Study on Strategic Evaluation on Transport Investment Priorities under Structural and Cohesion funds for the Programming Period 2007-2013 docx

2.3 Situation per mode of transport 2.3.1 Roads and road transport The Latvian State Roads performs the management of the state road network, administration of the State Road Fund and or

Study on Strategic Evaluation on Transport Investment Priorities under Structural and Cohesion funds for the Programming Period 2007-2013

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Table of contents

4.1 National public funding for transport infrastructure 32

6.3 Additional factors for the prioritisation of transport investments 45

1 Introduction

1.1 Background

The recent enlargement of the EU to 25 Member States clearly creates a new challenge for its Cohesion Policy Disparity levels within the EU have increased substantially and will further increase with the accession of Bulgaria and Romania in 2007 This is an explicit point of attention as the Treaty states that, in order to strengthen its economic and social cohesion, the Community shall aim at reducing the disparities between the levels of development of various regions and the backwardness of the least favoured regions or islands, including rural areas This aim lies at the core of the Commission’s regional policy

One of the key elements of the cohesion policy of the Commission is the contribution of the development of new transport infrastructure to regional economic development Extensive spending has taken place in this domain under ERDF, Cohesion Fund and ISPA

One of the prominent initiatives in the European Union in this respect is the development

of the Trans-European transport networks (TEN-T) In 2003 the Commission has

identified the 30 priority projects of the TEN-T up to 2020.1 The priority projects include:

“the most important infrastructures for international traffic, bearing in mind the general objectives of the cohesion of the continent of Europe, modal balance, interoperability and the reduction of bottlenecks”

For the new programming period 2007-2013 the Commission seeks to strengthen the strategic dimension of cohesion policy to ensure that Community priorities are better integrated into national and regional development programmes In accordance with the draft Council Regulation (article 23), the Council establishes Community Strategic Guidelines for cohesion policy to “give effect to the priorities of the Community with a view to promote balanced, harmonious and sustainable development”2

To assess the impact of programmes in relation to Community and national priorities the Commission has indicated that evaluations on a strategic level should be undertaken The present evaluation should be seen as one of these specific strategic evaluations The strategic evaluation should feed in the process of determining transport investment priorities and the preparation of the national strategic reference frameworks and

1 Decision 884/2004/EC of 29 April 2004 The total investment of the 30 priority projects amounts to € 225 billion at the 2020 horizon

2 COM(2004)492

operational programmes As such, it should serve to enhance the quality, effectiveness and consistency of Fund assistance

1.2 The Strategic Evaluation

The strategic evaluation is directed the transport sector

Three specific objectives have been formulated for this strategic evaluation:

• To provide an analysis of the situation in selected fields relevant to transport, using

structural indicators across Member States, plus Romania and Bulgaria;

• To assess the contribution of Structural and Cohesion funds relative to the current

and previous programming periods and draw lessons of relevance for the purpose of the study in terms of identification of potential shortcomings in the development of transport priority projects that might have hampered the utilization of those funds or their expected benefits;

• To identify and evaluate needs in the selected fields and identify potential investment

priorities of structural and cohesion funds for the programming period 2007-2013

1.3 The Country Report

The strategic evaluation results in specific country reports for all 15 countries and a synthesis report The current report is the Country Report for Latvia Its main aim is to give a more detailed indication of the strengths and weaknesses of the transport system in the country and to address areas for future intervention Where relevant this accompanied

by recommendations with respect to the overall transport policy of the country The country reports feed into the joint programming effort with the Member States for the next period, as will be detailed in the National Strategic Reference Frameworks and the subsequent Operational Programmes

1.4 Structure of the report

The report is structured around three building blocks

• First a needs assessment is presented based on an analysis of the current transport systems and a modelling analysis which reveals the current (relative) level of accessibility per region This leads to first conclusions strengths and weaknesses

of the current transport system and related transport investment needs (Part A)

• Next an overview is presented of the transport investment priorities in the past period (Part B)

• Finally, future areas for priority transport investments are identified This builds

on the needs assessment in the first part but also addresses other factors such as the contribution to EU and national policy objectives, the availability of other sources of funding and the administrative capacity of the country (Part C)

Part A: Needs assessment current situation

2 Transport Sector: current situation

2.1 Introduction

This chapter describes the current transport situation and policy in Latvia After a brief introduction on the geographical and economic characteristics of the country, it first describes the situation per mode of transport The analysis of the current situation is summarized in a SWOT table on the main strengths and weaknesses The assessment of the transport system is followed by an analysis of the key transport policy issues in Latvia

Figure 2.1 Map of Latvia

Most of the country is composed of fertile, low-lying plains, with some hills in the east There are not many natural barriers, except for the rivers, especially the biggest one – the Daugava Latvia’s coastline is 494 kilometres and it has three important ice-free sea ports These conditions favour Latvia as an important transit corridor to Russia and other CIS

countries The backbone of Latvia's multi-modal transport corridor are the east-west railway and pipeline systems concluding at the major ports

Latvia is involved in the priority project number 27: ‘Rail Baltica’ axis Riga-Tallinn-Helsinki

Warsaw-Kaunas-Basic data

Population 2.3 million

Total area 64,589 km 2

Population density 37 inh/km 2

Main cities Riga, Daugavpils, Liepāja, Jelgava

Source: Eurostat

The population is about 2.3 million inhabitants One third of the population lives in the only large city – the capital Riga The rest of the country has a very low population density, one of the lowest in the EU

Economic data

GDP (PPP, 2004) 20,6 bn€

Government debt as % of GDP (2004) 14,6

Government deficit as % of GDP (2004) 0,9

GDP per capita, Latvia (2004) 9,700 €

GDP per capita, EU15 (2004) 25,700 €

GDP per capita, EU25 (2004) 22,600 €

Source: Eurostat

Latvia is among the poorest in the EU (only 43% of the EU average in GDP per capita) and that might be one of the reasons that the level of passenger traffic is rather low According to official data Latvia’s GDP has increased by an average 7.7% annually since

