Ilona Bērziņa
What will happen now with the Rail Baltica project, which, like a suitcase without a handle, is difficult to carry and a pity to throw away… Will the “second act” of the port reform be implemented according to the scenario of the Ministry of Transport or the Ministry of Economy? BNN spoke to Viktors Valainis (ZZS), Minister for Economics, about these and other issues.
The Latvian share of the Rail Baltica project costs have tripled in just a few years, we can’t really pay the builders, somehow, we have forgotten that the 85% co-financing from the European Union applies only to the main line… Has no one really seen, understood and monitored this all these years?
There is the opinion of the State Audit Office, there is a Parliamentary Committee of Inquiry and there are all sorts of assessments of how things have gone so far. The Canadian experts and who else have assessed it. I have read these assessments, and it is quite clear to me what has happened.
What?
Many decisions have been taken on the basis of the project application as a separate from the overall project. If we can apply for a railway station here, then we apply for a railway station! And everybody applies for a separate project, look, how beautiful it is – eight platforms… Let’s go! And at the end, the number comes up – a billion – and everybody wonders – oh my, how did that happen! But it all started with decisions that are disconnected from the big picture. Everyone then focuses and concentrates on building stations, forgetting about the rest. And it just goes on like that. In my opinion, the general picture from a project management point of view has been lost for a long time, and mainly because of the separate applications.
Of course, we have learnt on how to do contracts, how to do indexation, because now we are all paying for it. But the authorities and the committees of inquiry will assess why such contracts were concluded, where there was negligence, where there was something else. But there is not enough discussion about what to do today, only references to the past all the time.
We need to look ahead. Politically, as ZZS, we also took the Board’s decision to temporarily pause the project and ask for a clear overall vision – where we attract investors, where we will work with EU funding, on which sections we primarily work, what is the overall picture and the total amount of funding we are going to finance. We need to be clear about the big picture and only then can we talk about the details. Now, there is constant confusion – should we include Riga, or not, should we go through, or should we pass it? After listening to these questions for a long time, we decided that that’s it, stop, enough!
All these discussions about indexation of the contract – should we pay ten million now or not, there will be more millions that we should or should not pay?
All this is important, but if we keep going forward like this, we will only stick deeper into the mire. But first we have to get out of that mire, and what we are asking now is: either we get out or we don’t go any further! Our colleagues in the Ministry of Transport, I think, have heard the idea that until we get out of the mire and see the bigger picture, we will not support going further. We are ready to be part of this conversation, to go and offer our help to get out of this mire. We are a constructive partner, but we would like to call everyone’s attention to the fact that we need to get out of the details behind which we cannot see the big picture. Before discussing whether there will be eight platforms or four platforms, let us first of all work out whether we have enough money to take that train to Riga. How do we manage this project any further? And there are potential answers.
Can you give an example?
We may attract private investors to take on some of the development, as in the case of the Ķekava bypass. But we need to have a clear vision of how the whole project will be implemented and financed. This much will come from the state budget, this much from the structural funds, this much from the private sector, and the railway will go there and there. Until we have that, all the other talks will leave us sticking into deeper mire. And this vision must be put on the Transport Minister, it is his responsibility.
The Minister for Transport has been involved in the Rail Baltica project for many years, and at a senior management level. Who better than him to see the big picture?
We are asking him to do this, and we are ready to help Briškens in developing this vision. We are ready to be involved, but the initiative must come from the Minister for Transport. In this way, we are sending out a public message that we are both ready to help and to call on him to get out from under the weight of the problems in which he is currently entangled as a minister. To discuss whether the indexation percentages in the 2014 contract were right or wrong – there are people who are paid tens of thousands of euros a month who should be able to deal with this, as it were. The Minister needs to put this big picture on the table so that we understand how this train will run, when it will run and how we will finance it. How much money will come from Europe, how much is there now, how much needs to be raised, how much needs to come from the national budget – these are the issues that need to be resolved! There must be a clear vision. All the other discussions are important, no doubt, but if ministers sit in the Cabinet and discuss these past indexation issues with the Prime Minister and leave the big picture somewhere on the sidelines, then all I can see is that we are going to get deeper and deeper into the red. I think the Prime Minister also supports the transport minister; we just have to find a way to help him get the message out. Otherwise, we will spend another six months discussing these disconnected details, not seeing the big picture and falling into bigger and bigger problems.
What was the reaction to this call from ZZS to stop until the big picture and clear sources of funding are clear?
I think everybody in the government understands, we just said it louder so that everybody understands that this is serious. It is as if it has already been decided in government that there should be a joint offer in September, but the fact that there is still so much public and internal discussion about certain things on the way to that – let’s stop it! We need a clear vision that is not utopian. We are making it clear that we are not going to accept decisions to take money away from road infrastructure development projects or to abandon other important things in the national budget, such as medicine for oncology patients, in favour of Rail Baltica. We will not accept that. There are clear conditions – 85% funding from the European Union’s core budget and 15% from the national budget. So please show us what we can do with this money, where it can get us, and how you propose to deal with the rest. Not utopian, but very clear. This is not a story about a project costing five billion, we have just over two billion from Europe and how are we going to achieve all this now? We are not interested in that. We are interested in a much more concrete offer, from which we understand that this is a first step, that we have to get this figure for funding from the European Commission in 2027, and again in 2030, so that we can complete the project successfully.
