EY deems Rail Baltica less profitable than previous estimate

Take note – story published 7 years and 1 month ago

The estimated costs for building the Rail Baltic railroad have become much more expensive, and the project's profitability has decreased at the same time as the social and economical benefits from the project have increased, it can be seen from comparing the 2011 Aecom and 2017 EY cost-benefit analysis.

LETA reports that Aecom's investment profitability analysis estimates the investment in the railroad construction to total €1.89 billion at present value. Additional maintenance costs during the life of the project would be €61 million. The railroad's proceeds from use would be €521 million and residual value would total €117 million. According to Aecom, the Rail Baltic railroad project would experience a loss of €1.31 billion.

While according to EY's cost-benefit analysis, the project's investment costs would total €4.2 billion in present value and additional maintenance costs would be €909 million. The revenue from the project would only be €898 million and residual value €255 million, thus the total loss of the project would total €3.96 billion.

Considering the difference in the negative total net gain of the two analyses, the studies cover that loss differently in terms of socio-economic effects.

According to the Aecom analysis, the discounted revenue from an increase in safety in 30 years would be €338 million, from reducing air pollution €148 million , from climate change €342 million. The time saved in passenger carriage would be worth €340 million and in freight carriage €818 million euros, while the profit of railroad carriers would total €690 million. Therefore, the socio-economic impact would amount to €2.68 billion euros, which means that the Rail Baltic project's profitability would be €1.37 billion .

As EY has still not published its analysis, the indicators made available in the expanded summary have to be used. Even though EY estimates the railroad project to potentially have a number of socio-economic effects, those effect have not been highlighted in necessary detail in present value in the summary. EY estimates the socio-economic effects to total €4.58 billion, which is €1.91 billion more than in Aecom's estimation. According to this estimation, the EY analysis shows the railroad project to produce a surplus of €879 million.

Aecom's cost-benefit analysis also highlights the fact that during the railroad's period of operation there should be no need for subsidies, even though they could be beneficial during the start-up period to inspire initial demand, especially for the carriage of goods. The EY analysis highlights the need for a grant of more than €28 million during the first five years of the railroad's operation.

A Cost Benefit Analysis (CBA) presented by Ernst & Young came to the conclusion that total socio-economi benefits of the project would total in excess of €16 billion on capital expenditure of nearly €5.7 billion.

Of that amount, 85% or €4.6 bn would come from European Union support with €1.1 bn coming from the governments of the Baltic states.

Seen a mistake?

Select text and press Ctrl+Enter to send a suggested correction to the editor

Select text and press Report a mistake to send a suggested correction to the editor

Related articles


Most important