People in the Know: There is Nobody Behind Us

And now?

Now there are 20,000 employees. I can confidently say that there is no organization of such a size in Russia. I shall explain why. If as an example you take Glavmosstroi or Mosinzhstroi, they have in their structure, assets that are other companies, not one single organisation. But Mospromstroi is a uniform organization: we pay uniform taxes. Mospromstroi pays more than 5.5 billion rubles of taxes a year. Look at the ratings printed in the leading mass media: according to them our company is included in the one hundred largest.

By profit?

Unfortunately, no. it has become very difficult to make money from construction. Everyone wants things to be built as cheaply as possible.

Mospromstroi has a lot of assets – is it not difficult to manage such a large scale business? It seems to me, you would need to be in the office round the clock.

I work every day for 12-14 hours. On Saturday I certainly work. What more can I say. Our structural divisions are engaged mainly in the construction business, but there are several engaged in operational services. We have a hotel business. We have constructed three hotels: a Marriott and two Holiday Inns, and we are now completing the Leningrad hotel.

When is it planned to open?

On 3rd May.

You say you spend 12-14 hours in the office. Are you not tired?

It has already become a force of habit. All my life this is how I’ve worked. From the moment I came here. I haven’t worked anywhere else. Only here.

Is it not work but a way of life?

Yes. After studying I worked on the construction of the Kremlin Palace of Congresses and since then I have worked in construction.

Was that your first work?

Yes. Then there was only Glavmosstroi. I came to work for Mosstri-4. This organization was the general contractor for the construction of the Kremlin Palace of Congresses. And then every year the palace was prepared for congress. And each year significant funds were invested in its reservation. We carried out work for many years there. This organisation built the plenary meeting hall in the Kremlin. We reconstructed the first and 14th buildings in the Kremlin and Lenin's Mausoleum.

I went to the Mausoleum when I joined the pioneers.

But you don’t know much about the Mausoleum. When the Mausoleum was reconstructed, the heads of the party were "of a certain age," in particular Leonid Ilich Brezhnev. It was difficult for him to go there and at the back we an extension with an escalator that rose to the top area. We then did the same in the tower because they through a tower left which behind the Mausoleum. During celebrations and state holidays this was used.

Recently it was said that they are going to change the cobbles on Red Square, as allegedly they are extremely old and are in danger of sinking. Diggers are already worried and say that the old water drainage system remains there and to do is impossible. And there are also experts that are against this procedure. What’s your opinion?

It’s all made up. Because when we reconstructed the Mausoleum, we relaid the cobbles. It’s another matter id they are sinking. But it is only slight as on any road. Or during the spring thaw. In the same place during parades heavy machinery passes. I don’t think they will change them if it’s only a shift.

The company has a long history. Has anything changed during these years from the point of view of business dealing?

Business has become more interesting, but it is much more complex. Because, when [during Soviet times} we were the central administrative board for industrial construction in Moscow, our program was formed by the State plan. The ministries and departments queued for us to take their projects. There were so many projects and so much money that when the program of construction was formed all corridors were jammed with those who stood in the queue. And we allocated a maximum of 20 minutes to each ministry to accept the program. At that time only our signature was required for the construction of any premises to begin. Because if there was no approval from us the State plan did not allocate money. And everyone tried to get this signature to get money for construction. We then built the largest premises in Moscow: ZiL, AZLK, the Serp I Molot (hammer and sickle) factory. We built the whole of Kalinin prospect for the city.

Is it possible to call Mospromstroi a full cycle company, by structure. And what is this for? Is it possible to work under a simpler scheme.

This tradition has come from Soviet times. But there are some kinds of work that Mospromstroi is not involved in. For example, the installation of large metal constructions. And everything else – general construction, finishing, sanitary, electro-assembly and low-current work – we do. And this is how we continue to work today. This allows the company to be responsible for quality and supervise everything. And we have qualified specialists and the company has the ISO 9001 international certificate of quality.

What is the capitalization of the existing structures?

It’s difficult to say precisely, we can only estimate. We haven’t done that for a long time.

Have there been any offers to sell the company?

No. And what do you mean by sell the business? When we were created and then auctioned off the city possessed 25 per cent of the assets and there were 26,500 shareholders. At that time they divided the assets between the people who worked there.

Have I correctly understood the structure of shareholders - there was a city and numerous minorities?

Yes. The people who worked for the company. The cleaner and the general director received the same number of shares. Then hose who decided to form the Mospromstroi began buying up shares, the price of a 100-ruble share started at 1,000 rubles, and when selling the shares cost 13,500 rubles.

So there was an attempt of a raider attack?

