Russians declare Abramovich's Arctic fiefdom 'bankrupt'

Roman Abramovich, the Chelsea football club owner, faced sharp criticism in his native Russia yesterday after it was revealed that the remote Arctic region that he runs is bankrupt and riddled with financial malpractice.

Roman Abramovich, the Chelsea football club owner, faced sharp criticism in his native Russia yesterday after it was revealed that the remote Arctic region that he runs is bankrupt and riddled with financial malpractice.

Mr Abramovich, 37, who is rated by Forbes magazine as Russia's second richest man with a fortune of $12.5bn (£7bn), has been governor of the Chukotka region since 2000.

His image makers painted a glowing picture of his governorship there, pointing to a plethora of public projects which he has purportedly financed out of his own pocket. Locally he is known as the Sun God.

But Russia's state audit chamber published a report yesterday showing Mr Abramovich's stewardship in a very different light.

The administration over which he presides - albeit remotely from London - was accused of serious financial irregularities to the tune of at least 1 billion roubles (£20m).

More embarrassingly for Mr Abramovich, his oil firm, Sibneft, Russia's fifth largest, was accused of indirectly taking illegal tax breaks from his own administration worth 13.7bn roubles.

The auditor, Sergey Ryabukhin, revealed that Chukotka had debts of 9.3bn roubles as of 1 January, more than two and a half times the region's budget revenue of 3.9bn roubles. "For all practical purposes the region is bankrupt," he said.

Financial checks had uncovered "mass violations of financial discipline, tax law and implementation of the regional budget", he said.

The debt-ridden administration had handed out tax breaks to 22 firms, which all looked like Sibneft shell firms and were, he said, nominally registered in the Arctic region but did not produce anything or appear to have any staff.

The report, which will be passed to Russia's prosecutor general and the government, could spell trouble for Mr Abramovich. When asked whether Mr Abramovich could sleep soundly Mr Ryabukhin replied: "The prosecutor's office will draw the final conclusion once it receives our report." The report is not the first sign of trouble for the Chelsea billionaire; the government has already asked Sibneft to pay £820m in unpaid taxes.

So far, he has studiously avoided any confrontation with the Kremlin though analysts say he has been shifting as much of his money abroad as possible in case he does run into trouble.

Indeed Mr Abramovich's governorship of Chukotka, Russia's most remote region, was widely seen as a public way of showing that he does care about the country that has made him Britain's wealthiest resident.

Russian politicians regularly accuse the country's super-rich of making their money by cynically exploiting the post-Soviet chaos and believe they should be forced to reinvest some of their wealth in Russia. Some of the country's other super-rich oligarchs also have financial problems. Mikhail Khordorkovsky, Russia's richest man, is in jail awaiting trial for fraud and embezzlement.

When Mr Abramovich bought Chelsea many Russians wondered why he didn't invest his millions in a Russian club and saw his purchase as unpatriotic. Despite some resentment his image in Russia has held up.

There were signs yesterday, however, that his now controversial governorship of Chukotka may be damaging his popularity. A poll by the radio station Ekho Moskvy showed that 60 per cent of respondents felt President Vladimir Putin should relieve Mr Abramovich of his Chukotka responsibilities.

Mr Abramovich has said he will not stand for re-election when his term expires.

The tycoon did not respond to the allegations himself, but his advisers moved to play down the scandal. They claimed Chukotka was bankrupt when Mr Abramovich took over in 2000 and said Sibneft invested billions of roubles in prospecting for oil in the region and had lavished cash on the region's economy.