A Tall Building With a Very Deep Problem.

(From The Moscow Times)

The winning design in a competition to build a 300-meter high office tower for Gazprom Neft in St. Petersburg was to be announced on Friday. The story has received much attention both as a result of Gazprom's involvement and the scheme for financing the project. Sixty billion rubles, about $2.3 billion, will come from the city budget.

Gazprom has shifted the registration of some of its subsidiaries, including Gazprom Neft, to St. Petersburg, meaning that the company will contribute from 12 billion to 15 billion rubles in annual taxes to the city budget. But the city will pay 6 billion rubles per year over the next 10 years for the construction of the office tower, meaning the 300-meter colossus will cost the city 40 percent to 50 percent of the extra revenues it is slated to receive from Gazprom.

Any major company, Russian or otherwise, would like to relocate to St. Petersburg to cash in on this deal -- a 50 percent reduction in taxes, not in exchange for commitments to social spending, but simply for contributing the other 50 percent to the local budget. But the deal is only available for Gazprom.

This would be a problem even if Gazprom was 100 percent state owned. But Gazprom also has private shareholders, so St. Petersburg's taxpayers are being asked to pick up the tab even for companies like Yukos, which still holds a 20 ...