Saaremaa Shipping Company to cover for overdue TS Laevad ferries in €5.5m delay

The ferry Leiger as it awaited handover in Turkey to TS Laevad, a subsidiary of the state-owned Port of Tallinn. (TS Laevad)
9/4/2016 9:02 PM
Category: Business

TS Laevad, the subsidiary of the state-owned Port of Tallinn slated to take over operation of Estonia's mainland-island ferry routes, announced that it has signed a contract with current operator Saaremaa Shipping Company to cover for the ferries that had been ordered by TS Laevad for use beginning Oct. 1, as not one of the four vessels will be ready for operation by then.

A contract was signed last Wednesday with Saaremaa Shipping Company, whose ferries currently service the lines between Estonia's mainland and major islands, for the use of its ferries as substitutes for the delayed new ones ordered by TS Laevad. As not one of the new ferries will be ready for use by the Oct. 1 deadline, the Virtsu-Kuivastu line will be serviced by the ferries Hiiumaa and St. Ola while the Rohuküla-Heltermaa line will be serviced by the Regula and Harilaid.

According to TS Laevad, the firm had been in talks with three foreign businesses in addition to Saaremaa Shipping Company, however finding suitable and available ferries during the summer period proved to be a tall order.

Port of Tallinn CEO Valdo Kalm praised the decision to extend the contract with Saaremaa Shipping Company, pointing out that this was the company currently operating the lines. "The same crews currently sailing will continue," said Kalm. "This is the safest choice."

TS Laevad has planned for a supplementary budget of 5.5 million euros comprising of three components: substitute ferry rental fees, fines imposedby the Ministry of Economic Affairs and Communications as well as the firm's fines on the shipyards. As the ferry Regula had also already been purchased as a backup at a cost of nearly 4 million euros, total costs will actually reach nearly 10 million euros.

ERR was told by the Ministry of Economic Affairs that while the contract with TS Laevad has budgeted for maximum possible fines, it was within the ministry's discretion to fine less after taking into account all relevant factors once the ordered ferries enter into service. Fines can run into the thousands of euros per day per vessel, however.

The ferry Hiiumaa will be rented for a one-year period due to concerns that the new ferries may be even more delayed than already expected in going into operation on the domestic Estonian routes. TS Laevad board member Kaido Padar also told ERR that they must consider that defects may be discovered within the new vessels' warranty period, and the Hiiumaa may be needed as a substitute while a new ferry undergoes needed repairs.

Of the four new ferries, the Port of Tallinn expects the Leiger and Tõll to arrive in Estonia in October and Tiiu in November, with Piret only arriving in January of next year, but deadlines may be delayed even further.

Former economic minister: Delays can happen to anyone

Former Minister of Economic Affairs Urve Palo (SDE) told ERR's online news portal that the right decisions made regarding the matter were the only correct decisions, adding that ferry traffic was functioning and was only getting better.

"If there aren't new vessels in time, then they will rent backup ferries for a period of time — that is okay," claimed Palo. "What is impotant is that service continues. This is only getting better. In a year or two we will all look back on this and think, 'Thank God that this is how it is' and it won't be talked about anymore how the state buys in a very epensive service without any competition."

Regarding the delays in the new ferries' arrival, Palo added that "...that can happen to anyone. This is also part of business — sometimes things don't go according to plan, but they need to be resolved."

The former minister also stressed that even factoring in the extra cost of renting substitute ferries to cover the delay, operating ferry lines was still a very lucrative project for the state-owned Port of Tallinn.

According to Palo, a marketing margin of 7.6 percent had been projected for ten years, and the rental of substitute ferries, and one for a longer period of time, would only put a 0.2-percent dent in its profitability. "You can imagine how many millions the Port of Tallinn will earn with this operator service in ten years," she noted.

She also stressed that from the state's standpoint, the Port of Tallinn has continued to fulfill its contract obligations and the state will, as before, have an operator service for over 60 cheaper over the next ten years. The Port of Tallinn will likewise earn a profit off of the service, which would also be the state and taxpayers' money. "In any case, this is a profitable project," Palo concluded.

Tiiu, Piret, Leiger, Tõll: A long time in the making

In October 2014, the Ministry of Economic Affairs and Communications announced that the Port of Tallinn would service domestic ferry routes between Estonia's mainland and two largest islands for the next decade. Jaak Kaabel, chair of the procurement commission, stated that the Port of Tallinn submitted a cheaper bid than operator at the time Väinamere Liinid, the only other qualified tenderer, and also offered newer ferries.

The Port of Tallinn told the ministry that it would be able to procure four new ferries, to be built by two shipbuilding companies, by October 1, 2016. The new vessels were to have LNG readiness built into them, and would be able to operate year rund without the need to be towed or assistance from ice-breaker ships.

Ain Kaljurand, then chair of the Port of Tallinn's management board, noted that the contract fulfilled financial objectives and ensued that the company would earn the usual amount of profit from the state's investment. "It included the procurement of new ferries through the Port of Tallinn and the reduction of prices," he said. "We hope that the Port of Tallinn will succeed in buying the ferries and breaking the monopoly," held at the time by Vjatšeslav Leedo, owner of Väinamere Liinid.

Once again confirming that the new ferries would be ready by October 2016, Kaljurand noted that while there was much discussion about how the composition of a design project alone could take up to 12 months, the Port of Tallinn chose a project developer who already had base projects. As these only needed to be revised somewhat, this alone would save eight to ten months in time, allowing the project to remain on schedule.

Väinamere Liinid diretor Urmas Treiel expressed doubts at the time that the ferries could be completed within two years. "A miracle could happen if a vessel is completed," he conceded, "But that is an awful rush."

Bribery scandal within the Port of Tallinn

In August 2015, the Estonian Internal Security Service (KaPo) arrested Port of Tallinn's then-CEO Ain Kaljurand and board member Allan Kiil after the two were suspected of bribery. According to the Prosecutor's Office, both men were accused of accepting large bribes over the course of many years.

Minister of Economic Affairs and Infrastructure Kristen Michal and the ministry were informed by KaPo about the situation early on. "I learned about the process shortly after taking office [in April 2015]," he said.

According to Michal, the ministry had agreed to guarantee the continued operation of the company once KaPo had moved in. "It is in our best interests that the Port of Tallinn is able to fulfill and service procurements it has won," he said, adding that this would include the internal ferry route tender.

Kiil and Kaljurand have been under electronic surveillance since being released from custody in Tallinn on Jan. 6 of this year.

State Prosecutor Laura Feldman explained that Kaljurand and Kiil had been arrested at the request of the Prosecutor's Office in August of last year in order to prevent the two men from committing crimes against justice by influencing ample witnesses in the case.

According to Office of the Prosecutor General allegations, former Port of Tallinn board member Allan Kiil had accepted bribes amounting to millions of euros while former CEO Ain Kaljurand had accepted bribes thousands of euros in size. They were arrested on Aug. 26, 2015.

As confirmed to ERR's online news portal by current CEO Valdo Kalm, Kiil recently filed a civil suit against the Port of Tallinn for the termination of his work contract. "Allan Kiil has filed the suit with regards to the termination of [his] employment contract," confirmed Kalm. "It concerns non-competition compensation."

According to Kalm, who referred to the suit to be "a little strange," Kiil is seeking 24,000 euros in compensation.

The Port of Tallinn is also planning to file its own civil suits against both Allan Kiil and Ain Kaljurand.

"Such a statement of claim has not currently been submitted, but analysis is in the works," explained Kalm. "We are still waiting for the results of the criminal investigation. We don't know all the facts, and we will decide based on [the investigation]."

Editor: Aili Vahtla

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