The Cabinet of Ministers issued an order to launch the implementation of the Bauska bypass construction project under the public-private partnership (PPP) model on June 11, 2025. The order also provides for the commencement of land acquisition for the construction of the Bauska and Iecava bypasses, as well as for determining the status of the object of national interest for the infrastructure of both bypasses.

In accordance with the order of the Cabinet of Ministers, the Iecava and Bauska bypass project is divided into two stages: the construction of  Bauska bypass in the first stage, and construction of the Iecava bypass and the section connecting this bypass to the Ķekava bypass in the second stage (see the figure below).

In order to improve traffic along the international highway Via Baltica, which consists of the Tallinn highway (A1) and the Bauska highway (A7) in Latvia, in 2023 traffic was opened along the newly constructed Ķekava bypass, which was implemented as a PPP project. In order to continue the improvements in the Latvian part of Via Baltica further, it is necessary to reconstruct the Riga bypass, construct the Iecava and Bauska bypasses and the road sections that connect all three bypasses, as well as construct the connection of the Riga bypass and Bauska highway after the construction of a new dual bridge over the Daugava.

By the order of the Cabinet of Ministers the Ministry of Transport (MoT) has been instructed to initiate the PPP procedure in accordance with the Delegation Agreement between the MoT and State Limited Liability Company Latvian State Roads (LSR). The PPP procedure itself will be implemented out by LSR. The planned timeline for the Bauska bypass PPP project provides that immediately after the issuance of the Cabinet order the procedure of land acquisition for the construction of the bypass will begin, PPP procurement documentation for the Bauska bypass will be developed during 2025, PPP procurement is planned to be announced in early 2026 and the PPP contract is planned to be concluded at the end of 2027. Design and construction should be carried out from 2028 to 2030.

Infrastructure of the Bauska bypass

The main route of the Bauska bypass will be a new 14.2 km long road with two lanes in each direction. The bypass will also include a new bridge over the Mēmele River and several interchanges and underpasses, the number of which will be specified during the design process. New local roads in the length of ~3.5 km will be constructed and some existing local roads will be rebuilt. A connection with the main route of the Bauska highway (A7) in the length of ~2 kilometres will also be built.

Costs of the Bauska bypass

As in the case of the Ķekava bypass, the private partner of the Bauska bypass project will also have to attract financing for the implementation of the project, and provide design, construction and maintenance of the road for 20 years after construction. Construction supervision of construction works will be provided by a construction supervisor attracted by LSR.

The planned costs of the Bauska bypass project over 23 years including road maintenance and periodic pavement renewal are planned to amount up to 300 million euros. The exact contract amount will be defined after the conclusion of the PPP procurement procedure  at the moment of signing the PPP contract. It will be recalculated in accordance with the procedure specified in tender dossier taking into account the interbank offered rate (Euribor) and interest rate swap at the moment of signing the PPP contract.

The state will not pay anything during the design and construction period. All investments will be made by the private partner. When the construction is fully completed, its quality is recognized as compliant to the requirements of legal acts and the infrastructure is available for public use, the state will start paying the accessibility payments to the private partner, fully repaying the private partner for the completed works within the period of 20 years.

The accessibility payment is the amount of the PPP contract that the parties agree upon when signing the partnership agreement.

The accessibility payment covers the expenses of the private partner for design, construction, routine and periodic maintenance for a period of 20 years after the completion of the construction works, as well as expenses for borrowed financial resources, insurance, administration, etc. The total amount of the accessibility payment specified in the PPP contract is the maximum possible amount that the private partner may receive during the period of the PPP contract.

Impact on the state budget

When implementing the Bauska bypass project as a PPP, it is planned that potential cash flows will be considered as off-balance sheet liabilities and will not have a negative impact on the general state budget balance and debt.

The text of the Order of the Cabinet of Ministers “On the initiation of the public-private partnership procedure for the first stage of the reconstruction project “Bauska bypass” on the section of the main state road A7 Riga–Bauska–Lithuanian border (Grenctāle) from the Ķekava bypass to Bauska (Ārce), the acquisition of land for the second stage of the project “Iecava bypass” and the determination of the status of an object of national interest for the infrastructure of the Bauska bypass and Iecava bypass” may be found HERE.

Why the Bauska bypass?

The Bauska and Iecava bypasses are part of the core network of the European transport network (hereinafter – TEN-T) and the road transport corridor Via Baltica from Tallinn to Warsaw. These sections are important not only for Latvia but also for the flow of international passenger and freight transport, as well as military mobility between the Baltic States and further European Union countries in the north-south direction.

Currently the loading on the Bauska highway section from the Ķekava bypass to Iecava has reached 115% and it is critical. In sections from Iecava to Bauska and from Bauska to the Lithuanian border the loading is close to 100% and will exceed this value in the coming years. A large part of the transport flow is freight transport – Via Baltica is the busiest transit road in Latvia. Currently, the Bauska highway has only one section with separated carriageways and two lanes in each direction – the Ķekava bypass. The remaining section of the highway does not meet the requirements of safe and comfortable traffic, as well as the requirements of the TEN-T Regulation.

Taking into account the negative impact that intensive transit traffic has on the urban environment and residents of Bauska, the Bauska and Iecava bypass projects will be divided into stages and the Bauska bypass is envisaged in the first stage.

Why PPP?

A PPP project is comparable to a family decision to buy an apartment and take a loan for it. Similar to a mortgage, the PPP model requires the state to “purchase” a road on an instalment basis where the state pays nothing for the first few years while construction is underway, but after the construction is completed it pays off both the principal amount of the loan and interest over a period of 20 years. Such project allows to build the road now and pay for it later thus not burdening the state budget and the fiscal space. This allows for the implementation of other important state projects at the same time, and it would not be possible if all the costs of the bypass have to be covered immediately and from the state budget.