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. Last Updated: 07/27/2016

Khimki Moves to Scrap Sheremetyevo-3 Agreement

A dispute over Aeroflot's tax flows and delayed construction plans is throwing a wrench into its plans to build the much-heralded Sheremetyevo terminal 3.

The Khimki district administration, which controls the land that Aeroflot wanted to use, said Thursday that it was taking steps to back out of a contract with the airline.

"The construction may never take place," Khimki administration head Yury Korablin said in a statement.

Khimki officials said Aeroflot has failed to live up to its side of an agreement on the land that requires it to change the registration of the airline and its subsidiaries from Moscow to Khimki. Such a move would require Aeroflot and its business units to pay taxes there.

Khimki said Aeroflot also was not complying with the agreement by dragging its feet over construction of the terminal, a process that has not yet begun.

The agreement was signed in 1999 and gave Aeroflot a 49-year lease on the land. The $300 million Sheremetyevo terminal 3 is a major prerequisite for Aeroflot to join the Sky Team alliance with Delta Air Lines and Air France. The terminal, with a planned capacity of 8 million passengers a year, is needed to relieve congestion at the international Sheremetyevo Terminal 2.

Aeroflot said it was bewildered by Khimki's announcement.

An Aeroflot spokeswoman said the airline was fulfilling the agreement. It has reregistered one company -- the Sherotel hotel -- and intends to do the same with three others in the near future, she said.

The spokeswoman argued, though, that there was no clause in the agreement about reregistering Aeroflot itself in Khimki.

She also said that although completion of construction for the terminal has been delayed from 2003 to 2004, the project as a whole was on track.

Aeroflot officials said Thursday that the winner of a tender to operate the terminal will be announced Nov. 1. Also, the terminal's design will be determined by the end of next month and a tender for a construction subcontractor will be held in December.

Earlier this month, Aeroflot signed a one-year, $30 million syndicated credit organized by Raiffeisenbank Austria to refinance the beginning of work on Sheremetyevo terminal 3. Aeroflot this week signed a $60 million agreement with Moscow City Hall and the Railways Ministry to construct a high-speed rail link between Leningradsky Station and Sheremetyevo terminal 3.

But Khimki spokeswoman Olga Budarina said Aeroflot was acting too slowly in both construction and the reregistration of its companies.

"They are using all our resources, and it's Moscow that is getting all the money. This is unfair," she said.

She said the tax revenues were expected to amount to 15 percent of Khimki's budget, about $15 million.

Budarina said the administration sent Aeroflot a letter in May warning it would pull out of the agreement if Aeroflot did not reregister by July 1. She said the city never got a response.

Khimki just this summer won a court ruling that Sheremetyevo is in its territory, not Moscow's.