2000 This is the highest growth rate among the EU New Member states Real per capita GDP has grown by more than 50% compared to its 1995 level and it is expected that the annual growth rates of about 6% in medium term At the same time, current account deficit (ranging from 7% to 10% in the past 3 years) remains one of the key

vulnerabilities of the Latvian economy

Due to Latvia's geographic location, the transport sector, particularly freight transit, plays

a key role in the economy of the country Transport, storage and communications comprise approximately 16% of the GDP The transport and communications sector is one of the most dynamic and accounts for about 30% of all direct foreign investment3 Freight shipments between Russia and the CIS, and the West, are the core of the transit industry in Latvia Freight shipments from Russia and other CIS countries to the West are the core of the transit industry in Latvia The centres of the freight transit industry are the seaports of Riga, Ventspils and to a lesser extent Liepaja

3 Finanšu ministrija, Reference Framework for assistance from the Cohesion Fund 2004-2006

2.3 Situation per mode of transport 2.3.1 Roads and road transport

The Latvian State Roads performs the management of the state road network, administration of the State Road Fund and organisation of public procurement for the state road network Maintenance and development of parish, company and household roads is supervised, as well

Infrastructure

Latvia has a quite dense network of roads In 2005 there were 6,962 km of highways (main roads (A) and 1st class roads (P)), 13,264 km of secondary roads, and 31.500 km of municipal roads in Latvia

Table 2.1 Length of road network in Latvia (1994-2004) in kms

The average density of the Latvia (state) road network is 315 km per 1000 sq km, which can be considered as sufficient, taking into account the population and territory

Therefore, construction of new roads is foreseen only for eliminating of bottlenecks (bypasses of cities etc.)

The main national roads connect the road network of the Republic of Latvia with the road networks of other countries, as well as, the capital city Riga with district administrative centres

Figure 2.2 Motorway network in Latvia

Source: Latvian State Roads, 2006

Demand

Car ownership in Latvia has grown from 106 cars/ 1000 inhabitants in 1990 to 297 in

2004 Although there was a large growth in car ownership, there still is a large gap with

EU average (EU25 = 459)

Table 2.2 Car ownership Latvia

Source: Eurostat; SCB, 2006

Road traffic conditions in rural areas and smaller cities and towns are not bad, –and could

be evaluated as Level of Service (LOS) B and C, which means basically unrestricted and fluent traffic flow In towns and in the capital of Latvia, Riga, the problem is more serious due to the extensive enlargement of the private car fleet The annual increase of the traffic intensity is estimated at 2-5 % per year up to 2005, and 1-3 % from 2006 to 2015 87% of the State main roads are the elements of TEN-T network

Table 2.3 Number of vehicles 1994-2004 (in 1000 vehicles)

The increase in car ownership is reflected in the modal split of passenger transport In

2003, 73% of all passenger kilometres were performed by car For the EU as a whole, the share of passenger cars is 83% Busses and coaches represent the second largest means of passenger transportation with a share of 19%

In freight transport, there was a large increase in the number of heavy trucks This expansion is largely due to the expanding transportation of timber The increase negatively influences both road quality and road safety

Road charging

Currently, there are no pay roads in Latvia, and there are no plans for pay roads in the future Latvia has set up legislation to accommodate PPP Although the government actively promotes PPP, it foresees no infrastructure charging

• Moscow – Rezekne – Krustpils

• Vitebska – Daugavpils – Krustpils

• European transport corridor I: Tallinn-Valga – Ieriķi- Riga – Meitene – Sauli - Warsaw

• St Petersburg – Karsava –Rezekne – Daugavpils Currently, Latvia is also involved in priority project number 27: ‘Rail Baltica’ axis Warsaw-Kaunas-Riga-Tallinn-Helsinki

The majority of the network consists of single track (incl broad gauge) Latvian railways operate with 1524mm wide gauge Only at 11% of the network, some 257 km of the lines

is electrified The majority of these lines are located in the vicinity of Riga and mainly used for passenger transport

Figure 2.3 Railway network and rail electrification Latvia

Source: Latvijas Dzelzceļš, 2005

The Latvian rail network needs considerable restoration or upgrading Large parts of the network are deteriorated It is estimated that 30 %, or 605 km, of the main railways need

to be reconstructed The shortage of resources for maintenance and development of the existing rail system leads to wear of infrastructure and rolling stock as well as to the incapability of performing rehabilitation works in due time This decreases both efficiency and safety level

Latvia has relatively high number of railway transportation means However, the main part of the rolling stock is also outdated and should be modernized or replaced

According to the latest amendment to the Law on Railway there are two regulatory bodies

in the Latvian railway transport sector, the ‘State Railway Administration’ and the independent ‘Public Utilities Commission’

The State Railway Administration is responsible for issueing cargo transportation licences The Public Utilities Commission is responsible for issueing passenger transportation licences and for infrastructure charging It determines both the

methodology for infrastructure charging and these charges, thus ensuring a compliance with the requirements of EU directives The last amendments to the Law on Railway make the State Railway Administration responsible for infrastructure capacity allocation

in cases where a railway infrastructure manager is also railway operator Currently this is the case for “Latvijas Dzelzceļš” (Latvian Railways) which is both infrastructure manager and also a railway operator at the same time, although with separate accounting

