Sun, May 23, 2004 - Page 11 News List

Communists' lack of foresight leaves embassy an annual rent of US$2.50

AFP , MOSCOW

Located on a quaint, quiet square in the heart of Moscow, the lavish early 20th century mansion which the US ambassador calls home is an architectural gem for which Washington pays the princely sum of US$2.50 in annual rent.

That pocket money is now at the center of a minor row between Moscow and Washington, which also reflects the misfortunes of the Russian currency since the collapse of the Soviet Union in 1991 as it underwent repeated devaluations.

Built a few years before the 1917 Communist revolution by a rich merchant, Nikolai Vtorov, the mansion, now called Spaso House after the leafy Spasopeskovskaya Square on which it stands, became the US ambassador's residence in 1933, when the US and the Soviet Union finally established diplomatic relations.

Its present rent is governed by a contract signed in 1985 for a period of 20 years, at a time when few could have imagined that the Soviet Union was about to collapse -- or at least so soon.

At Soviet authorities' request, the rent mentioned in the contract was expressed in rubles, a spokeswoman for the US embassy in Moscow said.

"At the time, the Soviet authorities insisted that the contract had to be drawn up with a sum expressed in rubles, not in dollars," the spokeswoman told reporters.

Crucially, the lease "contained no provision for currency fluctuations," the spokeswoman added.

By 1985 standards, the rent agreed on for the 2,900m2 residence was anything but cheap.

"The rent was 25 rubles a square meter, a sum which then converted into US$42," said Viktor Lyaskin, a senior official with the UPDK, the division within the Russian foreign ministry responsible for housing foreign officials.

The total annual rent was 72,500 rubles, or US$121,800 in 1985 dollars.

But once the Soviet Union fell Russia entered years of hyperinflation.

Moreover, in the mid 1990s, a monetary reform instituted a "new" ruble, which was worth 1,000 "old" rubles.

Now, the residence's total annual rent is just 72.5 rubles, about the price of two cheeseburgers.

Not surprisingly, Russia is none too pleased, especially as property values skyrocket in Moscow, competing with those in London and New York.

The present rent is "ridiculous," said Lyaskin, adding that the US embassy rejected a new contract which UPDK offered in 1994.

UPDK is now demanding US$9 million in back payments "for all those years when the United States refused any suggestion of a rent hike, unlike all other countries," Lyaskin said.

It also wants the US embassy to pay a significantly increased rent of US$300 per square meter per year.

That would amount to a total annual rent of US$870,000, or 350,000 times the current rent.

But Washington is standing its ground.

Still, the Russian authorities may soon get their way, as the lease expires in July next year.

The US spokesman said the embassy was open to discussion and wanted to negotiate a new lease "on the basis of market value."

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