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Doctoral Thesis: Favorable regulations and proper funding could not increase the competitiveness of the railway


29.11.2021       Krõõt Nõges

As in life in general, not everything goes as expected. In the European railway sector, for example, despite the regulations that boost competitiveness and the high level of investment, the expected effect has not been achieved. This is confirmed by statistics: although total costs of the EU rail infrastructure almost doubled between 2011 and 2016, freight and passenger traffic remained stable, significantly below the GDP and transport growth. While in other European countries the competition within the railway sector increased during the same period as a result of different measures, it must be admitted that in Estonia and Romania, for example, it did not.

What are the reasons for the poor performance in Estonia?

Measures designed for large countries do not work in small countries

Of course, monopolistic infrastructure is considered to be railways, electricity transmission and distribution networks, heating gas transmission and distribution networks, water and sewerage networks and central heating networks, but the lack of competitive pressure and significant market power resulting from the natural monopoly of network industries leads to placing them under economic regulation.

In three separate articles of the doctoral thesis, Uukkivi explains that the economic regulation of Estonian network operators was shaped during the accession negotiations with the European Union and was also largely based on EU regulations.

The main theoretical contribution of his doctoral thesis is to prove that economic regulation based on the concept of insufficient competition in the European Union may not be suitable for small Member States. For example, vertical separation of network infrastructure may create value chain coordination problems and increase its transaction costs instead of the desired competitive pressure.

Although effective competition in the provision of rail transport services, for example, is in principle possible, its viability in the small Estonian market is hampered by a high need for investment, specific technology with very limited range of use and limited pool of human capital. Unlike other network industries, rail transport operates in a highly competitive environment with alternatives offered by other modes of transport. In the Estonian context, only public passenger transport and transit freight transport are viable, but this is also due to significant support from the state budget.

Another important drawback – effectiveness is not measured

For example, an empirical study carried out for the period 2004–2019 showed that the opening up of the rail market led to increased competition, mainly in freight transport, but it did not increase the overall volume of freight transport, instead redistributing it between the transport companies. The cost-effectiveness indicators for railway infrastructure have remained stable or deteriorated over the period. Thus, according to Uukkivi, it can be said that the railway infrastructure and the used technology have not adapted to the significant decrease in transport volumes. The share of rail transport in the total turnover of all modes of transport has also decreased.

In the European Union, the economic regulation of network industries is widespread, but regulatory practices and solutions vary from country to country and depend on many economic policy and societal factors. There is no reason to believe that this trend will change. The doctoral thesis revealed that in the sectors of important network companies in Estonia, rules are developed and implemented on the basis of general objectives and without measuring the results – considering the social significance and economic impact of network industries, this can be considered a major shortcoming.

 

Uukkivi, who held the position of Deputy Secretary General of the Ministry of Finance, was elected in a public competition. Minister of Finance Keit Pentus-Rosimannus said in a press release that she is pleased that the Tax and Customs Board will have a leader who has proven himself in the Ministry of Finance as a performer of digitalisation and various innovations. ‘The services of the Tax and Customs Board are widely used in e-channels, the IT solutions that enable it are business-critical, and their operation and development need considerable attention,’ said Raigo Uukkivi through the media.

Uukkivi has been working as the Deputy Secretary General for Administrative Policy of the Ministry of Finance since 2017. He is also a member of the Supervisory Board and Chairman of the Strategy Committee of AS Eesti Energia, a member of the Supervisory Board and a member of the Audit Committee of AS Tallinna Sadam. In 2008–2017, Uukkivi headed the Technical Regulatory Authority, which deals with market organisation and supervision in many business areas.

After defending his doctoral degree, Uukkivi began studies in TalTech's master's programme in business finance and accounting.

 

Raigo Uukkivi's doctoral thesis consists of three articles, the first of which provides a conceptual framework for the economic regulation of network industries in Estonia.

In the second article, the author describes the case studies of the Estonian network industries, explains the practice of economic regulation in the field of railway infrastructure management, the objectives of the regulation, proposes relevant indicators and evaluates the fulfillment of the objectives. The third article maps the value chain of Estonian oil shale production, systematising the economic regulation of the parts of the value chain, its objectives and the results of the regulation.