Latvijas Dzelzceļš is the main state railway operator in Latvia (apart from its role as infrastructure manager) It is a joint stock company that is 100% owned by the state Since 2003, Latvijas Dzelzceļš only operates freight trains and owns all its diesel

locomotives Other operations (e.g passenger operations and their rolling stock repairs and maintenance are being carried out by several subsidiary companies) International rail cargo transportation services are provided by three companies, but their service tariffs are not regulated

Passenger trains are operated by subsidiary "Pasazieru Vilciens" ("Passenger Trains")

"Pasazieru Vilciens" is the, also 100% state-owned, domestic passenger services joint stock company It was not given any rolling stock assets from “Latvijas Dzelzcels” upon creation but is negotiating for this transfer now Although the passenger train market is open to other parties, the entry of new carriers into this market is problematic, as the market seems not very profitable at the moment

Demand

Rail transport in Latvia is heavily dominated by freight transport demand Latvia’s geographical position favours the development of transit traffic At current levels 55% to 60% of freight transit transport (in ton-km) is done via railways Most of the annual cargo volumes transported on railways flows in East-West direction, mainly from Russia (48.2

% of total transit shipments in 2002) and Belarus (37.4 % in 2002) to the Baltic ports Freight transport by rail is dominated by a very small number of shippers Furthermore, rail freight-traffic consists almost entirely of full wagonloads; consolidated cargoes use road transport It comprises a very large share of goods transported in the Baltic States Rail passenger transport is much less significant than freight and comprises almost exclusively domestic traffic At this moment the number of performed passenger

kilometres is at very low levels and still decreasing Despite of the relatively high rail network density, passenger rail can not compete with passenger cars and bus transport that can provide more frequent services to the sparsely populated rural areas Passenger transport by rail is competitive only in Riga region

2.3.3 Urban transport Table 2.5 Urban public transport network in Latvia

Urban public transport:

Tram network km 163 163 162 162 162 161 162 162 162 162 162 Light rail (trolley)

network km 217 217 218 218 218 218 218 218 218 211 212 Source: Eurostat; SCB, 2006

Public transport has a very high share in passenger transport in Latvia As mentioned before, Latvia has a low share of private car us (62%) Therefore public transport is very important Two thirds of transport passenger-kilometres are made by buses and coaches There is well developed market of private bus transportation services, especially in regions where buses are the main and most efficient mean of public transportation More than 100 companies perform regular commercial passenger services on urban, regional, inter-city, and international routes Most of them are private, but approximately

15 % are owned by municipalities or joint-stock companies There are 39 entrepreneurs operate long-distance bus services, of which 14 on international routes

About a third of the passengers in public transport travel by national and urban rail (Riga).In some regions the railway is an integral part of the local public transport system (especially for Riga’s commuting traffic) Only in Latvia’s three biggest cities (Riga, Daugavpils and Liepaja) an electric urban transport network (trolley and tram lines) has been developed

The motorisation trend is strongly against public transport, and it will be difficult to maintain the high share of public transport The urban region of Riga is the only region where there are serious congestion problems Here public transport has a real chance to maintain or even expand its share

2.3.4 Inland waterway transport

There is hardly any inland water traffic in Latvia Latvia has a very small merchant fleet (most Latvian ships operate under a foreign flag, there are no data on these available)

2.3.5 Sea ports

There are three large ports in Latvia (Ventspils, Riga, Liepaja) that are all part of TEN-T and seven small ports (Salacgriva, Skulte, Lielupe, Engure, Mersrags, Roja, Pavilosta) The major ports profit from their favourable geographical position, serving as ice-free ports that are well connected through rail, for the Russian hinterland

Ports of Riga and Ventspils are operating as Freeports for already 10 years Port of Liepaja is part of the Liepaja Specialized Economic Zone Companies working in Freeports and SEZ can receive up to 80% tax discount The amount of rebate depends on

The larger ports are mainly involved in processing transit freight – around 80% of transit freight transported through Latvia is handled through these ports Latvian ports are highly export-oriented, mostly shipping cargo for transit and export from Latvia The volume of cargo reloaded4 at the ports of Latvia in 2005 was 60 mln tons, an increase of 4.6 % compared to 2004, according to the Central Statistical Bureau In 2005, 55.9 mln tons of cargo were loaded at ports, 3.3% more than in 2004 The volume of cargo unloaded at ports in 2005 was 4.1 mln tons, 25.8% more than the previous year

Table 2.6 (international) Cargo handled in ports (in 1000 tons)

Total Loaded in Latvia Unloaded in Latvia

The smaller ports have local significance They are mainly engaged in the shipment of timber and receipt of fishing products In the summer season they are also used as sailboat terminals A very small share of passenger transport is being performed by a few ferries

According to the rail freight forwarders, the machinery in the Latvian ports for handling cargo coming by rail is old and in bad condition For example, the container terminal at Riga port can handle only eight wagons at the same time, and thus, as the cargo volumes

on rail increase annually, there is a need for increasing the cargo-handling-capacity at the terminal

4 Reloaded cargo includes loaded plus unloaded cargo

Figure 2.4 Composition of cargo flows

Source: SCB, 2006

Traditionally, crude oil and oil products have been the most import cargo for the Latvian ports5 However, in the last few years there has been a large decrease in the flow of crude oil and oil products and there has been a major increase in the handling of coal

Particularly, the volume of crude oil loaded has decreased substantially In 2005, 0.4 mln tons of crude oil was transported from ports, which is 5.2 times less compared to 2004 The volume of cargo in containers accounted for the bulk of cargo unloaded The volume

of this cargo unloaded has increased by 12.9% in comparison with 2004

Although the port of Ventspils has faced difficulties due to reduction of oil transit from Russia, other ports have shown very good economic results over the past few years

2.3.6 Airports

Infrastructure

In Latvia there are several airports, the largest one being the “Riga International Airport” Smaller airports are located in Liepaja, Ventspils and Daugavpils Riga International Airport is the leading airport of the three Baltic States There are several major airlines operating and recently also low cost airlines started operating from Riga Airport

