Investment black hole in Yakutia

During the period of the current crisis, regions' debt increased exponentially in the tens of billions of rubles. Yakutia is no exception: it is a "leader" among the subjects of the Far East: 43.5 billion rubles, against 24 in 2014.
Since the beginning of the year, the government of the republic has been actively borrowing money, but isn't going to prune the budget on the home territory: a number of investment projects in Yakutia failed, and the money vanished into thin air.

 Where did RIC emergy from

At the beginning of the 90s, state-owned enterprises in Russia were mass-privitized, but Yakutia stepped aside from the process. Therefore, in the mid-2000s disputes arouse around some of its state assets with regard to the division of property between the federal and republican authorities. In particular, concerned Yakutugol and JSC Elgaugol companies. As a result, the Federal Property Management Agency  initiated a lawsuit against the local authorities in the Supreme Arbitration Court: a part of the companies' shares at that time had already been privatized, but the Republic retained the majority stake.

The dragged for quite a long time, as the trial was followed by talks at the highest government circles. In the end, a compromise was found: the shares were left in the region, but not in the local budget: a special company was created, which were designed to sell these assets and send the money for the construction of railways and other important infrastructure projects in the region. It was JSC Republican Investment Company (RIC). In spring 2007, its status was described in the settlement agreement, noting that the authorities of the Republic sould remain the sole owner of the RIC until the completion of the execution of this agreement, for almost a decade. The term has actually expired: the condition is valid until January 1, 2017.

Selling the shares was not difficult: state-owned 75% of Yakutugol were bought by Mechel, which already had the rest 25%. It also acquired almost 40% of Elgaugol shares. In 2007, after the payment of all taxes, the RIC got 37.4 billion rubles for both companies. 

"Many people now perceive the RIC's money as something for granted. It's far from it. This is money that republic, in fact, won as a result of a court dispute with the government of Russia," said the then CEO of the RIC Pyotr Alekseev.

Out of the proceeds,14.3 billion rubles, as agreed, were spent on the construction of the railway to the town Lower Bestyakh. This amount included costs not only for road construction itself, but also on infrastructure and construction of high-rise buildings for the residents of the barracks on the site of construction. Construction hasn't yet been finished; the passenger traffic is planned to start in 2017. In addition, 8.4 billion were spent on gasification of 96 settlements in Yakutia 96, as well as the construction of roads, airport, power facilities, and more.

Food courts as socially significant objects

Currently, the RIC continues its activities as an investor of social projects, net profit from which partially goes to the budget of Yakutia. However, the feasibility of the scheme in which the revenues from the national natural resources are directed to commercial projects, has repeatedly raised questions among local community members.

An illustrative example: at the end of 2011 in the center of Yakutsk, the largest in the Republic of Sakha shopping and entertainment center Tuymaada was constructed. The RIC was its investor, and, as reported by the national media, the building was the center was bought for nearly 300 million rubles, and twice as much was invested in the reconstruction.

"We believe that the shopping center Tuymaada is a social project. Because we provide the conditions for leisure activities. Our shopping center is one of the most popular centers for every category of the population. It is the only center in the city, where you can go to relax, where there are shops, catering points and entertainment venues in one place. Everything is thought out, kept the concept," reported the director of the owner of TRK OOO UK Center (a subsidiary of the RIC ) Aytalina Vishnyakova to the journalists.

She stressed that the funds allocated for the project are fully returnable, the credit rate is 11%. Shortly thereafter, the center began to incur losses, and so it went for the first years of work, and then Vishnyakova said that if the center can not pay, the republic will simply sell it. She didn't comment whether it will cover all the costs of construction.

The way in which the RIC selects projects for funding is difficult to explain. This is evidenced by the case of the parliamentarian, businessman and CEO of JSC Yakuttsement, Alish Mamedov, who for some time before the story of Tuymaada, offered the company to build 20 kindergartens for two billion rubles. He was refused, since, according to the RIC, this investment would be unprofitable. Pyotr Alekseev in an interview with the republican publications confirmed that the company invests primarily in what is profitable.

Also in an interview to he said that state-owned companies should not be afraid of commercial projects.

"The order of spending the money received from the shares in the privatization of Yakutugol was defined by the settlement with the federal center. All 37 billion were invested in the construction of the railway, infrastructure and social facilities. As for the money earned during the placement: the RIC is a company specialized and designed for the execution of the settlement agreement, but no one has repealed the law on joint stock companies, which means the company can get some profit. That we built Tuymaada is certain business investments, and now no one can say that the Tuymaada works badly. We have created a modern shopping mall, which meets all the requirements of an advanced, attracted well-known franchises, and so on. I believe that it is good business. Once again I repeat that we have implemented Tuymaada project with the use of temporarily free funds, and it had no effect on the financing of the facilities provided by the settlement agreement.

