Map of the Baltic States Map by World Bank Map Unit, Map No. 31223 218 Attachment D.2. Estonia at a glance. Source: The World Bank Estonia at a glance 8.20.03 Europe & Upper- POVERTY and SOCIAL Central middle- Estonia Asia income Development diamond* 2002 Population, mid-year (millions) 1.4 476 331 Life expectancy GNI per capita (Atlas method, US$) 4 140 2 160 5 040 GNI (Atlas method, US$ billions) 5.6 1 030 1 668 Average annual growth, 1996-02 Population (%) -0.7 0.1 1.2 GNI Labor force (%) -0.3 0.4 1.8 Gross per primary Most recent estimate (latest year available, 1996-02) capita enrollment Poverty (% of population below national poverty line) .. .. .. Urban population (% of total population) 69 63 75 Life expectancy at birth (years) 71 69 73 Infant mortality (per 1,000 live births) 8 25 19 Child malnutrition (% of children under 5) .. .. .. Access to improved water source Access to an improved water source (% of population) .. 91 90 Illiteracy (% of population age 15+) 0 3 7 Gross primary enrollment (% of school-age population) 103 102 105 Estonia Male 105 103 106 Upper-middle-income group Female 101 101 105 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios* GDP (US$ billions) .. 4.2 5.5 6.4 Gross domestic investment/GDP .. 26.9 27.7 27.3 Trade Exports of goods and services/GDP .. 60.3 90.6 88.6 Gross domestic savings/GDP .. 32.7 24.0 23.3 Gross national savings/GDP .. 40.4 21.6 21.1 Current account balance/GDP .. 0.9 -6.1 .. Domestic Interest payments/GDP .. 0.0 1.7 2.3 Investment savings Total debt/GDP .. 1.4 51.6 73.9 Total debt service/exports .. 0.6 7.4 14.0 Present value of debt/GDP .. .. 53.2 .. Present value of debt/exports .. .. 56.7 .. Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annual growth) GDP -0.7 3.7 5.0 5.8 5.0 Estonia GDP per capita -1.1 4.9 5.5 6.2 5.7 Upper-middle-income group Exports of goods and services .. 10.7 -0.2 8.0 7.2 STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP (%) (% of GDP) 30 Agriculture .. 13.1 5.9 5.9 Industry .. 34.7 29.2 29.5 20 Manufacturing .. 22.8 18.8 19.1 10 Services .. 52.2 64.9 64.6 0 -10 97 98 99 00 01 02 Private consumption .. 51.3 55.8 59.0 -20 General government consumption .. 15.9 20.3 17.8 GDI GDP Imports of goods and services .. 54.4 94.4 92.7 1982-92 1992-02 2001 2002 Growth of exports and imports (%) (average annual growth) Agriculture -7.0 -1.4 -6.7 2.5 40 Industry -8.4 3.4 5.8 5.0 30 Manufacturing .. 4.0 8.2 5.0 20 Services -3.0 4.4 5.5 2.1 10 Private consumption -3.0 4.2 9.2 6.0 0 General government consumption -3.6 4.9 2.1 9.8 -10 97 98 99 00 01 02 Gross domestic investment -11.9 5.9 6.1 7.4 Exports Imports Imports of goods and services .. 11.2 2.1 9.3 Note: 2002 data are preliminary estimates. This table was produced from the Development Economics central database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 219 Estonia PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Inflation (%) Domestic prices (% change) 25 Consumer prices .. .. 5.8 4.2 20 Implicit GDP deflator -3.3 873.6 5.4 4.3 15 10 Government finance 5 (% of GDP, includes current grants) 0 Current revenue .. 32.4 35.2 36.8 97 98 99 00 01 02 Current budget balance .. 2.2 2.7 3.6 GDP deflator CPI Overall surplus/deficit .. -0.2 0.4 -0.3 TRADE 1982 1992 2001 2002 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) .. 457 3 309 3 878 6 000 Food .. 91 265 278 Minerals .. 37 71 77 Manufactures .. 328 2 973 3 523 4 000 Total imports (cif) .. 387 4 295 4 817 Food .. 35 404 446 2 000 Fuel and energy .. 111 379 450 Capital goods .. 129 1 110 1 215 0 96 97 98 99 00 01 02 Export price index (1995=100) .. .. 174 181 Import price index (1995=100) .. .. 94 96 Exports Imports Terms of trade (1995=100) .. .. 185 189 BALANCE of PAYMENTS 1982 1992 2001 2002 Current account balance to GDP (%) (US$ millions) Exports of goods and services .. 659 5 007 5 568 0 Imports of goods and services .. 707 5 216 5 821 96 97 98 99 00 01 02 Resource balance .. -48 -209 -254 -5 Net income .. -13 -283 -275 Net current transfers .. 97 151 183 Current account balance .. 36 -339 .. -10 Financing items (net) .. 46 267 .. Changes in net reserves .. -82 72 -394 -15 Memo: Reserves including gold (US$ millions) .. 196 906 1 217 Conversion rate (DEC, local/US$) .. 3.1 17.5 16.6 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US$ mill.) Total debt outstanding and disbursed .. 58 2 852 4 739 IBRD .. 1 65 39 A: 39 D: 28 IDA .. 0 0 0 E: 4 Total debt service .. 4 383 796 G: 1 590 IBRD .. 0 13 44 IDA .. 0 0 0 Composition of net resource flows Official grants .. 71 45 .. Official creditors .. 11 -12 -63 F: 3 078 Private creditors .. 22 54 1 330 Foreign direct investment .. 82 539 .. Portfolio equity .. 0 32 .. World Bank program Commitments .. 30 0 0 A - IBRD E - Bilateral Disbursements .. 1 6 5 B - IDA D - Other multilateral F - Private Principal repayments .. 0 9 40 C - IMF G - Short-term Net flows .. 1 -3 -35 Interest payments .. 0 4 4 Net transfers .. 1 -7 -39 Note: This table was produced from the Development Economics central database. 8.20.03 220 Attachment D.3. Latvia at a glance. Source: The World Bank Latvia at a glance 8.20.03 Europe & Upper- POVERTY and SOCIAL Central middle- Latvia Asia income Development diamond* 2002 Population, mid-year (millions) 2.3 476 331 Life expectancy GNI per capita (Atlas method, US$) 3 480 2 160 5 040 GNI (Atlas method, US$ billions) 8.1 1 030 1 668 Average annual growth, 1996-02 Population (%) -1.1 0.1 1.2 GNI Labor force (%) -0.9 0.4 1.8 Gross per primary Most recent estimate (latest year available, 1996-02) capita enrollment Poverty (% of population below national poverty line) .. .. .. Urban population (% of total population) 60 63 75 Life expectancy at birth (years) 70 69 73 Infant mortality (per 1,000 live births) 12 25 19 Child malnutrition (% of children under 5) .. .. .. Access to improved water source Access to an improved water source (% of population) .. 91 90 Illiteracy (% of population age 15+) 0 3 7 Gross primary enrollment (% of school-age population) 100 102 105 Latvia Male 101 103 106 Upper-middle-income group Female 100 101 105 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios* GDP (US$ billions) .. 6.4 7.7 8.4 Gross domestic investment/GDP 30.7 41.2 27.3 27.6 Trade Exports of goods and services/GDP .. 79.9 44.8 45.7 Gross domestic savings/GDP 34.5 48.1 18.8 19.5 Gross national savings/GDP .. .. 19.6 19.5 Current account balance/GDP .. 3.3 -7.0 -6.8 Domestic Interest payments/GDP .. 0.0 1.5 1.4 Investment savings Total debt/GDP .. 1.0 74.5 .. Total debt service/exports .. 0.0 13.2 .. Present value of debt/GDP .. .. 72.4 .. Present value of debt/exports .. .. 141.9 .. Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annual growth) GDP -0.1 3.4 7.9 6.1 6.0 Latvia GDP per capita -0.4 4.7 8.5 7.2 6.8 Upper-middle-income group Exports of goods and services .. 4.5 6.5 6.1 7.9 STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP (%) (% of GDP) 60 Agriculture 15.7 17.6 4.5 4.5 Industry 47.0 34.9 26.1 26.4 40 Manufacturing 42.2 28.2 14.8 14.8 20 Services 37.3 47.5 69.4 69.1 0 Private consumption 57.7 39.4 59.4 58.5 97 98 99 00 01 02 -20 General government consumption 7.8 12.5 21.8 22.0 GDI GDP Imports of goods and services .. 73.1 53.4 53.8 1982-92 1992-02 2001 2002 Growth of exports and imports (%) (average annual growth) Agriculture -0.8 -2.0 3.5 3.5 40 Industry -0.2 1.4 7.0 7.0 30 Manufacturing 1.3 1.2 6.0 6.0 20 Services 0.8 5.7 14.0 3.9 10 Private consumption -2.5 3.6 0.8 5.9 0 General government consumption 4.0 5.0 45.8 6.5 -10 97 98 99 00 01 02 Gross domestic investment -3.6 4.0 9.4 5.8 Exports Imports Imports of goods and services .. 4.6 6.1 6.0 Note: 2002 data are preliminary estimates. This table was produced from the Development Economics central database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 221 Latvia PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Inflation (%) Domestic prices (% change) 20 Consumer prices .. .. 2.9 2.4 15 Implicit GDP deflator 2.3 975.9 2.5 1.8 10 Government finance 5 (% of GDP, includes current grants) 0 Current revenue .. 28.1 38.7 39.1 97 98 99 00 01 02 Current budget balance .. 1.4 1.9 2.6 GDP deflator CPI Overall surplus/deficit .. -0.8 -1.7 -1.4 TRADE 1982 1992 2001 2002 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) .. .. 2 162 2 368 4 000 n.a. .. .. .. .. n.a. .. .. .. .. 3 000 Manufactures .. .. 1 810 1 954 Total imports (cif) .. .. 3 323 3 630 2 000 Food .. .. 317 359 1 000 Fuel and energy .. .. 143 152 Capital goods .. .. 575 624 0 96 97 98 99 00 01 02 Export price index (1995=100) .. .. 104 108 Import price index (1995=100) .. .. 110 113 Exports Imports Terms of trade (1995=100) .. .. 94 96 BALANCE of PAYMENTS 1982 1992 2001 2002 Current account balance to GDP (%) (US$ millions) Exports of goods and services .. 1 159 3 537 3 893 0 Imports of goods and services .. 1 061 4 211 4 585 96 97 98 99 00 01 02 Resource balance .. 99 -674 -691 -5 Net income .. 2 124 105 Net current transfers .. .. 17 19 Current account balance .. 207 -533 -568 -10 Financing items (net) .. -72 553 656 Changes in net reserves .. -135 -20 -88 -15 Memo: Reserves including gold (US$ millions) .. .. .. .. Conversion rate (DEC, local/US$) .. 0.2 0.6 0.6 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2001 debt (US$ mill.) Total debt outstanding and disbursed .. 65 5 710 .. IBRD .. 0 243 .. A: 243 IDA .. 0 0 .. C: 24 D: 295 Total debt service .. 0 516 .. E: 43 IBRD .. 0 24 .. IDA .. 0 0 .. Composition of net resource flows G: 3 035 Official grants .. 53 80 .. F: 2 070 Official creditors .. 18 17 .. Private creditors .. 14 697 .. Foreign direct investment .. 29 177 .. Portfolio equity .. 0 6 .. World Bank program Commitments .. 45 0 .. A - IBRD E - Bilateral Disbursements .. 0 22 .. B - IDA D - Other multilateral F - Private Principal repayments .. 0 11 .. C - IMF G - Short-term Net flows .. 0 11 .. Interest payments .. 0 13 .. Net transfers .. 0 -2 .. Note: This table was produced from the Development Economics central database. 8.20.03 222 Attachment D.4. Lithuania at a glance. Source: The World Bank Lithuania at a glance 8.20.03 Europe & Upper- POVERTY and SOCIAL Central middle- Lithuania Asia income Development diamond* 2002 Population, mid-year (millions) 3.5 476 331 Life expectancy GNI per capita (Atlas method, US$) 3 660 2 160 5 040 GNI (Atlas method, US$ billions) 12.7 1 030 1 668 Average annual growth, 1996-02 Population (%) -0.6 0.1 1.2 GNI Labor force (%) -0.4 0.4 1.8 Gross per primary Most recent estimate (latest year available, 1996-02) capita enrollment Poverty (% of population below national poverty line) .. .. .. Urban population (% of total population) 69 63 75 Life expectancy at birth (years) 73 69 73 Infant mortality (per 1,000 live births) 9 25 19 Child malnutrition (% of children under 5) .. .. .. Access to improved water source Access to an improved water source (% of population) 67 91 90 Illiteracy (% of population age 15+) 0 3 7 Gross primary enrollment (% of school-age population) 101 102 105 Lithuania Male 102 103 106 Upper-middle-income group Female 101 101 105 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios* GDP (US$ billions) .. 11.4 11.9 13.8 Gross domestic investment/GDP .. 15.7 21.8 22.5 Trade Exports of goods and services/GDP .. 23.4 50.9 45.0 Gross domestic savings/GDP .. 19.2 16.3 16.5 Gross national savings/GDP .. .. 16.9 17.0 Current account balance/GDP .. .. -4.8 .. Domestic Interest payments/GDP .. 0.0 1.8 1.7 Investment savings Total debt/GDP .. 0.5 44.2 44.9 Total debt service/exports .. 0.3 30.6 31.8 Present value of debt/GDP .. .. 43.7 .. Present value of debt/exports .. .. 81.9 .. Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annual growth) GDP .. 2.5 6.5 6.7 5.4 Lithuania GDP per capita .. 3.2 7.3 6.9 5.5 Upper-middle-income group Exports of goods and services .. 6.0 20.8 3.5 7.3 STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP (%) (% of GDP) 40 Agriculture .. 14.3 7.1 7.2 30 Industry .. 42.9 34.9 34.7 20 Manufacturing .. 34.4 23.2 23.1 10 Services .. 42.8 58.0 58.0 0 -10 97 98 99 00 01 02 Private consumption .. 67.8 67.7 67.2 -20 General government consumption .. 13.1 16.0 16.3 GDI GDP Imports of goods and services .. 19.9 56.4 51.0 1982-92 1992-02 2001 2002 Growth of exports and imports (%) (average annual growth) Agriculture .. -0.6 -6.9 3.0 30 Industry .. 3.4 16.4 4.0 20 Manufacturing .. 5.0 18.0 4.0 10 Services .. 3.4 2.6 5.9 0 97 98 99 00 01 02 Private consumption .. 6.2 3.0 21.6 -10 General government consumption .. 1.0 0.4 10.1 -20 Gross domestic investment .. 6.4 19.5 9.3 Exports Imports Imports of goods and services .. 7.5 17.7 8.7 Note: 2002 data are preliminary estimates. This table was produced from the Development Economics central database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 223 Lithuania PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Inflation (%) Domestic prices (% change) 25 Consumer prices .. .. 1.3 -1.6 20 Implicit GDP deflator .. 942.3 -0.2 0.0 15 10 Government finance 5 (% of GDP, includes current grants) 0 Current revenue .. 30.5 29.8 29.2 -5 97 98 99 00 01 02 Current budget balance .. -42.9 -0.2 0.3 GDP deflator CPI Overall surplus/deficit .. -45.7 -2.0 -1.5 TRADE 1982 1992 2001 2002 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) .. 