AK: Porto Franco development likely to be suspended, but not for long

The Porto Franco real estate development in Tallinn.
The Porto Franco real estate development in Tallinn. Source: Siim Lõvi /ERR

Tuesday's dramatic events have certainly brought uncertainty to the Porto Franco development with it becoming a centerpiece of a government corruption scandal. While it is likely that it will not be finished in the projected time, the favorable location will still make it a desirable real estate object.

Construction on Porto Franco was still ongoing on Wednesday but head of the development Rauno Teder, son of businessman Hillar Teder who is in the middle of the donation and corruption scandal, was unavailable to ERR, ETV's daily affairs show "Aktuaalne kaamera" reported on Wednesday.

On Thursday morning, the Harju County Court approved the prosecution to arrest Hillar Teder for two months.

As journalists began investigating the financing of Porto Franco on Wednesday, it became clear that a €102 million European Bank for Reconstruction and Development (EBRD) syndicate loan had not been paid out yet.

EBRD spokesperson Axel Reisner said: "The situation is that we have signed a loan contract but did not pay the money out. The contract is expired now and the EBRD is not involved. Not a single penny has been paid out."

The contract expired in October last year. Porto Franco has not announced an financier yet, there are also no mortgages on the real estate. In addition, the development company owes €36 million (10 percent interest) to the companies of Russian fish tycoon Dmitry Ozersky. The €40 million KredEx loan (2 percent interest) to Porto Franco has been paid out in half.

Former state credit agency KredEx head Lehar Kütt said the project should not have been financed. "KredEx' proposal to the government was made in accordance with procedure and not by KredEx management. The board and financing committee of KredEx would not have supported financing the project on these conditions. /.../ How the real estate developments [received financing] was a strong directive by the ministries. KredEx management was opposed to it," Kütt said.

By now, KredEx was begun to look for ways how to suspend the contract with Porto Franco and how to not pay out the remaining €20 million, in addition to retrieving the €20 million it has already paid out to the development. The credit agency is hoping to reach a solution in the near future.

If the development stalls out, Tallinn city government could also begin fining Porto Franco, adding to its financial burdens. All sanctions will be in accordance to the contract and as far as I can remember, there are rather serious fines specified," Tallinn mayor Mihhail Kõlvart (Center) said.

The Estonian Association of Real Estate Companies (EKFL) thinks insolvency will not stop the project's development. "The cleansing fire of bankruptcy has gone through many things in history. Let us look at golf clubs even. Before a couple of bankruptcies, the price has not reached the point of stopping it," said EKFL chairman Tõnis Rüütel.

Still, a Porto Franco bankruptcy could leave the portside real estate development to be suspended for some time.

A rendition of a finished Porto Franco development, set to be suspended for some time after a donation and corruption scandal. Source: Porto Franco

An Internal Security Service (ISS) investigation into the financing of Porto Franco led to them discovering that Center's secretary-general Mihhail Korb, along with businessman Hillar Teder and Kersti Kracht, adviser to Martin Helme at the finance ministry, the Center Party itself and two other unnamed individuals, were involved in corruption with regard to a €39-million loan from state credit agency KredEx toward the real estate development in Tallinn.

Hillar Teder is a frequent donor to Center, providing the party with €60,000 in the fourth quarter of 2020, and his son Rauno Teder is the 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.

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

Critics at the time questioned why a loan was being granted to an unfinished project as state aid was 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.

The investigation led to Prime Minister Jüri Ratas (Center) resigning and the formation of a new government.


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Editor: Kristjan Kallaste

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