Vladimir Yakunin, the head of Russian Railways, has been accused by opposition leader Alexei Navalny of spending more money than he makes each year. Furthermore, Navalny has helped show how Yakunin has used his family members to build a complex financial web, one that appears to be designed to hide where money is coming for and where it is going.
Now there are new allegations that friends of Andrei Yakunin, Vladimir’s son, are involved in the development of the Ust-Luga port, a construction project that appears to be rich in government and private investment but poor on demonstrable results. Andrei Yakunin denies any wrongdoing. – Ed.
From the outset, the Port of Ust-Luga was a gamble. In the early 1990s, the idea (which strictly speaking cannot be called new) to build a port in the Luga Bay of the Gulf of Finland struck Ilya Baskin, a businessman from St. Petersburg. “Back then, Baskin was a happening man, well received in all kinds of offices. He was involved in all kind of things, such as apatites, phosphates, some helicopter companies, and even satellites in Seattle. When she was on a visit to St. Petersburg, Margaret Thatcher stopped by to meet him. He also invited by the main character in the popular TV series “Slave Izaura,” quite popular at those times, and walked with her arm in arm along Nevsky. “Women applauded!” recalls Baskin’s friend. If he had some strong managers on his side, he would become the richest man, according to the source of Vedomosti. There was something reckless, adventurous about him. He generated some spectacular ideas that he loved to discuss, but almost none of them he ever brought to fruition.”
In the early 1990s, the idea of building a new port seemed like a fantasy. “The state was impoverished, the Ministry of Transportation did not want to dig in a swamp teeming with frogs, and businesses did not want to invest without any guarantees,” tells a former employee of the port.
But Baskin turned up his sleeves and got down to business. He set up OJSC “Port-invest” and started to exchange its shares for vouchers, that was during Chubais privatization. Baskin chaired the board of directors of JSC “Ust-Luga” established in 1992, that eventually became the owner-developer of the port. The businessman was the controlling shareholder, and among his partners were Lenoblimuschestvo (the St. Petersburg Regional State Property Committee) and the Oktyabrskaya Railway.
Then came Valery Israylit
Soon, Ust-Luga had another co-owner, Valery Izraylit, a St. Petersburg developer. This is how it happened, as recalled by another friend of Baskin. One of the sites Izrailyt was developing was located next to the famous Frunzensky department store, owned by Baskin. The store had been damaged by fire, so Izraylit decided to participate in the reconstruction, and gave Baskin some money for repairs. “After some time it turns out that nothing was repaired. What happened to the money? Of course, Izraylit comes to Baskin with some questions, and the latter says that, well, the department store is not worth the money, there is a real project: the port of Ust-Luga. And then he takes Izrailyt to the location to show him everything,” says Baskin’s associate.
“We came there, it looked like the area had been hit by the Tunguska meteorite: trees were felled, the ground was turned upside down, a sandy mound cut into the bay and some miserable-looking swans were swimming next to it,” says Izraylit. “Baskin described the project as something grand: all we need is just $20 million, and we’ll have a port. Of course, then I didn’t buy any of this. But after two or three months, I realized that’s all I would get, anyway.”
That’s how Izraylit bought into the project and brought with him his quite useful friends, in particular, the former Deputy Prime Minister Alfred Koch. Speaking to Vedomosti, Koch confirmed that it was Izraylit who brought him in, and that he got about 20% of the Ust-Luga company and a seat on its board.
“So I got into that. Just to find out about all those debts to the designers, to the builders,” recalls Izraylit. “Then all kinds of inspections, prosecutors. Bankruptcy proceedings have already started. We got people together to discuss the situation. Okay, let’s try to work on. People are not happy: ‘We’ll take you to court!’ And I’m asking: ‘And then what? What will you get if everything goes bankrupt?’ Gradually we began to pay debts on wages, I went to the United States to see how they do similar projects over there.”
As the project progressed, Baskin’s share was gradually taken over by new participants. By 2001, he was completely out. About half of the company passed into the ownership of Izrailyt and his partners in repayment of Baskin’s debts, according to Israilyt’s associate.
OJSC “Port-invest” kicked the bucket. The Federal Financial Markets Service office for the North-Western district reports on its website that, “in December 2004, the prosecutor’s office for the Leningrad Region opened a criminal case. But the OJSC Port-invest could not be found at any of the addresses,” and the State Register does not have any information about this entity.
Then came Vladimir Yakunin
In October 1999, Baskin, then the chairman of Ust-Luga’s board of directors, was replaced by Vladimir Yakunin. At that time, he was in charge of the North-Western District Inspectorate of the Main Control and Revision Office under the President of the Russian Federation. Izraylit became the CEO of Ust-Luga.