1 142 4 889 5 212 7 500 Mineral products .. .. 1 082 992 Agriculture and food .. .. 567 658 Manufactures .. .. 1 947 1 989 5 000 Total imports (cif) .. .. 6 353 6 521 Food .. .. 397 414 2 500 Fuel and energy .. .. 509 1 709 Capital goods .. .. 897 1 027 0 96 97 98 99 00 01 02 Export price index (1995=100) .. .. 107 110 Import price index (1995=100) .. .. 95 95 Exports Imports Terms of trade (1995=100) .. .. 113 117 BALANCE of PAYMENTS 1982 1992 2001 2002 Current account balance to GDP (%) (US$ millions) Exports of goods and services .. 1 272 6 046 6 409 0 Imports of goods and services .. 1 232 6 697 7 261 96 97 98 99 00 01 02 Resource balance .. 40 -651 -852 -5 Net income .. 16 -180 -280 Net current transfers .. .. 258 249 Current account balance .. .. -574 .. -10 Financing items (net) .. .. 899 .. Changes in net reserves .. -125 -325 -272 -15 Memo: Reserves including gold (US$ millions) .. 106 1 669 .. Conversion rate (DEC, local/US$) .. 0.3 4.0 3.7 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US$ mill.) Total debt outstanding and disbursed .. 56 5 253 6 199 IBRD .. 0 273 279 A: 279 IDA .. 0 0 0 C: 121 D: 169 Total debt service .. 4 1 937 2 091 E: 236 G: 2 123 IBRD .. 0 29 40 IDA .. 0 0 0 Composition of net resource flows Official grants .. 68 94 .. Official creditors .. 10 10 -18 Private creditors .. -3 91 42 Foreign direct investment .. 0 446 .. F: 3 271 Portfolio equity .. 0 -16 .. World Bank program Commitments .. 60 0 0 A - IBRD E - Bilateral Disbursements .. 0 40 16 B - IDA D - Other multilateral F - Private Principal repayments .. 0 13 26 C - IMF G - Short-term Net flows .. 0 27 -10 Interest payments .. 0 15 14 Net transfers .. 0 12 -24 Note: This table was produced from the Development Economics central database. 8.20.03 224 Attachment D.5. Transport sector balance of payments in the Baltic States, million USD. Sources:Bank of Estonia, Bank of Latvia, Bank of Lithuania and The World Bank (GDP data: World Development Indicators) Estonia Latvia Lithuania 1999 2000 2001 2002 1999 2000 2001 2002 1999 2000 2001 2002 Sea transport balance 191.8 184.2 204.0 232.4 306.3 403.8 376.9 334.9 91.1 134.1 138.9 137.1 credit 357.7 372.9 388.8 439.4 323.3 465.3 439.4 411.0 139.1 180.3 180.2 208.4 debet -165.9 -188.7 -184.8 -207.0 -16.9 -61.5 -62.5 -76.1 -48.0 -46.2 -41.3 -71.3 Passenger balance 83.8 71.6 64.8 76.0 0.5 -0.2 -0.7 -4.2 3.0 2.8 4.6 5.7 credit 114.6 109.5 112.9 131.1 0.6 0.6 0.4 0.7 3.0 2.8 4.6 5.7 debet -30.8 -37.9 -48.1 -55.1 -0.1 -0.9 -1.2 -4.9 0.0 0.0 0.0 0.0 Freight balance 16.6 6.2 23.0 53.2 83.3 117.9 163.4 168.6 38.8 34.3 35.4 4.7 credit 109.1 118.9 120.1 150.4 97.6 143.5 178.8 188.5 68.0 65.7 65.9 65.3 debet -92.5 -112.7 -97.1 -97.2 -14.3 -25.6 -15.4 -19.9 -29.2 -31.5 -30.4 -60.7 Other balance 91.4 106.4 116.2 103.2 222.5 286.2 214.2 170.6 49.4 97.0 98.8 126.7 credit 134.0 144.5 155.8 157.9 225.1 321.2 260.1 221.8 68.2 111.7 109.7 137.3 debet -42.6 -38.1 -39.6 -54.7 -2.6 -35.1 -45.9 -51.3 -18.8 -14.8 -10.9 -10.6 Air transport balance 26.7 26.0 25.1 30.1 -11.3 -4.3 -7.1 -3.7 16.0 17.8 16.8 25.7 credit 52.1 49.4 49.9 62.1 55.0 61.5 54.5 59.1 46.9 43.7 46.1 53.5 debet -25.4 -23.4 -24.8 -32.0 -66.3 -65.8 -61.5 -62.7 -30.9 -25.8 -29.3 -27.7 Passenger balance 26.7 26.5 26.7 29.8 -20.3 4.8 -3.3 -0.9 24.4 22.5 24.8 31.0 credit 34.6 35.2 35.8 45.9 32.8 36.3 26.9 30.4 29.7 26.9 28.0 34.4 debet -7.9 -8.7 -9.1 -16.1 -53.1 -31.6 -30.3 -31.3 -5.4 -4.4 -3.2 -3.4 Freight balance 0.4 -0.4 -0.6 -0.7 -4.1 -7.2 -6.6 -8.3 -5.4 -2.0 -1.6 -3.1 credit 3.4 3.0 3.6 2.9 2.2 2.8 4.1 4.7 2.0 3.6 3.7 3.6 debet -3.0 -3.4 -4.2 -3.6 -6.3 -10.0 -10.7 -12.9 -7.4 -5.6 -5.3 -6.6 Other balance -0.4 -0.1 -1.0 1.0 13.2 -1.9 2.9 5.5 -3.0 -2.7 -6.4 -2.2 credit 14.1 11.2 10.5 13.3 20.0 22.4 23.4 24.0 15.1 13.2 14.4 15.5 debet -14.5 -11.3 -11.5 -12.3 -6.9 -24.3 -20.6 -18.5 -18.1 -15.9 -20.8 -17.7 Other transport balance 102.7 93.9 75.5 50.2 226.7 160.0 191.9 208.0 78.9 118.7 139.5 194.3 credit 289.3 301.3 354.5 574.0 334.3 268.7 275.8 301.8 213.3 267.8 305.6 393.0 debet -186.6 -207.4 -279.0 -523.8 -107.7 -108.7 -83.8 -93.7 -134.5 -149.1 -166.1 -198.6 Passenger balance 2.2 1.3 1.0 1.9 1.1 2.9 5.8 7.1 5.1 5.0 3.9 6.7 credit 3.6 3.6 5.1 4.6 1.3 4.4 6.4 8.3 8.6 8.8 9.0 11.0 debet -1.4 -2.3 -4.1 -2.7 -0.2 -1.5 -0.6 -1.2 -3.5 -3.9 -5.1 -4.3 Freight balance 8.6 5.4 4.1 -12.9 119.4 106.0 172.2 192.2 88.5 128.2 151.1 201.4 credit 175.1 190.6 266.7 494.7 166.4 180.3 230.6 259.5 198.2 252.6 288.5 368.2 debet -166.5 -185.2 -262.6 -507.6 -47.1 -74.2 -58.3 -67.3 -109.7 -124.4 -137.4 -166.9 Other balance 91.9 87.2 70.4 61.2 106.2 51.0 13.9 8.8 -14.7 -14.5 -15.5 -13.7 credit 110.6 107.1 82.7 74.7 166.6 84.1 38.8 34.0 6.6 6.4 8.1 13.7 debet -18.7 -19.9 -12.3 -13.5 -60.4 -33.0 -25.0 -25.2 -21.3 -20.9 -23.6 -27.5 Transport balance 321.2 304.1 304.6 312.7 521.7 559.5 561.7 539.3 186.0 270.6 295.2 357.2 (All) credit 699.1 723.6 793.2 1075.5 712.7 795.5 769.6 771.9 399.3 491.7 531.9 654.8 debet -377.9 -419.5 -488.6 -762.8 -190.9 -236.1 -207.9 -232.6 -213.3 -221.1 -236.7 -297.6 Services balance 563.9 562.2 580.4 488.5 336.0 442.7 495.9 544.5 305.4 380.2 456.5 543.5 (All) credit 1488.9 1497.7 1649.1 1985.6 1024.5 1212.7 1189.0 1252.3 1091.7 1058.9 1156.8 1478.8 debet -925.0 -935.5 -1068.7 -1497.1 -688.5 -769.9 -693.1 -707.8 -786.3 -678.7 -700.3 -935.3 Transport balance 57.0 54.1 52.5 64.0 155.3 126.4 113.3 99.0 60.9 71.2 64.7 65.7 % share of credit 47.0 48.3 48.1 54.2 69.6 65.6 64.7 61.6 36.6 46.4 46.0 44.3 services debet 40.9 44.8 45.7 51.0 27.7 30.7 30.0 32.9 27.1 32.6 33.8 31.8 Transport balance 6.2 5.9 5.5 4.9 7.8 7.8 7.3 6.4 1.7 2.4 2.5 2.6 % share of GDP credit 13.5 14.1 14.4 16.8 10.7 11.1 10.0 9.2 3.7 4.4 4.5 4.7 debet -7.3 -8.2 -8.8 -11.9 -2.9 -3.3 -2.7 -2.8 -2.0 -2.0 -2.0 -2.2 Goods balance -821.7 -767.3 -788.4 -1102.6 -1027.1 -1058.1 -1350.7 -1444.2 -1404.5 -1103.8 -1108.0 -1336.8 (All) credit 2515.4 3308.7 3359.3 3516.2 1889.1 2058.3 2215.8 2575.7 3146.7 4050.4 4888.9 6030.7 debet -3337.1 -4076.0 -4147.7 -4618.8 -2916.1 -3116.5 -3566.5 -4020.0 -4551.3 -5154.2 -5996.9 -7367.6 225 Attachment D. 6. International transport agreements and conventions ratified by the Baltic States, Finland and Poland. Source: Unece 2003. LithuaniFinlandPo a tonia tvia land Es La Infra- Construction Traffic Arteries, 1950 X X structure E Road Network (AGR), 1975 X X X X networks E Rail Network (AGC), 1985 X X E Comb. Tr. Network (AGTC), 1991 S X Protocol Inl. Nav. to AGTC, 1997 E Inl. Water Network (AGN), 1996 X S Road Road Traffic, 1949 X X traffic Road Traffic, 1968 X X X X X Road Signs & Signals, 1949 X X Road Signs & Signals, 1968 X X X X X Suppl. 1968 Convention Road Traffic, 1971 X X X X Suppl.1968 Conv. Road Signs & Signals, 1971 X X X X X Weights and Dimensions, 1950 Suppl. 1949 Conv. and Protocol, 1950 X Road Markings, 1957 Protocol Road Markings, 1973 X X Driving Permits (APC), 1975 Vehicles Vehicles Regulations, 1958 X X X X X Techn. Inspect. Vehicles, 1997 X X Global Vehicles Regulations , 1998 Road Work of Crews Int. Road Transport (AETR), 1970 X X X X X transport Taxation Priv. Road Vehic. , 1956 X X Taxation Road Passenger Vehic. , 1956 X X X Taxation Road Goods. Vehic. , 1956 X X X Contract Road Goods Transport (CMR) ,1956 X X X X X Protocol to CMR, 1978 X X X X Contract Pass. & Lugg. Rd. Transp. (CVR) , 1973 X Protocol to CVR, 1978 X Econ. Regulat. Road Transp. , 1954 Inland Collision Inl. Nav. , 1960 X navigation Registr. Inl. Nav. Vessels, 1965 Measurement Inl. Nav. Vessels, 1966 Liability Vessel Owners (CLN), 1973 Protocol to CLN, 1978 Contract Inl. Nav. Pass. & Lugg. (CVN) , 1976 Protocol to CVN, 1978 Border Touring Facilities, 1954 X X crossing Temp. Import. Priv. Road Vehicles, 1954 X X X facilitation TIR Convention, 1959 X X TIR Convention, 1975 X X X X X Temp. Import.Aircraft & Boats, 1956 X Temp. Import. Commerc. Vehicles, 1956 X X X Cross. Front. Pass. Bagg. Rail, 1952 Cross. Front. Goods Rail, 1952 Spare Parts Europ Wagons, 1958 Customs Container Convention, 1956 X X Customs Container Convention, 1972 X X X Customs Treatment Pallets, 1960 X X Harmoniz. Frontier Controls Goods, 1982 X X X X Customs Pool Containers, 1994 X Dangerous Dang. Goods by Road (ADR) , 1957 X X X X X goods and Protocol to ADR, 1993 X X X X X special Liabil. Dang. Goods (CRTD) , 1989 cargoes Dang. Goods by Inland Waterways (ADN), 2000 Perishable Foodstuffs ATP), 1970 X X X X X Total number of agreements/conventions 13 17 19 32 32 X = Ratification, accession, definite signature S = Signature 226 Attachment D.7. Domestic freight and passenger statistics for Lithuania. Source: Statistics Lithuania at: http://www.std.lt/web/main.php Freight transport Lithuania 1995 1996 1997 1998 1999 2000 2001 2002 Total. thous.tonnes 188 770 143 770 117 113 115 136 101 326 109 077 115 128 116 563 Railways 26 004 29 138 30 498 30 912 28 347 30 712 29 174 36 650 Roads 138 329 88 638 58 773 54 631 45 651 45 013 45 075 45 047 Oil pipelines 18 110 20 724 22 584 24 087 22 249 27 981 35 627 29 539 Sea 5 841 4 693 4 541 4 165 4 280 4 515 4 706 4 809 Inland waterways 484 576 714 1 338 797 852 543 515 Air 3 2 3 3 3 3 3 3 Total, million tonne-kilometres 1) 14 409 14 612 16 437 16 857 18 223 20 149 20 798 25 371 Railways 7 220 8 103 8 622 8 265 7 849 8 919 7 741 9 767 Roads 5 160 4 191 5 146 5 611 7 740 7 769 8 274 10 709 Oil pipelines 2 006 2 308 2 656 2 964 2 627 3 457 4 780 4 892 Inland waterways 18 7 9 14 3 1 1 1 Sea 4 3 4 3 3 4 3 3 Passengers carried by public transport Lithuania 1995 1996 1997 1998 1999 2000 2001 2002 Total. thous. 694 683 609 414 551 379 516 243 471 930 383 243 355 874 358 325 Railways 15 236 14 190 12 557 12 195 11 527 8 852 7 718 7 217 Roads 678 163 593 475 537 080 502 139 458 328 372 684 346 401 347 783 buses 405 686 361 648 346 834 316 158 273 492 213 350 182 099 182 118 trolleybuses 272 477 231 827 190 245 185 981 184 835 159 334 164 301 165 665 Sea 39 41 36 44 51 64 69 58 Inland waterways 1 003 1 470 1 435 1 564 1 728 1 300 1 324 2 890 Air 242 239 271 302 296 343 363 376 Total mill. passenger- kilometres 5 699 4 933 4 444 4 205 3 831 3 272 3 180 3 107 Railways 1 130 953 842 800 745 611 533 498 Roads 4 169 3 601 3 191 2 964 2 665 2 154 2 119 2 046 buses 3 334 2 879 2 603 2 390 2 096 1 666 1 617 1 540 trolleybuses 835 722 588 574 569 488 502 505 Sea 28 25 26 28 32 44 43 36 Inland waterways 2 2 4 3 2 2 1 3 Air 370 352 381 410 387 461 484 524 227 Attachment D.8. EU's priority transport projects by Van Miert Group and transport corridors in the Baltic Sea Region as presented in Fall 2003. Source: Finnish Ministry of Transport and Communications 2003 228 Attachment D.9. TEN, TINA and Helsinki transport networks Source: Kallstrom, L. and Ingo, S. (2000) Sea Transports in the Baltic Sea; Trends and consequences for urban structure and regional development in the Baltic Sea region; On behalf of the Interreg II C projects Matros and Urban Systems & Urban Networking in the Baltic Sea Region, June 2000 Luleå Oulu Sundsvall Oslo Turku Helsinki St. Petersburg Stockholm Tallinn Gothenburg Riga Esbjerg Copen- hagen Kiel Vilnius Hamburg Lübeck Gdansk Minsk Szczecin Berlin Warszaw Ports and main networks for road and rail transport according to TEN, TINA and Helsinki networks 229 Attachment D.10. Anticipated TEN-T Road and rail network densities in 2010. Source: TEN-T Invest 2003 Road network Rail network 230 Attachment D.11. The main population centres in the Baltic Sea Region Source: Kallstrom, L. and Ingo, S. (2000) Sea Transports in the Baltic Sea; Trends and consequences for urban structure and regional development in the Baltic Sea region; On behalf of the Interreg II C projects Matros and Urban Systems & Urban Networking in the Baltic Sea Region, June 2000 Luleå Oulu Sundsvall Oslo Turku Helsinki St. Petersburg Stockholm Tallinn Gothenburg Riga Esbjerg Copen- hagen Kiel Vilnius Hamburg Lübeck Gdansk Minsk Szczecin Berlin Warszaw 231 Attachment D.12. Overview of organisations' transport research capacity in the Baltic States in 2000, Source: NTF-RECAP study, available at: http://www.ntf-recap.org/download.php English name s s nar ts or t rnals ts or ics/IT s ogr. ogr. fess pr /semi jou nsp es models hpr en exper stud s/pro 1AirTransport issu talissuen es res. ipal ort ltra nsport arc confer. nc sp nsport ort sp ic da tpolicy ttelemat me sand nat. refereed ate tra tra om issul rese of in pri doctor tran tran mo spor spor iron ia al bsite ad ethod is. c. of of 2Sea ter blic /inter tgradu 3Ro 4Rail 5In 6Pu 7Logistics 8Tran 9Tran Econ Env Soc M tion gan bli swe as m. m 10 11 12 13 Na EU Or Pu Ha Po Nu Nu Estonia Estonian Institute for Future X X X X X X X X X 6 2 Studies IB STRATUM X X X X X X X X X X X X X X 4 1 Road Laboratory Ltd X X X X X X X 3 2 Tallinn College of Engineering X X X X X X X X 12 Tallinn Technical University, X X X 5 3 Chair of Automotive Engineering Tallinn Technical University, X X X X X X X X X X X X X X X X 5 2 Institute of Transportation Technical Center of Estonian X X X X X X X 12 Roads University of Tartu, Faculty of X X X X X X X X X X X X 25 15 Biology and Geography, Institute of Geography Latvia Air Navigation, group of institute X X X X X 12 7 Environment Consultancy Bureau X X X X X X X X X X Latvian Maritime Academy X X X X X X X X 12 7 Latvia University of Agriculture, X X X X X X X X X 11? 