January 16, 2017 / 3:37 PM / in 9 months

Sanctions, tight margins sap appetite for rail link to 'Putin's bridge'

MOSCOW (Reuters) - An ally of Russian President Vladimir Putin has been asked to step in to build a railway link between Russia and annexed Crimea after low margins and the risk of Western sanctions put off other builders, industry sources told Reuters on Monday.

The 17-billion-ruble ($285-million) contract is for a railway to connect the Russian rail network with what some Russians have dubbed “Putin’s bridge”, a 19-km (12-mile) road-and-rail bridge across the Kerch Strait which separates Russia from Crimea.

The United States sanctioned seven Russian firms involved in the bridge construction last year.

Russia’s Federal Railway Transport Agency held three tenders for the railway contract in the second half of last year. The first tender received only one bid, which was dismissed due to the company’s lack of experience; the second and third tenders did not receive any bids.

The Transport Ministry told Reuters on Monday it had offered the railway contract to Stroygazmontazh, the lead contractor for the bridge, after it was unable to find any companies willing to take on the project. A source in the ministry said Stroygazmontazh had accepted the offer.

The company is controlled by Arkady Rotenberg, Putin’s former judo sparring partner. He was placed under U.S and European Union sanctions for his close ties to the Russian leader after Moscow annexed Crimea from Ukraine in 2014.

Multiple sources told Reuters the low contract price and risk of being hit with Western sanctions had deterred potential bidders.

“There are very few companies in Russia who can build railways and not a single one of them agreed to such a price - it is too low,” said an industry source.

“At this price, just as with the actual bridge, we are not talking about any profit, the main thing is just to break even.”

The source said the government had ordered Stroygazmontazh to accept the contract. Stroygazmontazh and the Crimea Bridge infocentre, the organization responsible for communications about the project, declined to comment.

“Sanctions were definitely a concern. But Stroygazmontazh doesn’t have to worry about that as they are already under sanctions,” said a second person, who is close to the project.

The Kerch Strait bridge will be the longest dual-purpose span in Europe when completed. It is seen as vital by the Kremlin to integrate Crimea into Russia, both symbolically and as an economic lifeline for the region.

Putin has called its undertaking an historic mission and said in December Russia was on schedule to complete the road segment by the end of 2018.

Editing by Janet Lawrence

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