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By John Helmer in Moscow

Roughly one rouble in every three spent from the Russian state budget goes out the treasury door in the form of a procurement contract.

According to the statute which regulates this process – Federal Law No. 94-FZ, “On Procurement of Goods, Works and Services for State and Municipal Needs”, enacted in 2006 – the process may take the form of tenders, auctions, or open requests for quotations. What the last of these means in practice is that the procuring government agency sends requests for a price quote to selected contractors. According to the law, this method is restricted to procurements of relatively low value. A report by the Ministry of Economic Development in April of 2009 on the first years of the operation of the procurement law called it “one of the most radical reforms in the second half of the 2000s, which affected many government and private economic agents.”

In the history of rigged state tendering of construction contracts, not a few low-bidders have made quite a killing. But rarely has it happened that it was worth someone’s while to blow the whistle. Law no. 94 prohibits contacts and negotiations between purchasers and prospective contractors; and requires public disclosure of applicants’ offers. But it is up to the procurement agency to check on whether contractors comply with the statutory conditions.

The Accounting Chamber is the Russian state’s designated whistle-blower. Run since its inception in 1997 by former prime minister Sergei Stepashin, the Chamber’s auditors and their boss have managed to contain their frustration at regularly blowing the whistle on embezzlement, fraud, and contract rigging – and at being comprehensively ignored.

Russia’s anti-trust watchdog, the Federal Antimonopoly Service (FAS), has generally had different functions. But according to Federal Law 135-FZ, it has the power to investigate and sanction activities by public authorities which restrict competition, including the restriction of competitition in procurement tenders and auctions.

Last week, the FAS nullified a Rb2.99 billion ($97 million) contract for the second stage of the Sochi cargo port on the ground that competing bids were improperly excluded from the tender. The ruling, which has not been published but is confirmed by the FAS for Fairplay, strikes at the Russian oligarch, Oleg Deripaska, whose Transstroy has been the designated builder of the cargo port at Imereti Bay, and also the expansion of Sochi airport. According to the FAS finding, the excluded bid by a company called 48 Management and Adjustment Works (48 UNR), was 9% below Transstroy’s winning offer. The government agency responsible for the tender was Rosmorport, which supervises the counrty’s ports at the federal Ministry of Transport.

Deripaska is already under fire for negligence in the construction of the first stage of the port, which is planned to allow transshipment of up to 2 million tonnes of cargo per year. The second stage calls for an additional 3-million tonne cargo capacity, plus the creation of a luxury yacht marina. The Russian Prime Ministry told Fairplay early this week that the cargo port will be closed for repairs for months. The Prime Ministry spokesman also confirmed that the failure of Transstroy to build the cargo port to specification has triggered serious recriminations at the level of Deputy Prime Minister Igor Sechin. He, according to the spokesman, has decided that fresh state funds should be spent urgently on an alternative cargo hub for the Sochi Olympics preparations. That hub, Sechin has decided, is the small oil products port on the Kerch Strait known as Kavkaz, 320 kilometres to the north of Sochi.

Asked what the Accounting Chamber has done so far to investigate graft and contract rigging in Sochi, Yekaterina Paristaya, spokesman for Stepashin, says: “Of course we have inspected the Olympics projects.” She declined to be specific. The Chamber website last refers to problems of Sochi funding on January 22, when Stepashin was reported as meeting the head of the Control Directorate in the Kremlin, Konstantin Chuichenko. All they are reported as discussing was this: “The meeting addressed the issues of organization and management of the interaction of the Control Chamber in the control of the use of public resources devoted to preparation and holding of XXII Olympic Winter Games and XI Paralympic Winter Games 2014 in Sochi. “

At the FAS, Mikhail Yevrayev, head of the department on control of government procurement, said there is no statutory requirement for FAS to coordinate with the Accounting Chamber in examining government tenders; the process depends on the complaints that are lodged. “The FAS does not have to deal with the Accounting Chamber, because similar cases are regulated by Federal Law 94. This gives the FAS full authority to receive and examine claims and to issue rulings. Last year the FAS received 27,500 claims [on procurement issues]. It is not only the normal practice, but our daily routine to examine such cases. Certainly we didn’t post any notification[of the Transstroy contract for Sochi port] at the website — it is not a prominent case.”

What the FAS discovered about it was this. “In some cases competition for a tender implies that the applying companies are requested to show their quotations, and the quotations are compared. The reason for the claim by 48 UNR was that they were denied the request for quotations. They were simply told, ‘You guys stay out of it.’ And they turned to the FAS.”

At 48 UNR, a secretary said that everyone responsible for Sochi port is away, and will be unavailable to comment until Wednesday next, at the earliest.

The spokesman for the Prime Ministry has told Fairplay that Sechin and other officials have decided that Deripaska should complete the Sochi cargo port. They were unavailable to say whether they are aware that the FAS has ruled that Transstroy’s contract to build the port was illegally awarded.

And to the question of whether the FAS ruling means that the Sochi cargo port contract will be put up for tender again, Yevrayev of the FAS answered: “I’d rather not comment.”


And for the kiddies: The first elephant to become famous was named Jumbo. He arrived from India at the London Zoo in 1865. There children and grownups used to enjoy riding on Jumbo’s back. But then Jumbo became grumpy. He didn’t like looking anyone in the eye, and in the night time, when noone was looking, he used to cry. In the daytime Jumbo used to trumpet loudly, and kick the walls of his stall. He even didn’t want children on his back. Mr Bartlett of the Zoo wrote a report, recommending that Jumbo should be put to sleep if he didn’t improve his behaviour.

But Jumbo was saved by Phineas Barnum, an American circus owner. He thought that children would enjoy going to his circus to watch Jumbo doing tricks. The London Zoo thought it was better to sell Jumbo than to pay the cost of killing him and burying him, as London cemeteries were already rather crowded. So Jumbo was sold for ₤2,000, and loaded on board ship for the US. The children of London thought Jumbo had been sold into slavery. They missed him at the Zoo.

Jumbo arrived in America in 1882, and the children there gave him a warm welcome. Jumbo’s grumpiness seems to have stopped. But then there was an accident. In 1885, when Mr Barnum’s circus was preparing to load up and take a train trip from a station in Ontario, Canada, the man in charge of the railway points forgot to pull the lever, or maybe he forgot to blow his warning whistle, so excited he was at seeing Jumbo. His mistake caused the locomotive to move on to the wrong set of tracks, right where Jumbo was standing. I am sorry to say that Jumbo wasn’t strong enough to survive the blow. He fell down, and bled to death. It is possible that Jumbo heard the warning whistle, but decided he was too tired of performing, and refused to get out of the way. But I’m not sure. Mr Barnum died six years after Jumbo after publishing a book called The Art of Money Getting, or, Golden Rules for Making Money.

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