8 Motor Vehicle Institute Rezekne Institutution of Higher X X X X X X X X 16 Education Riga Technical University, X X X X X X X X X X 7? 4 Division of Modelling and Simulation Riga Technical University, X X X X X X X X X 2 2 Professors Group "Business Logistics and Transport Economics" Transport and X X X X X X X X X X X X X X X 84 64 Telecommunication Institute Lithuania Kaunas University of Technology X X X X X X X X X X X X X 29 28 Klaipeda University, Maritime X X X X X X X 3 7 Institute Klaipeda University, Shipping X X X X X X X X X X 3 3 Department Transport and Rroad Research X X X X X X X X X X X X X X X X X X 18 8 Institute (TKTI) Vilnius Gediminas Technical X X X X X X X X X X X X X X X X X X 88 81 University, Transport Research Institute 232 Attachment E.1. Main trading partners of Estonia, Latvia and Lithuania in 2000 and 2002. Source: Statistics Lithuania, 2001 - 2003. ESTONIA'S Rank Rank %-Share %-Share ESTONIA'S Rank Rank %-Share %-Share EXPORT TO: 2000 2002 2000 2002 IMPORT FRO 2000 2002 2000 2002 Finland 1. 1. 32.3 24.8 Finland 1. 1. 27.5 17.1 Sweden 2. 2. 20.5 15.3 Germany 3. 2. 9.5 11.2 Germany 3. 3. 8.6 9.9 Sweden 2. 3. 9.8 9.5 Latvia 4. 4. 7.0 7.4 Russia 4. 4. 8.5 7.4 United Kingdom 5. 5. 4.4 4.8 China 6. 5. 3.5 5.2 Denmark 6. 6. 3.5 4.4 Italy 7. 6. 2.9 4.6 Lithuania 7. 7. 2.8 3.5 Japan 5. 7. 6.1 3.8 Netherlands 8. 8. 2.5 3.4 Lithuania 15. 8. 1.6 3.3 Norway 10. 9. 2.4 3.4 United States 11. 9. 2.2 3.2 Russia 9. 10. 2.4 3.4 Poland 14. 10. 1.8 2.8 Top 10 share - - 86.4 80.3 Top 10 share - - 73.4 68.1 m USD Total 3166.4 3443.9 m USD Total 4235.8 4300.2 LATVIA'S Rank Rank %-Share %-Share LATVIA'S Rank Rank %-Share %-Share EXPORT TO: 2000 2002 2000 2002 IMPORT FRO 2000 2002 2000 2002 Germany 2. 1. 17.2 15.5 Germany 1. 1. 15.7 17.2 United Kingdom 1. 2. 17.4 14.6 Lithuania 4. 2. 7.6 9.8 Sweden 3. 3. 10.8 10.5 Russia 2. 3. 11.6 8.8 Lithuania 4. 4. 7.6 8.4 Finland 3. 4. 8.6 8.0 Estonia 6. 5. 5.3 6.0 Sweden 5. 5. 6.8 6.4 Russia 7. 6. 4.2 5.9 Estonia 6. 6. 6.2 6.2 Denmark 5. 7. 5.8 5.7 Poland 7. 7. 4.7 5.0 United States 9. 8. 3.3 4.2 Italy 8. 8. 3.7 4.2 Netherlands 8. 9. 4.0 3.8 Denmark 9. 9. 3.6 3.4 Finland 11. 10. 1.9 2.3 Netherlands 10. 10. 3.4 3.4 Top 10 share - - 77.5 76.9 Top 10 share - - 71.9 72.4 m USD Total 1869.3 2284.4 m USD Total 3190.8 4053.7 LITHUANIA'S Rank Rank %-Share %-Share LITHUANIA'SRank Rank %-Share %-Share EXPORT TO: 2000 2002 2000 2002 IMPORT FRO 2000 2002 2000 2002 United Kingdom 3. 1. 8.3 14.1 Russia 1. 1. 27.2 21.9 Russia 4. 2. 6.1 11.3 Germany 2. 2. 15.0 17.2 Germany 2. 3. 15.0 10.5 Italy 6. 3. 3.6 4.9 Latvia 1. 4. 15.0 9.7 Poland 3. 4. 4.9 4.8 Denmark 6. 5. 5.2 5.3 France 5. 5. 4.2 3.9 Sweden 8. 6. 4.7 4.4 Sweden 7. 6. 3.5 3.4 France 9. 7. 4.5 4.2 United Kingdom 4. 7. 4.7 3.4 Estonia 11. 8. 2.2 3.9 Denmark 8. 8. 3.2 3.0 Poland 5. 9. 5.6 3.6 United States 10 9. 2.5 2.8 United States 12. 10. 5.0 3.4 China 14. 10. 1.6 2.4 Top 10 share - - 71.6 70.4 Top 10 share - - 70.4 67.7 m USD Total 3548 5158 m USD Total 5219 7415 233 Attachment E.2. Number of exporters and importers by the value of exports and imports 2000 and 2002. Source: Statistics Lithuania (2001, 74-75 and 2003, 71) 2002 2000 2002 2000 Value of Number of Number of exports/imports, Estonian % % % Estonian % % % (thousand USD) exporters of number of value of value importers of number of value of value Total 6 089 100,0 100,0 100,0 10 851 100,0 100,0 100,0 1 - 999 5 579 91,6 15,6 13,3 10 071 92,8 20,8 17,6 1000 - 4 999 384 6,3 23,6 19,6 599 5,5 26,0 22,3 5000 - 9 999 67 1,1 13,1 9,6 112 1,1 16,0 13,0 10000 - 49 999 56 0,9 29,9 28,3 67 0,6 25,6 25,3 Over 50 000 3 0,1 17,8 29,2 2 0,0 11,6 21,8 2002 2000 2002 2000 Value of Number of Number of exports/imports, Latvian % % % Latvian % % % (thousand USD) exporters of number of value of value importers of number of value of value Total 5 164 100,0 100,0 100,0 14 067 100,0 100,0 100,0 1 - 999 4 790 92,8 17,1 12,0 13 338 94,8 26,8 14,5 1000 - 4 999 286 5,5 27,7 19,5 592 4,2 30,7 16,4 5000 - 9 999 53 1,0 16,1 13,0 86 0,6 14,7 9,2 10000 - 49 999 32 0,6 27,6 26,7 48 0,4 21,3 22,8 Over 50 000 3 0,1 11,5 28,8 3 0,0 6,5 37,1 2002 2000 2002 2000 Value of Number of Number of exports/imports, Lithuanian % % % Lithuanian % % % (thousand USD) exporters of number of value of value importers of number of value of value Total 8 392 100,0 100,0 100,0 13 134 100,0 100,0 100,0 1 - 999 7 811 93,1 13,6 16,0 12 096 92,2 18,1 21,8 1000 - 4 999 441 5,3 19,3 18,9 832 6,3 23,8 24,0 5000 - 9 999 79 0,9 10,8 11,5 122 0,9 11,4 11,2 10000 - 49 999 49 0,6 18,5 26,4 71 0,5 18,3 21,3 Over 50 000 12 0,1 37,8 27,2 13 0,1 28,4 21,7 234 2 7 3 a a a a a 0 7 0 5 0 USD. 200 02 84.7 32.1 27.7 76.0 26.4 38.9 23.4 79. 81. 4.4 1.5 6.7 3.0 3.8 n/ n/ n/ n/ n/ .0 0. 8.9 0. 5.1 20 88.2 67. 25. m 905.9 11 10 10 42 385.2 437.8 561.4 11 200.0 27 680.3 798.3 1391.4 1031.6 39 14 26 17 67 1 .5 .2 .0 ­2002, 2001 1.0 6.9 9.6 7.8 3.7 5.4 5.2 1.7 5.5 1.5 9.7 0.2 8.4 0.7 5.5 1.7 n/a n/a n/a n/a n/a 0.4 0.0 7.62 1.0 9.55 71 79 86 70 5.16 3150.3 35 38 49 95 14 233 49 53 79 79 46.5 266 200 70.3 184 81.3 102 440 7.04 20.5 0 .7 .0 .3 .8 .2 .0 .9 .1 .0 .6 .2 .8 .8 .6 .4 .0 .1 0 a a a a a 0 6 8 73. 1996 200 569 643 673 671 75 33 78 52.3 200 45.8 1.68 42.9 85.7 1.7 7.7 n/ n/ n/ n/ n/ 1. 0.2 3. 5.21 .81 0. 24 1 31 26 396 470 474 664 2083 437 378 773 706 3482 25 in 1999 7.3 4.9 8.6 3.8 7.4 8.9 0.5 4.1 5.5 0.4 0.1 1.7 0.5 1.4 3.0 99 .8 .5 1.4 .5 n/a n/a n/a n/a n/a n/a 0.4 7.8 51. 7.0 1.0 ty 68 57 63 51 52.7 21.4 59.4 28 35.3 39.5 17 3.63 States 19 246 32 25 27 33 121 42 28 69 61 206 175 280 uni m 98 .0 .4 .5 .0 .9 .7 .4 .8 .9 .6 .2 .0 .1 .9 .5 .2 .3 98 a a a a a a rcom n/ n/ n/ n/ n/ n/ .40 2 6 1. 5. 9.5 8 0. Baltic 1.5 19 137 399 646 588 35 1806 348 249 232 256 19 1107 339 159 551 523 51.6 1625 19 38.0 113.3 15.9 28.6 197.3 17.5 the O the and 7 n/a n/a n/a n/a /a 7 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.1 3.0 2.8 ard Lithuania 199 316.6 150.7 233.9 156.0 11.6 868.8 122.7 66.8 405.9 397.9 47.2 40.6 199 -2.6 22.2 25.5 10 ialwork and soc outw d 96 an a n/a n/a n/a n/a n/ .5 .5 .2 .7 .1 .9 .3 .2 .4 .4 .1 .3 n/a 96 n/a n/a n/a n/a n/a n/ n/a n/a n/a n/a n/a n/a 0.0 0.1 0.0 0.0 0.0 0.1 an 19 306 114 123 92 12 648 78 38 308 256 19 700 19 th and al Latvia He ard on, tion tion tion tion tion tion ati uc inw truc truc truc truc truc truc ns ns ns ns ns ns Estonia, Co Co Co Co Co Co e,Ed nksof enc s,water, s,water, s,water, s,water, s,water, s,water, def d an ,ga ng ,ga ng ,ga ng ,ga ng ,ga ng ,ga ng *) ity *) ity )* D ity *) ity *) ity *) Investments Ba ity ,renti ,renti ,renti on US ,renti ,renti ,renti USD on on on on on on ctric te on ctric te on ctric te m ctric te on ctric te on ctric te inistration m icati ,Ele lesta icati ,Ele lesta inistrati icati ,Ele lesta nts, ication ,Ele lesta inistrati icati ,Ele lesta icati ,Ele lesta adm un inistrati un un inistrati inistrati inistrati Direct Central un un un ic tments, m adm m adm m adm m adm m adm m adm ublP es com ufacturing blic com ufacturing blic com ufacturing blic com ufacturing blic com ufacturing blic com ufacturing blic Inv and rants,Rea pu rants,Rea pu rants,Rea pu rants,Rea pu rants,Rea pu rants,Rea pu n Man tau d and n Man tau d and n Man tau d ectInvestme and Man tau d and n Man tau d and n Man tau d shing, ect on Foreign Source: age tio tio tio tio tio res an age res an age res an Dir age iati res an age res an age res an Dir ing, ing, ing, ing, ing, ing, stor edia ry and stor edia ry and stor edia ry try,Fi and gn stor ed ry and ction stor edia ry and stor edia ry and ign d m ar ction m ar ction m ar ction ei ar m ar ction m ar ction er rm qu d er qu d er qu d qu ls d er qu d er qu E.3. an int d an int d int d For d te an int d int d Fore ant ant ant ng,fores d ial an yprodu ial an yprodu ial an yprodu ard ialinte an Ho, yprodu ial an yprodu ial an yprodu ar ansport nc ng nc ng nc ng nc ng ar nc ng ar nc ng ar na ade,Hotels ar m tal ansport na ade,Hotels ar m tal anspor na ade,Hotels ar m tal anspor na ade m tal ansport na ade,Hotels m tal anspor na ade,Hotels m tal Inw Tr Fi Mini Tr Pri To Tr Fi Mini Tr Pri To Tr Fi Mini Tr Pri To Outw Tr Fi Mini Tr Pri To Tr Fi Mini Tr Pri To Tr Fi Mini Tr Pri To e,hunti a a a a cultur Agri Attachment Estonia Latvi Lithuani Estonia Latvi Lithuani *) 235 Attachment E.4. Data of Business Environment and Enterprise Performance Survey (BEEPS 2002). Sources: The World Bank (2003), The BEEPS Interactive datasheet ntry Observations Numbobs er vations of rat ob er Cou Minor obstacle Mode e obstacle stacle Major Financing Estonia 24.2 % 22.0 % 31.8 % 22.0 % 132 Latvia 20.8 % 11.9 % 40.3 % 27.0 % 159 Lithuania 17.0 % 13.2 % 34.0 % 35.8 % 106 Poland 28.1 % 24.0 % 30.6 % 17.4 % 242 Russia 11.1 % 10.1 % 28.8 % 50.0 % 542 Infrastructure Estonia 59.1 % 23.5 % 13.6 % 3.8 % 132 Latvia 34.6 % 34.0 % 24.7 % 6.8 % 162 Lithuania 47.3 % 28.2 % 20.9 % 3.6 % 110 Poland 53.9 % 29.2 % 13.6 % 3.3 % 243 Russia 39.6 % 27.8 % 18.7 % 13.9 % 546 Taxes Estonia 9.8 % 30.3 % 34.8 % 25.0 % 132 Latvia 4.9 % 9.8 % 47.0 % 38.4 % 164 Lithuania 6.3 % 11.6 % 26.8 % 55.4 % 112 Poland 7.7 % 17.9 % 35.8 % 38.6 % 246 Russia 2.6 % 6.9 % 26.8 % 63.8 % 549 Policy instability Estonia 21.7 % 24.8 % 28.7 % 24.8 % 129 Latvia 12.3 % 24.1 % 36.4 % 27.2 % 162 Lithuania 25.5 % 24.5 % 27.4 % 22.6 % 106 Poland 13.6 % 31.3 % 30.9 % 24.3 % 243 Russia 3.3 % 11.9 % 21.8 % 63.0 % 546 Inflation Estonia 20.6 % 35.9 % 27.5 % 16.0 % 131 Latvia 19.9 % 34.8 % 35.4 % 9.9 % 161 Lithuania 24.5 % 19.1 % 29.1 % 27.3 % 110 Poland 9.0 % 38.1 % 40.2 % 12.7 % 244 Russia 3.5 % 8.4 % 21.5 % 66.7 % 550 Exchange rate Estonia 51.6 % 22.1 % 19.7 % 6.6 % 122 Latvia 23.8 % 38.8 % 30.6 % 6.9 % 160 Lithuania 55.1 % 15.9 % 18.7 % 10.3 % 107 Poland 28.5 % 30.7 % 28.5 % 12.3 % 228 Russia 12.5 % 14.8 % 20.7 % 52.0 % 527 Functioning Estonia 52.6 % 31.9 % 8.6 % 6.9 % 116 of judiciary Latvia 27.7 % 34.8 % 29.1 % 8.5 % 141 Lithuania 27.5 % 36.3 % 26.4 % 9.9 % 91 Poland 32.3 % 28.5 % 23.8 % 15.3 % 235 Russia 33.6 % 36.6 % 15.0 % 14.8 % 500 Corruption Estonia 41.1 % 37.1 % 17.7 % 4.0 % 124 Latvia 30.3 % 29.6 % 25.4 % 14.8 % 142 Lithuania 22.4 % 24.5 % 26.5 % 26.5 % 98 Poland 33.5 % 27.1 % 20.8 % 18.6 % 221 Russia 22.4 % 27.1 % 22.9 % 27.6 % 490 Street crime Estonia 32.6 % 31.8 % 21.7 % 14.0 % 129 Latvia 27.2 % 31.1 % 28.5 % 13.2 % 151 Lithuania 21.2 % 25.0 % 11.5 % 42.3 % 104 Poland 30.7 % 28.9 % 16.2 % 24.1 % 228 Russia 21.3 % 28.5 % 21.1 % 29.1 % 536 Organized Estonia 64.6 % 16.5 % 11.8 % 7.1 % 127 crime Latvia 46.9 % 29.3 % 15.6 % 8.2 % 147 Lithuania 25.8 % 25.8 % 14.4 % 34.0 % 97 Poland 50.2 % 21.2 % 10.1 % 18.4 % 217 Russia 23.7 % 26.5 % 18.4 % 31.4 % 510 Anti-competitive Estonia 43.3 % 35.8 % 13.3 % 7.5 % 120 behavior Latvia 21.1 % 19.7 % 36.2 % 23.0 % 152 Lithuania 25.3 % 25.3 % 14.7 % 34.7 % 95 Poland 30.3 % 33.8 % 23.1 % 12.8 % 234 Russia 18.2 % 26.7 % 29.9 % 25.3 % 499 236 Attachment E.5. Data of the Logistics Friendliness Survey 2003. Sources: The World Bank 2003, Data and Statistics (GNI data) Transparency International 2003 (CPI data) Turku School of Economics and Business Administration (survey data) P P PP PP 2002, dollars) 3 2002, endliness 3 score dollars) endliness score pita 200 fri pita 200 fri rca onal 03 onal 03 ati 20 rca ati 20 nk pe gistics rvey nk pe gistics rvey Ra Country GNI (Intern CPIscore Lo Su Ra Country GNI (Intern CPIscore Lo Su 1 Belgium 27350 7.60 6.83 35 South Africa 9870 4.40 4.88 2 Hong Kong 26810 8.00 6.67 36 Philippines 4280 2.50 4.86 3 Switzerland 31250 8.80 6.67 37 Turkey 6120 3.10 4.67 4 Austria 28240 8.00 6.63 38 Indonesia 2990 1.90 4.63 5 New Zealand 20020 9.50 6.50 39 Thailand 6680 3.30 4.50 6 Norway 35840 8.80 6.38 40 Argentina 9930 2.50 4.46 7 Denmark 29450 9.50 6.33 41 Bulgaria 6840 3.90 4.43 8 Italy 25320 5.30 6.29 42 Malaysia 8280 5.20 4.43 9 Sweden 25080 9.30 6.20 43 Peru 4800 3.70 4.43 10 Spain 20460 6.90 6.17 44 Slovenia 17690 5.90 4.38 11 Australia 26960 8.80 6.14 45 Israel 19260 7.00 4.00 12 Netherlands 27470 8.90 6.14 46 Kazakhstan 5480 2.40 4.00 13 UK 25870 8.70 6.14 47 Ukraine 4650 2.30 4.00 14 Germany 26220 7.70 6.00 48 Venezuela 5080 2.40 4.00 15 Japan 26070 7.00 6.00 49 China 4390 3.40 3.88 16 Poland 10130 3.60 6.00 50 Brazil 7250 3.90 3.83 17 Portugal 17350 6.60 6.00 51 Uzbekistan 1590 2.40 3.75 18 France 26180 6.90 5.86 52 Azerbaijan 2920 1.80 3.60 19 Ireland 28040 7.50 5.86 53 Chile 9180 7.40 3.57 20 Greece 18240 4.30 5.63 54 Egypt 3710 3.30 3.57 21 South Korea 16480 4.30 5.60 55 India 2570 2.80 3.57 22 Canada 28070 8.70 5.57 56 Mexico 8540 3.60 3.57 23 Vietnam 2240 2.40 5.57 57 Colombia 5870 3.70 3.50 24 Estonia 11120 5.50 5.54 58 Jordan 4070 4.60 3.50 25 USA 35060 7.50 5.54 59 Russia 7820 2.70 3.50 26 Slovak Republic 12190 3.70 5.43 60 Belarus 5330 4.20 3.29 27 Singapore 23090 9.40 5.38 61 Costa Rica 8260 4.30 3.25 28 Hungary 12810 4.80 5.33 62 Moldova 1560 2.40 3.00 29 Finland 25440 9.70 5.21 63 Armenia 3060 3.00 2.88 30 Czech Republic 14500 3.90 5.17 64 Morocco 3690 3.30 2.71 31 Romania 6290 2.80 5.14 65 Nigeria 780 1.40 2.71 32 Lithuania 9880 4.70 5.05 66 Zambia 770 2.50 2.60 33 Latvia 8940 3.80 4.90 67 Ghana 2000 3.30 2.50 34 Croatia 9760 3.70 4.88 68 Kenya 990 1.90 2.50 237 Attachment F.1. TEN-T Investment in Accession countries. Source: TEN-T Invest 2003. 