Friday, October 18, 2013

Window on Eurasia: Russia’s ‘Road to Nowhere’: Highway Spending Cut Because Corruption Out of Control

Paul Goble

            Staunton, October 18 – The Russian government has severely reduced the size of its planned expenditures for new highways, a move that will put off still further the day when that country will have the road network it needs for economic development but one that was apparently driven in the first instance by Moscow’s inability to control corruption in that branch.

            A year ago, Prime Minister Dmitry Medvedev presented a highway spending program for 2013 to 2020 costing 7.3 trillion rubles (260 billion US dollars), but even before doing that, he complained that there were serious problems in the branch because the costs of building a kilometer of highway varied by as much as a factor of 17.

            Now, Denis Terentyev reports in this week’s “Argumenty Nedeli,” the government has sequestered much of this money, not so much because of budgetary shortfalls as because Moscow has been totally “incapable of dealing with corruption which eats up the lion’s share” of such funds (

            Terentyev, who entitled his article “The Road to Nowhere,” provides a detailed discussion of a corruption case in Veliky Novgorod which involved senior officials, businessmen and crime bosses and resulted in the jailing of Vice Governor Arnold Shalmuyev.  But he suggests that as bad as this case is, it “can’t be excluded that it is [only] the tip of the iceberg.”

            Someone involved in the road business there, who spoke anonymously, said that “no one can win a major contract without protectors and without kickbacks.” These start at a minimum of 20 percent of the contract’s total price. Then the contractor takes 20 percent for himself.  Only 60 percent is available for the actual work. 

            Moreover, he and others there say that profits can be even greater because there are all kinds of ways to do shoddy work but get paid by the government for what is supposed to be first-class production. One way is to reduce the thickness of the paving or the compacted ground under it; another is not to use real asphalt or special sand but simply painted stone.

            These devices, the contractors say, allow them to take as much as another 30 percent of the contract totals illegitimately but with little chance that they will be challenged, especially if the kickbacks continue to go to officials.  And if the roads fail, the contractors know they can make even more money “repaving” them in the same way.

            According to Terentyev, those in the business joke that “in Russia, there are two misfortunes; and one of them spends its time repairing the other.” He adds that there is no doubt that government economists understand that “given such an organization of work, there will never be good roads in Russia,” whatever amount of money the regime allocates.

            A recognition of this fact lies behind Moscow’s decision to cut both the program announced by Medvedev and the specific budget items for road building that President Vladimir Putin announced with such fanfare in his message to the Federal Assembly.  Even in Moscow, the authorities are cutting back on spending for streets and highways.

            These cutbacks, however, mean that Russia will make little progress anytime soon in building the kind of road system that will tie the country together and make economic and political progress possible. At present, according to Rosstat, 12 million Russians spend at least part of the year in places where no roads connect them to the national grid.

            There are a few good roads in Russia, Terentyev says. In Yekaterinburg, for example, contractors have been required to assume responsibility for repairs when they receive their initial grant.  That means they have an interest in making the roads as good and long-lasting as possible rather than the reverse.

            But in most of the country, such arrangements are unheard of, and according to Terentyev, “the federal authorities for some reason or another are afraid to impose new rules of the game.”  Too many of those in power and close to it are pocketing too much money by building Russia’s version of “the road to nowhere.”

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