The Baltic states’ premier infrastructure project, Rail Baltica, is at risk because its estimated cost has soared 400% over the last seven years, potentially leading to a budget shortfall of €10bn-19 bn, according to a joint report by the state audit offices of Estonia, Latvia and Lithuania, ERR.ee, the website of Estonia’s national broadcaster ERR, reported on June 12.

The state audit offices of Estonia, Latvia and Lithuania have estimated that up to an additional €19 billion is needed to complete the Rail Baltica project in full. Taking into account the latest project budgets and already allocated funds, Estonia requires an additional €2.7 billion, Latvia needs €7.6 billion and Lithuania requires €8.7 billion to finish the project.

To cope with the increased budget and the strict deadline of 2030 for the railway's completion, the governments of Estonia, Latvia and Lithuania are preparing to scale back the work to be completed by 2030, focusing on constructing the main railway line. This reduction in the project's scope means that local stops will be built later or with minimal functionality, and some sections of the railway will have only a single track instead of two.

Reducing the originally planned scope of the project is expected to nearly halve the anticipated budget shortfall for the three countries by 2030. Under the first-phase scenario, the estimated shortfall for the three countries combined would be €10.1 billion – €1.8 billion in Estonia, €4.4 billion in Latvia and €3.9 billion in Lithuania.

The state audit offices highlighted the uncertainty surrounding whether, and how much, funding will be allocated to the Rail Baltica project from its main source of funding, the Connecting Europe Facility (CEF), in the next EU funding period starting in 2028, or what the co-financing rate would be.

The timely acquisition of funding is in doubt not only because of the estimated cost increase but also because the current EU funding period ends in 2027. Since the next funding period starts in 2028, there is likely to be a funding gap between 2027 and 2028, as grants are usually not disbursed in the first year of a new multi-annual financial framework. Given the project's strict deadline, with railway infrastructure needing to be completed by 2030 and intensive construction planned for 2027-2028, this funding gap will need to be addressed.

The state audit offices noted that even with a reduced scope, the project is at least five years behind the schedule approved in 2017. Construction was supposed to be completed, and the railway operational by the end of 2025. The overall delay is primarily due to successive setbacks in the design and planning processes, which also affect the pace of land acquisition.

According to the responsible ministries, the second phase of the project will begin after the trains start operating and freight volumes increase. However, the timeline for the second phase has not yet been established.

Delays could also lead to the Baltic states missing the deadline for using funds allocated from the Connecting Europe Facility (CEF), resulting in a potential loss of these funds. National implementation agencies and RB Rail AS estimate that Estonia risks losing €8 million, Latvia €4 million and Lithuania €71.5 million if these amounts are not invested within the eligibility period. In Latvia, there is also a risk that funds already spent on design work may need to be returned, as these projects are expected to be completed later than the allowed timeframe.

Several crucial decisions necessary to start train operations on the new railway by 2031 are still pending. The only decision made so far by the three Baltic states regarding infrastructure management is that each country will have a separate, independent management agency. However, Latvia still only has a temporary infrastructure management agency.

The Rail Baltica project, an 870-kilometre railway line from Tallinn to the Lithuanian-Polish border, is the largest infrastructure project in the history of the Baltic states since their independence. To date, the primary source of funding for the project has been the European Union's Connecting Europe Facility, with an EU co-financing rate of up to 85%, ERR.ee said.