238 239 Attachment F.2. The main Estonian transport projects with EU or World Bank loans or financial assistance in the short term. Source: Estonian MEAC Mode Target Finance Timeframe Estimated project Cost Maritime and ports Million Reconstruction of local ports, Virtsu, Kuivastu, CF 2004- 12.1 (TEN-T network) Rohuküla, Helterma Construction of breakwaters Muuga Port CF 2004-2009 61.7 Extension of Port territory Muuga Port CF 2006-2007 72.4 Completion of VTMIS Gulf of Finland CF 2003-2007 2.9 Reconstruction Small ports ERDF 2004-2006 7.4 Maritime and ports total 156.5 Railway projects Railway border station Koidula CF 2004-2006 48.6 Railway bypass TA first phase *) Tallinn CF 2004-2005 48.6 TA for reconstruction *) Electrical railway CF 2004-2005 44.7 (Tallinn) Reconstruction of traffic node *) Tapa CF 16.0 Decontamination Railway surroundings CF Establishment, training and Railway rescue force CF equipment Railway infrastructure platforms, railway stations ERDF 2004-2006 2.3 Railway projects total 111.6 Road projects Via Baltica road Ikla-Parnu - Tallinn-Narva ISPA/CF 2003-2008 137.3 Road Tallinn-Tartu ISPA/CF 2006 9.6 Road reconstruction Jõhvi - Tartu - Valga ISPA/CF 2005 22.8 Fixed link pre-feasibility study Saaremaa ISPA/CF 2004 0.6 Road reconstruction Tallinn-Tartu-Võru- WB 14.8 Luhamaa Reconstruction Regional roads ERDF 2004-2006 15.0 Road projects total 62.8 Airport projects Reconstruction of airside area Tallinn Airport CF 2005-2006 14.6 Reconstruction of passenger Tallinn Airport CF 2005-2006 14.6 terminal Reconstruction of local airports, Tartu, Parnu, Kardla, CF 2005-2006 24.5 (TEN-T network) Kuressaare Reconstruction Airports ERDF 2004-2006 2.0 Airport projects total 55.7 *) Construction Cost of the project All total 386.6 CF=Cohesion Fund for new Member states; ERDF= European Regional Development Fund; ISPA = Instrument for Structural Policies for Pre-Accession; WB = The World Bank. 240 Attachment F.3. Lithuanian Railway reform (a) Institutional structure as per December 31, 2003, and (b) as anticipated in 2006. Source: Lithuanian MoTC (a) In December 31, 2003: Ministry of Transport and Communications State Railway Inspectorate JSC Lithuanian Railways Administration Freight transport Passenger transport Infrastructure Infrastructure unit unit property unit maintenance and management unit (b) Anticipated in 2006 Ministry of Transport and Communications Railway State State enterprise Inspectorate Railway infrastructure JSC Lithuanian Railways (LG) Other private entities in Administration railway sector Freight Transport Passenger transport Railway Infrastructure Services Services Maintenance Affiliate companies 241 Attachment F.4. Cohesion Fund and ISPA projects in Latvia. Source: Latvian MoT 242 Attachment G.1. Number of persons killed in road accidents per million private cars. Source: Eurostat (2001, 4) 243 Attachment G.2. Transport data on the Baltic States 1980-99. Source: ECMT Road Fatalities 1980=100 180 160 140 120 100 80 60 40 20 0 1980 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Estonia Lithuania Latvia CEECs Goods transport by Rail Goods transport by Road 1980=100 1980=100 160 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 1980 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1980 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Estonia Lithuania Latvia CEECs Estonia Lithuania Latvia CEECs Passenger transport by Rail Public transport by Road (buses only ) 1980=100 1980=100 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 1980 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1980 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Estonia Lithuania Latvia CEECs Estonia Lithuania Latvia CEECs 244 Attachment G.3. Road fatalities in 1999 in selected countries. Source: ECMT. Total number of deaths per million Total number of deaths per million road motor vehicles population 1999 (estimated data) * 1999 (estimated data) * ALB ALB BG BG BIH BIH CZ CZ EST EST H H HR HR LT LT LV LV MKD MKD PL PL RO RO SK SK SLO SLO UK UK S S NL NL 0 500 1000 1500 2000 0 100 200 300 Source: Trends in the transport sector, ECMT * Vehicleand population data refer to 1998. 245 Attachment G.4: Time series of fuel prices in Europe. Source: Metschies (2003, 47) 246 Attachment G.5. Via Baltica traffic flows in 1999 247 Attachment G.6. Cargo and passenger transport by road in the Baltic States in 1996-2002. Source: Ministries of Transport data compiled by Latvian MoT. rted tons) km) rted km) turnover ton (million Freight inland inland transpo Passengers transpo (mill.pas.) Passenger Year (thousand international international Freight (Million turnover passenger Estonia 1996 9 367 8 070 1 297 1 693 187 187 0 2 021 1997 9 561 7 980 1 581 2 138 192 192 0 2 230 1998 11 281 8 610 2 671 3 564 173 173 1 2 212 1999 11 258 8 650 2 608 3 708 171 170 1 2 267 2000 13 827 11 158 2 669 3 690 188 187 1 2 371 2001 14 161 10 693 3 468 4 693 172 171 1 2 464 2002 17 845 14 748 3 097 4 409 171 170 1 2 331 2003 Latvia 1996 4 059 4 059 793 988 149 148 1 1 612 1997 4 706 3 577 1 130 1 370 151 151 1 1 720 1998 33 764 32 060 1 705 4 108 164 164 1 1 904 1999 33 305 31 650 1 655 4 035 167 167 1 2 368 2000 32 914 30 928 1 986 4 790 166 165 1 2 348 2001 32 336 30 031 2 305 5 341 169 169 1 2 305 2002 36 906 34 297 2 609 6 160 174 173 1 2 361 2003 Lithuania 1996 9 339 9 339 2 127 2 133 362 361 1 2 879 1997 12 357 9 297 3 060 2 971 347 345 2 2 876 1998 11 606 8 494 3 112 3 298 316 315 1 2 387 1999 45 651 41 449 4 202 7 740 273 272 1 2 097 2000 45 013 40 748 4 266 7 769 213 213 1 1 666 2001 46 470 41 805 4 665 8 566 182 181 1 1 617 2002 45 047 39 347 5 700 10 700 182 181 1 1 134 2003 248 Attachment H.1. Statistics over rail transport in the Baltic States 1996-2003. Source: Transport ministry data compiled by the Latvian MoT. Estonia 1996 1997 1998 1999 2000 2001 2002 Freight transported (thousand tons) 24 850 29 036 31 940 37 388 39 654 38 936 42 613 inland 9 609 9 181 8 308 0 7 398 5 540 3 997 export 1 064 1 365 1 258 0 820 633 629 import 2 869 4 428 3 824 0 2 774 2 695 2 553 inland transit 2 0 0 0 0 0 0 transit through ports 11 305 14 062 18 550 0 28 662 30 071 35 528 Freight transport work (million tonkm) 3 894 4 810 5 786 7 295 7 801 8 218 9 330 Passengers transported (thousands) 6 716 5 604 6 717 6 763 7 276 5 480 5 185 inland 6 229 5 139 6 453 6 589 7 133 5 363 5 078 international 487 465 264 174 143 117 107 Passenger transport work (million passengerkm) 309 262 237 238 263 183 177 Latvia 1996 1997 1998 1999 2000 2001 2002 Freight transported (thousand tons) 35 264 41 019 37 857 33 208 36 410 37 895 40 100 inland 2 565 2 522 2 432 1 938 1 752 2 011 2 315 export 1 510 2 785 2 555 1 663 1 936 1 222 662 import 3 667 4 633 4 643 3 577 3 998 3 373 3 492 inland transit 4 767 4 683 2 763 2 146 2 799 14 442 4 029 transit through ports 22 755 26 395 25 465 23 884 25 925 16 847 29 603 Freight transport work (million tonkm) 12 412 13 970 12 966 12 208 13 291 14 179 15 020 Passengers transported (thousands) 35 140 32 994 30 088 24 862 18 188 20 119 21 960 inland 33 973 31 856 29 185 24 122 17 502 19 593 21 531 international 1 167 1 139 903 741 686 526 429 Passenger transport work (million passengerkm) 1 182 1 148 1 057 984 715 706 744 Lithuania 1996 1997 1998 1999 2000 2001 2002 Freight transported (thousand tons) 29 138 30 498 30 912 28 802 30 712 29 174 36 650 inland 4 092 4 720 5 977 4 976 4 664 6 340 6 481 export 5 290 5 495 6 210 5 068 4 100 4 273 4 476 import 4 734 4 581 4 977 4 308 3 961 3 410 4 898 inland transit 5 346 5 761 5 263 5 282 6 421 8 120 13 073 transit through ports 9 676 9 941 8 486 9 168 11 566 7 031 7 722 Freight transport work (million tonkm) 8 103 8 622 8 265 7 848 8 919 7 741 9 767 Passengers transported (thousands) 13 196 11 185 10 629 10 577 8 852 7 718 7 234 inland 11 166 9 239 8 970 9 094 7 412 6 314 5 756 international 2 030 1 945 1 658 1 483 1 441 1 404 1 462 Passenger transport work (million passengerkm) 889 766 715 693 611 533 498 249 Attachment H.2. Lithuanian railway and road infrastructure priorities 2004-2006. Source: Lomakina, Lithuanian MoTC. Main priorities of Lithuanian railway infrastructure ai iorit Lit ia railwa in ast uct modernisation in 2004 ­ 2006 Bugeniai Latvia Mazeiki Skuodas ai I Joniskis Modernization of the interface between Klaipda Seaport and TelsiaiIXB Kuzi Kretinga ai Siauliai railway transport Panevzys Obeliai Radviliskis Baltic Turmantas Modernisation of telecommunication Klaipda Sea IA I equipment. IXB Utena Didziasalis Track reconstruction for train speed Taurag Paggiai Svencionliai up to 160 km/hour. Construction of Gaizinai Kaunas Pabrad Kaisiadorys two-level railway intersections. Kazl Rda IXB Russia IXD VILNIUS I Kena Modernisation of signalling and Marijampol Lentvaris power supply equipment. Kybartai Stasylos Modernisation of train radio system. Sestokai Alytus Introduction of hot axle box detection devise system. Poland Senov Belarus Construction of European gauge railway line: State border with Poland - Sestokai - Kaunas. Rehabilitation of Kaunas railway tunnel. Main priorities of Lithuanian road network development priorities Lit uanian ad networ development in 2004-2006 Further modernisation of road Vilnius- Kaunas-Klaipda of transport corridor IX ­ To Riga To Riga strengthening of pavement, construction of separate grade intersections. Strengthening of pavement of individual Via I A Baltica road sections, construction of separate grade intersections; reconstruction of Garliava-Marijampol road section into ViaBaltica motorway. Branch IXD ­ reconstruction of road Marijampol-Kybartai section including widening of pavement up to the width of 9 meters. IXB To Kaliningrad IXD Connection of Vilnius with Via Baltica - taking into consideration alterations of economic relations between Lithuania and Poland. Implementation of investment projects for the construction of Southern and Western by- To Warsaw passes in the City of Vilnius. Development of TEN-T network roads 19 (A15 Vilnius-Belarus border, A2 Vilius- Panevzys, A11 Siauliai-Palanga), stage I Attachment I.1. Cargo traffic in major Baltic States' ports in thousand tons 1996-2002. Source: Ministries of Transport data compiled by Latvian MoT. 1996 1997 1998 1999 2000 2001 2002 loaded 5 337 8 315 10 550 9 258 11 650 13 265 15 885 unloaded 2 120 2 898 2 765 2 755 1 702 1 619 2 223 Riga total 7 457 11 213 13 315 12 013 13 352 14 884 18 108 loaded 35 102 36 216 35 629 33 394 34 330 37 541 28 151 unloaded 642 564 417 743 425 396 553 Ventspils total 35 745 36 781 36 046 34 137 34 755 37 937 28 704 loaded 1 255 1 810 1 806 1 970 2 560 2 762 3 710 unloaded 354 486 490 354 405 498 609 Liepaja total 1 609 2 296 2 297 2 324 2 965 3 261 4 318 loaded 11 573 12 490 12 227 12 537 15 488 13 079 15 180 unloaded 3 264 3 640 2 789 2 708 3 755 4 219 4 563 Klaipeda total 14 836 16 131 15 016 15 245 19 243 17 298 19 743 loaded 9 969 12 895 17 007 15 499 25 182 28 472 33 593 unloaded 4 090 4 179 4 292 4 136 4 050 3 592 3 933 Tallinn total 14 059 17 074 21 299 26 445 29 232 40 094 37 526 251 lines are single pipelines Oil narrow the Russia. West ,whereas North and adouble-line States with rporation. Co Baltic points 252 the of some Fortum at or Source: ays. infrastructure abroader with railw transport Oil marked symbolize J.1. Attachment Attachment K.1. Development of Estonian civil aviation organizations in 1991 ­ 2003. Source: Estonian Air Navigation Services http://www.eans.ee/eng/ 253 Attachment L.1: Structure of the Balance Sheet of Estonian firms in supporting and auxiliary transport activities by firm size. Source: Statistical Office of Estonia. http://gatekeeper.stat.ee:8000/px-web.2001/dialog/statfileri.asp NACE classification I.63: including cargo handling, storage, warehousing and other supporting transport activities and travel agencies. 