No, there was an attempt to consolidate the shares. It ended with those companies buying the majority of shares. This was Rosbuilding and other companies.

Mospromstroi did a serious disservice to them?

No, they then sold them.

Your vision of the construction of bridges, roads, and other segments that are built by state order, - is there hope that there will be formation of infrastructure necessary for life which now essentially there is a lack of?

There are companies that specialize in this market. For example, Mospromstroi, it is a strong company. There is a new company – Kosmos - that is now building in St. Petersburg. But the results will depend on the money allocated.

How are Mospromstroi’s projects financed?

We have won tenders that are financed from the Moscow budget, there are projects that we have concluded direct contracts on, and they are now at the stage of construction. There are projects that we are constructing ourselves and that we finance ourselves and with extra attracted funds.

Has it become more difficult since the notorious crisis?

I do not feel any difficulties. Those banks that we have worked with for many years, do not refuse us. These are Bank Moskvy (Bank of Moscow), Alfa-bank, and in the last few years we have [worked] with Binbank, Evrofinans-Mosnarbank. If it’s long-term credit we secure it, if it’s short-term then we don’t. The reputation of the company and its credit history has no blemishes. If Mospromstroi needs money it has overdraft. For example, if I need to pay salaries and I don’t have the funds in the corresponding account. I draft a payment order and the money is there. At the Bank of Moscow there is approximately 250-300 million rubles of such credit.

Do you have a partner relationship with the bank?

No. I pay interest on credit

On the market there are rumors that Mospromstroi has a large financial structure in place that supports the company, proceeding from its interests.

This is a lie. There is nobody behind us, supporting us. Simply, in the history of Mospromstroi there has been no case where even for one day credit payments have been delayed. Although its difficult to work like this, this year has been particularly difficult.

What’s happening?

For practically three months we haven’t received any money from the city. Literally kopecks have been received. In January we received absolutely nothing, and in February too.

And the city should have given it to you?

Yes, more than 1 billion rubles since the beginning of the year. And not only to us. But also Glavmosstroy, Mosinzhstroi - in general everybody. Although there is money. I shall explain. Under the new code the government should be the customer.

As a separate unit?

Yes. Leonid Monosov became the general director of this structure.

I’ve heard about this structure.

There you go. He didn’t have contracts with anyone. It was necessary to conclude them again. This question was solved only at the end of February. Now the process has begun. The treasury doesn’t pay money without new concluded contracts and without insurance does. Now the city has more money to pay us, but we can’t get it yet. But I think in 10-15 days we won’t be in this situation anymore.

What’s the balance between Mospromstroi’s residential real estate premises, infrastructural premises and commercial real estate premises? Which do you prefer?

Now it is not possible to have preferences, what is important now is that we have a program in order for our divisions to be busy.

It seems to me that such a large company would choose.

No, we can’t choose. Because Mospromstroi is such a large company it is difficult for us to win tenders.

That’s interesting, why?

Because smaller companies do not have the same expenditures.

A situation where small companies participating in a tender underestimate the price to get the order is known. And then "additional estimates" start.

Exactly. But abroad they don’t have this. We work with serious foreign companies (Buig, Hochtif) and we know how it is there. Abroad they do not allow a company with no history to take part in a tender. But in Moscow, unfortunately, they carry out a tender, small unknown companies apply, go 2-4 per cent cheaper and win. Therefore we are not so competitive. Zelenengrad can be used as an example. We have literally constructed the whole of Zelenegrad, but now there are obsolete companies.

And then they are left uncompleted and with other problems

Yes. For example, now we are completing buildings that were left unfinished. The city tells us to do something, we do it. But we make nothing on these buildings except losses. Now the company is completing the construction of a big building on ulitsa Yablochkova. And for half a year Mospromstroi has been paid nothing, but owed 350 million rubles. They have now just started to pay us. And who was building this premises before us? Someone who received money, that’s who.

This is a strange practice: it is not the first case of a small company coming and basically swindling. Because of them everybody suffers: customers, end users. Why in Moscow do we repeat the same mistakes? Is it not time to build a proper system?

Ideally, a tender committee should have chosen a selection of companies, who have clear histories and that have worked on the market for many years, and should have been carried out between them. Look at what’s happening with the current system. How many unfinished projects there are. Such companies also try to not pay taxes. They use grey schemes. And that’s at least an extra 24 per cent of profit. But I hope that it will change soon, we just need to wait.

What’s your forecast, do you think eventually it will all be honest?

