No crossties, no rails, no money

In March, Abkhazia should start paying off to Russia its debt on credit, that it took seven years ago for railway rehabilitation.

RUB263million [about US$3.700.000] have been envisaged in Abkhazia’s 2016 budget for covering part of the “railway debt. The entire credit makes RUB 2 billion [about 28.400.000] and the whole story of getting this credit is rather scandalous.

In 2009, soon after then-President of Abkhazia, Sergey Bagapsh, suggested taking a credit from Russia to repair the railway, which, in his words, would be further settled by the “crushed stone business, the public and independent media questioned the appropriateness of such a step.

Anton Krivenyuk, an Abkhaz journalist, was imposed a 2-year conditional sentence for ‘defamation and insult of honor and dignity of the President of Abkhazia, Sergey Bagapsh, following publication of his article ‘Big Abkhaz Scam: railway-credit-crushed stone’ (http://www.segodnia.ru/content/17639), in which he described the deal as a ‘big scam’.

From Anton Krivenyuk’s article:

The Abkhaz government, in turn, transfers this money to the Russian Railway state monopoly to finance restoration of the railway in Abkhazia. Also, the Abkhaz Railway is transferred under the management of the Russian Railway for a ten-year period. This very scheme raises many questions, but now we go on.

‘The statements that the Abkhaz railway requires rehabilitation immediately raise questions about that entire scheme… [In 2008] Russian railway troops command reported … that the rehabilitation works had been fully completed and the road was ready for full-fledged operation. Thus, it turns out that the railway, along its entire length in Abkhazia, is serviceable. So, the idea that the credit is required to rehabilitate the already rehabilitated railroad, is very doubtful.’

‘The Russian side provides credit to Abkhazia, but the Abkhaz side transfers the money to the RR [Russian Railways]. Thus, the credit is actually hung on Abkhazia, but the funds for the repair works are consumed by the Russian Railways … The credit sum is almost equal to the republic’s annual budget. ‘

‘In fact, the Russian government provides credit to the Russian monopoly and Abkhazia assumes an obligation to pay it off. Afterwards, the Abkhaz authorities, who’ve saddled themselves with a huge credit, transfer the Abkhaz railway to the Russian Railways management for the period of ten years. It is absolutely unclear, what Abkhazia is going to get as a result of such a transaction apart from that debt, and whose pockets this money will actually flow into.’

‘The Abkhaz leadership claims, that a credit to Russia will be paid off by the business that will be exporting inert materials to Russia for the Olympic construction projects. It is hard to imagine how all that will happen in practice. Why should the state debt concern the private business, especially as it is not related to its activity? It’s equally the same as to offer a cargo sender to pay, in addition to the transport costs, for construction of a road, on which his cargo will be transported… Maybe export of inert materials will bring profit to the treasury in the form of taxes and deductions? No, it won’t. According to the Abkhaz legislation, there are tax allowances for foreign companies making over US$250 thousand investments in any form of tangible assets in the economy of Abkhazia. In case of over US$1million investment, a company is exempt from almost all taxes for the period of three years. To put it shortly, during the entire pre-Olympic construction period in Sochi, the companies exporting inert materials from Abkhazia will not pay any taxes. Whereas after the Olympics, it is less likely that anyone will need Abkhaz crashed stone. It means that the Olympic construction, on which Abkhazia has been pinning so much hopes, will bring the country just a pocket change.’

‘Let’s look at the outcome of this scam. Abkhazia gets ‘at its disposal’ a debt amounting to RUB 2 billion. Moreover, all the money will flow in an unknown direction, since the credit was initially taken under fake rehabilitation of the already restored railway. The railway, itself, will go under the Russian Railways management for a ten-year period, while the country will not get a single penny due to frenzied economic activity ahead of the Olympic Games … What we have here is a scheme of money laundering to the extent that is enormous for Abkhazia, with the involvement of the republic’s government. ‘

The credit case became even more scandalous, when it turned out that in 2011, one of the Russian banks received from Abkhaz parliament a forged certificate, under which the credit transaction had been allegedly approved by the National Assembly (though the documents had not even been submitted to the Parliament for consideration).

In 2012, on the parliamentary commission’s request, the Abkhaz Prosecutor General’s Office probed into the circumstances of the case, but ‘found no signs of crime’, though they were quite obvious. Later, former Vice-Premier and Finance Minister, Beslan Kubrava, justified, as he termed them, ‘procedural violations’ by the economic expediency of the assumed credit.

However, the claims for the credit issuance procedure were just the beginning. What really turned out to be scandalous was the quality of performed works. An acceptance act of the repair works, executed by the Russian Railways, was not signed due to numerous shortcomings even during Alexander Ankvab’s presidency.

Later, when meeting Russian President, Vladimir Putin in privy, he appealed to the latter with the request to write off Abkhazia’s debt due to big problems with its repayment. Putin promised to take a thought. He took a thought and did not write off the debt.

Now, as the new President of Abkhazia, Raul Khajimba, made similar request, the Russian leader verbally promised to nullify the debt. However, no official documents in this regard have been made public yet

• Under the intergovernmental agreements, Abkhazia has to pay off the credit, released under 2.5 percent annual interest rate, by 2019.

The opinions, expressed in this article convey the author’s views and terminology do not necessarily reflect the views or opinions of the editorial staff.