The State Joint Stock Company of Air Space Utilization and Air Traffic Organisation

“Latvijas Gaisa Satiksme” provides flight control services in the air space of Latvia During the last years the air traffic control system has seen drastic improvement

Substantial investments in the airport were made and the number of destinations has increased

Over the last decade air passenger traffic has steadily increased The airlines have recently turned profitable after years of negative results

5 This amount is still accounted for only by crude oil transported to the ports by rail

Figure 2.5 Traffic development, Riga International Airport

0 2000 4000 6000 8000 10000 12000 14000 16000 18000

Passenger arrivals and departures - total, 1000 Cargoes loaded and unloaded (including mail) - total, tonne Source: SCB, 2006 ; Riga International Airport

Passenger turnover at “Riga airport” is still growing rapidly In 2005, there were almost

1.9 million passenger arrivals at and departures from the airport One million of these arrived and departed with foreign airlines; an increase of 2.3 times compared to 2004 With 366 thousand passengers the largest passenger turnover volume was secured by the German airports, followed by British airports with 310 thousand passengers

Air cargo and/or the express package services have also grown rapidly over the past five years, but remain of relatively low importance

Ventspils and Liepaja airport are the second and third biggest airports that are certified for international air traffic At the moment both airports serve charter, business and general aviation flights airport Currently, both regional airports are meeting their operational and exploitation targets The potential for further develop these airports to serve the steady growing tourist and trade flows between the East and the West Baltic Sea coasts and eventually serve as a stepping stone for budget airline entrants in the Baltic market still needs to be determined One regional airport feasibility study for both airports has already been commissioned by the Latvian ministry of transport in February 2006

2.3.7 Trends and indicators

Modal split

The comparison of the modal split in passenger travel demand reveals the importance of public transport Road density is at about EU level and bus transport has a very dominant position Also tram and metro have a high share in passenger transport compared to the

EU average Rail passenger numbers are decreasing, and the share of rail is below EU average Car ownership in Latvia has not reached EU averages yet, but motorisation levels are rising fast For the moment, the number of passenger kilometres by car is far below the EU15 average

Table 2.7 Modal split passenger transport (share % in passenger kilometres, 2003)

Situation 2003 Passenger cars Buses Railways Tram & metro

Source: Eurostat; SCB, 2006

The share of the road in freight is the lowest of the EU (only 22.4% of the ton-km) This

is due to the high transit volumes operated by rail The share of railways in total freight transport (ton-km) is the highest in the EU (55%) Rail freight has substantial increased during the past decade The growth rate reached some 7% annually on the average Nevertheless, the modal share of rail freight, although still high, is gradually decreasing

Table 2.8 Modal split freight transport (share % in ton kilometres, 2004)

Situation 2004 Road Rail Inland Waterways Pipeline

Roads: There are no pay-roads existing in Latvia, and it is not planned to introduce a

form of toll in the near future in Latvia

Railways: As already mentioned in section 2.3.2, both the methodology for infrastructure

charging and the infrastructure charges are determined by the Public Utilities Commission as independent regulator, since the infrastructure manager, LDz, is also railway operator The charge system is based on four principles:

1 To satisfy the financial needs of the public railway infrastructure for 100%

2 To establish (gradually) the same conditions for competition in freight and passenger transport

3 To achieve the optimal conditions for intermodal competition, taking into account social costs, environmental issues, and the economic interests of the country

4 To achieve the maximal utilization of the public railway infrastructure capacity The charge for the usage itself is

based on the principle of full cost recovery The Stock Company LDz does not receive any State budget financing to carry out its tasks as infrastructure manager

The level of charge that rail infrastructure users have to pay depends on the type of operator (freight or passenger) and the type of line (3 categories)

Furthermore, there are discounts depending on the type of individual train category and for freight operators there are discounts depending on train kilometres travelled by all freight forwarders during the year

The charge highly depends on the actual traffic volume, creating incentives for efficient use of the infrastructure On the other hand, charges will

be very sensitive to traffic volume variation and the actual charges are relatively high, as full cost recovery is aimed for (and rail infrastructure management in Latvia is relatively costly)

Fuel prices

Table 2.9 Excise duty and VAT on transport fuels in Latvia

Fuel for propellant

use Minimum agreed Excise duty rate

Together with Cyprus, Lithuania and Estonia, Latvia has the lowest fuel prices and fuel excise duties in Europe There is almost no distinction in the price of petrol and diesel In

May 2005 fuel prices were at about 80 cents per litre (Source: www.oeamtc.at) There is

no tax exemption for biofuels in Latvia

It is expected that Latvia will have to introduce some sort of fiscal incentives in the future, or increase energy and fuel taxes or introduce infrastructure charging According

to Council directive 2004/74/EC Latvia is allowed to apply a transitional period until 1

January 2011 to adjust its national level of taxation on gas oil and kerosene as propellant

to a new minimum level of 302 Euro per 1,000 litres and until 1 January 2013 to reach

330 Euro Similarly Latvia is allowed to apply a transitional period until 1 January 2011

to adjust its national level of taxation on unleaded petrol used as propellant to a new minimium level of 359 Euro per 1,000 litres

Traffic safety

Decreasing the number of road and railway accidents is one of the priorities under the NTDP Reportedly measures for improvement of road safety are the pre-requisite for approval for financing for all road infrastructure investment projects

Figure 2.7 Road Traffic Accidents

Source: CSDD

Latvia has the highest traffic death toll rate per million inhabitants (205) and per million cars (814) in the EU In average each year approximately 500 people are killed in road accidents and approximately 6000 people are injured Compared with other European countries, for example Sweden and Finland, the number of deaths in road accidents per 1 million inhabitants is three to five times higher