I think so, yes. You know, we work with lots of foreign companies. And the interesting this, for example, American or German companies, just don’t understand what it’s like to not pay taxes or cheat on the government. But they understand that because of taxes, the army, the police and state organizations function. And not paying taxes is a serious crime. In Russia everything is still different to this. There are so called “one-day” companies.

Tell me about the company’s projects in the sphere of commercial real estate. Which are the most significant?

We have built hotels. I consider this an achievement and something the company should be proud of. There’s no hotels of such a level in Moscow.

And what distinguishes them from the others?

For example, Grand Hotel Marriott or the Avrora on Stoleshnikov pereulok. These are hotels of the highest European level. And before this there were no hotels of such a level at all.

Tell me, is there anything that hinders you from working?

I’ll tell you what. The current bureaucracy that never existed before is making work impossible. I don’t know what to do, but we have to find a solution.

Market participants say that to start building a premises according to the law, to get the initial-permittance documentation, at best, takes one and a half years.

Yes, at best. In the times of a planned economy these questions were solved within a month.

Why have there been such changes?

It’s the creation of intolerable conditions. Now, for example, there is Mosinvestkontrol. Or another example: buildings for the Olympics has not even started yet and they have already created a special structure in the Public Prosecution Office, which will make sure that the allocated money for construction will not be stolen. The same is in Moscow. You come to the Public Prosecution Office, and they treat you like a criminal from the start. The tax authorities also treat you with suspicion: like you will steal something. Or for example, they have been checking our company and then say: well we have checked for two months and haven’t found anything criminal. Look at the city authorities that control projects, there are infinite penalties. It becomes intolerable to work. We are currently building Novinsky Bulvar hotel and business centre on Novy Arbat, (6 Novinsky bulvar), the second phase of a building constructed by Lotte Construction. Here there will be an office building and hotel. One day we were fined 200,000 rubles.

For what?

Well for what, for what...

Did you break the law?

Yes, we broke the law. Then another two days [by] 200,000 rubles. And we are fined by everyone. As far as I can recall it was never like this before.

SPARK says that 25 per cent of Mospromstroi belongs to the Department of State Property. However, when I wrote material about the failure of state tenders, there were comments from Mospromstri that the company is meaningfully reducing the volume of state construction. How does one correspond to the other?

For example, the year before last we constructed seven small schools. We don’t build typical schools. But we made serious losses on each school.

How much exactly?

Some schools carried a loss of 10 million rubles, others even more.

How do such losses occur?

Because schools, in particular, have to pass inspections. Experts look and decide that it is not necessary for schools to have much and remove something. And when construction starts, everything that was planned gets restored. The project undergoes essential changes. And still another representative from a maintenance organization, or the director of the school will come and say that he wants good doors and windows. They say: we don’t care, if it won’t be good - we won’t accept it. A number of improvements begin for which nobody wants to pay.

Then why build, why not refuse? As is said, "it’s your will". Or is it not?

Then we beautifully do the following: we lose tenders and we do not build. We simply give a real price and do not reduce it. The same thing happens: we have constructed 10 kindergartens. On each one we have sustained losses from 3 million rubles to 5 million rubles.

So in other words, to build schools and polyclinics is categorically unprofitable and incurs continuous losses. What will you do?

Time heals.

Everybody knows about the problem of the absence of attractive sites for construction in Moscow. How do you see this situation? Is there sense to go to the regions?

It’s not so simple to go to the regions. All our engineering-technical staff are from Moscow. And to send them on business trips is very expensive.

But sooner or later vacant land in the city will end, there’s hardly anynow. What will you do?

It’s not just the land that is important. First of all 5-storey buildings were taken down, soon 9-storey builds will too. It’s an infinite process. Practically all seven schools which were constructed by the company, have been constructed on the place of an old building which was demolished. In Moscow there is plenty to bring down.

Mospromstroi built hotel Rossiya, which has now been taken down. Were you sad when they took it down?

It did hurt. I think that it was wrong to take it down. It could have served another 100 years.

Then why was it taken down?

The decision was made. It was constructed when the Palace of Congresses was built, and it was intended for a certain number of delegates. And it was very convenient for them to live in the Rossiya and walk through Spasskiye Vorota.

Experts say that the speed of the construction of commercial real estate is growing quickly and will soon be higher than residential. Accordingly, competition has grown. In your opinion is this true?

This is a difficult question. I’ll explain. That is why hotels in Moscow are not being build?

Why?

Because the recoupment period of hotels is rather long. If we’re talking about rather simple hotels, for example, the one we constructed on Sushevsky Val (Holiday Inn Sushevsky at 74 Sushevsky Val) the recoupment will be approximately 8-10 years. And the recoupment of Leningrad which involved scientific restoration, will be 15 years optimistically. It is convenient to build residential real estate: you invest a ruble, you get one back straight away. Therefore everyone tries to invest in housing construction if there is an opportunity to do so. After residential real estate they invest in office construction – this is also "alright". Nobody wants to invest in the construction of hotels.