1 - 9 employees (626 firms at end of 2002) 10 - 19 employees (95 firms at end of 2002) 1996*** 1997 1998 1999 2000 2001**** 1996*** 1997 1998 1999 2000 2001**** 300000 300000 200000 200000 100000 100000 USD USD 0 0 1000 1000 -100000 -100000 -200000 -200000 -300000 -300000 20 - 49 employees (62 firms at end of 2002) 50 - 99 employees (15 firms at end of 2002) 1996*** 1997 1998 1999 2000 2001**** 1996*** 1997 1998 1999 2000 2001**** 300000 300000 200000 200000 100000 100000 USD USD 0 0 1000 1000 -100000 -100000 -200000 -200000 -300000 -300000 100 - 249 employees (21 firms at end of 2002) Current assets total 1996*** 1997 1998 1999 2000 2001**** 300000 Inventories total 200000 Fixed assets total 100000 Current liabilities total USD 0 1000 Long-term liabilities -100000 -200000 Equity total -300000 Other restricted reserves 254 Attachment L.2: Weekly schedule for shipments to and from European destinations of a large international logistics provider in Estonia. Cargo (less than 2,500 kg) in this service is routed via central terminals, or hubs, the day of departure from terminal is marked with "X". Baltic export shipments are typically shipped as full trailer loads or full container loads, but the export industry's demand for less that truckload export traffic lines is, however, rising. In the example case, nine out of ten of all departures are subcontracted to Baltic carriers. EXPORT departure IMPORT departure Country Terminal city Mon Tue Wed Thu Fri Mon Tue Wed Thu Fri AT Vienna X X X AT Salzburg X X X BE Mechelen X X X BG Sofia X X X X CH Basel X X X CZ Liberec X X DE Hamburg X X DE Stuttgart X DE Cologne X DK Copenhagen X X X DK Arhus X X ES Barcelona X X ES Irun X X ES Madrid X X ES Valencia X X FI Helsinki X X X X X X X X X X FR Lille X FR Lyon X FR Paris X X FR Strasbourg X FR Bordeaux X FR Lyon X GB London X X GB Immingham X GB Hinckley X GB Manchester X GR Athens X X X X GR Thessalonica X X X X HU Budapest X X X IE Dublin X X IT Torino X IT Milan X X IT Verona X IT Bologna X IT Florence X LT Vilnius X X X X LU Mechelen ( BE ) X X X LV Riga X X X X X X X X X X NL Ede X X NO Oslo X X X PL Warsaw X X X PT Porto X X PT Lisbon X X SE Stockholm X X X X X X X SE Boras X X X X X X SI Ljubljana X X X X SK Liberec ( CZ ) X X X X TR Istanbul X X X X Total departures / day 12 5 40 2 19 4 5 9 10 24 Total departures Export: 78 Import: 52 255 Attachment M.1. Evaluation of logistics environment by 15 international firms in manufacturing and trade. Source: Naula and Ojala 2002 a) transport and telecommunications infrastructure b) regulatory environment and c) logistics service providers in the Baltic States. Does the transport and telecommunications Does the regulatory environment of the Baltic States infrastructure of the Baltic States hinder efficient hinder efficient materials flow of your company's goods materials flow of your company's goods ? ? Establishing Anticipated EU Establishing Anticipated EU Entrance market position Present time Entrance market position Present time 1.00 1.00 2.00 2.00 3.00 3.00 4.00 4.00 5.00 1= Very well... 5=Very poorly 5.00 1 = No hinder ... 5 = Strong hinder Estonia Latvia Lithuania Estonia Latvia Lithuania How well do logistics providers fulfil your company's requirements for efficient materials flow ? Establishing Anticipated EU Entrance market position Present time 1.00 2.00 3.00 4.00 5.00 1= Very well... 5=Very poorly Estonia Latvia Lithuania 256 Attachment M.2. Wholesaling/retailing firms' evaluation of regulatory environment and transport and telecommunications infrastructure in the Logistics Survey On Wholesale Operations. Source: Naula, Ojala and Sara 2002. Does the regulatory environment of Estonia hinder your company's materials flow? (N=27) 30 25 No answ er 20 Very strong hinder Strong hinder 15 Average hinder Some hinder 10 No hinder 5 0 1993 1996 1999 2002 2005 Does the transport and telecommunications infrastructure of Estonia hinder (negative effect) your company's materials flow? (N=27) 30 25 No answ er 20 Very strong hinder Strong hinder 15 Average hinder Some hinder 10 No hinder 5 0 1993 1996 1999 2002 2005 257 Attachment O.1. Transport Emissions in the Baltic Sea Region states. Source: Baltic 21. Transport sector emissions 1990-1998, and transport sector % of total in 1996 or 1997 Transport CO2 Emissions, Million tons Transport a 1990 1991 1992 1993 1994 1995 1996 1997 1998 % of total*) Denmark 13 13 13 13 14 14 14 22 % Estonia 3 2 2 2 2 2 3 13 % Finland 15 14 14 14 14 14 14 15 15 23 % Germany 174 178 182 180 183 182 183 20 % Iceland 1 1 1 1 1 1 1 20 % Latvia 6 3 3 3 2 2 2 2 24 % Lithuania 4 4 4 28 % Norway 11 11 12 12 12 12 12 13 36 % Poland 26 29 n.a. NW Russia 29 28 24 22 19 17 n.a. Sweden 21 20 21 21 22 22 22 22 23 42 % Transport NO2 Emissions, 1,000 tons Transport a 1990 1991 1992 1993 1994 1995 1996 1997 1998 % of total o Denmark 156 161 159 147 151 146 135 131 52 % Estonia n.a. Finland 175 172 172 169 65 % Germany 1920 1883 1939 1282 1196 1146 63 % Iceland 17 18 19 20 21 22 8 28 % Latvia 67 39 34 29 30 22 18 41 % Lithuania 38 39 33 58 % Norway 170 164 163 168 160 160 165 166 57 75 % Poland 402 393 396 420 420 414 417 452 41 % NW Russia 1899 1598 1581 1572 1453 1407 1347 1379 58 % Sweden 321 319 316 310 323 293 231 217 78 % Transport SO2 Emissions, 1,000 tons Transport a 1990 1991 1992 1993 1994 1995 1996 1997 1998 % of total*) Denmark 21 22 19 14 13 12 9 8 5 % Estonia n.a. Finland 4 2 1 2 1 % Germany 111 81 75 64 65 43 3 % Iceland 2 3 3 3 3 3 0 12 % Latvia 5 7 7 7 3 5 1 4 2 % Lithuania 9 9 1 10 % Norway 11 10 8 7 5 5 4 5 2 13 % Poland 140 90 91 50 50 42 46 47 2 % NW Russia 52 98 2 % Sweden 37 27 25 25 24 24 9 2 11 % Transport Particle Emissions (1,000 tons) 1991 1992 1993 1994 1995 1996 1997 1998 Denmark 3,3 3,3 3,3 3,3 3,4 3,5 3,5 3,4 Estonia 6,2 5,9 5,9 Finland 13 13 12 11 10 10 9 9 Germany 68 67 69 67 60 59 59 Iceland Latvia Lithuania 1,6 2,9 1,8 1,7 1,8 2,2 Norway 4,6 4,9 5,4 4,8 4,8 4,7 4,3 4,1 Poland NW Russia Sweden 4,7 4,4 4,1 3,9 3,7 3,5 3,3 3,1 Source: BALTIC 21 website at: http://www.ee/baltic21/ read November 26, 2003 258 Attachment O.2. Transport's share of emissions in 1998 and distribution by transport source in Estonia 1992- 1998 Source: UN Environmental progamme: http://grida.no/enrin/htmls/estonia/env2001/content/soe/air_2-2.htm Transport emissions thousand tons per year 259 Attachment P.1. Slide presentations given at the seminar The presentations appear in the order of presentation. Some of the speeches given at the seminar did not use slides and they are not included here. An overview of the Latvian transport sector 1. Mr R. Zile, Minister of Transport, Latvia An overview of the Lithuanian transport sector 2. Mr Z. Balcytis, Minister of Transport, Lithuania Experience of Transport Sector Restructuring 3. Mr C. Queiroz, World Bank Experiences of the international financial institutions 4. Mr S. Niinisto, Vice President, European Investment Bank (EIB) 5. Mr U. Paavel, Head of Mission, EBRD 6. Mr E. Karmila, Excecutive Vice President, NIB Preparing the Transport Sector for EU membership 7. Mr V. Legzdins, State Secreraty, Latvia 8. Mrs L. Lomakina, Secretary of the Ministry, Lithuania 9. Mr A. Tint, Deputy Secretary General, Estonia Pre-seminar questionnaire highlights 10. Mr L. Ojala, Turku School of Economics and Business Administration, Finland Transport Education and Research 11. Mr I. Kabaskins, Transport and Telecommunications Institute, Latvia Development of Airports 12. Mr R. Loik, Tallinn Airport Ltd, Estonia Experience of a large logistics provider 13. Mr Kari Peltonen, Oy Schenker East Ab, Finland 14. Workshop guidelines and the results of the five workshop sessions (Mr. L. Ojala) 15, Roads and road transport workshop (Mr C. Queiroz) 16. Ports and maritime workshop (Mr L. Ojala) 17. Aviation workshop (Mr J. Tamm) 18. Transport services and trade facilitation workshop (Mr T. Naula) 260 LATVIA TRAFFIC DATA - AADT year 2002 Overview of Latvian Transport Sector STATE MAIN ROADS > Estonia > Tallina terburga (Tartu) > 2000 ­ 2003 Baltic sea 2740 Ainazi (24%) 1540 Valka St.P (Pleskava) (22%) 1080 A-1 5860 360 terburga (25%) 3320 Riga St.P 2190 (21%) 2340 (25%) Russia (27%) Gulf (36%) (22%) Limbazi A-3 Valmiera Al ksne Ventspils 2700 2410 A-2 1160 Roberts Z le 2920A-10 (34%) 2650 3110 (22%) 2300 (22%) (25%) (28%) Talsi 15520 7860 (26%) C sis (25%) 3310 (18%) (15%) 5080 2880 Minister of Transport 3300 (24%)4080 6610 5450 (19%) (24%) Gulbene (21%) Balvi (29%) R GA (26%) (26%) terburga > Kuld ga 8640 Tukums 80506620 5220 (14%) (17%) A-4 (20%) (21%) 4770 12970 St.P rg i Lub na 980 Madona (40%) 3990 2800 5930 (29%) 425013820 A-5 14200(16%) (21%) Ogre 8770 2200 (24%) 3030 3500 (16%) (17%) (55%) 7720 (34%)2370 (30%) 3830 6140 A-6 (24%) 5020 2330 A-13 (33%) (26%) 9900 (29%) 5170 2120 (22%) 1420 2nd Seminar on Transport Sector (22%) A-9 (34%) (22%) 9570 (44%) (34%) (16%) A-7 (24%) A-12 Saldus 6390 (46%) Dobele (22%) 1580 2070Ludza Restructuring in the Baltic States Liep ja 5540 2390 4160 46301900Jelgava 4620 (27%) Aizkraukle (57%) 2420 (32%) (31%) (34%) (28%) (29%) 6980 (36%) R zekne 1610 Maskava > 2180 (23%) A-8 (20%) J kabpils (27%) 2520 2040 A-15 (28%) 810 (20%) 830 Bauska (42%) (38%) 610 A-11 (34%) 3020 (54%)Prei 2780 i (27%) November 24 ­ 25, 2003, Pärnu, Estonia (30%) 430 (31%) Lithuania da Klaip (25%) 1040 3000 (47%) (25%) 1590 2120 Kr slava (25%) A-14 A-6 (26%) < Daugavpils 830 3260 Average daily traffic (vehicle/day) 990 A-13 (30%) 1050 Vitebska > (49%) (14%) Heavy vehicle (percentage) the EIB will provide · Additionally, other sound transport sector complementary funding to these projects. projects could be continuously financed by · The EIB intends to work in close co- the EIB (maritime, aviation, urban operation with the authorities and the infrastructure, other road/rail operations). Commission to help to prioritise projects. · Development of PPPs is actively followed by the Bank and eligible ("bankable") projects will be supported. Transport Portfolio ­ Baltic TRANSPORT SECTOR States · 158 million Road - BALTIC STATES Rail committed to 28% 40% projects with total value of 448 million Mr. Urmas Paavel · 10 projects in Air 16% EBRD total Ports/Shipping 15% Transport Portfolio ­ Transport Portfolio ­ Baltic States by Country Baltic States (by Sub-sector) No of EBRD Total Project Number of EBRD Total Project projects Commitment Value projects Commitment Value (Euro million) (Euro million) Rail 2 63.9 188.7 Estonia 3 37.1 63.5 Road 3 44.6 170.6 Latvia 4 38.7 146.8 Air 3 26.1 28.6 Lithuania 3 82.4 238.3 Ports/Shipping 2 23.6 60.7 Total 10 158.2 448.6 Total 10 158.2 448.6 Railway Sector Objectives Road Infrastructure Objectives · Maintenance of · Improve the market existing network competitiveness · Creation of new · Improve asset infrastructure (roads management to and motorways) increase economic returns · Improvement in asset management · Overcome transport and maintenance bottlenecks; efficiency · Improve international · Sector cost recovery trade links Port Operations Objectives Air Transport Objectives · Modernise basic · Modernise assets to infrastructure meet safety, security and commercial · Provide modern requirements superstructure (terminals) · Facilitate the · Increase sector privatisation of privatisation and airlines commercialisation · Improve sector commercialisation Transport Sector Transport Sector Restructuring/Transition Restructuring/Transition Achievements - Baltic States Achievements - Baltic States Tallinn and Riga Airports Estonia/Latvia Railways · Improved access to region facilitating market- oriented economy · Support of restructuring broadly in line with EU Directives (Latvia) · Commercial approach to airport operations · Support for sector privatisation with technical Ventspils Port Terminals assistance (Estonia) · Promotion of East-West trade · Public-private approach to port investments · Promotion of East-West trade Transport Sector ­ Baltic States Transport Sector EU Membership Restructuring/Transition Achievements - Baltic States Potential role of EBRD in the Transport sector · Selective provision of matching funds for Cohesion and Structural Fund projects assistance with project preparation and Latvia/Lithuania Road Projects management · Open tendering for civil works · Non-sovereign lending to viable public entities (e.g. rail · Road sector budgeting freight companies) · Sector cost recovery (road user charges) · Development of Public Private Partnerships ("PPP") projects (e.g. for development of road infrastructure). 2nd Seminar on Transport Sector NORDIC INVESTMENT BANK Restructuring in the Baltic States Owned by the five Nordic countries Finances projects in ­ the Nordic region Experience of International Financial ­ in the neighbouring areas Institutions ­ other industrialized countries ­ emerging markets in Asia, Latin America, Africa, the Middle East and in Central and Eastern Europe Financing based on sound banking principles Mr Erkki Karmila, Nordic Investment Funding on the international capital markets Bank Highest possible credit rating AAA/Aaa Executive Vice President Head office in Helsinki and offices in Copenhagen, Stockholm, Oslo, Reykjavík and Singapore NIB'S TOTAL COMMITMENTS TO THE BALTIC SEA TRANSITION COUNTRIES BY NIB financing of Baltic Transport Sector SECTOR ­ as of November 2003 (mEUR) Via Baltica Road Loan in Lithuania, 1996 mUSD 6.7 Baltic Poland Russia Total million % Lithuanian Gravel Road Programme in 2001 mEUR 67.4 countries million Energy sector 189,04 158,24 0,00 347,27 34 % - Regional development Telecommunications 14,36 37,65 17,00 69,00 7 % Estonian Rural Road Development Programme in 2001 Transport infrastructure 156,06 0,00 0,00 156,06 15 % mEUR 45.0 Water and sewage 20,45 20,00 78,02 118,47 11 % - Regional Development Total infrastructure 379,90 215,88 95,02 690,80 67 % - Extension of Via Baltica from Tallinn to Narva Municipal financing 60,00 0,00 0,00 60,00 6 % Tallinn harbour development in 2003 mEUR 40.0 Manufacturing 12,54 0,00 25,50 38,04 4 % Klaipeda harbour development in 2003 mEUR 4.3 Other 166,98 20,00 55,44 242,43 24 % Total approx. EUR 160 TOTAL 619,43 235,88 175,96 1 031,27 100 % million Via Baltica Development VIA BALTICA 1000 km land First Investment Programme 1996 ­ 2000 (EUR 214 transport route million) NORWA FINLAND - 110 km new roads Connecting Estonia, Y SWEDEN - 333 km road improvements Latvia, Lithuania Helsinki Tallinn St. Petersburg - 28 bridges rehabilitation and ESTONIA - New border facilities at all borders Poland with Finland RUSSIA - E-67 marking and EU LATVIA Riga - Road safety improvement - Private sector