One of the main reasons for the high rate of accidents is very low quality of roads Road infrastructure in Latvia is outworn and with the available financial resources of the last ten years it was not possible to plan for and perform duly the rehabilitation of outworn asphalt pavement and gravel road and bridge repairs At the same time a rapid increase in the number of road vehicles has been observed in Latvia (the number of cars per 1000 inhabitants increased from 106 in 1990 to 264 in 2002)

2.4 Conclusions: SWOT analysis transport system

For some means of transportation, the infrastructure in Latvia is well developed Due to substantial investments, international air traffic has a high standard and an increasing passenger flow Latvia also has a dense railway network and a large share of freight

transport is conducted by rail (approximately 60%) The railway stock however is outworn and in bad condition This significantly hinders rail passenger transport

Due to large economic growth, car ownership in Latvia has significantly increased over the last ten years The large growth in both passenger cars and road freight transport can damage the state roads, which are already in a bad condition Latvia therefore must focus

on improving road quality and optimizing the road and railway network

In conclusion the following SWOT analysis has been made for the transport sector in Latvia

• High standards and increasing passenger flow of the

international air traffic

• A strong railway system - approximately 60 % of the

cargo is carried by the railways

• Access to ice-free Baltic Sea ports throughout the

• The ferry services are poorly developed in Latvia

• To improve the safety on Latvian roads via improved

road quality

• To optimise the network of railways and auto transport

roads and further coordinate with the territorial

planning

• Develop the public transport system, particularly in

Riga with an appropriate pricing policy

• To develop logistic services to ensure Latvia becomes

more significant transit route for cargo from Asia to

Europe

• The potential of regional airports (Baltic hub) should

be assessed and developed

• The rapidly growing number of passenger km (210.6 in

1993 and 815.6 in 2004) and cargo tons (28.9 thou tons

in 1993 and 41.8 thou tons in 2003) can cause a further damage to the roads

• Increasing pressure upon the urban centres’ transport system

• The workforce emigration

• Political changes, particularly in regarding the transit sector

3 Accessibility analysis

3.1 Introduction

This chapter presents a more quantitative transport needs assessment on a regional level

It clearly complements Chapter 2 in which the current situation of the transport system is described where potential deficiencies are addressed The analysis on the current situation together with the analysis of transport needs from a cohesion perspective form a basis for identifying possible investment priorities

In this chapter, first a description of the needs assessment methodology is presented Especially the determination of the composite Accessibility Problem Index (API), which has a central role in the approach, is explained A higher value of the index indicates a higher need for intervention This approach has been labelled as the “red flag” analysis This composite Accessibility Problem Index is a combined measure, which addresses transport network quality, population density and regional disparity (a more elaborate explanation is provided in Annex C) As such the accessibility analysis is much more linked to cohesion policy than a more traditional accessibility analysis Next, results of the application for Latvia are illustrated and analysed This analysis identifies main areas for intervention in rail and road transport for the current situation (2006)

3.2 Methodology: Accessibility Problem Index

To determine the need for transport investments, the SASI model has been used to assess the present situation of the road and rail systems in each country without the national transport projects to be examined later For this the accessibility provided by the road and rail systems in each country was evaluated from both a national and a European

perspective This was used to identify regions with serious accessibility deficits that should be addressed by European transport policy taking account of the stated EU goals competitiveness and territorial cohesion In the SASI model accessibility, which is directly influenced by transport policy and investments, is judged to play a crucial role in promoting the realisation of the cohesion objectives

To determine the appropriate assessment of transport investment need from the cohesion policy perspective an agreement on the indicator of accessibility to be used is required Traditional accessibility indicators are not useful for this They measure the total effect of both geographical location (periphery v core) and quality of transport provided by the transport system As a result they always show a steep gradation in accessibility from the

core to the periphery However, public policy cannot change the fact that some regions are central and some are peripheral, i.e provide the same level of accessibility to all regions Public policy can only alleviate disadvantages through unequal transport provision

This distinction is relevant for European transport policy To invest only in transport in the most peripheral regions with the lowest accessibility according to such an indicator would benefit only the relatively few people living there and would ignore the needs of the densely populated central regions to combat traffic congestion and so endanger the competitiveness goal of the Lisbon Strategy of the European Union On the other hand, to invest only in transport in the most densely populated central regions with the greatest congestion problems would not only lead to ever more traffic but also widen the existing gap in accessibility between the central and peripheral regions and would so run counter

to the territorial cohesion goal of the European Union

To avoid this dilemma, a new composite accessibility indicator was defined which distinguishes geographical location and quality of transport This indicator assumes that people in the peripheral regions can not expect to enjoy the same level of accessibility (measured in traditional terms) as the central regions, but that they can demand to be able

to reach relevant destinations with the same travel speed ("as the crow flies") as the

people in the central regions In addition, the indicator recognises the utilitarian principle

of the happiness of the greatest number, i.e that the transport needs of densely populated

regions should be given more weight than those of regions with only few inhabitants

And finally, the indicator recognises that economically lagging regions with severe

deficits in accessibility may offer greater potential for stimulating economic effects by transport investments than regions which enjoy already high accessibility

These three principles avoid the pitfalls of both an extreme egalitarian view, which postulates that all regions in Europe enjoy the same level of accessibility and a purely efficiency-oriented view which postulates that accessibility in the already highly accessibly central metropolitan areas should be further strengthened because they bring the largest economic benefits In other words, the three principles aim at a rational trade-off between the stated EU goals of competitiveness and territorial cohesion Annex C gives a more elaborate description of the composite Accessibility Problem Index