What does Mospromstroi try to invest in?

We want to invest in hotels. Because they bring money year by year. Once residential real estate has been sold, that’s it.

In fact you built the white house, didn’t you?

Yes. Back then there were no tenders, it was a state order. All premises that we constructed in Moscow in those days passed through the State plan and were part of the centralized construction. Then nobody knew what a tender was. And it is all wrong how they carry out tenders these days.

Why? How should they correct?

Imagine that you want to construct a dacha. You design the project. Then offer it to contractors. You collect their offers and choose who is reliable. Usually abroad they remove from the tender the lowest and the highest price. But in Russia they take the lowest price as the best. What we do: a project institute does a project, and then a valuation of it. The valuation is calculated by the amount of work, how many monoliths, the bricklaying, etc. All this is regarded on state-set prices. For example, it comes out that under state quotations the project costs 100 million rubles. This price gets reduced a little and then presented in a tender. But if it is said how much one square of bricklaying under the state quotation costs then it is necessary to put the specific volume of this laying, but how can it cost less? It is natural to receive the order, struggle and then extortion begins.

I understand what you’re talking about: additional charges and volumes. And building materials are still rising in price.

Yes, metal alone since the beginning of the year has risen in price by almost 7,000 rubles per tonne, and in the last year concrete has risen 50 per cent in price. It is necessary to look at things in real terms- it can’t be less then the cost price. And if to look narrowly – the quality of work is disgusting. Especially by small firms. The qualifications of such firms is low. In general they take their labor from who knows where. Yes, Mospromstroi also uses workers from outside, but our people live in normal conditions. In hostels. Nobody sleeps in cellars.

So you provide non-resident employees with a hostel?

The company has 22 hostels. Now we are working on a plan to knock them down – they are old 5-storey buildings. It would be desirable to demolish down and construct 22 1-2* hotels. To improve the conditions for the people that live there. I have prepared such a project and for a year and a half nobody can embody it.

So you cannot demolish your own hostels to construct better ones in their place? That’s not very clear.

For the sake of interest I can show you the papers in which this project is supported by the mayor of Moscow. He writes that it is important and it is necessary to approve everything quickly. And this is where circulation from one office to another begins. And everything falls back into place. I wrote two times to the mayor as a result. But there is one "but". To demolish them I have asked for a launching site as is done usually with demolishing. As an answer we are told we should win the land in a tender.

What is your vision in the future for the company?

Mospromstroi will develop very actively, I have no doubts. And we will make what we want. I think that the moment when the tender committee will consider the reliability and reputation of a company will come. Everything will gradually come to the right place. It can’t go any other way.

Despite everything you’ve said you hope for the best. You’re an optimist, aren’t you?

Of course. If we survived the bad conditions in the 1990s when there was no money. The company didn’t just survive, it managed to keep its staff. Almost 20,000 people. And notice that in Russia there is no other company that has a single collective. No affiliated structures, but a namely uniform collective.

Boris Osherovich Guretsky was born on October 31, 1934. In 1958 he graduated from Moscow Institute of Engineering and Construction. After graduating he joined Glavmospromstroi and has worked for the company for more than half a century. For a long time he was an assistant to the general director on financial questions. Since April 2006, Guretsky has been the general director of Mospromstroi. He has been awarded a Lenin award, an October Revolution award, a Labour Red Banner award and a Friendship of People award. He has been awarded as "An honorable builder of the Soviet Union." He has won a State award and award of the Ministerial council of the USSR.

Glavmospromstroi was the central administrative board for the industrial construction of Moscow and was created in 1972. On December 28th, 1990 it was registered as Mospromstroi, and in 1997 it was re-registered as Mospromstroyu. Mospromstroyu worked on such premises as the Kremlin Palace of Congresses, the Mausoleum of Lenin, the Ostankino television center, sky scrapers on Novy Arbat, the Christ the Savior cathedral, the Maly theater, a branch of the Bolshoi theater, the State Historical Museum, the main building of the Moscow State University on Vorobyovykh Gory, the large sports arena at Luzhniki, the Olimpysky sports center, the Poklonnaya memorial complex, etc. In the last few years tens of premises have been added to this list. The revenue of the company in the last nine months of 2007 totaled 12.232 billion rubles, the net profit – 721.7 million rubles and the working capital as of October 1, 2007 - 1,381 billion rubles.