State to Take Over VSM Terminal

ST. PETERSBURG -- The state is set to take over the incomplete rail terminal that was being built for the doomed High Speed Railway, or VSM, project that collapsed in the wake of last year's crisis.

VSM shareholders have agreed to transfer ownership of the unfinished terminal - currently just a giant hole in the ground close to the Moscow Station - to the state.

A new state-owned company will be set up to take over the outstanding $200 million credit that two British banks - Credit Agricole Indosuez and SBC Warburg Dillon Read - granted to finance the construction of the rail terminal and business complex, VSM General Director Vladimir Tulayev said Monday.

The credit had been given to VSM under federal government guarantees in 1997 to build a $366 million transportation and commercial center in St. Petersburg. It was frozen after the 1998 financial crisis.

"The Russian Finance Ministry is ready to reopen the British credit and will continue construction of the [commercial] center if it will be transferred to state ownership," Tulayev said in remarks reported by Interfax.

However, the Finance Ministry was unable to confirm such plans.

Andrei Vorontsov, a ministry spokesman, declined to comment on the shareholders' decision.

The planned complex was part of a grandiose $5 billion project to build a 654-kilometer rail line between St. Petersburg and Moscow that would carry high-speed trains. By cutting travel time to just 2 1/2 hours from six to eight hours between Russia's two largest cities, the project's backers claimed that it would be a major money spinner because businessmen keen to zip between the two capitals without the hassles of flying would be willing to pay handsomely.

St. Petersburg was supposed to get a new terminal, complete with a hotel, trade and commercial center attached, but in September 1998, one month after the Russian financial crisis, work on it was frozen.

It is unlikely that construction will be resumed in the near future, said Andrei Nikandrov, VSM's financial director.

Over $49 million had already been invested in the project at the time, including $29 million from VSM, which the company had raised through bond issues.

The company has since defaulted on those bonds.

The high-speed project has long been controversial.

Its demise has been predicted repeatedly - most notably when its No. 1 patron, former VSM chairman Alexei Bolshakov, lost his post as former Prime Minister Viktor Chernomyrdin's No. 1 deputy in 1996. Many predicted that Bolshakov's departure from the government would kill the project, but it moved forward.

Over the objections of the Culture Ministry, VSM knocked down a handful of tsarist-era buildings in downtown St. Petersburg in 1997 to clear the way for the ambitious new train station - which was planned to ultimately include a three-star Holiday Inn hotel, a six-story underground parking garage and tens of thousands of square meters of office and retail space.

VSM also overcame environmentalists, who had appealed to the Supreme Court to bar the company from cutting a swath through the forests of the Valdaisky National Park to make way for new tracks, to run parallel to the existing Moscow-Petersburg line. Perhaps most significantly, VSM succeeded in brushing aside the concerns of auditors and lawmakers in St. Petersburg to convince the Finance Ministry and St. Petersburg City Hall to co-guarantee a $200 million loan from the British government, contingent on contracting much of the construction work to British companies.

At the time of that debate, VSM officials derided St. Petersburg lawmakers, who worried about the public being stuck with the tab if the project fell through, as "incompetent" and interested only in "self-promotion."