3.3 Transport needs

The composite Accessibility Problem Index takes account of the transport system quality (travel speed), population density and regional disparity Figure 3.1 and 3.2 depict the population density and the regional distribution of income between the different regions

in Latvia In terms of population density, the capital region of Riga (population 732,000) clearly stands out The other urban centres Daugavpils, Liepaja, Jelgava and Ventspils are parts of larger regions with low overall population density (Figure 3.1) The capital city region is also the economic centre of the country producing almost two thirds of the GDP

of the country (Figure 3.2)

The new accessibility

Figure 3.1 Population densities (population/sqkm) Latvia 2006

Figure 3.2 GDP/capita (Euro of 2005), Latvia 2006

The results of the analysis of regions with accessibility deficits that should be addressed

by European transport policy are presented in Figures 3.3 to 3.6 These figures show the

spatial distribution of the Accessibility Problem Index in Latvia first for road and then for rail from a national and a European perspective for the current situation (2006) The colour scale of the maps resembles that of a traffic light: green shades indicate average interregional travel speeds above the national or European average, yellow values indicate speeds slightly above the national or European average and red shades indicate speeds significantly lower than the national or European average

Overall accessibility

If accessibility in Latvia is compared with the European average (Figures 3.4 and 3.6), it becomes apparent that road accessibility is moderately below and rail accessibility severely below the European average as indicated by the orange and red shades on the maps

Regional imbalances

Figure 3.3 shows the spatial distribution of road accessibility in Latvia seen from a national perspective There are no great disparities in road accessibility between the regions, only the coastal region of Liepaja and the eastern region of Daugavpils have slightly higher average interregional road speeds However, the road speeds in all regions are below the European average (Figure 3.4)

The spatial pattern of accessibility problems for rail shows a similar pattern (Figure 3.5) Again the western and eastern regions have above-average rail speeds, whereas the central regions including the capital Riga have lower rail speeds The average

interregional rail speeds of all regions are below the European average However, the gap between the quality of the rail system of Latvia and the European average is much larger than that of the road network (Figure 3.6)

Figure 3.3 Accessibility Problem Index Road (national), Latvia 2006

Figure 3.4 Accessibility Problem Index Road (European), Latvia 2006

Figure 3.5 Accessibility Problem Index Rail (national), Latvia 2006

Figure 3.6 Accessibility Problem Index Rail (European), Latvia 2006

Part B: Past transport investment priorities

4 Previous support programmes

4.1 National public funding for transport infrastructure

Although, at this moment Latvia is still one of the poorer countries of the EU, the Latvian economy is expanding rapidly It can only be expected, that along with Latvia’s economic development also traffic volumes and motorisation rates will grow

The transport sector is regarded as a priority sector Since 1995 Latvia is running a Public

Investment Programme It comprises the total amount of infrastructure investments for

which annually state budget resources are allocated or are planned to be allocated, and comprises approximately half of public investments in infrastructure

As table 4.1 shows the budget dedicated to transport increased rapidly until 2000 Between 2000 and 2003 the budget of Public Investment Programme decreased every year In 2003 1.7% of the GDP was invested through the Public Investment Programme compared to 3.3% in 1999 Nevertheless the share of the transport related expenditures in the total national expenditures is rather high compared to other new member states (e.g

in 2003 Latvia spent 5.8% of its total national expenditures on transport; for Poland this share was 1.7%, for Cyprus this share was 4.6 in 2003)

Table 4.1 National funding (budget allocation) for transport, 1995-2003 (mln €)

Total governmental expenditure (including lending and repayment)

Of which transport and communications

Share of transport related expenditures

Million LVL Million Euro* Million LVL Million

Euro*

% of the total governmental expenditures

taken by local governments and loan guaranties given by local governments to enterprises owned by local governments

In the road sector, the State budget is mainly spent on road maintenance, whilst EU Structural funds and Cohesion Funds are used for development of infrastructures The main source of financing of the state budget for road infrastructure is money

generated from the excise duty Currently approximately 35 – 40% of all income from the excise duty has been allocated for improvement of road infrastructure According to the new regulations starting from 2007 the roads will receive 100% financing from cars duty and 65% from excise duty The share from the excise duty will be increased till 80% in

2010 Approximately 30% of all road financing is being transferred for regional roads For railways maintenance costs are mostly covered by payments by private railway operators However the level of financing from private operators is insufficient to cover all maintenance and State budget and EU funds have to provide additional funding The costs for developing the major ports and airport are mainly covered by private investment State budget is providing only a limited amount of funds for reconstruction of infrastructure of small ports (reconstruction of bulwarks, deepening of harbour) as well as access roads to the big ports

4.2 EU funding

Under the Phare programme relatively few investments were made in the transport infrastructure with contributions from the European Commission Investments were mainly targeted at administrative capacity building and strategic planning, with few interventions in building of infrastructure

From the pre-accession fund ISPA on average 24 million EUR (plus national

co-financing 25%) per year has been made available for investments during the period 2000

to 2006 Moreover since Latvia’s accession to the EU in May 2004 Latvia can apply for financing from the Cohesion Fund up to the amount of approximately 60 million EUR per year, and 30 million EUR per year from the European Regional Development Fund

As a result, total EU funds for the transport sector have increased from 108 million EUR

in 2001 to 315 million EUR in 2004

The number of projects in the transport sector has increased from 5 in 2001 to 21 in 2006 The focus of the projects financed under ISPA lies mainly on rail projects Major works funded by ISPA in 2004-2006 included: the replacement of 780 railway track turnouts; the construction of the new railway reception yard in Rezekne II station; and the

modernisation of signalling and hot-box detection systems on the East - West railway corridor Also 62.2 km of state main roads have been reconstructed, as well as the Saulkrasti bypass

Projects in Latvia funded by the Cohesion fund from 2004 to 2006 (plus national financing 15 - 50%) include:

co-• Reconstruction of 190 km of state main roads;

