EBRD withdraws Porto Franco €63-million loan

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Work in progress at the Porto Franco development, the source of the scandal which brought down Jüri Ratas as prime minister.
Work in progress at the Porto Franco development, the source of the scandal which brought down Jüri Ratas as prime minister. Source: Siim Lõvi /ERR

The European Bank for Reconstruction and Development (EBRD) says that it will not be granting a loan to a Tallinn real estate development at the heart of a scandal which saw Prime Minister Jüri Ratas (Center) resign early Wednesday morning, Baltic News Service reports.

Axel Reiserer, EBRD press chief, said: "The EBRD would like to put it on record that our loan for the Porto Franco project was never disbursed, and the agreement has now expired. Consequently, the EBRD is not involved in the project any more."

Reiserer stressed, however, that the EBRD did not abandon the loan due to the current scandal, adding that the contract expired already at the end of the third quarter of 2020.

The €63-million loan was agreed at the end of February last year, for the development of a large integrated retail, office, residential and hotel development in Tallinn's harbor area. Construction on the project is unfinished.

Large KredEx loans mostly aimed at coronavirus-hit businesses

The government opted to provide an additional €39.4-million loan via state credit agency KredEx in September last year. Critics at the time questioned why a loan for an unfinished project was being granted, given that large KredEx loans and other state aid were being issued to companies demonstrably hit by the coronavirus pandemic and its restrictions, such as the €100-millon granted to ferry line Tallink or the €47 million issued to fuel retailer Alexela.

Real estate magnate Urmas Sõõrumaa's application for a €40-million loan for redeveloping another central Tallinn site, the Paterei fortress, was meanwhile rejected. Sõõrumaa donated €50,000 to Center in the fourth quarter of 2020.

Luminor Bank had also agreed to loan up to €39 million to Porto Franco.

The loan and development saw controversy erupting Tuesday when an Internal Security Service (ISS) investigation into KredEx was made public. Five people have been declared suspects, including Center Party Secretary-General Mihhail Korb, Kersti Kracht, adviser to finance minister Martin Helme (EKRE), and businessman Hillar Teder - the latter a frequent donor to Center, providing the party €60,000 in the fourth quarter of 2020.

Five suspects in corruption investigation

Teder's son Rauno Teder is majority shareholder in Porto Franco. Hillar Teder allegedly struck a deal with Mihhail Korb, who resigned Tuesday, to provide €1 million in donations to Center in return for easing the process of getting the contract for access routes to Porto Franco. This also involves the Center Party-controlled City Government, where elections will take place in Autumn.

Kersti Kracht is suspected of influence peddling, and has been temporarily suspended as finance ministry adviser, by Martin Helme.

The other two suspects have not been named and are reportedly not public figures.

Center Party is a suspect

While Jüri Ratas said he was unconnected with the dealings at KredEx, the scandal prompted his resignation in the early hours of Wednesday, following over 12 hours' consultation and discussions.

The Center Party itself is also a suspect in the ISS investigation.

Former IT and Foreign Trade minister Kaimar Karu, a Conservative People's Party of Estonia (EKRE) appointee, but not member, said Tuesday that the justification for the KredEx loan, a loan application which he said at the time puzzled him, had been that without it, ERBD money would not be forthcoming.

Porto Franco's development is set to cost an estimated €200 million, BNS reports; shareholders have put up over half of this.

The EBRD is an international, multi-lateral investment bank set up in 1991 during the dissolution of the former Soviet Union, and uses investment as a tool for building up market economies. It is not an EU organization.

This article was updated to reflect that the EBRD's decision was not influenced by the ISS investigation into KredEx, and the resignation of Jüri Ratas, and in fact the loan expiry pre-dated these events by several months.

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Editor: Andrew Whyte

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