The Prosecutor General's Office has launched a criminal case against a company that has drawn some $76.3 million in loans to build a high-speed rail link between Moscow and St. Petersburg and failed to pay back the money as the project flopped.

The High-Speed Rail Co., or VSM, was formed in 1992 but has only managed to dig a large pit in St. Petersburg that was intended as the location for a new railroad station and business center.

"The project was initially thought up as an opportunity to get fat off budget money," said Mikhail Khazin, director for strategic development at the Modern Business Technologies consulting company. Prosecutors are now rushing to prove to VSM's Western creditors that it is serious about tackling theft, he added.

VSM general director Vladimir Tulayev declined to comment on the criminal case, while VSM president Alexei Bolshakov, a former deputy prime minister, could not be contacted.

The federal government controls 87 percent of VSM, with the remainder of the shares split between the Moscow and St. Petersburg administrations.

The rail link was estimated to cost $5 billion, of which $330 million was to go toward the new train station. VSM placed government-backed bonds worth 1 billion rubles to finance the project.

In 1997, VSM decided to build a business center on the site, drawing a credit line from the London divisions of Indosuez and SBC Warburg for more than $200 million over 13 years at 7.3 percent interest annually, with the government acting as guarantor. VSM, however, only managed to dig the pit.

In July 1998, President Boris Yeltsin terminated construction and froze payments under the VSM bonds and all operations connected with the foreign credit line -- and the pit has been growing weeds ever since. VSM had spent $49 million of the foreign credit.

The prosecutor's office said a investigation was requested by the Audit Chamber, the State Duma's budget watchdog. The case has been transferred to the St. Petersburg prosecutor's office.

No one is suspected of criminal activity, but a letter from the Prosecutor General's Office to the Audit Chamber states that "the actions of VSM management have the elements of a crime under article 176 part 2 of the Criminal Code."

The article specifies prison terms of up to five years for "the illegal receipt of a targeted state loan and its use to ends other than those intended."

The Audit Chamber said the budget guarantees for the VSM loan were given illegally because they were not targeted -- the construction of the commerce center was not included in any of the programs. According to the Audit Chamber, a total of $76.3 million has been plowed into the pit.

Direct losses from the pit are estimated at $26.4 million, which the Finance Ministry last year paid foreign banks under the credit, the Audit Chamber said. Including interest, foreign creditors are owed a further $36.3 million, and budget payments on the government bonds must be added.

As compensation, VSM shareholders have ruled that the company's main asset -- the pit -- will be passed to the Property Ministry.