Mayor: Toronto should review contract with Russian’s firm

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Mayor John Tory has called for a review of a $144-million contract the city awarded to a construction company partly owned by a sanctioned Russian oligarch.

Tory's office made the statement Wednesday evening after the Star determined the company, called Strabag, has nearly $1 billion in active government contracts in Ontario.

In 2021, Austria-based Strabag won a $750-million contract for tunnelling the Scarborough subway. Two years earlier it was also given a $144-million contract by the City of Toronto for work on a major municipal wastewater pumping station.

Both contracts were awarded after May 2018, when the U.S. declared sanctions on Oleg Deripaska, whose holding company Rasperia owns 27.8 per cent of Strabag.

Canada and the U.K. added Deripaska to their sanctions list this month following the Russian invasion of Ukraine. On Wednesday, the U.S. Treasury told a new international task force that Deripaska is one of 50 individuals Washington has prioritized for sanctions.

All three governments’ sanctions regimes freeze the oligarch's assets in-country and prohibit their citizens from doing business with him worldwide.

Deripaska could not be reached for comment. He has previously denied the allegations the U.S. Treasury Department made against him when it hit him with sanctions and has said he was targeted for political reasons.

Tory's spokesperson Lawvin Hadisi said the mayor has asked city staff "to review this entire matter."

She said Tory "strongly supports" the federal government sanctions and would back any action city staff deem necessary to follow them, "up to and including cancelling the contract" with Strabag.

However, Hadisi said tearing up the deal "would likely be very challenging from a legal standpoint."

U.S. sanctions and Deripaska's well-publicized relationship with Strabag have not prevented the company from bidding on — and winning contracts for — Canadian public infrastructure projects funded by all three levels of government.

Even though Canadian sanctions have now been imposed, the projects are continuing as planned, highlighting the limits of Ottawa's efforts to inflict financial pain on Russia while protecting domestic economic interests.

"Strabag is not sanctioned itself," company spokesperson Marianne Jakl told the Star. "The Canadian sanctions on Oleg Deripaska do not prevent us to conduct business in Canada."

"We implement all necessary safeguards also vis-a-vis Rasperia to ensure compliance with the applicable sanctions regimes," Jakl added.

After the Star inquired about the subway contract earlier this week, Strabag announced that its majority shareholder had tried and failed to buy out Deripaska. The company suspended his dividend payments and said it would, by the end of the year, terminate the shareholder agreement that allowed him to appoint people to the board of directors.

In 2018, after Deripaska was sanctioned by the U.S, Strabag suspended his dividend payments for more than two years. In 2020, after his holding company restructured to reduce his direct ownership to under 50 per cent, Strabag paid out more than $75 million in dividends to the company.

Deripaska retains his stake in Strabag and, while he may no longer receive cash payments, the Canadian public contracts will pad the company's bottom line, potentially increasing the value of Deripaska's stake.

Juliet Johnson, a political science professor at McGill University, said the moves by Strabag to isolate Deripaska, indicate "the sanctions have worked very well."

Whether the asset freezes will be effective, however, is less certain as "they are not for life, they’re just until whenever the sanctions end."

In August 2019, the city awarded Strabag the $144-million competitive contract for excavation and tunnelling work on a new integrated pumping station at the Ashbridges Bay Treatment Plant.

The facility will pump raw sewage from underground sewers into the plant for processing and, according to the city, is critical to providing capacity to meet Toronto's population growth. When complete, it will be one of the largest wastewater pumping stations in the world.

At the time of the contract award, Deripaska had been on the U.S. sanctions list for more than a year. Strabag's estimate for the work came in at almost $50 million less than the second lowest bidder, according to the city report recommending the award.

Strabag's portion of the work was set to be finished this year, and under a schedule detailed in the report, the city intended to pay out more than $90 million of the contract value between 2019 and the end of 2021. The remaining $54 million would be issued over the course of this year and 2023.

City spokesperson Brad Ross said Wednesday the municipality wasn't aware the U.S. had sanctioned a minority owner of Strabag when it awarded the company the contract.

He said the city's purchasing and materials management division reviewed Strabag's submission "in accordance with all relevant policies in force at the time" and it "was deemed to be compliant."

Ross said the city was reviewing details of the sanctions the Canadian government imposed this month as well as "the requirements of the current contract."

Asked Wednesday whether Canadian government agencies should cancel their contracts with Strabag, Prime Minister Justin Trudeau said the goal of Ottawa's sanctions on Russian oligarchs is not to undermine Canadian interests.

"Our focus on these crushing sanctions that we’re applying to the Russian economy, to Vladimir Putin himself and to all who have supported and enabled him, are on getting at the people responsible for this illegal, terrible war in Ukraine," he said.

Trudeau said the government would ensure "Canadians who are doing important work in building a strong future" for the country are "not impacted" by his government's measures against the Russian elite.

Premier Doug Ford, whose government is co-funding the Scarborough subway with Ottawa, was standing beside Trudeau but did not add to his answer.

Strabag has been active in North America since 2005 and has worked on at least seven projects in Canada collectively worth more than $2 billion.

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