Vladimir Yakunin - The Treacherous Path - An Insider's Account of Modern Russia

A company called AOOT Kompaniya Ust-Luga (‘JSC Ust-Luga’) was created to begin work in building the port, though initially there was no private investment. Five years later, in 1998, I was called upon to investigate what kind of progress had been made in accordance with Yeltsin’s decree. I found nothing. Millions of roubles – some from the state, some from private entrepreneurs, some in the form of a loan from the World Bank – had disappeared into the projects; all they had to show for it were some nicely wrapped plans. We stood there, looking in disbelief at the empty expanse of bleak earth where a port should have been. There was only a single terminal at Ust-Luga, and little more. Worse still, the sea around it was infested with lethal mines that were left over from the Great Patriotic War. What had happened was not criminal as such (for the kind of gangster who wanted to earn as much as he could, as fast as he could, the margins involved and the amount of work it would have needed were too small to be of interest), but something had plainly gone wrong. Once my auditors had provided me with more information, I moved quickly to try and establish what exactly had happened. It became clear that the company had experienced profound, unanticipated difficulties in attracting capital investment, and that the project had been hobbled both by jurisdictional feuding between competing regional authorities and poor management, as well as the fact that there were few if any people around who had experience of large infrastructure projects. Who was to blame, and how could the situation be resolved?

Traditionally, we would assemble everyone involved around a table and then they could elaborate on the shortcomings and problems associated with their respective areas of responsibility. The problem was that there was no sign of Valery Serdyukov, the deputy governor of Leningrad Oblast, who in theory was responsible for ensuring that the decree was fulfilled. After five minutes I called his office to ask where he had got to. They told me that he was busy somewhere in a very distant district of this vast region, which covered an area roughly the size of France.

Just before I slammed the telephone down, I very calmly informed his secretary that unless Mr Serdyukov appeared before me by 7 p.m. that day, I would be waiting for him the following morning with his letter of resignation, all ready to be delivered to the administration of the President. Within five minutes, a very friendly-sounding Serdyukov called me from God knows where, trying to explain why it had been so important for him to travel to the middle of nowhere that day. I was as calm as I had been earlier with his secretary, and simply told him that I understood his position, but that there was a procedure that needed to be adhered to. I finished by reminding him that I would be waiting until seven; I did not need to say any more.

Which made it all the more surprising when, the following year, 1999, Serdyukov was elected as the governor of the region, and almost the first thing he did was to call and inform me that he had a proposal to put to me. He told me how the pressure to oversee the development of the ports sat heavily on his shoulders, and he needed desperately to find someone else to share the load. Would I be interested in becoming chairman of the board of JSC Ust-Luga? I thought it was an absolutely crazy idea, and wasted no time in telling him so. As much as anything else, I pointed out, as a civil servant I could not become embroiled in running a business venture.

But he would not take no for an answer. I wonder now whether he was invoking the Russian tradition that the man who initiates an idea should also be the man to implement it – had I been less vocal in my assessment of Ust-Luga, perhaps everything would have been different. Serdyukov pushed and pushed until finally I told him that if he wanted a definitive response, he should speak to Alexander Voloshin, who at the time was the head of the presidential administration. Whatever Mr Voloshin ordered me to do, I said to Serdyukov, I would obey immediately. Five days later, I received a telegram signed by Mr Voloshin. It stated that the administration had agreed to nominate me to be the chairman of the board of the Ust-Luga company. My fate was sealed.

I would be working, I was informed, with Mr Serdyukov himself (who would go on to become a brilliant advocate for the port projects at Ust-Luga and Primorsk, with which I would also come to be involved; and a staunch supporter of our board’s plans at both local and federal levels), Lyubov Sovershayeva, his deputy, as well as Valery Izrailit, the entrepreneur who had acquired the rights to develop the project. He had been given them as collateral by the entrepreneur who had originally held them – Ilya Baskin, who had had a somewhat chequered business career – and when the loan defaulted, he was keen to make the most of what he had been left with. (When I think back on it, it seems insane that such a massive endeavour could have rested on such a flimsy legal basis: no documents, no notarised contracts; just a conversation between two men. But that is how things were done at the time. If you could not live with that uncertainty, you would never be able to achieve anything.)

The combined efforts of the board, in addition to the support provided by the then Minister of Transport Sergei Frank and his successor Igor Levitin, created an environment in which a unique construction plan could emerge, one which marked a decisive shift in the conception and direction of the project. What we were doing, without knowing anything of the theory, was developing what is now probably one of the best examples of PPP (public–private partnership) in infrastructure in the world.

Ultimately, the arrangement, in which the Ministry of Transport, the Ministry of Railways, local government and our own company were all involved, was an acknowledgement of the fact that in a country facing as many fundamental economic, political and social problems as Russia was at the time, a new path, one which was neither purely private nor public, but a collaboration between the two, was necessary if anything on this scale was to be achieved. Whatever the attempts by the liberal reformers to demonstrate otherwise, the state still had a fundamental role to play in the infrastructure projects that were needed to help drag Russia back up onto its feet.

Usually, newly formed companies follow a fairly well-established path: the board of directors is responsible for the creation of a strategic plan, which is then submitted for the approval of the shareholders, and then handed down to management for implementation and execution. They generally meet twice a year, four times in some cases. But for us it was different. After all, the reality we faced admitted little room for the accepted Western rules of corporate governance. Our shareholders were both private individuals and the state – a situation unfamiliar to us all. We had to seek approval from the Ministry of Transport, and from the moment our plans were accepted we were meeting constantly. We worked like hell because we knew how complex the project was, how profound some of the challenges facing us were, how many interested parties there were, and how many obstacles were likely to be thrown into our path by people anxious to impede its progress. It seemed like every day a new problem would emerge and we’d have to deal with it as quickly as we could. Some of the land we need is owned by the Ministry of Defence? OK, get them on the phone and let’s talk. There’s a disagreement between the regional and federal governments about who the new infrastructure we were building should belong to? Fine, we need to draw up new legislation to cover the ownership. Day after day. It was relentless. In fact, we worked so hard that I became possessed, and found it almost impossible to switch off when I got home. Sometimes, my wife would have to say to me: ‘Listen, hello there , you are not at the office. Please calm down, take a rest.’