Estonian Railways quickly adapts to changing economic circumstances

With its 140-year history, Estonian Railways has been a bright example in illustrating how to adapt to circumstances and successfully cope with them in the rapidly changing economic environment of recent years. 2009 represented an important year for Estonian Railways, when it carried out several significant changes concerning its tariff system, investments, and the optimisation of its activities.

On 14 January 2009, Estonian Railways founded two new affiliates: EVR Infra Ltd. (a rail infrastructure undertaking) and EVR Cargo Ltd. (a rail transport services undertaking). These companies have become a group of undertakings working under control of Estonian Railways Ltd.

Within the same group of railway undertakings, Estonian Railways is responsible for the overall personnel policy, legal advice, foreign relations, internal audits, security, safety management, information technology services, the administration of examinations with the aim of conferring vocations and qualifications, issuing work permits for operating within the EVR Infra railway infrastructure, accounting, financial management, financial risk management, cash management, insurance, public relations and the organisation of record management in the Estonian Railway’s areas of activity.

Stability created by the new method of calculating fees

In November 2008, the amendment of the old method of calculating fees for the use of the railway infrastructure that had hampered changes in rail transport occurring over the past few years was initiated. The old method was based on the continuous growth of trade flows, and did not maintain competitiveness during shrinking volumes.

In April 2009, Juhan Parts, the Minister of Economic Affairs and Communications of the Estonian Republic, signed the revised method of calculating fees for the use of the railway infrastructure, which took into account the proposals of different transit undertakings.

As a result, upper and lower limits of the fees for the use were imposed, which allow the carriers to estimate transport costs and prevent the increase in fees for the use of infrastructure, even if the volume of goods transport shrinks. The new method also enables the conclusion of long-term contracts (up to three years) for the use of the infrastructure, as well as customer contracts, in which case the tariff rate has been fixed for every year of a three-year contract.

Estonian Railways’ contract, concluded for three traffic periods, guarantees a longer-term stable price that allows the contractors to plan their long-term costs. With a long-term contract, a customer with, for example, a 5-8 million tonnes per year volume of goods transport, may count on a far more favourable fee for the use of the rail infrastructure than the basic tariff provided by the revised methodology for calculating the fees.

Estonian Railways can therefore offer its customers fixed prices over the long-term and in the case of large guaranteed volumes of transport in goods, it can obtain considerable price bonuses, offering its customers a stable business environment and thereby even further increasing its competitiveness in the region.

The majority of infrastructure investments are covered by the European Union

In recent years, huge sums have been invested in modernising the infrastructure of Estonian Railways. In 2009, most notable were the investments co-financed from the European Commission’s TEN-T Programme and the European Union’s structural funds. In the major repairs on the Tartu-Valga railway section, 314.6 million kroons were invested (67.8 million of which were from the fund). In the reconstruction of the railway in the Rail Baltica route, 117.4 million kroons were invested (176.8 million from the fund). Within the framework of the project for bringing the passenger platforms to the euro level, 27.7 million kroons were invested (18.2 million from the fund). Within the framework of the passenger security project, 1.4 million kroons were invested (0.7 million from the funds).

EVR Infra Ltd has plans to continue investments in the railway infrastructure in 2010 with the help of the European Union structural means. Major projects entail reconstruction of the railway in the Rail Baltica route, conclusion of the major repairs at the Tartu-Valga sector, bringing the passenger platforms up to the euro level, and reconstruction of the travellers’ platforms in the framework of the project entitled ‘Guaranteeing passenger safety in the work area of the passenger trains’. The plans are to invest 780.7 million kroons in total – 70% of which was invested with support of the European Union structural funds.

Over the last seven to eight years, Estonian Railways has, with the European Union’s support, invested over 500 million kroons annually in the railway infrastructure. During that time, almost all main trunk lines have undergone major repairs.

Modern border crossing point to be completed in 2011

The Estonian State is in the process of building the most modern railway junction in the Baltic countries, at the Koidula border point. There will be 10 station sidings, enabling up to 40 trains – both freight trains and passenger trains – to pass the border point over every 24 hour period and it is estimated to be finished in July 2011. Altogether, there will be 25.4km of railway in the Koidula border point; the total cost of the new station is one billion Estonian kroons.

