In recent weeks, amid Elron train drivers' salary concerns, discussion has picked up over the future development and long-term funding of passenger rail service. Unfortunately, many half-truths have been circulating.

This is an area involving several companies and ministries. For example, Elron falls under the Ministry of Regional Affairs and Agriculture, while the infrastructure company Estonian Railways is overseen by the Ministry of Climate. I will try to explain how the costs of passenger rail service are structured.

The largest share of costs in passenger rail comes from maintaining infrastructure, which is mostly a fixed expense. It does not depend significantly on the volume of train traffic but must be covered regardless — as long as the Estonian state considers a rail network necessary.

Rail infrastructure is funded mainly from two sources: infrastructure usage fees paid by operators and direct state subsidies to balance the infrastructure manager's revenues and expenses. The latter applies to Estonian Railways, since the usage fees operators pay do not fully cover its costs. Raising the fee significantly is not an option, because that would drive away the clients still using rail.

When fees are set, the payment capacity of different market segments is considered. Under European Union law, the state must ensure the infrastructure manager's financial sustainability. The shortfall is covered by a targeted allocation from the state budget. As a result, Estonian Railways' financial results have for years been consistently zero — neither profit nor loss.

It is important to note that the bulk of Estonian Railways' income comes from the state budget. One part is funneled through the subsidy Elron receives from the Ministry of Regional Affairs and Agriculture (from which Elron pays its infrastructure fee to Estonian Railways) and another comes from the government's targeted reserve via the Ministry of Climate. In total, this amounts to about €52.5 million a year. The rest comes from freight services.

At present, about 75 percent of the subsidy given to Elron is used to cover the infrastructure fee. Without this "(rail)road tax" — which bus companies, for instance, do not have to pay for using roads — passenger rail service would cost the Estonian state only about €10 million per year. The rest is fixed infrastructure cost, which taxpayers must cover whether there is one train, five trains or ten trains per day on a line.

The average marginal cost to the state budget of ordering one additional train kilometer is about €1.30 per kilometer. For comparison, under current contracts one additional county bus line kilometer costs the state €1.40. Meanwhile, an average Estonian passenger train has 185 seats, compared with about 30 in a county bus.

Given the inevitability of fixed costs, the cheapest way for the state to increase public transport use is to maximize passenger numbers on trains. An extra line kilometer on the rail network costs less than for any other mode of public transport. Fewer cars on highways and a cleaner environment are additional benefits.

Unfortunately, this fact does not show up in public transport subsidy figures, since denser rail traffic also means paying higher infrastructure fees. What is often overlooked is that higher infrastructure fee revenue reduces the amount of direct support the Ministry of Climate needs to pay Estonian Railways.

As we can see, this is a system of communicating vessels. More rail traffic means less direct support; less rail traffic means more direct support. From the taxpayer's perspective, it makes no difference whether rail sector funding flows through the Ministry of Climate or the Ministry of Regional Affairs and Agriculture. What is essential, however, is that any agreement on long-term public transport funding must also take into account the rail infrastructure financial plan.

Uncertainty in passenger rail comes from the inevitable drop in service appeal during repair works. Longer travel times and replacement buses reduce ticket revenues and increase labor costs, which creates a gap in Elron's budget.

The deficit was made worse by the need to use replacement buses for trips canceled due to a shortage of train drivers. A bus kilometer is several times more expensive than a train kilometer. That meant not only passengers had to deal with inconvenience, but taxpayers also took a financial hit. The train drivers' wage crisis was resolved quickly, but the construction works continue.

This period of inconvenience must simply be endured. The goal is to provide a much better service — faster and more comfortable trains. Electric trains running at 160 kilometers per hour will soon become a reality on both the Tartu and Narva routes. New trains will also eliminate the long-standing overcrowding problem and free up resources to expand service frequency.

There is no reason to worry that leasing diesel trains to Latvia would leave Estonians without better service.

Already in 2023, when the timetable analysis for clockface scheduling was completed, it became clear that when the Tartu and Narva routes switch to electric trains, surplus diesel trains will still remain available even after expanding services elsewhere. That is why the idea was proposed to lease some trains to Latvia once the Tallinn–Tartu–Riga line is launched. Our southern neighbors still use old trains, so Estonia's "carrots" (Elron's trains are bright orange – ed.) would be a win-win: Latvia could improve the attractiveness of its service, while Estonia would earn rental income.

Under the public transport reform, the goal remains to create a nationwide connected route network, with clockface rail service as its backbone. To make this happen, rail infrastructure must also be upgraded. The work on the Tartu and Narva routes is part of this plan.

The future goal is to guarantee an express train between Tallinn and Tartu every hour and a train to Narva every two hours, with extra departures at peak times. Importantly, increasing train frequency on these routes would not require significantly more state funding, since ticket revenues are likely to cover the marginal costs.

Elsewhere in Estonia, denser service cannot be covered by ticket sales alone. But even there, costs must be compared with alternatives. Better rail service reduces time and space distances within Estonia and lowers road traffic, thereby reducing the environmental impact of transport. Ultimately, this is a matter of quality of life that the Estonian state provides to its people, and fast, clean and comfortable trains are one way to improve it.

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