Editorial The launch of the Palmia Sales Inquiry was almost inevitable

Editorial|Editorial

Helsinki the city’s announcement of the sale of palmia, which provides staff catering, real estate, cleaning and security services, coincidentally coincided with a time when the subject is being discussed anyway.

Kauppalehti reported last week (KL 4.2.), the Ministry of Employment and the Economy is examining the reform of the Procurement Act to allow public companies to operate more freely in the market. In practice, these are often municipal-owned companies that sell their services to the municipality.

For example, a municipality can own a cleaning company that pays for the cleaning of schools. The municipality can purchase services from its firm without such a competition from such a call as an affiliate and does not necessarily require a profit, so in such cases there is limited activity in the market. The news made the business community nervous.

Last week, it was also revealed that the queues at Helsinki’s two outsourced health stations are clearly shorter than average (HS 4.2.). The comparison is not quite fair, as the outsourced health centers have not fully participated in the efforts of Helsinki’s Korona era, but for long-time supporters of outsourcing, the matter seemed profitable.

Palmia’s decision to sell will not be affected by this discussion, but the general interest will affect the company’s attractiveness as a target.

Helsinki Palmia Oy, which is wholly owned by the city, started operations in 2015, when the city decided to divide its business into two parts. About half were incorporated into Palmia oy, and the rest became a business center called the City of Helsinki Service Center. It still handles a large part of Helsinki’s school meals.

Behind the decision was an amendment to the Municipal Act. According to it, municipalities had to incorporate services in which municipal companies could have private companies as competitors. However, Helsinki’s decision was ultimately political, as Palmia could have been given the status of a so-called in-house company, ie it could have become an affiliate. However, the majority of politicians did not want procurement to be left out of competition.

A transitional arrangement was agreed, after which Palmia had to make ends meet on its own and distribute dividend income to the city. Helsinki tendered for the old contracts, so Palmia had to lower its unit prices even when it won the tender for its old contract.

Palmia decided to expand, so now it has operations in 12 locations and about 2,400 employees. Acquisitions taxed Palmia’s cash, but the coronavirus pandemic put the company on its knees. In particular, the end of demand for workplace catering and meeting and event catering deepened the loss.

What was essential, however, was that last year the City of Helsinki decided that the city’s ownership interest in Palmia was purely financial. When there are no strategic reasons for ownership, only dividend income is expected from the company. When they are not expected, it was easy for Mayor Juhana Vartiainen (Coalition Party) to say that “there is no reason for public entities to own companies operating in such markets”. It is not only a legitimate but also a political view.

Palmian the launch of the sales investigation was almost inevitable, and the surprise was mostly related to the time. Decisions leading to this were made years ago.

The company has not produced as desired for the city, but there has been no money hole. The city has not put any money into the company, but tens of millions have been saved from the competitive services through Palmia.

Demars who suspect incorporation now want to find out if some parts of Palmia could be returned to the City of Helsinki’s service center. That would not be in line with the ownership strategy, and it is unlikely to happen. Vartiainen is only looking for buyers.

The editorials are HS’s statements on a topical issue. The writings are prepared by HS’s editorial staff and reflect the magazine principle.