Money in the project were investments by borrowing. Now our subsidiary company is repaying the loan with a good yield in favor of the RIC," Alexeyev said.

Many members of the local State Assembly (Il Tumen) were dissatisfied with the results of privatization, believing that the money were not spent on Yakutia's needs, because according to the law, privatization should bring preferences to the local budget. As a result, the Accounting Chamber started checks in the RIC, but in general it could not find serious violations.

Then the Chamber noted that since 2008, the RIC has had a tendency to a decrease in profits. "There are risks of losses or inefficient management of assets due to the low level of control of representatives of the interests [of the Republic of Sakha (Yakutia)] over the operations of committed trustees," the report says.

At the same time the company has completely failed projects, as can be exemplified by at least two initiatives.

Close family ties
It is very easy to get confused with the RIC: the company has created many subsidiaries, which, in turn, have their own "offsprings". One of the branches of the scheme begins, for example, with the Cluster Development Center Yakutia, which bought OOO Law Firm Seagull in 2009.

As later explained to journalists by Pyotr Alekseev, "Seagull" was created with a single purpose: to knock the money out of the depositor of the RIC's subsidiary, RIC-Finance, from the Yakut-based oligarch Dulustan Borisov's capital NR-Bank. However, everything is not so simple: NR-Bank is itself affiliated with the RIC.

The situation at the time when the local media started to cover the scandal, Alekseev explained as follows: "The RIC-Finance was not the founder of the NR-Bank, it is just placed there a deposit in the amount of 700 million rubles at the rate of 7 % per annum back in 2007. During the crisis of 2009, the bank was not able to return all the money, so as partial debt it had to give the bank's assets. (The company owner of the bank , High-Tech+, transferred 43% of the shares, as well as buildings in Moscow and Anapa tp Center-Project).

"It's an affiliated entity created back then, in 2009, to return funds from the NR-Bank. And so distorting the facts, that NR-Bank is a separate operation, and Seagull is something completely different, is wrong. Everything was tied at the time," concluded Alekseev.

According to the documents, it was not possible to get back the money. In August 2015, the Moscow Arbitration Court decided to finish the bankruptcy proceedings in respect of High-Tech+. The creditors' claims were not satisfied due to insufficient property of the debtor, and were considered canceled.

But on July 4, 2011, Seagull LLC, founded, according to Alekseev, only to knock out money from MR-Ban", sold to its "partent" entity, JSC RIC, three promissory notes totaling 782 million rubles at 9% per annum . In other words, the company created by RIC-Finance to get 700 million rubles in 2009, in 2011 received 782 million rubles from the RIC itself.

By the way, back in 2009 Seagull founded JSC Center Project, which authorized capital, according to EGRUL data,was of about the same amount: 742.5 million rubles. This money the company invested into the aforementioned Tuymaada.

Seagull didn't return the money in time, and in 2012 the RIC transferred these bills in trust to its subsidiary, OOO RIC-Finance. That, in turn, appealed to the arbitration court against Seagull at the amount, all the penalties and default interest included, of about a billion rubles. In 2014, the Arbitration Court satisfied the claim, but Seagull was declared bankrupt.

As a result, the RIC did not return the deposit and suffered multimillion-dollar losses due to the banrkupt bank, Seagull bankrupted, too, without returning billion rubles. It is interesting that initially the money had to be invested in social projects in Yakutia, or returned to the region's budget.

State guarantees for a million

There's another scheme related to the RIC, which is not without interest. In 2005, Yakutia Construction and Investment Company RFA-Invest appeared, which was engaged in the development of mortgage lending in the region. At the same time 49% of its shares were owned by the State Unitary Enterprise Yakut Committee for Precious Metals and Precious Stones of the Republic of Sakha; that is, in fact, the authorities of the republic.

The Government of the Republic of Sakha in the framework of the target program "Housing" defined the company as the executive in terms of attraction and use of budgetary funds by issuing bonds. Since 2011 it started to borrow money under the state guarantees, and subsequently RFA-Invest became one of the biggest beneficiaries of the republic. Guarantees were given both by the budget of the republic, and state-owned enterprises; in particular, more than half as a guarantor was undertaken by the already mentioned OAO RIC. Total guarantee allowed the company to take about three billion rubles.

Our reference
 Bonds are secured by a guarantee of the Republic of Sakha (Yakutia) in the amount of not more than 693 million rubles, that is, in the amount of coupon payments. Guarantor in the amount of 2.2 billion rubles is JSC Republican Investment Company. RFA-Invest under the guarantee placed bonds and directed the profit for housing construction. According to the quarterly financial statements, the company took a new tranche, each time a little more than the previous one, and literally on the same day paid back the previous debt. This is a good reason to assume that its management successfully built up a pyramid scheme.

