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Mining Magnate Behind 2 Building Projects

An unexpected investor turned out to be behind the demolished Hotel Rossiya next to the Kremlin, as well as the unfinished Russia Tower in Moskva-City — Viktor Rashnikov, owner of Magnitogorsk Iron & Steel Works.

Viktor Rashnikov gave Shalva Chigirinsky about $300 million of his own money to build Hotel Rossiya and the Russia Tower, a mutual acquaintance said. A Moscow official confirmed the information, but a source close to Rashnikov said it was less than $300 million.

The acquaintance said the businessmen came to an agreement right after Chigirinsky’s ST Development won a tender to rebuild Hotel Rossiya at the end of 2004. Rashnikov agreed to invest in the projects, getting a 50 percent stake in each of them. Chigirinsky invested his half with land plots and promised to raise funds for the construction and provide administrative resources.

The $300 million was Rashnikov’s first tranche and was used to carry out planning for both projects, to purchase the land for Hotel Rossiya from Umar Dzhabrailov and Unikor, to destroy the old building and to begin work on the underground part of the Russia Tower.

In place of the old hotel should have been a 456,000-square-meter complex, including a five-star, 2,000-room hotel, a cinema and concert hall with 3,000 seats and parking for 2,000 cars. ST Development promised to invest $800 million in the project. In Moskva-City, Chigirinsky sought to erect the tallest building in Europe for about $2 billion.

But neither project got off the ground. The tender to build Hotel Rossiya was successfully contested in court by a competitor and the city tore up the investment contract. At the time, the old hotel was 90 percent demolished.

Chigirinsky was forced to drop the Russia Tower project because of the financial crisis. City Hall said it would build a parking lot instead of the tower.

Chigirinsky went into the crisis with about $1 billion in debt and has started to be hounded by creditors. He eventually dropped most developments other than Hotel Rossiya, and eventually his stake in oil producer Sibir Energy. Last year, Chigirinsky left Russia, and a freeze was placed on part of his assets by the High Court of London.

After Chigirinsky left Russia, Rashnikov asked City Hall to compensate him for his expenses, his acquaintance said. But these expenditures weren’t verified, a Moscow official said, adding that the situation was now being taken care of by Gostinichnaya Kompania, owned by billionaire Ronald Lauder and City Hall, which received all the city’s hotel assets, including Hotel Rossiya.

Different compensation plans are being discussed, but the city isn’t going to pay anything from the budget, the official said. A source close to Rashnikov said nothing had been lost. The businessman is in talks to sell his rights to the projects with Moscow companies.

“Gostinichnaya Kompania doesn’t have any information on the financial relationship between Chigirinsky and Rashnikov and won’t comment on the issue,” Dmitry Koryavov, CEO of the company, told Vedomosti.

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