Bleak mining town of Kirovsk still bears scars of sell-offs

This article highlights the current conditions for workers and communities, or relate their plight to the operations of the "oligarchs" whose alleged corruption is now grabbing international headlines.

Bleak mining town of Kirovsk still bears scars of sell-offs

By Arkady Ostrovsky, Financial Times

June 24 2004

Mikhail Khodorkovsky and his business partner Platon Lebedev were brought back to court yesterday to stand trial for fraud and tax evasion.

At the centre of the prosecution case against them is an alleged theft of a 20 per cent stake in Apatit, the country's largest producer of apatite - a key fertiliser component.

But the trial, again adjourned yesterday, is of little interest to 13,500 workers in Apatit. They are too busy struggling to survive in the town of Kirovsk, 100 miles north of the Arctic Circle, to worry about the two Moscow billionaires.

Survival in Kirovsk, a bleak, one-factory town in the Kola peninsula, was not meant to be easy. Founded in 1929 as one of the first Stalin Gulag camps, its sole purpose was to provide free labour for mining apatite.

But while the barbed wire has long gone, the climate and conditions remain as hostile as ever. At the centre of the plant is a giant quarry, 3.5km long and 500m deep, where 1,220 people toil in arctic conditions, digging apatite ore. The pit carved out of a mountain at an altitude of 1,050m is cursed with an average temperature 5 degrees below zero centigrade, winds reaching 150km an hour and 300 days of fog, 90 of which are pitch black.

Kirovsk and Apatit are a tragic monument to Stalin's industrialisation of the 1930s. But over the past year, it has come to exemplify the chaotic privatisation of the decade of the 1990s. According to Russian prosecutors, Mr Khodorkovsky and Mr Lebedev were part of an organised group, which on June 1 1994 illegally privatised a 20 per cent stake in Apatit. Four companies, all linked to the Menatep group controlled by Mr Khodorkovsky and Mr Lebedev, submitted the bids. But to drive the price down, three top bidding companies later declined to take the offer and the stake went to the lowest bidder, a company called Volna.

As part of the tender, Volna was obliged to invest $283m (€234m, £155m) in two instalments into Apatit. However, instead of making the investment, Volna transferred the money into Apatit's account. Given that the accounts of both Apatit and Volna were held in the same Menatep bank, the money went in and out on the same day. In 2002 Volna's ownership of Apatit was disputed in court by the Federal Property Fund. However, the fund allowed Volna to pay an additional $15m for Apatit instead of demanding the full investment. Apatit was investigated, but in April 2003 the general prosecutor wrote to president Vladimir Putin saying it found no grounds for action. A few months later the case was reopened due to "the changed circumstances". Most observers in Russia believe it was part of a politically motivated attack on Mr Khodorkovsky.

Yevgeny Yasin, Russia's economics minister at the time, said Apatit was by no means unique: some 261 other businesses were privatised in this way during those years.

"The idea was to stimulate investment in the economy but there is no evidence any of those companies received the investments they were promised," he says.

Alexei Grigoryev, the director of Apatit, says the factory was on the brink of closure after the collapse of the Soviet Union. Vladimir Isaev, who was in charge of the central pit in those years, persuaded his workers not to abandon the quarry. "I told them, if we don't work to save this place, nobody will," he says. Mr Giroryev says things started to improve in 1995, a year after Volna bought the 20 per cent stake, even though investment was slow in coming. Over the past five years capital investments rose from Rbs22.8m ($786,000, €649,500, £432,000) in 1994 to Rbs2bn planned this year.

Last year Apatit made a net profit Rbs960m and spent Rbs120m on social transfers to its workers via health clubs, holiday subsidies and a bowling centre. The standard of living is still far below that in Moscow.

Vladimir Isaev, who has worked in Apatit for over 40 years, says proudly: "In the Soviet days they filmed Jack London's Smoke and Shorty, a story about the gold-rush in Alaska, here." Kirovsk is anything but a Klondike, and Mr Isaev, and others who climb the mountain, are anything but gold-seekers. The average salary is Rbs10,700. Mr Isaev, 66, continues to work, unable to survive on his pension of less than $100 a month. "If I don't work, I will have to collect empty bottles like other pensioners." His great-grandfather was a peasant exiled here during Stalin's collectivisation and died in 1934, a day before being rehabilitated. While digging for apatite, meant to make the earth fertile, his son and Mr Isaev's grandfather died of starvation along with thousands sacrificed in the name of building communism.

Whatever the Russian court decides, the alleged crimes and possible punishment of two Russian oligarchs will fade away in comparison with the years of Stalin's industrialisation.