Op-ed: Why are state corporations in Russia building new offices at exorbitant sums?

$1 billion will be spent on the new office building of state-owned company Russian Railways.

This, however, is only a preliminary amount, writes Russian newspaper Vedomosti.

To illustrate this anomaly, this amount of money is similar to what the largest and richest companies in the world such as Apple and Google generally spend on their facilities.

Four other Russian state giants, Roscosmos, Rostec, Gazprom and Rosneft, announced plans to build new headquarters as well.

“Russian state capitalism has a thirst for housewarmings,” writes the Russian online publication Republic.

Why such huge expenses in a period of great difficulties in the Russian economy?

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Scale

The size of ​​the new Russian Railways headquarters will be 450,000 square metres.

Rosneft’s new headquarters will be housed on 200,000 square metres – with helipads, and in the most prestigious district of Moscow.

[su_pullquote align=”right”]Western sanctions operate mainly against state-owned companies, and transferring them into private hands will help avoid these sanctions[/su_pullquote]

Roscosmos will have its new headquarters in a 250,000 square metre building – it will be designed in the shape of a space rocket.

Rostec will be housed in a building of 260,000 square metres. Another 60,000 metres of apartment buildings are planned where the employees of the state-owned company will live, in addition to hotels for guests.

Sberbank, Russia’s main bank, wants to acquire a building 300,000 square metres in size.

Gazprom, meanwhile, will get an 87-floor building with a 118-metre spire. The building will consist of 400,000 square metres in total, and will cost about $2.5 billion.

The other companies will spend at least a billion dollars each on their new offices.

Why such luxury in a time of hardship?

These office building budgets are amongst some of the largest in the world.

But the economic performance of Gazprom, Rosneft, Roskosmos and others in recent years leaves much to be desired:

• Revenues are falling

• Debts are growing

• Capitalization is falling

• The number of corruption scandals is growing.

• An increasing number of state-owned Russian companies are subject to Western sanctions in connection with interference in the US elections or the occupation of the Crimea.

Why then are these luxurious projects being launched?

A strategic plan

The answer to this question can be found in the speech of the representatives of Russia at the last economic forum in Davos.

They reported that the government is preparing for the privatization of state-owned companies, which will be held behind closed doors and without the participation of foreigners.

The goal of this plan is obvious, many Russian and Western publications write: western sanctions operate mainly against state-owned companies. Accordingly, their transfer to private hands will help the companies avoid sanctions.

Under these circumstances, the construction of insanely expensive new headquarters can be seen as an almost logical step.

Firstly, it is necessary to urgently transfer as much budget funds as possible into the companies being privatized.

Secondly, there is little doubt that businessmen from Putin’s circle — that is, people who, thanks to being close to the Russian president, have become billionaires — will bid for these construction projects.

For reference: in the past two years alone, in the midst of an acute economic crisis, the number of dollar billionaires in Russia has increased from 77 to 106 people.