How did Yakunin end up in Ust-Luga? According to his friends, some minor budgetary amounts were passing through Ust-Luga already back then, and he was checking how the money was spent. “On that occasion, the inspectors came up with some unpleasant findings, that resulted in some tensions between Yakunin and the then Governor of the Leningrad region. The Governor said to Yakunin: you know, if you’re so active why won’t you join the board of directors of the company. And Yakunin did,” recalls his friend.
The interest was mutual, he says: Ust-Luga wanted to draw the attention of some government “heavyweights” to the port, and Yakunin believed that the government really needed such a port, although some Ministry of Transportation officials believed that the Ust-Luga port was just a waste of money.
In addition, the Vedomosti source goes on, Izrailyt and Yakunin are not only friends, but have a lot in common in terms of religion: together they helped to build a church in Ust-Luga, and in Italy their contribution was one of the reasons a small church became operational. Yakunin and Izraylit “have known each other for a long time,” and the president of Russian Railways “highly appreciates Israylit’s professional qualities,” confirmed a representative of Russian Railways.
Koch is convinced that it was not Yakunin, but Izraylit, who got the port project off the ground: “90% of the project is the result of his efforts. Public funding by that time had dried up. We were developing everything ourselves: looking for a contractor to get hooked up to a power grid, purchased the rails, built a substation and a railroad.”
“The money was almost exclusively private and borrowed. When Izraylit came, the port was just a name. Other than that, just a piece of land and a few state-approved solutions,” says Alexander Svetakov, the former Absolut Bank owner. His bank served the project since 2000, and by 2006 owned 16.66% of the Ust-Luga company.
The government was not interested in the project, as long as “it was just a cleared strip in the woods,” says Koch. “Yakunin got seriously involved as soon as the project took some more or less coherent shape.”
Yakunin remained the Chairman of the Board until the end of 2005.
Then came the public money
In 2002, Ust-Luga signed an agreement with the Ministry of Transportation, the Ministry of Railways, and the Leningrad region, and a year later with the Ministry of State Property. As the result the company became a full-fledged owner-developer of the port coordinating all the work, which, in turn, made the situation predictable for private investors. Some serious people believed in the project. Today Gennady Timchenko, Leonid Mikhelson, Alexander Zhukov, Iskander Makhmudov, Vladimir Lisin, and others have their terminals in Ust-Luga (see the chart). Izraylit says he was the first one to use the term “public-private partnership,” when presenting his project to officials.
It was not until the mid-2000s that Ust-Luga secured steady government funding. Over the period from 2006 to 2012 the federal budget allocations for the development of the port infrastructure amounted to 18.5 billion roubles, and another 17.7 billionn has been provided for 2013-2020, according to a Ministry of Transportation representative.
According to Ust-Luga’s financial reporting, as of the end of 2012 the federal budget invested 21.6 billion roubles in the project. Private investors contributed 120.6 billion roubles, and Russian Railways responsible for access rails — 64.4 billion roubles. In total over 200 billion roubles was invested, sums up Izraylit.
The State owns 20.99% of Ust-Luga (through Lenoblimuschestvo), Russian Railways — 7.15%, which adds up to 28%. Who owns the rest? And who controls the contractors spending public money? Trying to find answers to these questions, Vedomosti drew a chart.
A trace of Valery Izraylit
Izrailyt is considered one of the beneficiaries of Ust-Luga. Koch says, that he sold his 20% to Izrailyt, who admits that he and top managers of the company have shares, but he does not specify the percentages.
An associate of Izrailyt believes that he was associated with “New Resources,” a St. Petersburg JSC, that owns 16.82% of Ust-Luga (here and below the data on shares listed for the fourth quarter of 2009, in more recent reports the figures are not disclosed). This Company was located at the same address, the CEO and the principal owner had the same phone number as the now liquidated “New Resources Company, LLC.” A share of 0.1% in the New Resources Companies was owned by Mark Izraylit, the son of Valery Izrailyt.
A trace of Andrey Yakunin’s partner
23.06% in Ust-Luga belongs to Investport Holding Establishment, a company from Liechtenstein. The same company, acting through Longsound Investments, incorporated in Cyprus, held a minority stake in St. Petersburg Rosregionproject Development, that was involved in development of the area around Moscovskaya-Tovarnaya railway station in St. Petersburg. The General Director of Rosregionproject Development is Valentin Chimpoake.
