Builders’ risks worsen

TALLINN - Builders in the Baltic countries of Estonia, Latvia and Lithuania will have their toughest year yet in 2011 because of an “uncontrollable” increase in costs of raw materials, according to Merko Ehitus, the region’s largest listed construction company, reports Bloomberg. Tallinn, Estonia-based Merko is urging the government to share the costs of rising raw material prices in public tenders to avoid further financial problems for cash-strapped builders, Chief Executive Officer Tiit Roben said in an e-mailed response to questions on May 10.

Building figures in Estonia, Latvia and Lithuania fell a combined 16 percent last year, following a 47.5 percent slump in 2009 as demand remained low and competition intensified following the deepest recession in the European Union, Merko said in its annual report published last month.

“There are sad examples of builders’ bankruptcies every month,” Roben said. “2011 will be the toughest yet for construction companies. This concerns Estonia, as well as Latvia and Lithuania, despite some peculiarities in every market.”
Merko, which competes with Tallinn-based Nordecon International, and the local units of Sweden’s Skanska, NCC and Finland’s YIT Oyj, in February reported a widening fourth-quarter loss.

Growth in input prices, mainly from oil products and metals, is the biggest risk for builders in the region, Roben said. “We see a need for public institutions commissioning a project to also bear the risk of input prices along with the builder,” Roben said. “For an educated contracting authority, it is clear that this is a process the builders can’t affect. But if this is just cynically monitored from the sidelines and all the risks are left to the builder, several important objects could still remain unfinished.”

The group’s revenue for the year 2010 was 171.9 million euros. 72.3 percent of the sales originated from Estonia, 25.1 percent from Latvia and 2.6 percent from Lithuania. As compared with the year 2009, the group’s sales decreased by 15.4 percent, including by 10.9 percent in Estonia, by 27.1 percent in Latvia and by 5.1 percent in Lithuania.