With this money, we will implement a section, we will do a public private partnership here, we will submit this and that again in 2030, with additional funding from the European Commission. That must be the vision. I think it can be done, especially given the well-paid professionals involved in this project. Professionals with that level of remuneration must be able to do these things quickly, otherwise the Minister must start assessing not only the managers but also the responsibility of all the other people who are in this project.
The remuneration is good, but, as Kulbergs recently said in an interview with BNN, the largest investment project in the history of the country is being managed by people without the skills and experience to manage such projects…
Then you should not be in such positions. How have the selections been made?
Political sympathies? A kind of flirt with the party in power at the time?
Then there are the questions of how its management forms have been chosen. I also had a question recently regarding the Director of the Latvian Investment and Development Agency, where I dared to disagree with the candidates put forward by the committee. And then there was a big huff – oh, God, how could you disagree with that! But I had a question for the committee – how could you send me such candidates? As it turned out later, this was the second time in the public administration that this had happened. I said that the people who assess the committee must understand that I will do this every time if I think that a candidate is not suitable for the job. Twice as a minister I have said: no, these are not the right people, look for new ones. The same thing is happening here: we are supposedly talking about good management, we are supposedly setting up various committees, we are paying very large sums of money to recruitment companies, but the result is what it is. If you feel that there is a lack of competence, then you ask for a capable candidate who will be able to do the job.
But that is not the fault of those people, but of the Minister. Because he has all sorts of tools to improve management if something is not working. We do that from time to time in our institutions too – we do external audits if we get any signals, like whistleblower reports or something. We make changes immediately. Since I have been in office, there have been countless changes in the Ministry of Economy in the space of a year.
You said that the Ministry of Economy is ready to help the Ministry of Transport with the Rail Baltica project, but the Ministry of Transport has another sore problem, and that is port reform. The Ministry of Economy has an alternative proposal for this reform.
Yes. It’s not like we hadn’t assessed it before. Alongside the Ministry of Transport, we are also responsible for the economic activity in ports, and for the port authorities. The Ministry of Transport came up with its own proposal, we looked at it carefully and realised that it was too unwieldy and too far removed from how Hamburg works, how Rotterdam works – the biggest ports in Europe. I have met and spoken to the representatives of the Port of Hamburg here in my office about port management, so they have come up with advice on how we should do things better.
We see, however, that the new forms of management imply deeper integration, even to the point where ports form land-based branches. For example, the Freeport of Riga could have branches in Jelgava and Valmiera, to ensure that there is an influx of cargo from these economic zones to the port, and to find a form of management in which this can be done most efficiently.
Briškens proposes to split the port in two. In the port authority, which is the access roads, the port infrastructure – berths, navigation – and in the business area, although today we see that these things cannot be separated and are becoming more and more intertwined. In the five years that have passed since the reform proposed by Tālis Linkaitis, we have seen that, even though the municipal representatives are out of the ports, as soon as there are questions about the development of larger projects, we find that we have to go to the municipality. Like it or not, political affiliation or not, you have to go. For example, in Riga, at least two major infrastructure projects for the economic development of the port are based on investments from the Riga municipality, even though the municipality can easily say: no, we are not interested!
These two parts – the port authority and the business area – should not be further separated, they should be brought together. We propose to bring back both municipal and business representatives to the port authorities. We propose that ports should retain their status as a derived public entity, and this is where Briškens and I share the same views. We also propose to introduce a conflict-of-interest regulation for business representatives in the port authorities, so that everything is as transparent as possible and there are no concerns about competition issues. We also propose that the decision-making procedure be regulated so that the State can also block things in critical circumstances, but we see that the mechanism for cooperation between ports, which Briškens advocates, is slightly different. Although the big push is the same – promoting cooperation between ports, a mandatory requirement for major state-funded projects to go through the Council of Ports to be jointly adopted by all ports and stevedores. This way, each port will know what is going on and any major investment project will have to be sufficiently justified to pass through the Council. In other words, for every such project, there will be an opportunity to prove oneself, to convince everyone else, including those who are against it. If the project is approved, fine, let’s move on; if not, then think what went wrong. This is public investment, where the decision-making structure needs to be much clearer. We are ready to defend this model.
What prompted the Ministry of Economy to develop an alternative model for port reform? After all, this is the area of the Ministry of Transport.
