KREMLIN PROPERTY DEPARTMENT WANTS TO BUY TWO JACUZZIS FOR US$5.5 MILLION…

The so-called Mabetex case, involving allegations that the Kremlin property department handed out lucrative refurbishment contracts in exchange for kickbacks, was closed down late last year by the Russian Prosecutor General’s Office and is still under investigation by Swiss prosecutors. The press coverage of the scandal made the Yeltsin-era Kremlin almost synonymous in the public mind with waste, fraud and abuse. But while President Vladimir Putin removed one of the chief protagonists of the affair, Kremlin property manager Pavel Borodin, by kicking him upstairs into the post of Russia-Belarus union state secretary, it would appear that the penchant for excess has survived the reshuffle.

The newspaper Vedomosti reported this week that the Upravleniya Delami (UD)–as the Kremlin’s property department is known in Russian–has asked the government to approve a plan for reconstructing the Vatutinki resort hotel, which is located fourteen kilometers south of Moscow and is part of the UD’s infamous property empire, the total value of which Borodin once estimated at US$600 billion. Vedomosti reported that it had obtained a copy of a sixteen-page list of equipment UD would like to purchase for the hotel which was sent last month to the Finance Ministry, the Ministry of Economic Development and Trade and the state’s Vneshekonombank for perusal. Aleksandr Balashov, general director of the Bor company, a Kremlin property department subdivision that oversees the Vatutinki hotel, signed off on the equipment request, which was accompanied by a letter from Vladimir Kokunov, the deputy Kremlin property manager.

The plan to refurbish the Vatutinki complex–currently a four-star hotel offering rooms ranging from US$100-300 per night–is not new. In 1998, it was included in a package of proposed reconstruction projects–including those involving the Grand Kremlin Palace and the Audit Chamber’s offices, which were contracted to the Swiss firm Mabetex and its affiliate, Mercata Trading–which was approved by the State Duma. The cost of the Vatutinki project, US$23 million, was to be financed by credits guaranteed jointly by the Russian government and Hermes, the German state insurance agency. The German side, however, froze its participation in the project following the August 1998 financial collapse in Russia. According to Vedomosti, Kokunov, the deputy Kremlin property manager, is now trying to jumpstart the project.

The proposed list of equipment to be purchased for the hotel included two badminton net stands priced at DM9,540 (some US$4,270) together, a badminton net with two birdies and two rackets priced at DM319 (some US$142) together, a set of barbells for DM2,800 (some US$1,250), 463 “special square rugs” costing DM587 (some US$260) each, eight water fountains costing DM9,100 (some US$4,069) each and twenty trays costing DM1,700 (some US$760) each. While such apparent overcharges may be somewhat reminiscent of waste, fraud and abuse stories involving U.S. defense contractors, one line item on the Vatutinki hotel’s equipment wish list puts it in a category of its own: Two 2×3-meter Jacuzzi baths, fully outfitted, were priced at DM12,314,056–some US$5.5 million. The manager of a store selling such equipment told Vedomosti that Jacuzzis of that size should cost in the range of US$12,000 to US$30,000 each, depending on how they are outfitted.

…CONTINUING A TRADITION OF SUSPICIOUS OVERPAYMENTS.