• Reconstruction of 220 km of railway tracks in the East-West railway corridor;

• Development of access roads to Ventspils and Liepaja ports;

• Extension of runway and reconstruction of the lighting system at the Riga International Airport

Projects in Latvia funded by the ERDF from 2004 to 2006 (plus national co-financing 15

- 50%) include:

• Reconstruction and development of 250 km of state 1st class roads and transit streets of cities;

• Reconstruction of 11 bridges in the network of state 1st class roads;

• Reconstruction of breakwaters in Mersrags, Skulte and SalacgrTva ports;

• Launching of modernisation of passenger electric trains

However, implementation of the projects was rather slow, ex-ante approval by the EC Delegation in Latvia was required at all stages, which reportedly delayed implementation

of ISPA and CF funded projects The situation notably improved after introduction of the national procurement procedure

4.3 Other sources of financing

This section gives an overview of other sources of financing for transport infrastructure

EBRD

Only a limited number of projects related to developing transport infrastructure in Latvia have been financed with funds from the EBRD Since 1993, five projects received support from the EBRD, all in the form of a Direct Investment Two projects were related

to the airport: the Upgrade of existing runway, taxiways and lighting system at Riga International Airport; and an investment in a Facility of RAF Avia for the Construction of

a new aeroplane maintenance facility, located at Riga International Airport

Two other EBRD investments were supporting theConstruction and operation of a terminal servicing general cargo traffic from the Baltic Sea at Ventspils port Finally, the EBRD invested in a project for Road rehabilitation and Upgrade of Latvia’s main road network

EIB

The European Investment Bank has been financing projects fostering the integration of the Baltic States into the European Union since the early 1990s Last year (2005), the EIB signed a contract for co-financing of priority projects fostering the development of the Latvian economic and social infrastructure that are co-financed by the EU Structural Funds as well as projects in the fields of the environment and Trans-European networks

co-financed by the EU Cohesion Fund

From 1998 to 2002 the EIB provided individual loans totalling 85 mln EUR for transport projects in Latvia like:

• The upgrading of the East-west railway line (1998)

• Upgrading the Ventspils port infrastructure (1999)

• Modernisation and enlargement of the passenger terminal at Riga international Airport (2000)

• The rehabilitation and upgrading of road sections forming part of the “Via Baltica”

PPP financing

Financing through Public Private Partnership is not widespread in Latvia There are only

14 relatively small concession agreements registered in the Register of Concessions Although legal preconditions for PPP have been established also in Latvia6, currently conditions PPP projects are considered problematic Interest rates proposed by the commercial banks are considerably higher than that by the State Treasury and

commercial banks rather require real estate as a pledge than a propect on a future finance flow

Nevertheless there is a high expectancy and strong interest in the PPP approach As the cost and works to improve the road infrastructure are extremely high (approx 2-3 billion LVL), the Ministry of Transport, envisages to implement reconstruction projects for all category A- roads using PPP models

The Ministry of Economy has selected the project on Improvement of Road safety in Cesu city as a pilot PPP project in transport sector, and commenced preparation of methodological guidelines

6 The implementation of PPP projects is regulated by the Law on Concessions adopted in 2000 The procedure of concession agreement registration in the Register of Enterprises of the Republic of Latvia and control over these agreements are established in Regulations adopted in 2004

Part C: Future transport investment priorities

5 National Transport Strategy

5.1 Introduction

This is the first section of Part C which aims to determine transport investment priorities

at a strategic level This chapter deals with the current national transport policy and resulting investment priorities In the next chapter these investment priorities are

confronted with an analysis of possible sources of financing, and other factors such as their contribution to EU policy objectives, the administrative capacity of the country, the socio-economic impacts in relation to the costs of the projects, and the extent in which the projects contribute to the needs identified in Part A of this report Finally, the overall impact of the proposed investment priorities is assessed

5.2 Long term National Transport Strategy and Planning

Road infrastructure development

The main objectives of the Latvian policy for the road sector are to foster economic progress of the state, increase the standard-of-living of the population, and reach

compliance of Latvian international roads to requirements of the European road network, through an effective maintenance and development of the Latvian road network The road infrastructure in Latvia is outworn The lack of sufficient financial resources during the last ten years prohibited the planning and performance of rehabilitation works on outworn asphalt pavement and gravel roads and bridge repairs The task of the current period is to preserve and maintain the road network at operative level, to stop its further decay, and to develop the road network in accordance with the most urgent economic and social interests Thus the main lines of action are:

• Improvement of road maintenance by improvement of the funding system;

• Quality improvement and development of international road transport corridors;

• Improvement of traffic safety;

• Raising the load carrying capacity of road surfaces and bridges;

• Optimisation of road network division and improvement of management

Key priority lies with further developing the Via Baltica and East-West road-corridors and improvement of their quality standards, including improvement of the traffic situation

in the city of Riga (construction of a new Daugava river crossing) Secondly, the rural roads have to be better maintained and developed

Railway infrastructure development

The objective of the Latvian railway development policy is a comprehensive

modernisation and development of the Latvian railway-sector, in order to achieve successful integration into the European railway transport system as well as successful operation within market economy conditions

The key priorities for railway infrastructure development are:

• Reconstruction and increasing of traffic safety level of the rail corridor East-West (Ventspils-Tukums-Jelgava-Krustpils-state border with branch lines Riga-Krustpils and Krustpils-Daugavpils-state border);

• Finishing of reconstruction of access tracks to Milgravis channel railway bridge;

• Development of Ventspils and Rezekne railway junctions;

• Development of information systems and data transmission network;

• Modernisation of rail track and shunt repairing and rail welding equipment;

• Optimising and development of port railway infrastructure in response of increasing demand