involvements (road service) Corridor 1 of EU's DENMAR LITHUANIA > Via Baltica well known route with substantial traffic increase (30 ­ Trans European K Kauna s 150 %) Networks (TENs) GERMAN BELARUS POLAND Integration of Baltic Y Berlin Warsaw Second Via Baltica Investment Programme 2001-2006 Sea economies and (EUR 553 million) markets - Implementation period until closure of EU/ISPA programme - EU membership in 2004 > border crossing will be easier > increased traffic >increased investment pressure Via Baltica development process MOTORWAY: HELSINKI-LAHTI Via Baltica route: Warsaw-Riga-Tallinn-Helsinki/St.Petersburg · Via Baltica Feasibility study prepared in 1993 - Investment Estimate USD 145-270 millions - Study financed by Nordic Project Fund/NIB, EBRD and Finnish government - Participation from countries concerned, EU, all relevant IFI´s (WB, EIB, EBRD, NIB) · First Via Baltica Investment Programme for the years 1996-2000 LAHTI - EUR 180 million proposal ­ implementation EUR 214 millions - Prepared by the High Level Working Party on Via Baltica, established in 1996 69,2 km - Established upon the initiative of Nordic Investment Bank HELSINKI · Second Investment Program for Via Baltica 2001-2006 - EUR 553 millions + EUR 102 million for access roads to Via Baltica - Implementation ntil closure of EU/ISPA programme in 2006 - Prepared by Via Baltica Monitoring Committé - Participation from countries concermned and European Commission PPP financing of Lahti- Motorway - Key Lahti Motorway Concession Structure in Finland figures LAHTI MOTORWAY · Concession with a maturity of 15 years · Shadow toll ­ cashflow from state related to traffic volumes FINNRA Consession contract · Total investment costs EUR 96 millions OWNERS Road company LENDERS · Financing Nelostie Limited Long term loans (15 years maturity) Skanska,Laing Inv., Construction and O & M contractsSampo Bank, NIB PCA Corporate NIB-loan EUR 42 mio. Finance Sampo-bank EUR 42 mio. Construction Major maintenance Daily maintenance EUR 84 Skanska Skanska Skanska millions Equity EUR 12 millions Total financing EUR 96 millions Comments on Lahti Motorway ARLANDA EXPRESS · First real PPP project with a limited recourse basis in Finland UPPSALA ODENSALA · Construction completed 12 months ahead of E18 ARLANDA schedule VÄSTERÅS ROSERSBERG E4 E3 · Company has met all performance oblications under the concession agreements ULRIKSDAL · Traffic volumes are in the line of projections ARLANDA EXPRESS STOCKHOLM MAINRAILWAY · Risk within an acceptable level ÄLVSJÖ · Example of PPP projects carried out with "off budget" funds General Project Structure Costs and Financing: Arlanda Express Appoints the winner of the contract A-Banan Projekt AB Future owner Costs Financing Orders the project = Finance, Rail- MSEK 4 404 MSEK 4 404 (+200) Winning consortium way & Rolling Stock, Operation & MSEK 200 Sponsor Standby Maintenance A-T running costs MSEK 112 Debt (0) Alstom A-T construction period MSEK 436 MSEK 726 Lease 6 trains (of 7) NCC Incorporates Change Orders MSEK 20 A-Train AB Client Company Siab and Operator MSEK 1 228 Bank Debt Vattenfall (MSEK 500 NIB) Orders the Railway Mowlem and Rolling Stock Turnkey Contract MSEK 3 838 MSEK 1 000 Government Debt Establishes Arlanda Link Consortium Contractor MSEK 200 Sponsor Debt (ALC) MSEK 400 Equity MSEK 850 Government Grant Banbrytarna Mowlem Alstom (NCC) ROAD TOLL SYSTEM IN OSLO Full scale road toll system around Oslo city · Objective -To improve traffic system in the greater Oslo area · Project company, A/S Fjelllinjen, Oslo - Joint venture between Oslo and Akershus municipalities - Established as a vehicle to improve Oslo OSLO CITY transportation system FORNEBU · Project implementation period 1990 ­ 2005/2007 · PPP-financing structure selected to accelerate the implementation of road infrastructure in Oslo Toll collection · Financing - NIB ­ financing EUR 70 million - Other loan financing EUR 180 million - Total investment costs EUR 1.5 billion The Norwegian Road program 1998 E39 Klett ­ Bårdshaug: Scope of Work Decision in the Parliament to test the PPP Engineering, Procurement and Construction: concept Øysand-Thamshamn 21.9 km. Up to 3 year In 1998 the Parliament asked the Government to propose road projects to test the PPP concept. construction period. National Transport Program Operation and Maintenance: Klett - Bårdshaug February 2001: The Parliament approves three road projects. 26.9 km. Concession period 25 years. Aims to test efficiency and effectiveness in achieving political objectives through the PPP model. Financing of construction and operating First project E39 Klett ­ Bårdshaug period. June 2001: The Parliament approves the financing of new E39 Øysand ­ Thamshamn, and asks the Road administration to procure E39 Klett ­ Bårdshaug as a PPP- project. NIB loan NOK 300 mio (EUR 40 mio). Other loan financing cost NOK 1.4 billion. E39 Klett - Bårdshaug Contractual Structure E39 Klett ­ Bårdshaug NIB Participation · New Nordic PPP Infastructure project Road administration · Low risk project AP, MMP, TP, SP PPP Contract and ERC · Long term funding necessary Skanska BOT AB Equity Orkdalsleden Loan Laing Inv. Ltd. Lenders Return (SPC) Repayment · NIB participation complementary to bank financing Fixed Price Turn Key Contract Operation and Maintenance Contract · Innovative financial structure in the Norwegian/Nordic market Selmer Skanska AS) Selmer Skanska AS · NIB´s participation will strenghten the total financial structure Other New Norvegian PPP Transport Projects Conclusions developed by State Road Administration · NIB has an extensive experience from PPP-financing of transport projects · Development of road network around Tönsberg and surrounding municipalities - Toll collection system around Tönsberg municipality · Advantages of PPP-financing - Project Company owned by relevant municipalities - One Phase implementation - Up to 20 years loan maturities secured by sponsors Reduced costs compared to traditional year to year implementation - Loan financing NIB EUR 40 million - Off-budget financing Other EUR 80 million Enables up-front full financing irrespective of budgetary restraints - Total project cost estimate EUR 330 million - A PPP-structure encourages sound project preparation from all parties concerned · E 39 Phase 2 Lyngdal-Flekkefjord - Turn key and Operation & Maintenance · Restraints - Total cost estimate EUR 185 mio. - Project Structure similar to Phase I E39 Klett-Bårdshaug - Heavy documentation compared to simple supply contracts and direct budget financing · E 18 Vestfold - Project Structure as E 39 Phase I and II - Financing costs slightly higher than under direct budget financing - Total cost estimate EUR 185 million However ­ no major up-front financing required - Indirect undertakings from public sector necessary > A well planned project may be implemented at reasonable costs Preparing the transport sector for EU membership Vigo Legzdi s State Secretary Latvian Ministry of Transport and Communications 2nd Seminar on Transport Sector Restructuring in the Baltic States Parnu, Estonia, November 24, 2003 Investments made in Transport Infrastructure TINA (future TEN) 1996 ­ 2002, million EUR network ­ · State Roads 71 priority for · Railway 254 investments · Airport "Riga" 40 · Ports (without private) 159 Resources of EU funds for transport infrastructure (million EUR / Year) 120 ISPA/ Cohesion fund 100 PHARE/ ERDF EUR 80 80 n 60 llio Mi 40 20 24,1 30 0 4,8 Before accession After accession ERDF financing in 2004 - 2006 · Reconstruction of the first class state road network; · Improvements of transport system in urban areas (including Riga); · Upgrading of public hydro-technical structures in ports (outside TEN); · Modernisation of railway rolling stock for passenger transportation Thank You for Your Attention! 3 Gogo a street, R ga, Latvia satmin@sam.gov.lv www.sam.gov.lv 19 Main objectives of Lithuanian PREPARING THE TRANSPORT SECTOR FOR EU MEMBERSHIP preparation for membership in EU · harmonisation of EU legislation; · implementation and enforcement of regulations; Liudmila Lomakina · alignment Secretary of the Ministry of Transport and with EU technical and quality Communications of Lithuania standards; · preparation for management of EU funds; 2nd Seminar on Transport Sector Restructuring in the Baltic States ·preparation for participation in the EU Parnu, Estonia, November 24 and 25, 2003 work. Harmonisation of legislation (railways) Harmonisation of legislation · Restructuring of railways; · Road transport: Implementation of the Infrastructure Technical legislation. package: Air transport: Law on Railway Sector Reform; Amendmends to the Railway Transport Market liberalisation; Code; Flight safety; Infrastructure Charging Rules; Environmental issues. Capcity Allocation Rules. Maritime transport: Safety requirements (Erica packages). Implementation and enforcement of Alignment with technical and quality legislation standards · recruitment of additional staff; · standards for infrastructure; ·training of personnel; ·quality standards for operational activity; ·purchase of new equipment; ·ensurance of safety, accessibility and ·use of new information technologies. environment; ·security ensurance; ·application of modern information technologies. Preparing the Estonian Transport Sector for EU Membership Preparing the Estonian Transport Sector for EU Membership Main themes: Legal framework / Regulatory Bodies Transport in figures Andres Tint Infrastructure development Deputy Secretary General 2nd Seminar on Transport Sector Restructuring in the Baltic States, November 24, Parnu, Estonia Legislation in force Transport Sector Competition Policy Complete package of transport laws and secondary legislation The Estonian transport policy is characterised by extensive have been passed in Estonia: privatisation of the operator services and the infrastructure, Road Transport Act regulation of competition between the modes of transport through prices and taxes and infrastructure policies Public Transport Act favouring international connections Road Traffic Act The major state-owned transport companies are Port of Railway Act (adopted 19.11.03) Tallinn Ltd; Tallinn Airport Ltd; Air Navigation Centre Ltd.; Maritime Safety Act Electrical Railway Ltd.; Estonian Pilot Ltd.; Saarte Liinid Port Act Ltd; Regional Airports ­ Kuressaare, Kärdla, Pärnu, Tartu. Aviation Act Cargo carried by Estonian carriers International passanger transport carried by Estonian 80 carriers 70 Mln passangers Mln passanger-km 60 6 1 400 1297,8 1294,7 ns 50 1 243 1 300 1192,4 to 1 087 1 200 n 40 5 1 043 1 100 Millio 30 931 915 1 000 866 4 900 20 790 p 776 5,1 800 4,77 10 4,5 4,42 4,42 700 3 3,9 600 0 3,5 3,3 3,5 3,2 3,1 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 500 2 400 Autotransport 11,4 12,1 9,5 9,4 11,3 12,2 12,2 13,2 14,1 17,8 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Raudteetransport 41,8 40 41,2 44,7 48,6 53 58,3 63,9 64,7 71,1 Meretransport 6,8 5,7 3,1 4,4 4,4 5,2 4,5 2 1,5 1,6 Transport Sector Performance ­ Some facts Ports projects CF Almost 95% of Estonian transit trade and bigger part of import and Reconstruction of local ports, export passes through Estonian ports belonging to TEN-T network In 2002, a total of 47.0 million tons of cargo were loaded and unloaded in (Virtsu, Kuivastu, Rohuküla, Estonian ports. Helterma) (~12.1 M) In Estonian Railway network was carried 71,1 million tons of cargo (incl. 35.5 million tons of transit cargo) Construction of breakwaters in Transit, import and export of freight to and from Estonia was mainly Muuga Port transported (~90%) in multi-modal chain, among this 2/3 in chain ship- 2004-2009 (~61.7 M) train or train-ship, almost 1/5 in chain ship-car or car-ship. Extension of Muuga Port Volume of inter-modal transport (including cargo transported in territory 2006-2007 (~72.4 M) trailers/semi-trailers on ships) made up to 9.2% of the total transport Completion of VTMIS 2003- volume 2007 (~2.9 M) Railway projects CF Road projects ISPA/CF 2003-2008 Construction of Koidula railway Via Baltica: Ikla-Pärnu - border station 2004-2006 (~45 M) Tallinn-Narva road 2003- Tallinn railway bypass TA first phase 2008 (~137.3 M) 2004-2005, 8construction cost ~48.6 M) Tallinn-Tartu road 2006 Reconstruction of electrical railway, (~9.6 M) TA and study 2004-2005, (construction cost ~44.7 M) Reconstruction of Jõhvi - Tartu - Valga road 2005 Decontamination of railway surroundings (~22.8 M) Establishment of centralised railway Saaremaa fixed link pre- rescue force, including training and feasibility study 2004 equipment (~0.59 M) Reconstruction of Tapa traffic node. Tallinn-Tartu-Võru- (Construction cost ~16 M ) Luhamaa road reconstruction (WB loan~14.8 M) Airports projects CF ERDF investments 2004-2006 Reconstruction of Tallinn Airport airside area 2005- Reconstruction of regional road infrastructure (~15 M ) 2006 (14.6 M) Reconstruction of small ports infrastructure (~7.4 M) Reconstruction of Tallinn Airport passenger terminal Reconstruction of airports infrastructure (~2 M) 2005-2006 (14.6 M) Railways- railway junctions and other infrastructure Reconstruction of local (platforms, railway stations etc. ~2.3 M) airports, belonging to TEN- T network (Tartu, Pärnu, TOTAL: 26.7 M Kärdla, Kuressaare) 2005- 2006 (24.5 M) Roads and road transport PRE-SEMINAR QUESTIONNAIRE · Traffic safety has improved but fatalities and HIGHLIGHTS accidents still at a very high level. · The private sector has taken a large share of road 2nd SEMINAR ON TRANSPORT SECTOR maintenance and construction. RESTRUCTURING IN THE BALTIC STATES Pärnu, Estonia, November 24-25, 2003 · Rapid fleet renewal of both private and commercial Lauri Ojala vehicle stock. Turku School of Economics and Business Administration Lauri.ojala@tukkk.fi · Competition on international road transport intense, less so domestically. 