Lithuania



Introduction



In 2000, Lithuania initiated railway industry reforms, in part driven by a desire to join the European Union (EU), an alliance that promised significant strategic benefits to the country in general, and to Lithuanian Railways in particular. EU membership promised hundreds of millions of Euros in national developmental aid and tens of millions of Euros to invest in railway infrastructure. Secondly, EU membership would enable Lithuanian Railways to grow the predominantly EU-based north-south traffic and reduce its dependence on traffic to and from Russia. Almost a decade earlier, the political disintegration of the Soviet Union had triggered a catastrophic economic collapse; freight and passenger market turnover had dropped by over 50 percent, profitability had vanished, assets condition deteriorated, and productivity plummeted. This case study describes reforms that Lithuania Railways initiated to prepare for EU accession, and address economic challenges that confronted former Soviet Union railway companies.


Before Reforms

Since 1940, Lithuanian Railways had been one of three operating divisions of the Baltic Railway, one of the Soviet Union’s 32 regional railway administrations that reported to the Ministry of Railways (MPS) in Moscow. In 1991, Lithuanian independence created a national railway company, Lietuvos Gelezinkeliai (LG), (Lithuanian Railways) from what had been an operating division of a regional administration.



Lithuania had always been an important transit route for traffic from Russia and other Union republics to Kaliningrad and the Lithuanian port of Klaipeda. The regional economic collapse that followed Soviet Union disintegration precipitated severe challenges for the new national railway company. During 1990-00, traffic turnover plummeted by 54 percent for freight and 84 percent for passengers (Figure 1). The LG passenger volume modal share stagnated at 2.0 percent; freight business increased modal share due to increased rail transit of oil from Russia relative to other freight (Figure 2).



As LG’s market turnover suffered, profitability took a nose dive. Profits of US$11.8 million sank to a loss of US$6.4 million in 1999 before rebounding to US$1.7 million in 2000 (Figure 3). Real investments in railway transport infrastructure maintenance sank as well. During 1993-95, investment declined by11 percent,164 and during 1997-99, track replacement volumes dropped by 49 percent.165 Thus railway infrastructure was dilapidated and the rolling fleet was outdated.166



Similarly, productivity suffered as a result of the drop in traffic. Coach productivity declined by 78 percent, wagon productivity, 36 percent; employee and track productivity declined by about 50 percent (Figure 4).



    


164 Investment in Transport Infrastructure: Country Studies, (European Conference of Ministers of Transport, 1999)
165 Transport Restructuring in the Baltic States: Toward EU Accession, (World Bank, 2004)
166 Resolution No. 692: Development Strategy of the Lithuanian Transport System, pp. 23, 58
 
 
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