Estonia to write off €700,000, minimum

Jäämurdja Botnica.

PHOTO: Toomas Huik

The state has wasted at least €700,000 to design an Arctic ice-breaker never to be built. Of that, €150,000 shall be fine for premature termination of contract. The rest has been paid to a Finnish company for project design already done. On top of this, the state has transferred €957,000 as advance payment to the account of Aker Arctic Technology. According to economy ministry vice chancellor Eero Pärgmäe, they have the company’s oral agreement to get the money back.

Why such a vast advance payment by Estonian Maritime Administration, remains a mystery. Thus, Estonian state had definitely wasted close to 11 million kroons – in the old currency. Should the Finns balk at returning the advance payment, the total loss will stand at 25.7 million Estonian kroons.

Somebody burned taxpayer money. Who? Public procurement notice was registered on April 5th 2007, which happened to be the last day Edgar Savisaar served as minister of economy and communications. From him, the baton passed to Juhan Parts, and at the end of that same year the contract was entered into with designer. For €377,000, Aker Arctic Technology was supposed to draw the ship basic project, prepare documentation for finding a builder, and also exercise construction supervision. 

With the public procurement, something was rotten from day one. Last year, the council of Port of Tallinn asked law office Pohla & Hallmägi to pass a legal judgement on the organisation of the procurement. The assessment was devastating, to put it mildly. 

The procurement was prepared by Maritime Administration. To assess the preliminary procurement conditions set by the administration, Mr Savisaar called a committee which found the document to contain contradictions and questionable clauses. The tender deadlines were too short, the requirements towards tenderers too high, and it wasn’t sure at all if any ice-breaker could comply.

Thereafter, the requirements were tweaked somewhat, but the whole thing still smelled like a targeted procurement. In any case, the state desired a huge ice-breaker, able to also assist at oil rigs. Also, the ship had to have ice class allowing use in Arctic and/or Antarctic.

According to Port of Tallinn chairman Neinar Seli, whoever set the project requirements for the ice breaker had to be out of his mind. «Ships like that are needed in the Antarctic – through thick ice, it was supposed to speed at, I don’t remember how many knots, but unbelievably fast,» said Mr Seli. «Primary conditions were such as related to atomic ice breakers, such as moved in the Antarctic in Soviet times.»

Two tenders finally came in; ILS OY was immediately turned down on the technicality that the company was not able to offer a suitable version of azimuthal propulsion engine – these are devices to improve manoeuvrability of vessels and help keep it at one spot. ILS was never allowed to update its tender.

So, Aker Arctic Technology emerged as winner. The deadline was set for December 31st 2010 – by then, the ice-breaker was supposed to be ready.

At the assessment of the law office, the technical description of the procurement was in contradiction with Public Procurement Act, granting competitive edge to Finnish companies. Also, the time to send tenders was unreasonably short – the procurement did not enhance competition, did not ensure transparency nor equal treatment of tenderers. The layers said that the ILS tender should have actually been accepted also.

What’s worse: the law firm found violations amounting to criminal levels, with large material damage caused to the state.

The contract finally entered with Aker Arctic Technology did not correspond to the procurement requirements at all. Extra clauses added to the contract promised the design company even larger sums of money – €7,000 of premium for each assessment for ship building tenders, and €5,000 for assessing every port outside of Europe. Maritime Administration promised to cover Aker Arctic Technology’s costs of transport, accommodation, and communication; the company was granter right to claim compensation for damages from the state due to delays with tests at sea. Also, the company could claim compensation in case of delays with the contract; it was able to ask hourly fee for work which had not been clearly specified in the contract, and so on.

The contract also prescribed that the company could charge the shipyard building the vessel €1.5m for intellectual property. That, in reality, would also have been paid by the Estonian state.

In the beginning, the cost of the vessel was set at 1.1 billion kroons; even so, the law firm reckons by last year it would have risen to two billion kroons. «The procurement contract with such conditions was not legitimate and if, due to these conditions, large material damage has been caused, this can be treated as misuse of trust, which is punishable financially of imprisonment up to five years,» thinks the law office.

The thing smells so bad that by the time Postimees address Maritime Administration for comments, their press secretary said they had already received orders that only the ministry shall provide answers. 

The Port of Tallinn council is interested in the icebreaker project procurement because when it comes to purchasing the next icebreaker, the state again wants to let a state enterprise subsidiary be in charge. According to Mr Seli, a large sum will now simply be written off, and nobody is accountable. «As Maritime Administration chief, they keep this Hiiu collective fisherman farm chairman’s son (Andrus Maide – N. N.) because he plays squash with Marika Priske (chancellor at economy and communications ministry – N. N.),» Mr Seli got colourful. «The agency is known for its administrative inability – they could not even buy Botnica for the state, so in the end Port of Tallinn had to buy it. I want to know, what are these 300 people doing there, at the Maritime Administration?»

