Fleeced. A letter from the Russian provinces

Corruption has always been part of Russian life, and the Oryol region today just offers a rather extreme example, says Elena Godlevskaya. Some of the main perpetrators have been named, but the punishment being meted out to them is a joke.
Elena Godlevskaya
6 January 2010

In the 19th and early 20th century, Oryol was famous for being a city “that gave the world more Russian writers… than any other Russian city”. These writers include the author of this quotation Nikolai Leskov, as well as Ivan Turgenev, Ivan Bunin and Leonid Andreev. In the 1920s Oryol was one of the first cities in Russia to erect a statue to Lenin during his lifetime. In the 1970s the city was famous for inventing the “Oryol continuum”, a new technology for erecting multi-storey blocks that improved the living conditions of hundreds of thousands of people. 

Oryol region on the map

Today, however, Oryol is famous for being one of Russia’s most corrupt cities. This is not so much because of the number of its corruption cases, but because of the high profile of those suspected and accused. They are the heads of local administrative bodies and businesses that are financed by the Oblast and federal budgets. Law enforcement agencies have confirmed that Oryol government reformers often confuse the state budget with their own pockets.

Oryol gained its bad reputation towards the end of 2007, when a criminal case was opened against the local energy enterprise ‘Oryoloblenergo’, which had been selling shares at a price 13 times below the market price. The investigation was initiated by Communist party deputies from the regional legislature. It turned out that the shares were in the hands of a single private firm, ‘Oryol Industrial Company’, whose chairman of the board is still Igor Soshnikov, the former deputy regional governor of and head of the Regional State Property Board. ‘Oryoloblenergo’ also has plenty of top officials on its board: the heads of the regional departments of construction, housing and municipal policy and industrial policy and information are deputy chairmen, and the first deputy governor is the chairman. Deputies of the Regional Council were also indirectly involved in this dubious deal, as the first trading of shares at a reduced price went on in parallel to the meeting of the Regional Parliamentary Council. At this meeting, the regional leadership forced through a decision to transfer property worth tens of millions of rubles to the registered capital of ‘Oryoloblenergo’.

It’s not that similar deals didn’t take place in the past – the opposition press was filled with reports about the illegal sale of state property at bargain prices to private owners at the Interior Ministry, the General Prosecutor’s Office, the FSB, the Presidential administration and local law enforcement bodies. However, there was absolutely no reaction to these revelations. Everyone turned a blind eye. That’s all they could do: Oryol is ruled by the Honorary Chairman of the Russian Federation Council! They even claimed that the region was unique in its total lack of corruption. The situation only changed after the governor’s public approval rating dropped so low that new heads of law enforcement agencies came to the Oblast against the wishes of Yegor Stroyev.

Soon, the activities of practically all high-level figures in the regional administration were of interest to the law enforcement agencies. One after another, people who had been called reformers, in whom people had placed their hopes for the rebirth of the region, became first witnesses, then suspects and then accused. Large-scale fraud, acting ultra vires, abuse of powers and embezzlement were the main charges. Today, the head of the Regional Property Fund shares a cell with criminals, the former first deputy governor and the former head of the Regional Property Fund have given an undertaking not to leave town, as have the deputy mayor of Oryol and the former general director of the major state agricultural holding ‘Oryol Cornfields’.

The former head of the regional Federal Registration Service is already serving an eight-year sentence for abuse of power and fraud. A case has been filed against the chairman of the Committee for Agrarian Policy, Land Use and Ecology (a member of United Russia and owner of the agricultural holding ‘Maslovo’), charging him with using forged documents to expropriate 7.5 million rubles from the regional budget. Another case has been filed against a United Russia member of the Regional Council and head of the state institution responsible for government contracts charging him with unlawful diversion of budgetary funds.

The scheme for placing state property in private hands was developed over a number of years. More often than not, everything began with the highest body of executive power in the region, the Board of the Regional Administration, which would convert state property into the registered assets of various shareholding societies. Meanwhile, there was little real regulation of what public corporations did with the state-owned assets of the region. A company was either liquidated and its assets subsequently redistributed amongst private individuals, or state property, whose assets had been placed under the control of public corporations, was quickly distributed to private companies. Secret auctions were held, selling valuable property at gross discounts to members of the governor’s family, or persons or structures affiliated with him. Take, for example, the hotel complex Lesnoe near Oryol.  It ended up in private hands, although it had been built and furnished with money from the regional budget. It cost 18.5 million rubles to build, though many believe this is an underestimate, and was sold to the first deputy regional governor Vitaly Kochuev for just 600,000 rubles, i.e. almost 31 times cheaper.