1 2 Railways Civil aviation · Infrastructure and operations remain in the public sector in Latvia and Lithuania. · Aviation infrastructure in the public sector. · Joint Aviation Authority membership anticipated. · Estonia has mostly privatized its railways. · Major airlines state-owned in Latvia and Lithuania; · The railways have improved their management and turned profitable. Estonian Air privatized; Government has a 34 %. · Airlines have turned profitable after years of losses. · Cargo increase almost entirely from transit traffic. · Several major airlines operate from TLL, RIX, VNO. · Transit of Russian oil (products) to ports in Estonia and Latvia, transit over land significant in Lithuania. · Passenger traffic has steadily increased. · Performed passenger kilometers at their lowest level. · Cargo traffic volume remains low. 3 4 Maritime transport and ports General transport support services · Transport infrastructure or regulatory issues no · Major ports have shown strong economic results. major concern for shippers. · Cargo handling in ports (very) profitable. · Stevedoring and shipping companies have been · The supply of logistics services is wide and privatized almost completely, often with foreign generally of good quality. owners or part-owners. · Merchant fleets registered in the Baltic States · Centralized logistics solutions - some outside have diminished. the region - gaining ground in anticipation of · Latvian and Lithuanian vessels no longer in the EU time. Black List. · Further strengthening of the Maritime · Over half of logistics services is provided by Administrations are needed. international firms, but still less so than in the 5 EU. 6 Freight services mostly privatized by 2003; Shift of shipper attention 1991 1996 2002 EU estimated size of domestic operators; turnover in USD million Advanced EE logistics Logistics SCM ESTONIA LATVIA LITHUANIA LV LT LV EE LT users concepts EE ROAD LV LT . Advanced logistics . services market TRANSPORT 250 300 450 . Not feasible . Material flow . RAIL . 120 170 170 . TRANSPORT . Transport market . concern . Transport flow . STEVEDORING 250 250 200 . . Traffic market . major FREIGHT Policy 30 40 60 makers Infrastructure No FORWARDING PUBLIC SECTOR OWNERSHIP PRIVATE SECTOR 7 8 Source: Ad LOg study, Naula & Ojala 2002 Passenger services also publicly owned; estimated domestic market is small; Average annual investments in TEN-T: turnover in USD Million Million euros per year ESTONIA LATVIA LITHUANIA 1996-2001 2002-2005 2006-2010 Roads Estonia 10 49 26 ALL SCHEDULED Latvia 4 25 30 60 50 55 AIR TRANSPORT Lithuania 21 36 9 INTERURBAN Railways Estonia 7 6 2 SCHEDULED BUS 30 40 50 Latvia n.a. n.a. n.a. 82 68 TRANSPORT Lithuania 15 RAIL Ports Estonia 17 32 12 10 Latvia 11 0 0 TRANSPORT *) 50 20 Lithuania 7 27 42 *) Less subsidies Airports Estonia 5 1 1 Latvia 4 2 0 PUBLIC SECTOR OWNERSHIP PRIVATE SECTOR Lithuania 2 9 9 9 10 Source: TEN-Invest report 2003 Net exporters of transport services: Freight, Passenger and Other Significant progress made, while · Major infrastructure needs exist in TEN-T roads. Net capital flow (+) in 2002 in USD Million: · Lithuania plans to invest heavily in railways. 1999 2002 · Port investment is increasing in Estonia and Lithuania. Estonia 330 346 · Capacity building in transport administration needed. Latvia 520 540 · The private sector provides most transport services. Lithuania 185 357 · Foreign entry in road, air and maritime & logistics services have restructured the market profoundly. · The efficiency and quality of logistics services and Source: Bank of Estonia, Latvia and Lithuania: Balance of Payments statistics 11 that of the customs have improved substantially. 12 13 14 15 16 17 18 2nd Seminar on Transport Sector Restructuring in the Baltic States Tallinn Airport Ltd November 24 ­ 25, 2003, Pärnu, Estonia · Tallinn Airport is a self-financing company · Estonian Government owns 100% of the shares Airport development · Tallinn Airport Ltd is only responsible for operating and developing of Tallinn Airport · Quality management system certified according to ISO Mr. Loik, Tallinn Airport Ltd. 9001 requirements since 2002 · Environmental system according to ISO 14001 planned to be certified by 2004 20 Location Airport facilities · Location: · Runway: 3070 m ­ 4 km from the city centre long, 45 m wide ­ 4 km from passenger port · Runway cover: ­ 1 km from the main bus station asphalt concrete ­ 5 km from railway station · Taxiways: length 2560 m, 23 m wide · Ideal for both business and leisure traffic · Apron: 137 000 m2 21 22 Passenger terminal Scheduled international flights network (winter 2003/2004) · Modern passenger terminal reopened in December 1999 · Annual capacity 1,4 million passengers 23 24 Passenger movements 1996-2003 Passenger traffic ­ Baltic airports 800 000 700 000 700 000 600 000 600 000 500 000 500 000 400 000 Tallinn 400 000 300 000 Riga 300 000 Vilnius 200 000 200 000 100 000 100 000 0 0 1998 1999 2000 2001 2002 2003 (10 1996 1997 1998 1999 2000 2001 2002 2003* months) * - estimation 2003 25 26 Market share - airlines by pax Market share - destinations by traffic (October 2003) pax traffic (October 2003) Lithuanian Helsinki Copenhagen Austrian Stockholm Air Baltic London Lotus Air Frankfurt Hamburg Iberworld/Futura Moscow LOT Polish 2003 Vilnius CSA Czech Prague Paris SAS Warsaw Finnair Kiev Riga Aero Airlines Oslo Estonian Air Berlin 0 % 10 % 20 % 30 % 40 % 50 % 60 % 0,00 % 5,00 % 10,00 % 15,00 % 20,00 % 25,00 % 30,00 % 27 28 TLL market Investments 1993-96 · 18 scheduled destinations (incl domestic) · Total value - 15 million EUR ­ latest new routes · Targets - continuing airport operations, safety and · Tallinn-Paris (April 2003) security · Tallinn - Prague (April 2003) · Includes projects: · Tallinn - Oslo (August 2003) · Tallinn - Berlin (August 2003) ­ airfield (runway and taxiway system) rehabilitation · Tallinn ­ Amsterdam (October 2003) ­ upgrading of fire-rescue equipment · 10 scheduled airlines ­ upgrading of meteo system ­ lates new airlines ­ upgrading of heating systems · CSA Czech Airlines (April 2003) · Financing: loan from EBRD, state funds, aid funds, ­ 91% of passengers travel on scheduled flights Tallinn Airport funds 29 30 Investments 1997-99 Investments 2000-2002 · Total value - 29,1 million EUR · Targets - comfort for clients, the upgrade of service quality · Total value ­ 1,6 million EUR · Includes projects: · Includes projects: ­ Rehabilitation of the Passenger Terminal ­ Apron overlay ­ apron rehabilitation ­ Upgrading of electrical systems ­ the construction of new cargo centre ­ the construction of new fire-rescue centre ­ Noise monitoring · Financing ­ loans from EIB and EBRD, state funds, PHARE · Financing: Loans from EIB/EBRD, Tallinn Airport funds funds, Tallinn Airport funds 31 32 Investments 2003-2008 Investments (million EUR) · Total value - 40 million EUR 40 · Targets ­ expansion of current facilities, additional capacity · Includes projects: 35 ­ Taxiway extension 30 ­ De-icing platform 25 ­ The construction of the new maintenance centre EUR ­ Passenger Terminal expansion 20 ­ Apron expansion llion mi 15 ­ The construction of Cargo Terminal 2 10 ­ Cat II ­ Renovation of Tallinn Airport old terminal 5 ­ Landside development 0 · Financing: ISPA aid fund, Tallinn Airport funds 1993-1996 1997-1999 2000-2002 2003-2008 33 34 Airport long-run cost curve Airport business model ger · Small airports have high fixed costs en ss it rpa un d · To manage high costs in a small airport pe ­ Subsidy from the owner (government) st ­loa itco work ­ Higher user charges Un or 1 2 3 4 5 6 7 8 9 10 Passengers (millions) or work-load units handled per annum Source: The Airport Business by Rigas Doganis 35 36 Tallinn Airport business model Sales/profit/passenger volume · Until 1999 Tallinn Airport was partly 14 730 000 Net sales subsidised by the owner (government) 12 700 000 Net profit Passengers · From 2000 self-financing company 10 670 000 ­ Increased user charges from 2000: 8 nEUR 640 000 s gern · additional sercurity costs and insurance costs and 6 illio sse M 610 000 well as changes in US dollar rate 4 Pa 580 000 2 0 550 000 1999 2000 2001 2002 2003* -2 * - 2003 estimation 520 000 37 38 Airport fees for B737-500 per turnaround Passenger fees (60% load factor) ­Baltic airports 25 2500 20 2000 E 15 U R 1500 10 Landing fee Passenger fee 5 1000 Total 0 500 Riga Vilnius Budapest Tallinn Stockholm Prague Warsaw CPH Helsinki 0 Source: AIP Comments:. 19.11.2003 currency rates were used Riga Tallinn Vilnius Budapest, Stockholm, Helsinki - Security charge has been added Source: AIP Comments: Riga landing fee also includes navigation fees. to the passenger charge 19.11.2003 currency rates were used 39 40 Tallinn Airport user charges (international flights) · Landing fee: ­ 11 EUR per ton/MTOW · Passenger fee: Thank you! ­ 15 EUR per departing passenger · Parking fee: ­ Up to 6 hours free of charge for freighters ­ Up to 3 hours free of charge for other aircraft ­ 1,5 EUR per ton/MTOW per 24 hours 41 The Schenker view: Baltic Common Economic Zone Helsinki 80 km Jöhvi Tallinn Saint Petersburg 360 km Tartu Experience of a major logistics provider Common IT-basis 325 km Riga Overnight connections Kari Peltonen, Director, Oy Schenker East Ab Liepaja Moscow 1000 km Delivery within the Baltics Klaipeda 325 km in 24 hours Vilnius 2nd Seminar on Transport Sector Restructuring in the Baltic States Kaunas Parnu, Estonia, November 25, 2003 Minsk 200 km Warsova Kiev 750 km 520 km Communications/17.11.2003 ESTONIAN EXAMPLE: European road transport ESTONIAN EXAMPLE: Terminal in Tallinn ·Direct traffic lines to/from Goods are delivered throughout Estonia in 24 hours Europe Now 29 scheduled 3,000 square meters, 43 gates, gas heated premises lines, more coming Daily service to Baltics, Also capable of handling air freight containers Helsinki and Stockholm Temprerature controlled space for air freight Similar services from Latvia and Lithuania ESTONIAN EXAMPLE: Delivery network EXAMPLE: Delivery process from Finland · Standard service: to final customer within 24 hours from pick-up in Finland including export and import clearance Helsinki Tallinn · How performed: Riga · Main haul to Baltic terminals from Vilnius Central stock in Helsinki · Terminal handling and delivery in the Baltic States Line haul Distribution routes ·Border crossings: a critical issue Terminals in Tallinn, Tartu, Jõhvi and Pärnu Key Performance Indicators (KPIs) Corporate Structure Optimisation of Service Quality · In all agreements with major customers · Target e.g. 95% - 99% from the agreed level t Cos · Customer typically demand 2 ­ 4 KPIs in the contract on cti Examples of standard KPIs with major customers: du · agreed lead time 96 % within 48 h door-to-door Pro ce Optimal Quality · customs clearance 99 % of clearances correct level depending Servi · invoice 98 % of invoices correct on client and KPI level 95-99% · pick and pack 99 % of orderlines correct 50% 100% · damage occurance 99 % of without transport damages 0% Service quality = compliance to KPI's EXAMPLE: Tallinn Export HUB Potential for Warehousing for the Baltics · Replacing warehouses now in Finland, · collection of products from several Sweden and Denmark for Baltic import suppliers · Favourable labour and real estate · based on a strong national network costs in Baltic States and Poland · main haul to Helsinki terminal for · Additional advantages: export to delivery in Finland Russia and Belarus · tight IT cooperation with customers Helsinki Tallinn · Potential locations: Poland, Riga, From Europe, Tallinn, Lithuania NA, FE RigaFar ropeeric anad Tallinn East HUB to Germany under development Vilnius · In the long term, distribution to the Nordic countries possible Riga Similar solutions with other countries m Eu-Am Warsaw can be set up quickly if needed FroNorth Previously used route; New route; Vilnius now decreasing increasing use Border crossing between the Baltic States now Current problem · delays of trucks up to 10 hours now, and getting worse Likely causes of the problem · deteriorating work motivation in border stations due to EU enlargement · Customs instructions for tighter inspection Solutions suggested by logistics industry · to use the clear channel for clear units with Carnet Tir or Baltic Transit Document (T1B) · direct more clearances to inland terminals Workshop objectives are to 2nd Baltic States Seminar on Restructuring · ...offer an opportunity for discussing of the Transport Sector and comparing progress made by transport subsectors, Guidelines for the workshops · ...offer presentations of the main subsector achievements and measures Lauri Ojala required in the plenary session, and Pärnu, 25 November, 2003 · ...facilitate the preparation of the summary documentation of the seminar. 