• Development of transit corridors in North-South direction, thus facilitating movement of passengers and increasing cargo flows in the single European territory

• Creation of border-crossing control infrastructure at railway stations in

accordance with the respective EU requirements

Taking into account the trends of the prospective European development, it is planned to equip the main transit corridors with electrical traction in the future Therefore Latvia is engaged in studies on possible future electrification of the main lines Latvia has also planned the implementation of GSM-R as a part of ERTMS

Port infrastructure development

The objective of the port-sector’s development is to increase cargo and passenger flow through Latvian ports Attractive and up-to-date cargo handling conditions need to be created, as well as high-quality services for passengers

The development of the Latvian ports and their integration into the European transport system is hampered mainly by the low quality of the infrastructure associated with port operations (i.e roads, railway access roads and other infrastructure)

Key priorities for the Latvian port sector are:

• Further developing the port infrastructure at the three major ports; Ventspils, Riga, and Liepaja;

• Implementation process of “Motorways of the sea”;

• Regulating shipping safety and conforming legislation, its implementation practices and process control to international requirements and standards;

• Creating border-crossing control infrastructure in ports in accordance with the respective EU requirements

Airport infrastructure development

The main task of air traffic policy is the development of Riga airport into a significant air traffic centre integrated in EU transport system Policy actions aim at creating a

homogeneous environment for the users of air transport, and at harmonizing the operation

of Latvian air traffic control service with the air traffic control system of other European countries

Infrastructure projects at Riga airport are to increase the Riga airport passenger terminal throughput capacity up to 1.4 million passengers per year and to ensure passenger service quality in accordance with international standards enabling to provide competitive services Development projects are related to the upgrading of the airport category and to the extension of the runway

Most relevant planning documents

The main national policy document in the transport sector is the National Programme

for Transport Development 1996-2010 The National Transport Development

Programme is a medium term strategic planning document The implementation of this planned strategy is deemed of vital importance for a balanced development of the society and national economy of Latvia The goal of the transport development policy in Latvia continues to be the setting-up of an efficient, safe, environmentally friendly, multimodal, balanced and competitive transport system

The document was prepared by the Ministry of Transport and adopted by the Cabinet of Ministers in November 1995 The National Transport Development Programme is a medium term strategic planning document in the transport sector The implementation of this planned strategy is of vital importance and indispensable for the purpose of balanced development of the society and national economy of Latvia

The Sub-Program N3 of the National Transport Development Program aims to

establish a united passenger transport system to provide qualitative and accessible public transport services; and to increase safety, sustainability, and effectiveness in freight transport operations

The key mid-term planning document is the Strategy of the Ministry of Transport 2006

– 2013 In principle this document reiterates the objectives outlined in the current NTDP

Additionally, it includes the priority: to develop public transport system The Strategy is revised each three years and presented for the adoption to the Government The goals listed in Strategy are further reflected in the relevant strategies for the Cohesion Fund, and integrated in the draft National Strategic Reference Framework Document (NSRF) Other important policy and planning documents include:

• Guidelines for the Development of Public Transport for the Years 2005 to 2014, accepted on 28th of September 2004;

• Programme for Regional Support of the State 2nd Class Roads, accepted on 30th

of November 2004;

• Concept on Shipping Policy, accepted on 21st of July 1998;

• Concept on the Control of the Road Traffic, accepted in 2002;

• State Programme for the Development of Latvian Ports for the Years 1995 to 2010;

• State Programme for the Development of Safety of Maritime Services;

• National Programme for the Road Traffic Safety

Environment in the planning process

The EIA procedure is a requirement for implementation of every infrastructure

investment project and no financial decisions can be taken before the EIA procedure is finished for every project The Law “On Environmental Impact Assessment”, in full compliance with the relevant EC legislation and along with several amendments, was passed on 14th October 19987

Since June 2004 the Law on Environment Impact Assessment requires that a SEA is elaborated for all major investment projects Both the National Development Plan and territorial and spatial plans require a SEA Since June 2004 there have been about 400 applications submitted for SEAs and in 188 cases the SEA procedure has been started In

31 cases the SEA procedure has been finished

5.3 Operational programme 2007-2013

The National Strategic Reference Framework Document (NSRF) and related Operational Programmes are being prepared under responsibility of the Ministry of Finance The draft NSRF foresees three Operational Programmes The OP for the transport sector will be integrated under Operational Programme “Infrastructure and services” and will not be a separate document The Ministry of Transport has elaborated draft proposals for this OP

Main objectives of the OP

Strategic objectives in the field of transport and transport infrastructure are determined based on the “National Programme for Transport Development 1996-2010” and the

“Strategy of the Ministry of Transport”

The Operational Programme “Infrastructure and Services” has two main objectives which are translated into two measures: “Improvement and development of large scale transport infrastructure”, and “Development of accessibility and transport systems”

Measure “Improvement and development of large scale transport infrastructure” will be financed from Cohesion fund and will include the following activities:

• Improvement of TEN road network;

• Development of East-West railway corridor infrastructure;

• Development of large ports infrastructure;

• Development of airport infrastructure;

• Improvement of urban infrastructure connections with TEN-T

7 Amendments on 30th May 2001 corresponding to ESPOO Convention; Amendments on 19th June 2003 incorporating the legal provisions of the Directives 92/43/EEC, 2001/42/EC; Amendments on 26th February 2004 incorporating the legal provisions of the Directives 2003/35/EC and 92/43/EC; The Cabinet of Ministers Regulations No 87 on 17th February 2004:

“Procedures for Environmental Impact Assessment”; The Cabinet of Ministers Regulations No 91 on 17th February 2004:

“Procedure for Regional Environmental Board issues technical Regulations for providing action which does not need Environmental Impact Assessment”