A Disputed Building With a Big-Name Past

MTA building on Ulitsa Nakhimova on St. Petersburg's Vasilyevsky Island that Putin gave to Avtobaltservis in the 1990s.
As a campaign by President Dmitry Medvedev and Prime Minister Vladimir Putin against "legal nihilism" gathers steam, a seemingly mundane property dispute involving a business deal from both leaders' pasts could prove an interesting test case.

The deal is now stuck in a legal thicket, despite the fact that Medvedev and Putin signed off on the agreement with the St. Petersburg city government in the early 1990s.

The case which saw private security guards barricade the building this week highlights the continuing perils of negotiating the country's often-arbitrary legal system and the struggle Medvedev and Putin face in ironing out the problems.

The foreign investor caught in the middle of the dispute, Swedish firm Arne Larsson & Partners, declined to comment for this article. But a source familiar with the situation said an appeal would be sent to Medvedev to make good on the contract he worked on almost 17 years ago.

At the center of the dispute is a prime, 7,000-square-meter plot of land on St. Petersburg's Vasilyevsky Island that Putin himself handed over to a joint venture between the municipal government and the Swedish firm to use indefinitely, according to documents obtained by The Moscow Times.

Putin, then-chairman of St. Petersburg's foreign economic committee, and Medvedev, an up-and-coming lawyer at the time, signed papers setting up the joint venture, Avtobaltservis, in 1991, according to a copy of the agreement provided by Avtobaltservis. The company, one of the first companies with foreign ownership to be created in St. Petersburg after the Soviet collapse, sells and services foreign and locally made cars. Over the intervening years, the Swedish shareholders bought out the city government's stake.

All went smoothly until late last year, when the city decided to auction off the property on Ulitsa Nakhimova, said Alexander Poznyakhovsky, the general director of Avtobaltservis.

The decision was part of a city decision to privatize unprofitable assets, said Alina Kuberskaya, a spokeswoman for the St. Petersburg City Property Fund.

Avtobaltservis won the property for 133 million rubles ($5.5 million) in an auction in October but did not come up with the cash, Poznyakhovsky said.

A Russian company then scooped up the building at a second auction in March, paying 253 million rubles ($10.9 million). The company, Tsentr Obsluzhivania Na Nalichnoi Ulitse, plans to build an office and retail complex on the site, the Delovoi Peterburg newspaper reported.

Tsentr Obsluzhivania Na Nalichnoi Ulitse was founded by a family member of Vladimir Litvinenko, a former Putin adviser and the rector of the Mining Institute, located nearby on Vasilyevsky Island, Litvinenko told Vedomosti. Kommersant, Delovoi Peterburg and Vedomosti have identified the family member as his wife.

Litvinenko advised Putin's Kremlin on energy policy and headed his presidential campaign in northwestern Russia in 2000 and St. Petersburg Governor Valentina Matviyenko's election campaign in 2003. The Mining Institute is where Putin in 1997 wrote a dissertation on the management of natural resources.

Avtobaltservis said the new owner was trying to force it out of the building illegally, pointing to requirements laid down in the auction that buyers respect the company's indefinite right to use the building and a separate lease that the city granted for it to use the land until 2012. On Monday, the dispute turned ugly. The new owners sent in security guards to barricade the building, Poznyakhovsky said. Eventually, armed police were called and let employees into the office, he said.

The director of Tsentr Obsluzhivania Na Nalichnoi Ulitse, Yevgeny Kokoulin, said his company was just trying to collect rent for the property and dismissed Monday's development. "Talk of a terrorist seizure of the property is an exaggeration," he said.

He sidestepped questions about the ownership of the company.

Invir Kadyrov, described by Litvinenko's office at the Mining Institute as a representative for the company, also did not answer ownership questions.

Avtobaltservis plans to head to court in the next few days to resolve the dispute, Poznyakhovsky said. The company has raised $15 million and tried to buy out the new owners, he said.

Putin's spokesman, Dmitry Peskov, played down the significance of the eye-catching signatures on the firm's founding document.

"The fact that this document was signed by Putin and Medvedev when they worked for the St. Petersburg city administration does not matter a lot," Peskov said. "This was the due course taken by the due people at that time."

"This is an issue between two companies and has to be resolved between the two companies or in a court," he said. "This is the nature of the fight with legal nihilism."

But for some lawmakers, the Vasilyevsky Island dispute is emblematic of the current failures of the country's legal system.

"Unfortunately, this is an example of who runs our country at the moment, the bureaucrats. They don't care who signed an agreement even if it was Putin and Medvedev, it doesn't matter," said Gennady Gudkov, deputy chairman of the State Duma's Security Committee and a member of A Just Russia. "We all suffer from this, both Russian and foreign businessmen."

There is also uncertainty about what the basic rules of the game actually are, Gudkov said.

"There have been so many changes to the laws over the past few years that it is difficult to tell where we are," Gudkov said. "One law contradicts another, and this is where the essence of our current legal nihilism lies. I wouldn't say that the situation is getting better yet."

Neil Cooper, director of the Russo-British Chamber of Commerce, said bureaucracy had more than doubled over the past 10 years, making it very difficult for both foreign and Russian businesses.

The post-Boris Yeltsin era is one of increased authority and greater stability, however, and Medvedev has committed himself to making it easier for small and medium-size businesses to function, Cooper said.