Transit Across the Baltics: Separating the Economic Wheat from the Political Chaff
"Another view on life" sign on a Latvian train.
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Doctor of Economics, Professor of Foreign Relations Department at St. Petersburg State University, RIAC Expert
The top news story in Latvia right now is the arrest of Latvian Railways President Ugis Magonis. Latvian Railways is largest company in Latvia. More people work for the company than any other state or business entity in the country. It is a valuable source of income for the state budget and controls the necessary infrastructure to ensure the successful operation of the country’s ports.
The top news story in Latvia right now is the arrest of Latvian Railways President Ugis Magonis. Latvian Railways is largest company in Latvia. More people work for the company than any other state or business entity in the country. It is a valuable source of income for the state budget and controls the necessary infrastructure to ensure the successful operation of the country’s ports.
Several companies operate under the unified management of Latvian Railways (its parent company, Latvijas Dzelzceļš or LDz, owns the infrastructure). LDz Cargo, for example, carries out freight and international passenger services. The structure of LDz was altered to accommodate the demands emanating from Brussels. Latvian Railways President Ugis Magonis said of the situation: “We have done everything the European Union has asked of us. However, I personally believe that opening up the market will not bring the results expected in Europe. Perhaps increased competition and a greater number of carriers could in fact lead to lower prices in countries where passenger transport dominates. But we are primarily engaged in freight transport, so such a system does not work.” (Link in Russian). Magonis repeatedly stressed that, from a geographical point of view, it was only natural that Latvia should look towards the east in its partner activities. To be sure, the only economic advantage of rail transport in Latvia is through the provision of transit services. Passenger services are notoriously unprofitable.
The only economic advantage of rail transport in Latvia is through the provision of transit services. Passenger services are notoriously unprofitable.
Unsurprisingly, Magonis is being accused of corruption. But a few facts inevitably arouse suspicion here. Firstly, reports have appeared in the Latvian press that Russian freight will no longer be allowed to pass through the country. And this has been accompanied by political speculation on the issue.
The transport industry accounts for around 13 to 15 per cent of Latvia’s GDP. Should Russian goods be forced to bypass Latvia, the Latvian rail industry will lose 43.7 million tonnes of freight per year. That is 97 per cent of its entire freight traffic flow (link in Latvian). But the situation surrounding Magonis does not change the fact that transit problems have existed for a long time.
The defiant anti-Russian stance could, according to a spring 2015 report by the Ministry of Transport of the Republic of Latvia on the impact of the sanctions on the country’s transit industry, lead to “Latvia losing the coal and petroleum cargo that passes through its ports and is carried on its railways.”
The Baltic ports handled 78,084 million tonnes of freight during the first six months of 2015, which in 4,996 million tonnes (or 6 per cent) lower than for the same period in 2014 (link in Russian). At the same time, Baltic port performance indicators demonstrate mixed trends. And this is troublesome for both Latvia and Estonia.
| Baltic Ports Performance Indicators (original in Russian) | ||||
|---|---|---|---|---|
| Port | January-June, 2015 | January-June, 2015 | Change, per cent | Change, thusand tonnes |
| Riga | 20173,5 | 20636,4 | 2,3 | 462,9 |
| Port of Klaipėda | 17756,7 | 18856,3 | 6,2 | 1099,6 |
| Būtingė Oil Terminal | 3309,7 | 4140,9 | 25,1 | 831,2 |
| Ventspils | 15694 | 13377 | -14,8 | -2317 |
| Tallinn | 15239,6 | 12087,2 | -20,7 | -3152,4 |
| Vysotsk | 8752,1 | 8484,8 | -3,1 | -267,3 |
| Liepāja | 2675,7 | 2697,3 | 0,8 | 21,6 |
| Total: | 185936,3 | 185389,9 | -0,3 | -546,4 |
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In other words, the deterioration of political relations with Russia is at the heart of the problem, and not incriminating evidence that may or may not exist. The defiant anti-Russian stance could, according to a spring 2015 report by the Ministry of Transport of the Republic of Latvia on the impact of the sanctions on the country’s transit industry, lead to “Latvia losing the coal and petroleum cargo that passes through its ports and is carried on its railways.”
But the question begs: who is the leader? Surprisingly, it is Latvia, see “Latvia as a bridge between West and East is not working, and has to be rejected” (link in Russian). This much was made clear by a presidential advisor on the economy and European affairs and former EU commissioner.
As for Latvian Railways President Ugis Magonis, we can assume that he is being dealt with in the same way as former IMF Managing Director Dominique Strauss-Kahn, who declared that the global political and financial systems were ineffective and would lead to a new financial crisis.
The events in Latvia highlight the conflict between the country’s economic and political development priorities, its internal stability. The weight of the political conflict with Russia is taking its toll on the Latvian economy.
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