The financial situation of Latvia’s state company Latvian Railway (LDz) is in no hurry to improve. This year the volume of freight carried by the company has gone down to a record low level. This means the company will once again ask the state for money, reports TV3 programme Nekā personīga.
Reforms, cost optimisation and lay-offs still continue at LDz, but the financial situation remains unimproved.
The volume of freight carried by LDz in the first three months of 2023 has gone down 36.3% when compared with the same period of 2022.
The lasting drop of carried freight volumes was also significantly affected by the Russian-Ukrainian war and sanctions. There was, however, a slight increase of domestically carried freight volumes.
The Ministry of Transport was ordered to prepare a report on various scenarios and ways to help further reduce the railway giant’s costs. This report is confidential. It hasn’t reached the government yet, which is because of objections from the Ministry of Finance. The institution refuses to provide the requested funding. On top of that, there is also confusion as to the future leader of LDz.
Minister of Transport Jānis Vitenbergs explains:
“We will discuss the topic of LDz with local businesses as well. The first round of negotiations has commenced to promote domestic freight carrying using the railway. There are positive trends observed in work done with the company’s interim management. We hope to inform our colleagues in the government about future plans soon.”
However, there is little reason for optimism, adds Nekā personīga.
The ministry’s and the company’s own estimates indicate that this year the volume of freight will go down to an all-time low – 16 million tonnes. Since the 24th of February 2022, when the Russian-Ukrainian war started, there has been a lot of talk among politicians about completely closing down the eastern border. Despite this, most of last year’s freight came from Russia last year. LDz explains that
a large volume of freight carried by LDz consists of various freight from Kazakhstan.
Minister of Finance Arvils Ašeradens provides his opinion:
“In regards to the operational situation observed in Latvia’s railway sector, especially when our relations with our eastern neighbours change – sanctions, sanctions, sanctions – we can see the Iron Curtain falling. It would be optimal to say that tonnes [freight], that are already struggling, will have an even harder time. What we see now is the final volumes passing through. The situation is very unstable. This also means enormous restructuring for LDz.”
In efforts to find ways to earn money, LDz subsidiary LDz Cargo started carrying freight from Estonian sea ports to Russia. Nekā personīga previously reported that Estonia forbade Operail from carrying Russian and Belarusian freight. However, Latvian politicians still support this, despite the risks. Minister Vitenbergs said LDz has exhausted all of its options to reduce costs.
Vitenbergs continues:
“Lately the number of employees in the company has gone down from ten to six thousand. We have to continue the path towards the company’s high management. Yes, we have developed a plan together with LDz. We had submitted it to the government some time ago. There’s already been a coordination procedure and objections from the Ministry of Finance. We are trying to deal with these objections and progress towards an agreement!”
Though the report is confidential, the programme reports that one of the scenarios listed in the report provides for the merge of three companies – LDz Cargo, LDz Rolling Stock Service and LDz Logistics. Benefits from this will not be large. The merge, according to the minister, would help reduce costs by approximately EUR 2-3 million. The option of selling LDz Security is also on the table.
At the same time, LDz management will ask for more funding from the budget. The Ministry of Finance is unhappy, stressing the company should reduce costs even more.
Ašeradens explains:
“LDz has requested a very serious amount. I can say I have the PM’s resolution, which stresses that I have to diver all resources this year towards education and healthcare. The situation is very, very complicated. I won’t name any digits now. But I would like to say the amount is very large, and the government has other priorities at the moment, and they have to be resolved in the first half-year.”
Interim board chairman of LDz Rinalds Pļavnieks explains the problems:
“There are passenger transports, which accounts for an objective service volume from LDz. Then there is the balance of finances. And often, when we discuss digits, they are unjustly mixed up. But the volume of funding needed to cover losses depends on our domestic processes and the market itself.
But I believe all relevant information about the report will be communicated to residents after its review.”
Ašeradens counters:
“There is infrastructure to maintain, but the state simply cannot afford to completely cover the losses reported by LDz. I hope we will start reviewing these topics in May. These are macroeconomic and structural topics related to infrastructure development.
And there is also the issue of appointing new management to LDz. We need to look at their ideas.”
Nekā personīga reminds: lately there have been discussions about potentially merging LDz with Rail Baltica implementer European Railway Lines to help reduce costs.
However, such a merge requires a political agreement.
Also read: Railway freight volumes going to Baltic States will continue going down, Estonian millionaire predicts