For wasting the money, Mr Seli says responsibility of course lies with the former economy minister Juhan Parts. «He banged the money off and when it comes to public relations, the story has thus far been well managed – till today, not a sound in the media,» says Mr Seli. «To build a new ship, the bill would have been €120m, while we bought Port of Tallinn a quite new Botnica for merely €50m.»

According to Mr Seli, the sum already paid for the icebreaker is unreasonably big. «The ministry still keeps talking about some kind of an advance payment, but I imagine that for the design company the money has probably been already forgotten. Give me a break!»

Juhan Parts started off by asking why Postimees is asking him about the icebreaker. «I’m an ordinary Riigikogu backbencher,» he said. Mr Parts proceeded to claim that the project contract was entered into in 2006 already, while Mr Savisaar was minister. Not true.

According to Mr Parts, the plan to build the icebreaker came to a halt due to the economic crisis. «It was stopped as a comprehensive solution to finance the new icebreaker was not found,» said the former economy minister. «Then we could buy the Botnica, but Estonia definitely needs one more icebreaker.»

«As far as I know, that very Port of Tallinn subsidiary, TS Shipping, is supposed to prepare the construction of the second icebreaker. They should take over the intermediate results of project designing and proceed with the financing models,» added Mr Parts.

If these tens of millions of kroons are written off, that’s damage to the state? «See, you say «if» now. You are speculating; instead of me, call somebody from the Maritime Administration and talk to him – it’s not that simple,» answers Mr Parts. «Or call (Urve) Palo.»

Still, now the plan is to build another kind of an icebreaker – a smaller one, assured the economy ministry vice chancellor Eero Pärgmäe.

According to him, the icebreaker project was frozen due to the economic crisis. «For the advance payment, project design activities were started,» said Mr Pärgmäe. «Model tests were made, the shape of the icebreaker was settled.» Recently, the ministry also tasked the Maritime Administration with terminating the contract with the designer, bringing a contractual penalty of €150,000.

The state want to lay the building of the new icebreaker – smaller than the Botnica – onto the Port of Tallinn subsidiary TS Shipping, which is already managing Botnica. Port of Tallinn needs to organise a new project design procurement and find a new designer, wherefore claims by Mr Parts and Mr Pärgmäe – as if the money wasted on designing the big icebreaker could somehow be used on the new smaller one – do not hold water. 

According to Mr Pärgmäe, the planned icebreaker was not irrationally large or powerful. «We looked at the size of the tankers that came here,» he said. «Finland did not have tankers come of the size that we had, in our ports – during the time the project conditions were prepared, our oil transit was at its peak.»

While the Botnica afterwards purchased for Estonia was 24 metres wide and 97 metres long, the one planned would have been 26 metres long and over a hundred 100 metres long. According to Mr Pärgmäe, Maritime Administration actually purchased an existing project to be adjusted to its needs.  

By now, the transit has shrunk and the world economy cooled down. Thus, says Mr Pärgmäe, an icebreaker that large is no longer needed.

By Tuesday, Mr Pärgmäe had not yet seen the legal opinion of law office Pohla & Hallmägi regarding details of the procurement.


Urve Palo, minister of economy and infrastructure

Well I’m personally still digging into this icebreaker order topic. I have been explained that in 2007 the decision was done in the best faith that an icebreaker was needed. Economic downturn followed, and the state put the project on ice. Afterwards, Botnica was bought from Finland, for €50m, and the worst icebreaker drought was eased somewhat. Then, it was decided that the ship initially planned would have been too powerful and too large. It would have cost the state €100–120m, which is quite a lot.

It was a point of decision, whether to proceed with the project begun in 2007 and to build that €120m vessel. Clearly, the vessel was oversized by parameters and ice-class. Now, they were indeed a bit wiser and reckoned there’s no need for a ship that big; we will manage with a smaller icebreaker, a one costing about €80m.

Now we need to ask: must we find fault or not with the old decision being discarded and a smaller vessel opted for. We need another icebreaker anyhow. As the new and smaller ship will be cheaper for the state, it made sense to admit to the mistakes once made, instead of pressing on no matter what.

Today (on Wednesday – edit) I will have been the minister for exactly one month. I’m still getting accustomed and cannot assess all the doings of my predecessor.