The renovated Koidula border station boasts an up-to-date train traffic and safety system that modernises the tracing of train traffic and management of station work. The use of a computerised solution enables the management of train traffic in the Koidula station from Tallinn, from the Estonian Railway’s dispatcher point. For security reasons the maximum safety level SL4 is used.

Up-to-date buildings and warehouses for inspecting trade are built at the Koidula border point, by which time we hope to retrieve the passage of frozen goods that have not been transported through Estonia for almost five years. We estimate a volume of up to one million tonnes per annum of these goods, which is not a large amount in the light of the general volumes, but nevertheless all market participants are eagerly awaiting that possibility. In addition, the completion of the Koidula border point allows the possibility of serving trains travelling from Russia to Latvia, because that possibility enables the significant shortening of distances.

Estonian Railways is successful due to efficiency

The optimisation of an undertaking’s activities underpins the basis for long-term successful action. Only 10 years ago, Estonian Railways had 9,000 employees; today the number is more than five times smaller. In addition to infrastructure development, for over three to four years the undertaking has been engaged in rendering its activities more efficient.

We can say that we are in a better position within the proximate region, since we began by optimising our activities during the economic growth period, when the majority of undertakings preferred to raise tariffs in order to receive profit than revise their activities. Up to today, optimisation of the activities of Estonian Railways has mostly been completed, and as a consequence we have been able to significantly reduce our operating costs – consequently offering the region’s best transport fares to the transit business.

Although much criticism was made at due time towards the purchase of American locomotives, today we have to admit that we have been unable to find better solutions than these anywhere in the neighbouring region. In terms of fuel consumption and repair, they are more effective than other locomotives used in the region, for the simple reason that they consume almost a third less fuel. That, however, allows us to offer lower tariffs compared with other operators transporting in goods.

We also have a sufficiently large tractive stock which allows us to increase the quantities of our transport in goods by almost a half, without making investments. When the Koidula border point is finished by next summer, we can change over to the sole use of the American locomotives, whose considerable service life will operate for the next 15 years.

Estonian Railways will offer long-term stability and certainty of rates in the hope to increase the quantities of goods transported through Estonia

Estonian Railways is open to cooperation with everyone

An important step for the undertaking has been the digitisation of all documents and administration that first and foremost reduces costs, saving everyone’s money and time, as well as our surrounding environment.

The oil terminal at the port of Ust Luga, that will soon begin operation, will significantly reduce the transit of petroleum products through the Baltic States, posing new challenges before us. In order to better meet our customers’ needs, in addition to making investments in infrastructure, we have long been searching for opportunities to increase container traffic, and have held negotiations over container transit from China and Europe to Russia.

At a meeting with the President of the Ningbo Port, the latter expressed his readiness to move towards the Baltic States. The owners of cargo ships have been investing in large container ships, and their wish is to commence commercial use of these ships. The ports must be prepared to receive larger vessels, and the Port of Tallinn is doing its best to be picked by the Chinese as a cooperation partner. Additionally, Kazakhstan is interested in the potential offered by the Port of Tallinn.

Container transport does not form a significant part of the undertaking’s transport in goods volume today, but we operate the region’s only Russian-linked regular container train, the Moscow Express. The train runs between Moscow and Tallinn once or twice a week. Despite competing with our neighbours, we also cooperate with them. An example of such cooperation is the Zubr container train that constitutes a link between the Baltic Sea and the Black Sea when carrying goods. The growth in container traffic is directly related with economic growth, because the containers carry mostly consumer goods for which demand grows with the growth of increased consumption.

However, the aim of Estonian Railways is not solely the development of container transport. We also cooperate with other carriers and owners of goods, for example, in the sectors of coal, fertilizer, and petroleum products. Offering long-term stability and certainty of rates, we hope to increase the quantities of goods transported on Estonian Railways. We work hard in order to bring new trade flows through Estonia that, until present, have not been using our railway or passing through the region.

About the Author

Kaido Simmermann

Kaido Simmermann studied at Tallinn Technical University where he gained an MA degree in Railway Engineering and he also studied Road Engineering. Between 1994 and 1999, Mr. Simmermann was a lecturer for Railway Engineering at Tallinn Technical University. Mr. Simmermann has held numerous positions at Estonian Railways, including Advisor to Director General between 1994 and 1995, Infrastructure Director between 1995 and 2007 and he is now Managing Director.