I have not met a single port operator who has come and said that the port needs this or another management model. Their questions are about development, about what this model is and when the situation about the management form that is hanging in the air is going to end. They need to understand whether it is going to be a public derivative, a limited company, a special economic zone or a business production infrastructure. What will happen in two- or three-years’ time? Businesses need these answers now, and I need them now. I will advocate it strongly and I have also said publicly that this solution must be quick so that we can close the chapter; we cannot afford to make policy on this issue. And then together with the port operators and the administrations, we have to fight for the main thing, the development issues.
I would be willing to go and discuss my colleague’s proposal if I could see that the volume of cargo handled in ports is stable, the financial situation is good, and the outlook is quite clear. Fifteen years ago, one might have thought that everything was fine in the ports, and now we can sit and judge some new forms of management and do a bit of experimentation. As Minister for Economics, I believe – at the moment we cannot afford that! The division of the ports into two administrations that is being proposed would inevitably take several years. It would mean a revaluation of assets, a division of property, a division of credit and a review. There would be all sorts of disputes between the state and the municipality – who owns the road, who owns the berth, how we divide the port charges, cash flow issues, etc. All this would present a multitude of different challenges which would inevitably lead to disputes with each other. Even assuming that everyone agrees on everything, and it is like a children’s fairy tale where everything is nice and sweet, the implementation time would be several years.
We already have one such example – the attempt to transfer the management functions of the Freeport of Ventspils to Ventas Port. In almost five years, none of this has been done.
And there is no sign that it will ever be done. I think that we just have to let go of all those ideas and realise that, even in Riga, it takes time to do these things. The first is already the revaluation of assets. So, you have to call in a certified valuer and get him to value the berths and everything else. It is a huge bureaucracy that costs a lot of money. Then you have to go through all this legal trouble of renewing contracts, laying off staff and rehiring them… What in the name of the God is this all about? This management model is becoming extremely unwieldy, and the question is: why the hell are we doing all this? If it is possible to answer and give a clear reason why all this is necessary, fine. If not, then we need to stop mocking and make a quick decision on how ports work. There is a sentiment about state responsibility, we say, OK, if in the past it was up to the municipalities to decide who to send to the port board, now we are offering a competitive selection process and further they are approved by the government.
You mentioned port development. Has the government discussed how to support the transit industry in the face of a dramatic drop in cargo? Perhaps the government has talked about this at European Union level?
The challenges facing the transit industry are constantly monitored by me and, of course, ports will be assisted where necessary. I receive weekly reports on the situation in Latvian ports and I know very well what it is. In some places it is quite bad, but not as bad as it could be. We are currently focusing on finding a new perspective for ports, for example in the field of energy. We are working on attracting new cargo, opening new structures. Both the ports of Ventspils and Liepaja are good examples of the transition from cargo tonnage to industrial areas and the development of production and processing. We need to think about how to keep up with the changing times, to develop these large port areas and to fight for the development of energy projects. To bring in the big giants who will not only install wind farms here, but also manufacture them here and then install them throughout the Baltic Sea area. There is an opportunity to attract such companies, which will give us renewed traction and a development perspective.
In September, on my, Minister for Economics, and State President’s visit to the US, the heads of all three major ports will join me, and we will attend, among other things, the Gastech energy conference, where we will meet with the world’s largest energy companies. The idea is to attract and motivate them to build their next business development projects here and to go into new niches where we have never been before. To take advantage of the unique port infrastructure that we have.
We will also continue our work with Central Asian countries, which is a common policy of the European Union. This cooperation must be actively developed; we cannot just watch the Lithuanians, the Poles and others do it, and we are not shy. Shyness must be put aside. We must actively develop these markets and fight for these cargoes so that they come and use our transit corridor, so that we can help to jointly address the EU’s challenges. We need to be part of this because we can be competitive by being one step ahead of others. We need to seize these opportunities and, of course, look to Western markets, to further develop the industrial production that is in the ports.
However, there is one problem with Central Asia – Russia is between us and these markets…
Cargo can transit through Russia. It’s not just us. There is no other way for those cargoes to come from Central Asia, that is something we have to take into account. It is the same as cargo going through Lithuania to Kaliningrad. These transit shipments are not banned. Lithuania, Poland, Germany, everybody is doing it. As long as it is not banned, it is complementary to our economic growth.
We are members of various trade organisations, and when we joined the European Union we also took on rules on the principles of the single market. The moment we are in the single market, we have to play by the principles of that single market. If we do not like something, we have to discuss them jointly with the EU. If we do this on our own, we are essentially damaging our economy directly, including those businesses that are not in transit. Because economic activity is falling, we are withdrawing from this competition, the cargoes are going elsewhere, and our immediate neighbours are benefiting. They pump up their economies and then support their businesses. We, among others, give very little support to the transit business. Basically, the money they earn goes to other businesses, which are given various support programmes.
Our infrastructure capabilities must be used, of course in full compliance with all sanctions regimes and working in harmony with EU common policies. Only then can we be strong against other economies, against Russia. We can be globally competitive only if we respect these common principles, and then it works. Anyone who breaks away from these common principles either weakens themselves or weakens the EU’s common policy.