“Everything is settled”. Business of Chelyabinsk Governor grows at the budget expense
Boris Dubrovsky, the Governor of the Chelyabinsk Region, has created a small business empire making money on governmental contracts. Upon conquering the profitable construction market, the Governor’s companies are currently seizing the waste management market. Enterprises belonging to Aleksander Dubrovsky, son of the regional head, are also thriving on the regional budget. In response to all inquiries about the obvious conflict of interest, the official representative of Dubrovsky says: “The Presidential Executive Office has been notified of this, there are no complaints”. What is the real income of the Governor’s family?
In the end of May, the Russian Governors have promulgated their income and asset declarations. Boris Dubrovsky, Governor of the Chelyabinsk Region, was among the three richest regional heads. In 2016, he has earned 73.7 million rubles ($1.3 million). But even this impressive sum does not reflect the true income of the businessman–Governor. Companies belonging to Dubrovsky capitalize on his closeness to the budget funds and make enormous money on this.
For instance, on May 17, Irina Gladkova, Minister of Environment of the Chelyabinsk Region, has signed an agreement with Center of Communal Services (CCS) Limited Liability Company. This legal entity was the sole bidder on the governmental tender carried out to select an operator to manage residential solid waste on the territory of the Magnitogorsk Cluster. CCS has won the tender, thus, acquiring the right to make money on waste management for 10 years. “The agreement includes many clauses; the regional operator shall be responsible for the entire processing chain, from the waste arrival to the garbage pick-up site and until the extraction of all useful fractions from it and dumping of the remains on the landfill polygon,” – Gladkova said.
Oleg Danilov, the General Director of CCS Limited Liability Company, has signed the agreement with the Ministry of Environment.. Interestingly, he has noted from the very beginning that his company with the staff slightly over one hundred employees won’t process the waste itself. It will retain subcontractors. “We are now going to launch a contracting campaign to identify other business entities specializing in this sphere and sign agreements with those,” – Danilov said. But why none of these subcontractors specializing in waste management had applied for the profitable tender? And why did the Ministry of Environment sign an agreement with an intermediary that does not intend to perform the works?
Oleg Danilov, the General Director of CCS Limited Liability Company, and Irina Gladkova, the Minister of Environment of the Chelyabinsk Region
The ownership structure of CCS Limited Liability Company provides answers to the above questions. The company has two founders: 50% of its shares belong to Sinai Limited Liability Company, while the other 50% belong to Novatek Limited Liability Company.
The sole proprietor of Sinai Limited Liability Company is Boris Dubrovsky, Governor of the Chelyabinsk Region.
Novatek Limited Liability Company belongs 100% to Governor’s son Aleksander Dubrovsky.
Comment is needless. It is not surprising that the company belonging to the Governor’s family was the sole bidder and winner of the profitable tender and that it does not make a secret that it is not going to dirty hands by waste treatment. The company–winner has a totally different ‘mission’: ‘use’ the budget funds. CCS Limited Liability Company was created with this sole purpose. It was established in spring 2015 – six month after the official appointment of Acting Head of the Chelyabinsk Region Boris Dubrovsky the Governor. After settling into the new job and reviewing the financial flows, Dubrovsky has founded a company to ‘use’ budget funds allocated for waste management.
In 2015, this novice player on the ‘waste market’ has got three governmental contracts for domestic waste removal. In 2016, CCS Limited Liability Company has won 15 contracts for the total amount of 3.2 million rubles ($56.6 thousand). Since the beginning of 2017, the Governor’s company has won 9 tenders for the total amount of 1.3 million rubles ($23 thousand). The total revenue of CCS Limited Liability Company for the year of 2015 was 13.3 million rubles ($235.4 thousand); its profit was 2.6 million rubles ($46 thousand). The company hasn’t published its financial reports for the year of 2016 yet.
Sinai construction holding belonging personally to the Governor is also a very skilled ‘user’ of budget funds. For example, in March 2016, the South-Urals Residential Housing and Mortgage Corporation (SU RHMC) has signed a contract with the Governor’s company to design four high-rise buildings in the 50th neighborhood of Chelyabinsk. In November 2016, the Ministry of Construction and Infrastructure of the Chelyabinsk Region has retained it to design four schools.
According to SPARK-Interfax database, the total amount of governmental contracts won by Sinai in 2016 is 318 million rubles ($5.6 million) – almost 5 times more than in 2015 (68.7 million rubles – $1.2 million). The main clients of Sinai in 2016 were the Department for Capital Construction of the City of Troitsk of the Chelyabinsk Region and Ministry of Construction and Infrastructure of the Chelyabinsk Region. In February 2017, Sinai has got the right to lease a large (22.2 thousand square meters) lot in Chelyabinsk. The Governor’s company managed to lease the lot at its starting price of 10.1 million rubles ($178.8 thousand) – because none of other developers had applied for the tender.
Another Governor’s structure, Chelyabstroykomplekt Limited Liability Company, also brings its owner steadily growing revenues.