Chimpoake is a long-time friend and partner of Yakunin’s son, Andrey. They worked together in the Pribaltiyskaya hotel in St. Petersburg: Yakunin was the CEO, and Chimpoake the Board Chairman. The main owner of Chimpoake’s Rosregionproject Development and Yakunin’s Regional Hotel Chain was one and the same company, Rosregionproject of Cyprus. Yakunin says that “any speculation that he has or had the rights of ownership of or claims to Rosregionproject are unfounded and unsubstantiated statements, and he does not see the point to either comment on or deny.”
He also noted, that he did not understand why somebody would expect him to know who is behind Investport since he “does not cooperate with the company.” Should it be understood to mean that these companies are related to his former partner? Chimpoake did not answer the questions asked by Vedomosti. In the past he was associated with the port: in 2006 he served on the board of directors of Alexander Zhukov’s company, that build a sulfur terminal.
Vladimir Yakunin is not associated with Investport, a representative of RZD stated.
A trace of Vladimir Yakunin’s advisor
20.28% of Ust-Luga is owned by a mutual fund, managed by JSC UC RVM Capital. This company is part of Rosvagonmash Investment Group, of which largest owner is Yakunin’s advisor, Sergei Orlov. He says that in 2011 he bought shares of the group from Transcreditbank (at that time RZD sold the bank to VTB).
To own and to operate are two different things, as profit is made by funds’ shareholders, emphasizes Orlov. He wouldn’t say who the shareholders are, though.
A trace of another Vladimir Yakunin’s advisor
OJSC Lengiprotrans, the designer of the Luzhskaya station, port railroads and a branch to Ivangorod, as well as highways, might be associated with Andrei Krapivin, an advisor to the RZD president. Yakunin used to call him an old friend, “a businessman and adviser on a pro bono basis.”
Krapivin owns 32.55% of Intgerprogressbank. His partners, Boris Usherovich and Valery Markelov own slightly lower shares.
Krapivin’s son, Alexei, together with Usherovich, Markelov and Alexei Pugachev, Krapivin’s partner in Ortiga Group, make up the majority of the Lengiprotrans board of directors. It follows from a report by the designer, that in 2008-2011 UC RVM Capital controlled 61.4% of its shares.
Neither Lengiprotrans, nor Interprogressbank, nor Krapivin answered to questions by Vedomosti.
A trace of Valery Israylit’s partners
Ust-Luga is in control of the process, but the government money does not pass through it. Contractors get hired by the government for dredging, design and construction of the port. These contractors used to be owned by Ust-Luga. But in mid-2000s, when the money started to come, the company sold them.
Ust-Luga could not be the customer-developer and the owner of contractors at the same time. That would create a conflict of interests: “we couldn’t supervise ourselves. The deals were market-based,” explains Izraylit. According to him, these contractors eventually used about 30 billion out of 200 billion roubles.
International Resources of Luxembourg became the principal owner of the largest contractors. Izraylit says this is a company of his former partners who have long been performing dredging works: “These are the two Baltic businessman who used to work on other ports. They invested a lot of money in dredging fleet and pay taxes here, being owners of Russian companies.”
International Resources is located at the same address, have the same directors and the same nominal owner as another Luxembourg company, International Marketing Investments. According to Izrailyt, this is a company that belongs to the same Baltic businessmen. It owns 26% of JSC Ust-Luga, which is the operator of the car terminal “Yug-2” and a road-railway ferry complex.
A trace of Vladimir Yakunin’s hunting partners
Among the contractors who work on a rail access to the port of Ust-Luga are business entities belonging to Yakunin’s hunting partner, Vladimir Vasiliev, a businessman from St. Petersburg. In 2007, Yakunin and Vasilyev co-founded a hunting farm in the Leningrad region, “Real Hunting, LLC.”
Yakunin told Vedomosti that he’d met Vasilyev 10 years before he took charge of Russian Railways. He worked for a firm that built Yakunin’s house. The company didn’t do a good job, Vasilyev had to correct the mistakes, and eventually that working “relationship developed into friendship.”
In 2011, Vasiliev became the owner of one of the Russian Railways contractors, the Finprom group. Finprom’s largest order was setting up rail access to the port of Ust-Luga, namely lighting for the stations, traction, feeding stations, and railway approaches to ports on the southern shore of the Gulf of Finland.
“Speculations about people hunting together, and then sharing profits from delivering something to Russian Railways, are just ridiculous and baseless,” Yakunin told Vedomosti. “Actually, on the contrary, all this only makes it more difficult for my friends. They really have to be extra careful to make sure they don’t compromise neither themselves nor me.”
Andrei Yakunin explained that the St. Petersburg business circle is quite small and, given the “rule of two handshakes,” everybody knows everybody else, but it would be incorrect to draw conclusions about business relations, about patronage or to infer, that his business interests somehow extend to the port of Ust-Luga.