Railway infrastructure: Bringing regions together

“Railway infrastructure knows no national borders. Its development requires seeing the big picture,” says Tarja Kylänpää, Head of Infrastructure Group, Origination at NIB. International financing makes up a substantial part of investments in railway infrastructure. In the past five years, the bank’s long-term financing of railway infrastructure and rolling stock renewal projects reached EUR 1 billion.

Railways are more environmentally friendly than road transport, as they consume much less fossil fuels. The modal switch, transferring from road to rail, therefore, is one of the key strategies for low-carbon economies.

The Nordic–Baltic region is Europe’s leader in the use of railways for freight transportation. The Eurostat data for 2013 show that Latvia was number one in Europe, with 60.4 per cent of all cargo being transported on railways, followed by Estonia (44.1 per cent), Sweden (38.2), Lithuania (33.6) and Finland (27.8). Only two other European countries—Switzerland and Austria—are at the same level.

Although the modal split in passenger transportation on railways looks much more modest, the Nordic–Baltic region’s average, about 8 per cent, is slightly above the EU average of 7 per cent. Denmark and Sweden are among Europe’s leaders, with 10 per cent and 9 per cent of passengers travelling by train, respectively.

“One might argue that we need a larger share of railway in freight and particularly passenger transportation in order to keep moving toward the ambitious goals of curbing greenhouse gas emissions”, says Tarja Kylänpää, who leads the infrastructure group in NIB’s lending department.

Much of the investments that the Nordic Investment Bank has financed in the past five years address both upgrades to the passenger capacity of railway operators in the Nordic countries and modernisation of the east–west railway corridors critical for transit to seaports in the Baltic countries. Since 2009, NIB’s financing for railway infrastructure and rolling stock upgrade projects has totalled nearly EUR 1 billion.

Linking north to south

Rail Baltica, a north–south string to link the Baltic countries to the European mainland, is about to unfold as the region’s largest railway infrastructure project. The costs of the project are estimated at about EUR 4 billion.

The Lithuanian state-owned railway company Lietuvos Gelezinkeliai is building the first 123 kilometres of the European-gauge track between the country’s second-largest city of Kaunas and the border with Poland.

The volume of freight crossing the Lithuanian-Polish border on road totals 25 to 28 million tonnes a year. The idea is to move truck semitrailers onto railway platforms to reduce the burden on motorways caused by the increased freight flows. The stretch to Kaunas is expected to be in operation at the end of 2015. The section further northward to the Latvian border is to be completed in 2025.

The Bank’s loans to Lietuvos Gelezinkeliai for the development of the railway infrastructure in the country total EUR 216 million over the past five years.

East–west transit matters

In neighbouring Latvia, NIB has been financing the construction of the second rail track on the 56-kilometre Skriveri–Krustpils section of the east–west railway that links Russia and Belarus to the Latvian seaports of Riga and Ventspils. The annual cargo traffic volume in the Skriveri–Krustpils section has totalled about 24 million tonnes in recent years, which accounted for 97 per cent of the infrastructure capacity. The improved section was commissioned in February 2015. This has been the biggest railway infrastructure project in the past 25 years since Latvia regained its independence.

“Cargo transit is one of the key sectors in the Baltic countries’ economies. The improved cargo capacity, higher speed and volumes of transit will contribute to strengthening the competitiveness of the region and help move more cargo from roads to rails”, says Ms Kylänpää.

Since 2010, the Bank has signed loans to Latvia’s state-owned railway company Latvijas Dzelzcels worth EUR 55 million.

Competing with cars and planes

The largest chunk, EUR 532 million, of NIB’s lending to projects aimed at railway transport development has been to Sweden. NIB has co-financed the acquisition of high-speed, low-noise trains for the Swedish state-owned railway carrier SJ, regional operators in Skåne, the southernmost region of Sweden, and AB Transitio, which is owned by regional public transport authorities and county councils and coordinates public procurement of rolling stock.

“Railways need to be reliable to be able to compete with airlines and cars. Beside the intermodal competition, Swedish railway passenger traffic has been deregulated for five years now. If the infrastructure capacity cannot absorb increasing traffic, service providers cannot enter the market”, says Ms Kylänpää.

Nowadays, trains have a strong environmental advantage compared to cars and airplanes. An average car emits 89 kilograms of carbon dioxide into the air during the 470-kilometre journey from Stockholm to Gothenburg—and a plane emits 6,000 kilograms of carbon on this distance. An entire train, carrying up to 300 passengers, emits just 0.4 kilograms.

Similar projects to renew passenger rolling stock have materialised in Finland. NIB has financed the acquisition of 51 new trains for the state-run railway operator VR.

“These changes are offering environmentally friendly travel. We place particular emphasis on the environmental friendliness of the trains and locomotives that our loans help purchase. Thanks to modern technologies and materials, newer train models are more energy efficient, and over 90 per cent of the material used in these trains is recyclable”, says Ms Kylänpää.

“Faster transport benefits society by cutting travel time and bringing regions together. Shorter journey times make rail more competitive compared to air and road alternatives. We believe these projects contribute to improving the competitiveness of the whole region.”