In early September 2006, Russian news sources reported the arrest of Maj.-Gen. Vladimir Kiyaev, the head of Directorate 9 of the SpetsStoi (“Special Construction”), a government-owned company responsible for managing special construction projects. He was arrested in Zheleznogorsk, a closed city in Krasnoyarask krai (region), home of one of three remaining plutonium production reactors in Russia. The arrest was conducted by the Office of the Prosecutor of the Siberian Federal District.

The Office of the Prosecutor refused to disclose the details of the charges against Kiyaev, saying that relevant information was classified. According to media reports, however, Kiyaev is suspected of embezzling and misappropriating funds for the construction of the Sosnovoborsk fossil-fuel power plant, whose construction in Zheleznogorsk is being funded by the United States and several other countries. [1] The new plant is being built to achieve the goal set out in a 1997 U.S.-Russian agreement on closing reactors formerly used to produce plutonium for Soviet nuclear weapons. [2] Although Russia does not require additional plutonium for nuclear arms, it has continued to operate the reactors, one at Zheleznogorsk and two at Seversk, because the heat and electricity they produce is essential to meet local energy needs. After several years of U.S.-Russian negotiations regarding the best way to implement the 1997 agreement and fund the project, the two countries completed an updated agreement in 2003, which provided for the replacement of the three reactors, including the unit in Zheleznogorsk, with fossil-fuel power plants.

The total estimated cost for the Zheleznogorsk project, including work performed by the Russian side and the management costs to U.S. contractors, is $570.5 million. The fossil-fuel power plant is scheduled to become operational and the nuclear plant closed in 2011, although increases in U.S. funding in 2006 and 2007, as well as additional funding provided by other countries, could help to bring the project to completion in 2010. [3]

Media sources reported that several aspects of Directorate 9’s activities are under investigation, including nonpayment of salaries to workers, irregularities with purchases of various supplies, including gasoline for construction machinery, and misdirection of funds (a term often used in Russia to denote embezzlement). Also under investigation is how Kiyaev was awarded a general’s rank, since only seven years earlier he had been a civilian. SpetsStroi headquarters personnel in Moscow and Zheleznogorsk city officials claimed to know little about the affair, and officials at RosAtomStroi (the organization established by the Russian Federal Nuclear Agency, RosAtom, to oversee the construction of the fossil-fuel power plant under the U.S.-Russian agreement) clarified that Directorate 9 was involved only in a preparatory stage of the plant’s construction during 2005 and the first half of 2006 and is no longer involved in the project.

Judging from the fragmentary information available from media sources, Kiyaev left Directorate 9 in the Spring of 2006 and became the head of another company, SibKhimStroi, which won a contract for construction of the fossil-fueled power plant at Zheleznogorsk. Its victory in the bidding process triggered an administrative inquiry by the office of the governor of the Krasnoyarsk region, which apparently suspected foul play; the procedure surrounding the contract and the selection of SibKhimStroi are now also a subject of criminal investigation. [4]

Igor Astapov, press secretary to regional governor Aleksandr Khloponin, explained that the regional administration did not become aware of any irregularities until the beginning of 2006, when the closed city of Zheleznogorsk was subordinated to the region. (Previously, as a highly classified site in the Russian nuclear weapon production complex, Zheleznogorsk had been directly subordinate to RosAtom.) Until this change in governmental lines of authority, Zheleznogorsk’s status as a closed city had prevented any involvement of regional authorities in the city’s affairs; the construction company operating in Zheleznogorsk (Directorate 9) was also outside the control of regional officials. Since early 2006, however, the city’s budget has become part of the regional budget and consequently subject to auditing and oversight by the regional government. The fact that the arrest of Kiyaev was announced by Governor Khloponin at a press conference underscored that regional authorities are now taking a strong role in the oversight of the power plant construction project. [5] Media sources did not speculate as to why Kiyaev’s superiors in Moscow had failed to detect his alleged misappropriations of project monies.

The scale of Kiyaev’s alleged financial misdeeds remains unclear. It is possible that they were rather limited, given that Directorate 9 was responsible only for preparatory work at the fossil fuel plant site, and that the parties injured by Kiyaev’s alleged manipulations were limited to Russian sub-contractors and workers. Newspapers speculate that Kiyaev will probably be released from jail and prohibited from leaving the city of his residence (the standard measure for persons under criminal investigation who are not retained in custody). Kiyaev’s arrest is the second on-going legal proceeding against a Russian official for allegedly misappropriating funds provided by the United States to support cooperative threat reduction
projects in Russia. In mid-2006, Yevgeni Adamov, Russian Minister of Atomic Energy from 1998 to
2001, was indicted in Moscow for embezzling approximately $100 million. (See “Former Russian Minister of Atomic Energy Yevgeni Adamov Awaits Trial on Charges of Embezzling $100 Million”, http://www.wmdinsights.com/I6/I6_R1_FormerRussianMinister.htm; and“Former Russian Minister of Atomic Energy Yevgeni Adamov Released from Jail Pending Trial,” http://www.wmdinsights.com/I8/I8_R3_FormerRussian.htm, in the June and September 2006 issues of WMD Insights.)

Events surrounding the construction of the Sosnovoborsk power plant demonstrate that regional authorities in Russia are aggressively seeking to establish control over the money flows that have become accessible to them following the change of the status of the closed cities. As a side consequence of this process, it is possible that transparency in monitoring the financial practices of the Zheleznogorsk and similar projects will be enhanced.

Nikolai Sokov – Monterey Institute Center for Nonproliferation Studies