Moscow - St. Petersburg motorway section 15-58 km: A deal involving tax havens and poor value for money

Submitted by admin on January 1, 1970

The first section of the Moscow - St. Petersburg motorway is best known for the conflict over its routing through Khimki Forest.

The project is widely heralded as being the first public-private partnership (PPP) in the roads sector in Russia.

Key issues:

suspected corruption
tax havens
environmental conflicts and PPPs
lack of competition
poor value for money

Yet surprisingly little is known about the involved private company - the North West Concession Company (NWCC) - to which the Russian government and road users will pay EUR 1.5 billion over the course of the 30-year contract.

In 2011 a Bankwatch investigation (pdf) into the company's background revealed a web of tax havens and oligarchs and confirmed the participation of Putin's friend Arkady Rotenberg in the project.

Or read online:

Possible corruption, lack of competition and poor value for money

The tender for the project had only one qualifying participant.

In 2008 the North West Concession Company was declared the winner of the tender procedure in which it had been the only qualifying participant. This fact should already have been a warning sign, as market competition is one of the few ways of increasing the value for money for the public sector in PPP projects.

Nevertheless the project continued. The strong opposition against its routing led only to a temporary halt and was eventually overruled in favour of private interests (see box).

Public interest overruled

The motorway's routing through the Khimki Forest near Moscow generated strong opposition, until in August 2010, after an intense month of protests and violence against activists, President Medvedev called a temporary halt to the project pending new public hearings.

The hearings that followed were never public, and the Russian government's decision in December 2010, to continue with the routing as planned, went against all logic, according to an independent expert assessment published in February 2011, which found that the planned routing was among the very worst among several alternative solutions.

President Medvedev himself has recognised that the route chosen was not the best solution and that it was chosen mainly to serve private interests.

Private interests behind the Moscow - St. Petersburg motorway?

There are various interpretations of why the Russian authorities are so keen to persist with a motorway routing through Khimki Forest that is widely recognised not to be the best one.

Among them are the following:

1. Advantages for an airport company

The Minister of Transport, Igor Levitin, formerly worked for one of the companies widely reported as standing behind NWCC. Levitin is also a Chairman of the Board of Directors of the Sheremetyevo International Airport corporation.

A considerable part of the first section of the motorway coincides with the route of another project, the MRAR (Moscow Ring Auto Road)-Sheremetyevo-3 toll road, which would bring direct economic advantages for the airport company.

Transparency International Russia has concluded in a report that Levitin, who was involved in the routing decision, may have been guided not only by the public interest but also by the commercial interests of the Sheremetyevo International Airport corporation.

2. Putin's friend Arkady Rotenberg

As well as the transport Minister, another politically well-connected person involved in the project is Arkady Rotenberg, a friend of Vladimir Putin.

Rotenberg has a direct stake in the concession company as the graphic below shows:

    Vinci Concessions Russie SA, one of the owners of NWCC, is 50 percent owned by Sunstone Holding Ltd Limassol, which is 73.8 percent owned by Croisette Investments Ltd Limassol and 26.2 percent by Littoral Investments Ltd Limassol.

    A 50 percent shareholder of Croisette and the 100 percent shareholder of Littoral is a British Virgin Islands company called Peak Shores Investment Corp. Tortola . The remaining 50 percent of Croisette is held by another Cyprus company called Olpon Investments Ltd Nicosia . Mr Arkady Rotenberg holds 100 percent of Olpon Investments Ltd Nicosia.

3. Interests in property development in Khimki Forest?

A third element that points to possible private interests in the motorway routing is the series of threats and violence dealt out to local activists campaigning for a change in the routing.

As the activists were not campaigning to stop the motorway altogether but rather to change the routing, the reaction to their activities suggest someone had a particular interest in that routing rather than any other.

Chief suspect according to the activists is Khimki Mayor Vladimir Strelchenko, who they see as wanting to open up the forest lands for property development, however this has never been proven in court.

4. Illegal change of status of the Khimki Forest

Another aspect that points to possible corruption, according to Transparency International Russia, was the fact that the Russian government illegally changed the status of the Khimki Forest in order to allow the chosen routing to go ahead.

The woodland of Khimki forest had been ranked as Forest Park before November 2009. Massive clearing and capital construction are forbidden on forest lands and therefore, motorway construction would not have been possible.

Find more in the case study's pdf version.

Tax havens

Although French construction giant Vinci is known as the concession company, in fact the story is much more complex than that. Vinci is part of a consortium known as the North West Concession Company.

Worryingly for a publicly financed project, a Bankwatch investigation in 2011 (pdf) revealed that it is only partly possible to trace exactly who is behind the company. What we do know is that it is an intriguing tale of oligarchs and tax havens.

For more information, see our report (pdf).

How has the fact this is a PPP influenced the conflict over Khimki Forest?

The contractual complexity of PPP projects often leads to a situation in which everyone is able to deny the possibility of resolving an environmental conflict due to their contractual obligations. (See our background on PPPs for a more detailed explanation.)

It is just this which has happened in the Khimki case. On one hand, the justification for continuing with the Khimki Forest routing was that penalties would have to be paid to the concessionaire according to the concession contract if there were delays.

On the other hand, Vinci has attempted to deny its complicity in the violence against local activists by claiming that ...

    "The choice of route is the exclusive decision of the concession grantor and the concessionaire has no say whatsoever in this decision".

    (Vinci's response (pdf) to a Bankwatch letter on the company's failure to respect Global Compact commitments on human rights.)

This makes it extremely difficult to satisfactorily resolve environmental conflicts related to PPPs.

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