Renovation contract is driving City of Pärnu bankrupt
03.11.2008, 08:44Pärnu City Government admits it is going to
default on its obligation to pay a construction company EEK 10 million a
month.
Äripäev writes that the money is claimed by Steniard, a construction company
owned by businessman Tiit Kuuli that renovate the new administrative building of
the Pärnu City Government.
Representatives of the city government say that the problem arouse when
actual cost of renovation of the building was about three times higher than what
was planned three years ago.
Whereas the city government planned to pay a little over 30 million kroons
for renovation works, the rapidly growing construction prices pushed the amount
to almost 90 million kroons. Since real estate prices are down, the city cannot
also raise money by selling any of its property.
Since 2007 the city has paid the construction company only 25 million kroons.
Including interest rates, the outstanding debt amounts to 63 million kroons.
Under a contract signed with Steniard, the city must pay the company 10.3
million a month from January until June.
One reason why the City of Pärnu has found itself in financial trouble is
that another project, construction of the Pärnu sports arena, exceeded its
budget by EEK 31 million because of interest and VAT and finally cost 131
million kroons.
Mayor of Pärnu, Mart Viisitamm, said in comment that such a situation is
inevitable, but emphasises that they are negotiating with the company over an
extension schedule.
Steniard has recently won several large contracts in Pärnu. Among others, it
built the same sports arena and also sauna complex for Estonia Spa.