Initially, the complex belonged to the ‘Oryol Agricultural Complex’, which was established by the regional administration. But as soon as Lesnoe was brought on stream, Vitaly Kochuev moved in with his family and took measures to transfer the complex into private ownership. With the aim of “improving the financial standing of the economic entities in the agricultural complex”, he signed a decree setting up a public company ‘Agrokombinat Invest’ with the regional administration holding 100% of the shares. The hotel complex was immediately handed over to the new enterprise, whose general director was the head of the Regional Property Fund, Vladeslav Dolud.  The chairman of its board was the deputy chairman of the Department for Property and Information Policy, Oleg Kozlov. The two officials who were supposed to be protecting the property interests of Oryol Oblast immediately founded an affiliated firm, another public company.  They acquired all the 18,500 undocumented shares of the company in return for the Lesnoe complex. After this, the deputy governor was able to buy Lesnoe at whatever price he wanted, even for a ruble, but he decided to pay 600,000 rubles, the price of one room in a communal apartment in Oryol. After the deal was made, the affiliated firm was liquidated. Oryol Agricultural Complex also went bankrupt. But Yegor Stroyev’s first deputy became very rich. This is how the “recovery of business entities” works Oryol style.

It is interesting that the launch of the criminal case connected with this illegal transfer of state property to private hands initially had no effect on the career of the official suspected of corruption. What’s more, the then regional governor, Yegor Stroyev, went against public opinion and common sense, and appointed Vitaly Kochuev the chairman of the regional anti-corruption committee!

This is just a small example of the widespread plundering of Oryol property. In their search for property belonging to the Regional Property Fund, the current deputies of the Regional Council have been examining privatisation documents going back three years and have discovered that literally none of them meet the requirements of the regional privatization law. The issue of abuse of official powers has also been raised in relation to the former governor, Yegor Stroyev. A deputy-level enquiry was sent to the general prosecutor of the Russian Federation, Yury Chaika in the summer, requesting an investigation into the privatisation of state property since 2004, in order to establish the identity of the current owners, (they are usually either relatives of the regional government, or structures affiliated to it). In this way it would be possible to prove the personal interest of officials in the privatisation of state property, and to return the property to the state if it had been illegally privatised. So far, however, there has been no response.

Of course, the lion’s share of state property has now been irrevocably lost, although it has been possible to retrieve part of it. The state holding in  Oryoloblenergo has been retrieved, along with some of the shares of the regional building company Oryolstroi, which somehow got into the hands of the family of former governor Yegor Stroyev. In April this year, the property complex and land of the nature park “Oryol Woodlands” was also retrieved, at a total cost of 35 million rubles. It turned out that the pond, jetty, pier, surrounding buildings, guard house and the so-called ranger’s house – an elite hotel with an area of around 700 sq.m. – had been re-registered with fake documents as private property. The people involved in this criminal case proved to be little known in Oryol, but few doubt that Yegor Stroyev himself was not somehow a part of i. The fact is that the park, which is near to the village where Stroyev was born, was founded in 1994 on his initiative, when he was the Chairman of the RF Federation Council. The “Oryol Woodlands” and the hotel complex in particular have always been seen as his residence. The luxury apartments, well-stocked pond and the hunter’s lodge with its animals have always been highly valued by visitors, and there have been many of them. The most famous include Boris Yeltsin, Vladimir Putin, Sergei Mironov and Dmitry Medvedev. It is unlikely that an ordinary mortal would dare to lay claim to the land and property of the park.

In May, 81% of shares in the public company ‘Mtsensk Agriculture’ were recovered. These had been taken out of the control of the regional administration by means of embezzlement, although the identity of the perpetrators has yet to be established. The agricultural enterprise was successful: in 2008 it produced and sold 2,864 tons of milk, 45,616 tons of grain from a harvest of 53 centners per hectare, and 18,234 tons of sugar beet.  The company’s bonds were discovered in the limited company ‘Agrofirma Russian Field’, 60% of which belonged to Yegor Stroyev’s daughter, Marina Rogacheva. The transfer of property had taken place in 2003-2005. ‘Russian Field’ had received a loan from the regional budget to acquire these shares, and after ‘Mtsensk Agriculture’ was transferred into private hands, the regional authorities continued to provide it with financial support. In 2007 state aid came to over 22 million rubles, and last year it came to over 21 million. Funds from both the federal and the regional budget were used.