Its main income RFA-Invest received and still receives not from investment in housing construction, but from operations with securities at a stock exchange. For example, in the first half of 2011, the revenue of RFA-Invest from stock exchange speculation amounted to 1.34 billion rubles (or 92.7% of total revenues). The construction accounted for just 85.5 million rubles, or 5.9 percent of the company's revenue.

Just in the process of registration of the guarantees, the head of Yakutia Yegor Borisov appointed head of the ARF-Invest, Valery Zhondorov, as Acting Minister of Finance. This means that the final paper on the deal was signed by him, although Zhondorov himself had filed an application for a guarantee. He was replaced by his former deputy, Boris Grigoriev, who is now, of course, considered to be a "man of the Minister" in the republic.

On February 25, 2016, time due for redemption of RFA-Invest bonds. The financial report said about the debt on bonds of 1.1 billion rubles, the last coupon is 32.9 million rubles. However, according to the financial report for the first quarter of 2016, the company had no funds for the repayment. For the first nine months of 2015, the net working capital of the company fell down to negative: 903 million rubles. So in fact the company was in a state of bankruptcy.

New guarantees for such a large sum in the crisis noboy dared to provide, especially taking into account the huge debt of the republic. On August 16, the Minister of Finance, Mr. Zhondorov, said that the amount of debt is at a safe level, is in compliance with the Budget Code, and does not exceed 50% of the tax revenues, although in the first half of the year it amounted to 43.6 billion rubles. At the same time, according to the RIA-ranking, in comparison with other regions the situation is not critical: Yakutia occupies 26th place (debts estimated ascending - Russiangate). However, in terms of the government debt growth rate Yakutia leaves behind all other regions.

Thus, there is no money in the republic, and, according to experts, the president of the republic and the Regional Ministry of Finance are to be blamed. The political and economic situation in the region is difficult, so the conflict, according to Zlobin, should be covered up. The situation is exacerbated by the fact that Zhondorov, according to sources familiar with the situation in the government of Yakutia, has an amazing ability to borrow money, without which the country can not do. It is always difficult for the donor regions to get additional subsidies, and since 2013 every penny counts. "Therefore, apparently, it was decided to put the blame on RFA-Invest, and to hide all Zhondorov's ties with the company," said a source in the republic, who wished to remain anonymous.

Exactly a month after RFA-Invest had failed to transfer the money, at the end of March 2016, searches were held in the office of the company, and their goal was never made public. On July 20, the head of republic, Yegor Borisov, held a meeting with Putin, where he reported on the situation in the region, and on July 25, the head of ARF-Invest, Boris Grigoriev, became involved in a criminal case. The initiative came from the Anti-Corruption and Economic Security Department of the Ministry of Interior. According to investigators, Boris Grigoriev via loan agreements with his cronies withdrew 158 million rubles in 2012-2015, which, according to the official version, he lost on the stock exchange games.

As follows from the case materials, the withdrawal of these funds was not directly connected with the actual default of the company. According to a local journalist Aleksandr Zlobin, a criminal case was intended to be a formal reason for removing Grigoriev. "In any large company, if desired, violations can be found. And Boris certainly had his sins. But he was not removed because of these 158 million, we are talking about a much larger sum, and political responsibility. He just became a bargaining figure," said Zlobin.

Interesting is that journalist Nikolay Sedalishchev, who told about the privatization results in Yakutia to the media, is currently a defendant in libel suit by the head of the republic Egor Borisov.

Our reference
In July of this year, part of the state-owned shares of the Republican diamond mining company ALROSA was sold. Money from the sale of 802,781,254 of its shares (10.9%) went to the federal budget, the proceeds from the transaction amounted to 52.2 billion rubles. After the sale, the number of Alrosa shares in free float decreased from 43.93% to 34%. Another 25% of shares belongs to Yakutia, 8% - to the municipalities of the republic.

Meanwhile, the experience with the sale of resource companies voie the RIC in Yakutia has been found successful. It was decided to sell a 7% share package of one of the world's largest diamond companies, Alrosa, which produces about 95% of diamonds in Russia. The company also accounted for about 25% of all diamonds produced in the world.

The RIC was once again appointed as the organizer of privatization in Yakutia. In November 2013, another specially created subsidiary of the company, RIC+, received 18 billion rubles. The money was planned to be spent on the resettlement of people from dilapidated housing, the development of gas infrastructure, the construction of a cancer center and other social facilities.