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Vladimir Yakunin, President of Russian Railways, attends the opening day of the St. Petersburg International Forum in St. Petersburg May 22, 2014. (SERGEI KARPUKHIN/REUTERS)
Vladimir Yakunin, President of Russian Railways, attends the opening day of the St. Petersburg International Forum in St. Petersburg May 22, 2014. (SERGEI KARPUKHIN/REUTERS)

Russian Railways paid billions to secretive private companies Add to ...

Yakunin did not respond to Reuters inquiries regarding this story, but his spokesman at Russian Railways, which is also known by the abbreviation OAO RZhD, replied to written questions.

“The procurement activity of OAO RZhD is undertaken in strict accordance with the relevant laws,” Alexander Pirkov wrote. Tenders were organised in “the most transparent way” and procurement activity “has been repeatedly examined by the competent state organs, including the Audit Chamber of the Russian Federation,” he said.

Russian Railways said the companies identified by Reuters were all legitimate, and that its contracts were awarded fairly and fulfilled properly.

Krapivin did not respond to Reuters requests for comment. Instead, his son called. Alexei Krapivin said his father had no involvement in the railway contractors and transactions examined in this report. He said any suggestion to the contrary was “bullshit.” He declined to comment in detail.

THE AUCTIONS

In a leafy suburb of east Moscow stands a red-roofed town house with a children’s playground in the yard. One day last summer, a group of young men in T-shirts and jeans stood around smoking.

There was more to the town house than met the eye. It was the registered headquarters of a company that has won 9 billion roubles ($270-million) in contracts from Russian Railways and its subsidiaries since 2010, and says in corporate filings that it employs more than 100 staff.

When a reporter inquired at the property, a man in his 40s – head shaven, arms tattooed – came out. Asked whether the contractor, MPCenterZhat (MPC), was based there, he sent for a younger man, whose hair was cropped at the sides and hung in a ponytail at back.

“They sit here – they have an office on the second floor – but they only come here once a week,” the ponytailed man said.

MPC is one of a sample of 10 rail contractors studied by Reuters; together they have received more than $2.5-billion from Russian Railways since 2007, according to tenders and other documents reviewed for this article.

Reuters chose the firms because they bid for the same type of work, mainly the upgrading of track signalling and train control systems. They were selected from a longer list of railway contractors provided by a Russian banker now living in Britain, German Gorbuntsov, who survived an attempt to assassinate him in London’s Canary Wharf district in 2012.

Before he left Russia, Gorbuntsov used to be co-owner with Krapivin of a bank called Capital Commercial Bank (known by its Russian initials STB). All the 10 rail contractors examined by Reuters had accounts at STB.

On the face of it, Russian Railways offers contracts to private companies in open tenders where market forces apply. But several people familiar with the process alleged some contractors work together to win tender competitions. This is done, they said, by companies either managing to be the only bidders, or working with other bidders to decide who should win or to inflate prices. Reuters was unable to verify those claims.

A Reuters analysis of tender competitions involving the 10 companies showed little attempt by bidders to compete for contracts on price. Out of 185 cases where the winning bid was listed, 79 were only 0.5 per cent – down to the kopek – below the maximum price set by Russian Railways. A further 35 of the winning bids were 1 per cent below the maximum allowed price.

The nature and activities of the 10 rail contractors were hard to pin down. The two biggest beneficiaries, by value of contracts won from Russian Railways, were MPC and a company called TransServisAvtomatika (TSA). From 2010 until the middle of 2013, these two firms were the only bidders in 43 tender competitions worth $340-million. MPC and TSA bid as rivals and at first sight appear to be separate entities.

To find out more about them, Reuters went in search of their head offices. The headquarters for MPC listed in Russia’s corporate registry was the town house with the children’s playground where no one from MPC was present when a reporter visited. TSA’s legal headquarters was a 15-storey building just outside Moscow’s ring-road. The structure contained a business centre, a car dealership, a fitness club, a beauty parlour, two bank branches, a florist and a grocery – but no sign of TSA. A security guard there found a mention of the firm on his computer, but said the company did not have an office there.

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