China and the World

Tunnel vision

Finnish tycoon turns to China for undersea link


Vesterbacka: wants Tallinn tunnel

For decades those Estonians who make the weekly commute across the Gulf of Finland from Tallinn to Helsinki have dreamed of a faster option than the sea crossing (which can take two-and-a-half hours in bad weather). Their prayers seemed to have been answered when Finnish entrepreneur Peter Vesterbacka started to pitch a 100km tunnel that would cut travel times to just 20 minutes.

At nearly twice the length of the Channel Tunnel, the new rail link was always going to be a costly affair so Vesterbacka shopped around for options on constructing and financing his ambitious scheme.

His preference was help from China: a country that specialises in mega infrastructure projects and which Vesterbacka has been cultivating for many years.

Back in 2017 social media giant Tencent was a rumoured bidder for Rovio, the company whose mobile gaming brand, Angry Birds, Vesterbacka had helped to turn into a global sensation. He subsequently told Forbes that creating mobile games and building tunnels isn’t that different: “The key is to get things happening and bring the right people together.”

In this case, the ‘people’ were Touchstone Capital, the London-based private equity group that co-sponsors Belt and Road projects with Chinese firms – including two giant state-owned enterprises: China Railway Group (CREC), and China Communications Construction Company (CCCC).

The group thinks that a railway tunnel can be operational by 2024 and that it will take 17 years for full pay back on the investment. They’re also planning artificial islands along the route, topped up with housing, shops and offices.

Vesterbacka has been careful to make clear that the Chinese won’t own the project, which Touchstone is funding to the tune of €15 billion ($16.7 billion). All the same, Jaak Aab, Estonia’s Minister of Public Affairs, has asked questions about the sources of its funding. Last week, CREC president Chen Shiping was in Tallinn to meet Aab, alongside representatives from Vesterbacka’s FinEast Bay Area Development. Their main fear is that the project could take years to sign off because of political anxiety about Chinese involvement, although Vesterbacka is promising a charm offensive to alleviate local concerns.

He might also point to another mega project nearby where Chinese SOEs are already taking the lead: the world’s largest gas processing and chemical plant at Ust-Luga, also on the Gulf of Finland but across the border in Russia.

Beijing-based China National Chemical Engineering Corp (CNCEC) has more than 320 projects worth over $58 billion under way in more than 60 countries. One of them is a $13.3 billion contract to build the plant at Ust-Luga, which it describes as the largest single contract in the global petrochemicals sector.

CNCEC won another big oil and gas deal in Payakha in the Russian Arctic recently (see WiC459) and the Sasac-controlled company has also announced a $1.5 billion contract to build the Nakhodka fertiliser plant in Russia.

The link between the Ust-Luga and Nakhodka projects is Ukrainian-born businessman Artem Obolensky, who wholly-owns Nakhodka. His other company RusGazDobycha is developing Ust-Luga through a joint venture with Gazprom.

However, there’s a further connection between the two projects: namely yet another oligarch, Arkady Rotenberg. Rotenberg is best known as a childhood friend and judo partner of Russian leader Vladimir Putin, but he also features on the sanctions lists of the US government and the EU. In 2016 he sold his shareholdings in Nakhodka and RusGazDobycha to Obolensky, who is also chairman of Rotenberg’s bank, SMP.

The connection to Rotenberg is regarded as one of the reasons why energy giant Shell pulled out of the Ust-Luga project this spring. It is said to have had second thoughts after Gazprom combined an LNG plant with the chemicals complex and brought RusGazDobycha on board as a second partner. However, any concerns that the Anglo-Dutch energy firm had about the project don’t seem to be shared by its Chinese contractor, CNCEC.

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