1 2 Example of subsectoral topics: Groups and Moderators · INSTITUTIONAL · Road Mr. Cesar Queiroz · FINANCIAL · Rail Ms. Luisa Velardi · ENVIRONMENTAL · Maritime & port Mr. Lauri Ojala · SAFETY · Civil aviation Mr. Jaan Tamm · SOCIAL · TECHNICAL and OTHER ISSUES · Logistics Mr. Kari Peltonen 3 4 The roles The groups should identify...: · ...the most important development areas in the next 5-10 years · Moderators ensure that discussion · ...the most pressing problems relating to these is kept on the relevant issues development areas/issues · ...the best ways to address these · Co-facilitators keep a record of the Presenting the results for all discussions and the conclusions · Key findings on 3-4 slides. drawn in the workgroups · 10 minutes per group. · Presentation given by a group representative. 5 6 2nd Baltic States Seminar on Restructuring of the Standardized Death Ratio Transport Accidents Transport Sector 30 Roads and road transport Workshop lation25 0Popu Main Themes: Traffic safety and 0,00 20 Road finance 10r tepe 15 Estonia Ra Latvia Moderated by Cesar Queiroz Lithuania Traffic safety presentation by Dominicq Haazen 10 Workshop conclusions presented by Peeter Skepast 1999 2000 2001 Year 7 8 Deaths versus population Road Transport Accidents versus Population 30 230 Estonia 210 Latvia ion ion Populat 25 Lithuania lat 190 0Popu 170 000 20 00,1 0,00 150 teper 15 10r tepe 130 Estonia Ra Ra 110 Latvia Lithuania 10 90 1999 2000 2001 2002 1999 2000 2001 2002 Year Year 9 10 Deaths versus Number of Accidents Deaths versus Kilometers Travelled 17 9 16 8 cidents15 eters 7 14 kilom teper100Ac 6 13 ionll mi 5 12 001 4 Ra 11 Estonia teper Estonia Latvia 10 Latvia Ra 3 Lithuania Lithuania 9 2 1999 2000 2001 2002 1999 2000 2001 2002 Year Year 11 12 Deaths versus Number of Vehicles Deaths versus Length of Roads 100 110 Estonia 90 Latvia 100 s cles Lithuania 90 80 Vehi Road of 80 70 0,000 km 70 Estonia 000 teper10 60 Latvia 10,r 60 Lithuania 50 tepe 50 Ra 40 Ra 40 30 30 1999 2000 2001 2002 1999 2000 2001 2002 Year Year 13 14 Haddon's Matrix: Kilometers per Vehicle Basic Road Safety Elements 14 000 earY perVehicleper 12 000 People Vehicle Environment Pre- Prevent Education/ Roadworthiness Road design 10 000 crash Crash training System (lights, Signs, lighting, Impairment brakes, tires, markings ers Attitudes/ etc.) Maintenance, Kilomet behavior round-about 8 000 Estonia Latvia Crash Prevent/ Use of Restraints Protection g. Lithuania Reduce restraints Crashworthiness (Barrier) Av Injury Impairment Maintenance Pedestrians 6 000 crossing 1999 2000 2001 2002 Post- Sustain First aid skill Ease of access Rescue Year crash Life Access to Fire risk Facilities medics Congestion 15 16 Workshop conclusions on Workshop conclusions on Traffic safety Road finance · Problems · Problems ­ Death and accident rates very high ­ Lack of maintenance financing · Development areas · Development areas ­ Human factor (attitudes, behaviours) ­ Assessment of the maintenance needs (knowledge ­ Environment (marking, lighting, designs, etc.) based and predicting systems ­ HDM IV) · Solutions · Solutions ­ High level commitment (including the financial ­ Better feedback to decision makers ­ "maintenance commitment) to ensure the cooperation of different needs has to be satisfied first", high economic rate of institutions and thus improve the road safety return 17 18 2nd Baltic States Seminar on Restructuring of Organization of the workshop the Transport Sector · The 12 participants comprised ­ Transport ministry or maritime administration Maritime workshop results officials from all three; ­ Port management in Lithuania and Latvia; ­ Estonian Ministry of Foreign affairs official. · First, the main issues facing maritime Moderated by Lauri Ojala transport and ports were identified in a group Pärnu, 25 November, 2003 discussion; 10 issues were identified in all; · Second, each participant rated the three most important issues giving 3, 2, and 1 points in a descending order. · The combined results are shown below 19 20 The most important development The way forward with information flow and areas in the next years systems: B2B, B2G, G2G · Information flows and systems (8) · Safety (7) · Cargo, vessel and other documentation · Infrastructure development (5) · Technical issues not the main problem · Environmental protection (5) · Interplay between actors need to improve · Transit traffic (4) · Pressure from International rules · EU Transport Policy (4) ­ cargo security (ISPS Code) · Cargo security issues (4) ­ International solution required · Competitions issues: ports and shipping (3) · White, gray and black list is a concern · Institutional development (2) · Icebreaking capacity (0) 21 22 The way forward with safety Infrastructure and environment issues: · Maintaining the skills of seafarers · Continued infrastructure needs to link ­ International conventions maritime and land-based transport ­ training facilities and programs · Safety-directed investment · More capacity to Port State Control · Vessel management systems, radar · Insufficient capacity to oil damages systems, telecommunication systems ­ Prestige lessons to be learned · Traffic separation schemes and open ­ Salvage issues sea pilotage · Coordination of Search and Rescue · Increased cooperation with maritime · White, gray and black list is a concern authorities and ports in the Baltic Sea 23 24 Baltic States Seminar on Restructuring of the Transport Sector Modal Workshop main themes Aviation Modal Workshop · ... identify and specify aviation infrastructure (ANS and Airport) needs Pärnu, Estonia, 24-25 November 2003 · ... elaborate on regulating the aviation infrastructure services Moderator - Jaan Tamm Estonian Air Navigation Services 25 26 Modal Workshop objectives Civil Aviation in general... · ...offer an opportunity for discussing and · Working on low margins comparing progress made by transport sub- · Tough competition sectors in the three Baltic States · Emerging `open skies' · ...offer an opportunity to present the main · Blooming low cost airlines sub-sector achievements and measures · New technologies required in the plenary session · Global alliances · ...facilitate the preparation of the summary · Electronic commerce documentation of the seminar · Commercialisation and Privatisation 27 28 Background and drivers in ... and aviation infrastructure Air Transportation in particular 1. Globalisation and trans-nationalisation of markets and operations Following the liberalisation in Airline Industry 2. Commercialisation of governmental service similar changes appear to take place in Airport providers and diversification of financial measures and Air Navigation Services business 3. Liberalisation of economic regulation, potential evasion of safety regulation, and overall concerns with safety and security 4. Recognition of and response to environmental concerns 5. Emergence of new technologies, and approaching of physical limits to infrastructure capacity at the same time 29 30 T 1: Identifying and specifying ATM Capacity Shortfall aviation infrastructure needs · ANS needs will depend mostly on the · Capacity has grown progress within Single European Sky steadily since 1990 ­ Networking regionally · Has lagged the traffic Has lagged · Airports growth by around three around three years ­ Security & safety · Consequent delays ­ EU membership & joining the Schengen room have cost users ­ Environment concerns between 1,3 ... 1,9 ­ Civil-military joint use of resources billion a year ­ Growing traffic demand Source: CRCO and PRU 31 32 European ATM cost-effectiveness T 2: Regulating the aviation infrastructure services · Consolidation and harmonisation of regulation · Improving the regulatory and supervisory capabilities 33 34 The most pressing problems relating to Consolidation of regulation these development areas/issues · Global ­ safety, security · European regional ­ harmonisation (Single European Sky, slot policy for Airports) · Sub-regional ­ beneficial cooperation, dev. capacity gradually to anticipate the demand · National ­ proper regulation and supervision, multimodal transport development, balancing the expectations of main stakeholders 35 36 The most pressing problems relating to The most important development areas these development areas/issues in the next 5-10 years · Aggravating safety and security issues · Further liberalisation of infrastructure · ANS - fragmented airspace service provision · Many different technical systems, resulting low · Regional consolidation and harmonisation interoperability of regulation · Excessive personnel · Consolidation of ATM · Insufficient commercial flexibility or not always · Development of low cost service providers enough diversified financial measures · Higher customers' expectations · Inefficient civil-military cooperation · Low regulatory and supervisory capabilities 37 38 The expected benefits · harmonised regulation provided on lower cost · high European safety and security standards Baltic aviation infrastructure are maintained and even improved · better use of congested infrastructure · fewer delays, lower indirect costs Thank you for your attention! · reduced pollution and related costs Tänan tähelepanu eest! · airlines and their customers will benefit from Paldies! shorter, cheaper flights Dekui! 39 40 Terminology The expected benefits (SES) · SES will ensure that high European safety · Corporatisation standards are maintained and even improved ­ Refers to the legal status : indicates that the · It will deliver savings and efficiency ANS Provider has been established as a improvements by encouraging cross-border co- private law entity, regardless of its owner operation between service providers · Privatisation · Targeted EU funding and more transparent ­ Refers to ownership: indicates that the charging will allow resources to be applied to share capital has been sold to private solving particular congestion problems, with investors, in whole or in part Europe-wide benefits · Commercialisation · SES will help to control charges for ANS ­ Refers to the management processes and (currently over 5 % of airlines' total costs) with practices: indicates the introduction of estimated annual savings of up to 1 billion commercial business and management tools from the private sector 41 42 Transport Services and Trade Facilitation Workshop, Parnu seminar Changing economic and political map Entrance Establish EU-time market Present (anticipated) Who are we here for ? position · Attractiveness of Via Baltica Ferry lines - more connections, frequencies E E Logistics X SC M LV LT concepts LV EE LT EE Polish road tax will limit LV LT Advanced logistics services market · Unitized transit cargo to/from Russia: the potential Logistics users Material flow Notfeasible X · Russian double taxation for Estonia will be removed Transport market · Synergies in domestic distribution, cost efficiency, service level Transport operators Transport flow X · 3rd country traffic volumes: FI, SE will loose - Baltics and Traffic market Poland will win Policy makers Infrastructure X Nolongeraconcern · Baltic distribution market: Riga as the hub, PL competitor · overnight transportation as limiting criteria 43 44 Impact of EU enlargement Costs Decreasing because: · International companies will quickly enter the Baltic markets Synergies from combining volumes manufacturing and trade Less customs formalities Lead times will improve · Need for new business connections "Time based management" in logistics planning · Network building crucial, otherwise merged with internationals Increasing because: · New payers on the market, number will be reduced EU regulations will increase costs: social, envronm. Bureaucracy burden for SMEs · Open competition is a possiblity for Baltic busineses EU fuel tax minimums, heavy vehicle tax · Logistics centres for multimodal use: Resulting · EU enlargement creates possibilities for combined transports EE: Slightly positive LV: Slightly negative (large SME sector) · Distribution structure: LT: Slightly positive · European, regional, national 45 46 Research and education To-do -list Awareness · Meet the requirements of the EU · Significant potential in cost saving, hidden though · Consumers will benefit in lower prices of products · Promote international integration of logistics centres · Logistics efficiency comes in small pieces "Baltic Sea Logistics Centres" by TEDIM · Logistics associations in major role · Inter-ministerial co-operation to be enhanced Users, logistics providers, policy makers non-gov organizations as tools Education · New technologies, transport telematics · E-Logistics: cross usage of data: officials, firms, Tranport · Need for technically oriented professionals (EU) · Co-operation in information support in logistics · How to utilize resources and possibilities in the EU? · Educational and research co-operation between · Promote logistics awareness and education universities and other actors 47 48