Rise in construction prices won't stall hospital projects

TALLINN – The Estonian Ministry of Social Affairs has admitted that the rise in  construction prices has affected the budgets of most of the externally-funded projects related to Estonian hospitals, but additional funds have been found to cover the higher costs of some projects.

"The Ministry of Social Affairs supports investments by hospitals with funding from the European Regional Development Fund, including the EU fund for recovery from the COVID-19 pandemic, REACT-EU, whose budgets are limited," Marilin Sternhof, head of external resources at the ministry's smart development department, told BNS.

She said that, inevitably, it is not possible to cover the increase in the cost of all hospital construction works using external funds, but additional funds have been found to cover the increase in the cost of some projects.

The European Regional Development Fund (ERDF) will provide 7.1 million euros in additional funding for the construction of the East-Viru Central Hospital, on top of which comes 25 percent in own contribution by the hospital. When the construction started in 2019, it was budgeted to cost 15.8 million euros.

According to Sternhof, five million euros was added to the budget for the activities of the REACT-EU facility of the ERDF, as a result of which 1.2 million euros and 1.3 million euros, respectively, will be provided towards the higher price tag of the reconstruction and extension of the emergency departments of Jarva County Hospital and Hiiumaa Hospital.

From the same source, 340,000 euros will be provided help finance the increase in the cost of the psychiatric department  of Kuressaare Hospital and the purchase of magnetic resonance imaging equipment for the same hospital, as well as 2.2 million euros towards the increase in the cost of the reconstruction of the wards units and the blood center of Unit B of the North Estonia Medical Center.

In addition, the Ministry of Social Affairs is preparing the terms and conditions for granting support to offset the increase in the cost of construction work at Hiiumaa Hospital.

The ministry plans to finish the construction of Viljandi Hospital, which started last June and was halted on Aug. 12 due to the rapid increase in construction prices, using money from the EU Recovery and Resilience Facility.

"On July 21, the Cabinet, in cooperation with the Ministry of Social Affairs, gave a mandate to the Ministry of Finance to start negotiations with the European Commission on the upgrade of the Viljandi Hospital project from the 2014-2020 operational program for cohesion policy funds to the Recovery and Resilience Facility. The aim is to secure full funding for the project, which means that if the negotiations with the Commission are successful, the Viljandi Hospital project will be financed in its entirety by the RRF," the official said.

While a year ago the total cost of the construction of the Viljandi hospital and health center was estimated at 58 million euros, then according to the estimate made on the basis of the market situation by the state real estate management company RKAS, another 20 million euros would be needed to complete the building. 

Triin Tomingas, head of the external resources department at the Ministry of Finance, told BNS that negotiations with the Commission will start in September or October.

"If the Commission's substantive support for the investment is in place and construction can be completed by August 2026, there should be no risk in the negotiations. When agreements are reached with the European Commission, the government is likely to approve the revised recovery plan early next year and submit it to the European Commission for formal approval. The revised plan will then be approved by the Commission within two months and submitted to the EU Council for approval within one month. Thus, the formal procedure for amending the plan is likely to end in the spring of 2023," Tomingas said.

The completion of the Viljandi hospital and health center building, dubbed Tervikum, is slated for the end of 2024. A new construction procurement will be announced in the coming months. 

"As of today, the Ministry of Social Affairs has not received any information from any beneficiary that a project financed by external funds in the current 2014-2020 period could not be completed within the eligibility period, that is by Dec. 31, 2023 at the latest," Sternhof noted.