A sanctioned friend of Vladimir Putin, the businessman Arkady Rotenberg, has frozen construction on the Kerch channel bridge, due to a lack of financing. Forbes Russia reports the contracting company, Rotenberg’s Stroygazmontazh, did not receive a scheduled money transfer from the budget and doesn’t have the capital to continue constructing the bridge that would connect annexed Crimea to its new homeland’s terra firma.
Last time Stroygazmontazh received money was in December of last year, totaling 48.9 billion rubles ($740 million). That’s all they have reportedly received for the year. The company cannot buy expensive equipment and continue construction works, the Stroygazmontazh CEO claimed in a letter sent to Transport Ministry two weeks ago, calling the situation “critical”.
Financing for the Kerch channel bridge for this year was supposed to have totaled 65.4 billion rubles ($1 billion). The Forbes article says the reason for the holdup is a bureaucratic snafu: the government changed the rules of how it does its accounting with contractors.
Arkady Rotenberg, Putin’s long-time judo sparring partner, first appeared on Forbes’ richest Russians list in 2010 at number 99. By 2014, he was sitting at number 27, with his net worth estimated at $4 billion. Rotenberg was sanctioned by the West, but his fortune did not decrease. Along with another sanctioned friend of Vladimir Putin, Gennady Timchenko, Rotenberg has placed high up on Forbes annual list called “The Emperors of State Tenders” for the past three years. As of the latest 2016 edition, Rotenberg is atop the pile, having received 555 billion rubles ($8.3 billion) from state contracts. For example, Stroygazmontazh was lucky enough to receive a no-bid contract for a reported 200 billion rubles ($3 billion) in December of last year to provide support infrastructure for the Power of Siberia pipeline project. (Needless to say, the construction of the pipeline itself was given to Timchenko, of course as a non-bid contract, also.)
A story has been circling around Moscow for some time, sourced to people inside the Kremlin: After the sanctions were announced, Vladimir Putin is said to have met with his businessman friends and promised them that he would compensate them for losses incurred from Western sanctions.
Russia’s President has been doing his best to help his friends out, but the source of funding that has allowed him to do so might be drying up soon. RBC asked a number of Russian economists how soon Russia’s Reserve fund would be exhausted. 14 out of 32 economists assume it might happen as soon as 2017. They conclude that if oil prices keep at around $40-50 per barrel, by the beginning of next year there will be no more than 1.1 trillion rubles ($16.6 billion) in the Fund. And if oil prices don’t come back to over $50, by the end of next year, Russia’s Reserve Fund might be emptied completely.
Putin strongly disagrees with this point of view. During his annual call-in show in April, he proudly said that the Reserve Fund and Russia’s National Wealth Fund together would allow the country to “not do anything at all—everyone could stop working” for four months. (He did not clarify what would happen next, though.) If Russia just continued on its present course, Putin argued, the two Funds would stay solvent for four years.
During his interview with Germany’s Bild, Putin appeared to either not know the actual sums contained in the two funds, or was willingly exaggerating them. Russia’s President said the Central Bank’s international reserves exceed $300 billion while there are the two more funds besides that, the Reserve Fund and Russia’s National Wealth Fund, worth $150 billion. The reality is that the Reserve Fund and Russia’s National Wealth Fund are counted as part of the Central Bank’s international reserves.
The Reserve Fund is meant to cover Russia’s budget deficit, while the Russia’s National Wealth Fund, originally intended to keep Russia’s pension system solvent, was tapped for an ambitious bail out program in early 2015, meant to help the country’s largest banks and corporations weather the combination of low oil prices and Western sanctions. (Putin’s friends sit atop many of the companies that stood to have benefitted.)
Luckily for Arkady Rotenberg, it was Crimean pensioners, and not him, that Prime Minister Dmitry Medvedev recently addressed, telling them to “cheer up” because there is no money for indexing pensions to inflation in Russia. There is little reason to assume that a friend of Vladimir Putin would not receive his fair share of money from the federal budget at the end of the day.