Just under a week ago, Putin reprimanded the government and ordered suburban commuter trains to be restored immediately. That same day, the Accounts Chamber (Russia’s state audit office) published this remarkable press release on its website, which went unnoticed amid Putin’s rebuke.
At the Anti-Corruption Foundation, we obviously couldn’t ignore an audit like this. We very much wanted to get hold of the results, and with the help of Dmitry Gudkov, we managed to do so—many thanks to him for that. There’s a lot of interesting material in there, and we’ll definitely be writing about it. But for now, let me tell you about a rather sensational discovery.
Remember in my primer on commuter trains I wrote about the preferential 0.01 coefficient for leasing infrastructure from Russian Railways (RZD)? Until 2015, suburban passenger companies paid only 1%, while the remaining 99% was reimbursed from the federal budget.
Here is the government decree once again:
Take a look at the heading of this decree. This exceptional rate—a 99% discount—applies only to companies whose prices are regulated by the state.
The compensation is specifically intended to cover so-called “lost income”—the difference between the economically justified price and the price the passenger actually pays for a ticket. In other words, the state sets what it considers an affordable fare for the public and reimburses the difference.
A specific list of services is subject to state regulation, including suburban commuter rail passenger service. The specific companies covered by state regulation can be found on the website of the Federal Tariff Service, in the regional listings. For example, here are the carriers whose fares are regulated in Moscow:
Returning to the Accounts Chamber audit, here is the excellent summary table they provide. For each suburban rail company, it shows how much they spent on leasing infrastructure from RZD and how much they were reimbursed from the federal budget.
And who do we see there in the very last line? What an unexpected encounter—Aeroexpress! A company controlled by the former wife of transport chief Liksutov, his friend, and his former business partners from Transmashholding.
Aeroexpress is NOT on the list of natural monopolies, and its fares are NOT regulated by anyone other than Estonian citizen Tatyana Liksutova and the other shareholders. By definition, Aeroexpress cannot receive any compensation from the federal budget. This is completely illegal.
Aeroexpress is an entirely commercial operation, with private owners and a one-way fare of 400–450 rubles (roughly $4–$5 at recent exchange rates). It’s easy—and very telling—to compare Aeroexpress prices with those of a regulated suburban passenger company.
And here is a comparison between the regular commuter train to Domodedovo Airport and the Aeroexpress. They even use the same departure and arrival platforms.
The Aeroexpress fare is almost five times higher than the fare for an ordinary commuter train going to the exact same place, with a price regulated by the state.
Over 2 years and 3 months, 1.5 billion rubles (about $15–$20 million at recent exchange rates) in infrastructure costs were illegally reimbursed to Aeroexpress, a company inextricably linked to Moscow Deputy Mayor Maxim Liksutov.
Let’s refresh our memory on Aeroexpress’s ownership structure. Until June 20, 2013, Liksutov owned about 25% of the company. Then that stake was transferred to his wife, whom he divorced 6 days later.
Now let’s take a look at how Aeroexpress itself is doing—maybe it really is barely scraping by.
The company is not only operating with a substantial net profit, it is also paying dividends to shareholders. Here are all the figures gathered in one place for clarity:
So in effect, the whole notion of entrepreneurship disappears. The amount reimbursed for infrastructure lease losses almost exactly matches the company’s net profit.
Let’s go over the main point once again. The private company Aeroexpress receives a state subsidy. Instead of paying the full lease rate, it pays a preferential rate, and the difference is covered by the federal budget. The company saves around 1.5 billion rubles over 2.5 years this way. That same 1.5 billion rubles then appears as its net profit over the same period, and it pays itself dividends out of that profit.
For years, all kinds of Liksutov fans kept telling everyone about his wonderful efficiency and business talent, about how he had “built a profitable business.” As is so often the case with entrepreneurs operating close to the state, all that efficiency rested on a hidden government subsidy.
I hate to disappoint those reading this post from outside Moscow or the surrounding region, who have never even seen an Aeroexpress train and don’t ride commuter trains. The subsidy is paid from the federal budget—which means the dividends to Aeroexpress shareholders are being paid by all taxpayers.
As for Liksutov himself, the issue of subsidizing Aeroexpress is obviously a sensitive one for him. In a literally two-minute segment of Liksutov’s interview on Echo of Moscow, he said five times (!) that Aeroexpress had not received “a single kopeck from the city budget.”
The art of phrasing. True, Aeroexpress did not receive city funds—but it did receive 1.5 billion in federal funds.
The Accounts Chamber shares our objections to the federal-budget subsidizing of Aeroexpress.
There are two ways out of this unpleasant situation:
Aeroexpress repays the amount of the subsidy, plus interest for the use of those funds, to the federal budget and stops receiving the preferential treatment immediately.
Aeroexpress repays the amount of the subsidy, plus interest for the use of those funds, to the federal budget, recognizes itself as subject to state regulation, formally signs on to the preferential regime, and we all start riding to the airport for 95 rubles instead of 450.
There is no doubt that the illegally paid 1.5 billion-ruble subsidy must be repaid, and we have informed President Putin and the Prosecutor General’s Office accordingly.
One and a half billion rubles would be enough to fully cover several regions’ “debts” to suburban passenger companies and restore commuter rail service without delay. An anti-crisis solution from the Anti-Corruption Foundation.
We believe the Accounts Chamber’s report on Russian Railways is of great importance to the public, so we are making it publicly available. Download it and take a look. Journalists in particular should pay attention—there is a lot of interesting material in it.