In December 2014, only a month after the incorporation, the newly-established Governor’s company has signed its first governmental contract with the Department for Capital Construction of the Administration of the City of Troitsk of the Chelyabinsk Region for the total amount of 109.3 million rubles ($1.9 million) to build a kindergarten. According to SPARK-Interfax database, the total amount of governmental contracts awarded to Chelyabstroykomplekt in 2016 is 592 million rubles ($10.5 million) – more than twice as much as in 2015 (280 million rubles – $5 million). In 2016, a major portion of that amount (320.4 million rubles – $5.7 million) was paid to Chelyabstroykomplekt for construction of residential buildings in the framework of the resettlement program for people living in dilapidated housing. 201 million rubles ($3.6 million) were paid to the Governor’s company for the construction of a rural school. 6.4 million rubles ($113.3 thousand) were received by Chelyabstroykomplekt from Gorelektroset Magnitogorsk Municipal Enterprise for building and assembly works.
In 2017, two Governor’s companies – Sinai and Chelyabstroykomplekt – have already won governmental contracts for 907 million rubles ($16.1 million), which is 500 million rubles ($8.9 million) more than in 2015 (350 million rubles – $6.2 million). The growth is truly impressive.
Other enterprises belonging to Boris Dubrovsky – two limited liability companies with the same name Peschano-Graviyny Kar’er (Sand and Gravel Pit) in Kvartsitny township of the Troitsk district of the Chelyabinsk region, Energiya (Energy) Bobrovsky Reinforced Concrete Structures Plant Limited Liability Company, Galereya Kamnya (Stone Gallery) Limited Liability Company, Vista Closed Joint Stock Company, and Formula Chistoty (Cleanness Formula) Limited Liability Company – also make good money on governmental contracts and generate a steady revenue, mostly omitted in official declarations, for their owner.
For instance, in June 2015, Energiya Bobrovsky Reinforced Concrete Structures Plant Limited Liability Company had signed two governmental contracts - contract № 1, contract № 2 - with the Department of Municipal Property of the Troitsk Administration for the total of 12 million rubles ($212.4 thousand).
Interestingly, Dubrovsky has become the owner of the majority of his companies only two days after his appointment the Acting Governor of the Chelyabinsk Region by Russian President Vladimir Putin. On January 17, 2014, he has acquired 100% of shares in Sinai Limited Liability Company (Tax Reference Number 7444055692), 100% of shares in Peschano-Graviyny Kar’er Limited Liability Company (Tax Reference Number 7418019867), 100% of shares in Novatek Limited Liability Company (Tax Reference Number 7444050920) that currently belongs to his son, 50% of shares in Formula Chistoty Limited Liability Company (Tax Reference Number 7445042978), and 75% of shares in Galereya Kamnya Limited Liability Company (Tax Reference Number 7456012037). Two months after becoming the Governor officially, Dubrovsky has founded two more organizations: Chelyabstroykomplekt Limited Liability Company (Tax Reference Number 7424032834), and Energiya Bobrovsky Reinforced Concrete Structures Plant Limited Liability Company (Tax Reference Number 7424032841). Why was the Governor of the Chelyabinsk Region so confident that these companies would be profitable? The answer becomes obvious after reviewing the history of their ‘usage’ of budget funds.
The 34-year-old son of Dubrovsky is also gradually expanding the family business that has emerged after the election of Boris Dubrovsky the Governor of the Chelyabinsk Region.
In the end of November 2016, Novatek Limited Liability Company belonging to Aleksander Dubrovsky has established a subsidiary company – Consolidated Processing and Cash Handling Center Limited Liability Company. The legal address of the new entity matches that of the parent company: entrance 1, building 1, 118 Lenina Avenue, Magnitogorsk, Chelyabinsk region.
Another legal entity – Zhilkomservis (ZhKS) Management Company (76% of its shares belong to the Governor’s son, while 24% belong to Novatek) – has the same legal address as well. Above-mentioned Oleg Danilov, General Director of CCS Limited Liability Company, is also the Director of Zhilkomservis.
In May, the Governor’s son has registered one more limited liability company with the same name – ZhKS; he owns 76% of shares in it. The first namesake company specializes in real estate management, while the second one manages residential properties. Ubiquitous Danilov became the Director of the twin company as well.
Aleksander Dubrovsky also owns Galereya Dizaina (Design Gallery) Limited Liability Company and Prompostavka Limited Liability Company.
Last year, the father has transferred to the son another family venture – Sanarsky Granit Limited Liability Company – earlier belonging 100% to Boris Dubrovsky.
Companies belonging to Dubrovsky junior also participate in governmental tenders on a regular basis and win profitable contracts. No doubt that the head of the region is interested in their success.
Paragraph 3 of part 1 of Article 17 of the Federal Law #79 of July 27, 2004 “On the Civil Service in the Russian Federation” prohibits civil servants from running business activities, either personally or through authorized representatives, and participate in the management of economic entities. Otherwise the civil servant is subject to dismissal from office due to loss of trust. Residents of the Chelyabinsk region had repeatedly tried to draw the attention of watchdog authorities to this obvious conflict of interest, but could not get a meaningful answer so far. Dmitry Fedechkin, Press Secretary of the Governor of the Chelyabinsk Region, has commented the situation as follows: “All the requirements of the Federal Law are complied with for our part. The Presidential Executive Office has been notified of this, there are no complaints”.