Recently it was discovered that the privatization of the state holding in ‘Mtsensk Agriculture’ is once more on the cards. Members of the Regional Council realised this while studying the privatisation plan for 2010. The Regional Council anti-corruption committee will look into it. This is especially important, because the entire holding is valued at just 550 million rubles, while monitoring the price quotations shows that the share capital of ‘Mtsensk Agriculture’ comes to $48,560,400 .

Meanwhile, another corruption scandal has come to light in Oryol, perhaps the most sensational of all. It is linked with the completion of the international project (Russia-Germany), “Wheat-2000”, whose business plan was developed in 1997. It was believed that with advanced technology and the latest imported agricultural equipment, the harvest of winter wheat in the region could be raised to 40 centners per hectare for 100,000 hectares. The profitability of this venture was estimated at 187%. Everything was made to look so wonderful that the project received support at a national level from the Russian government and the Ministry of Agriculture and Production. Under guarantee from the Russian government, a $120 million loan was obtained from Deutsche Bank. The German firm ‘Debis’ (a subsidiary of Daimler Chrysler) provided the technology and equipment. The regional management of the project was entrusted to a local agricultural equipment company, 77.68% of whose shares belonged to the Regional Property Fund in September 1999.


There’s a story that describes how the famous Russian general, Alexander Suvorov, tasted his soldiers’ kasha, and was surprised to find that there was no butter in it, because he knew for a fact that the army had butter. In response, one of the commanders put the soldiers in a line, gave one of them a piece of ice and ordered him to pass it down the line. The melting ice disappeared in the hands of one of the soldiers before it reached the end.

 “That’s the way it is with butter,” the commander said to Suvorov. “Before it reaches the kasha it vanishes into people’s hands”.

This is an illustration of what happened to the German loan in Oryol. The Germans kept their word. They provided everything they promised – money and advanced technology.  But instead of new grain harvesting equipment, luxurious white Mercedes cars began to appear on the city streets. Officials were paid enormous bonuses and the miracle equipment began to disappear. As a result, the 187% profitability only exists in numerous dissertations. As local journalists recall, Yegor Stroyev placated people who questioned the use of the loan, saying “We’ll settle accounts with burnt offerings in the next world”.

The accounts cannot be settled with burnt offerings. The new regional government has been presented with a debt of 4.2 billion rubles – almost a third of the regional budget. Realising that this will bankrupt the region, creditors agreed to restructure the debt over a thirty-year period. This means our children, and even our grandchildren, will pay for this corruption.

The regional FSB has launched a criminal case in connection with “Wheat-2000”. Thus far the investigators have only named one suspect – the head of the local agricultural equipment company, Alexander Vorobyov. The investigators believe that he “signed agreements he knew to be loss-making for the transfer of purchased imported agricultural equipment to an affiliated firm for storage with the right of use.” But everyone understands that the head of the company in this case is a scapegoat. He could not have done anything without permission or even outright direction from regional government. The person in charge - the former governor, Yegor Stroyev, who ruled the region in an authoritarian style for around a quarter of a century – remains untouchable. After his dismissal in February this year, he was sent, not without pressure from Moscow, to the Russian Federation Council to represent the Regional Administration Board.

The new governor Alexander Kozlov had a simple explanation for this decision that came as a surprise to everyone: “There is the President, and there is the Russian government which makes these decisions. Stroyev is the only person in Russia who has been decorated four times “For services to the homeland”. He is an honorary citizen of the region, and Honorary Chairman of the Russian Federation Council. We have agreed that he would no longer intervene in Oryol affairs, and he should give back to the region what he gave away, regardless of whom he gave it to. It would take me an hour to list the companies whose shares he should give back and I don’t have enough fingers to count them on. It’s easier for me to force the whole group to return everything while he is at the Federation Council, and not somewhere else or retired”.

What can one add to this? One is reminded of Catherine the Great’s favourite, the all-powerful Prince Grigory Potyomkin. In a fit of rage, he gave a colonel who had displeased him a slap in the face. A foreign guest of the prince was shocked by this scene.

“What can you do with them,” shrugged Potyomkin, “if they put up with everything…?”

Elena Godlevskaya is journalist and human rights activist based in Oryol

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