Carbon credits boost construction

TALLINN - The map of Estonia spread across Elari Udam’s table at the state property agency’s office is a flow chart of renovation projects representing the government’s most-ambitious building spending program ever. The first tenders to refit about 480 buildings, mainly schools and kindergartens, with energy-saving technology may go out as early as this week, said Udam, a management board member at the Riigi Kinnisvara state property agency in the capital Tallinn, reports Bloomberg.
Estonia has about 200 million euros to make Soviet-era offices, nursing homes and schools more energy-efficient after selling more carbon credits last year than any other country in the world. The money must be spent by the end of next year, promising a boon for companies including Nordecon, the second-biggest listed Baltic builder, and the local unit of Sweden’s Skanska.

“There isn’t even enough scaffolding in Estonia, when all the work on the facades begins,” said Udam.
Estonia’s transition to a market economy reduced its Soviet-built heavy industry, slashing annual emissions by half last year from 43.5 million tons in 1990. More than half of the resulting pool of about 85 million spare carbon quotas, called Assigned Amount Units, have been sold to companies including Sumitomo Mitsui Banking Corp. and Marubeni Corp., according to the government.

Estonia made 11 out of 21 AAU transactions globally last year, Point Carbon News reported on Jan. 12. Overall, the Czech Republic has been the biggest seller of credits since 2008, it said.
Tallinn-based Nordecon forecasts industry growth of as much as 10 percent this year with the help of the carbon-credit windfall. Stockholm-based Skanska says an expansion of volumes of as much as 20 percent is possible.
Industry volumes shrunk by two-thirds through last year from a peak in 2007, making a third of the construction workforce unemployed in 2009 as Estonia suffered through the European Union’s second-deepest recession. The building industry was the worst-performing in the Baltic country last year, reducing the country’s 3.1 percent growth rate by 0.6 percentage points, according to statistics office figures.

The 14 billion euro economy may expand five percent this year, compared with four percent in neighboring Latvia and Lithuania, and 4.5 percent growth in Poland, SEB, the second-biggest Baltic lender, forecast on March 23.
“The addition of such volumes to the construction market will have an impact,” said Nordecon Chief Executive Officer Jaano Vink. Nordecon may bid for some of the bigger projects, he said. Its bigger rival, Merko Ehitus, did not reply to Bloomberg e-mails.

Nordecon’s shares have declined 80 percent from a peak of 7.05 euros in February 2007 and are 1.4 percent lower this year, compared with a 1.4 percent gain for its Eastern European Construction and Materials’ peers, according to Bloomberg data.
The company posted a fourth-quarter loss of 5.9 million euros, after a loss of 7.1 million euros a year earlier. “We expect Nordecon will be profitable next year, thanks partly to these projects,” said Risto Hunt, a Tallinn-based analyst with Swedbank, the biggest Baltic lender. He has a “buy” rating on the stock.

More than 90 percent of all housing in Estonia was built more than 20 years ago, Hunt said. Energy windfall revenue will mainly help medium-sized and small builders and building-supply makers, Udam said, as the terms of emission sales contracts won’t allow merging many single projects into bigger tenders.

Of the more than 300 million euros collected through carbon credit sales, 63 percent must be steered to building projects, according to Keit Kasemets, a strategy director at the State Chancellery. The rest is earmarked for reducing emissions in transport, such as procuring electric vehicles from Mitsubishi Corp.

The work scheduled for completion includes adding insulation and new paint to facades, replacing thousands of windows and doors, making heating systems more efficient and upgrading piping and electrical systems to existing buildings.
At the Estplast Tootmine factory near Tallinn, a worker operates a machine that uses super-heated wires to cut polystyrene blocks into insulation sheets. Others put finished products into stacks several meters high, ready for shipping. “We could operate in three shifts instead of two,” Chief Executive Officer Ferenc Traksler said. “We’re certainly more optimistic than last year, when the mood among construction materials’ executives was very depressed.”

At the property agency’s office, Udam is coordinating the start of the projects to avoid temporary shortages of materials, builders and workers. “The issue is whether suppliers will have all the materials available, because the production capacity of local plants may not be enough,” he said.