VEB Deputy Chairman Anatoly Ballo: The State’s Support for Resorts is not our Invention

RIA NOVOSTI
30.08.2011 17:51

Will Russian resorts be able to compete with Antalya and the Alps? Is the creation of a mega resort in the North Caucasus an economic or political project? Who in fact launched the Karachaevo- Cherkess Arkhyz project? Vnesheconombank Deputy Chairman Anatoly Ballo told RIA Novosti’s correspondent about the development of tourism in the Caucasus and Russia as a whole.

- Anatoly Borisovich, was a decision to develop alpine ski resorts in the North Caucasus more economic to enable business to make money or after all it was a political and social decision to correct the current situation in this region? We know about low pesonal incomes there and high unemployment.

- I think it would be right to say that the decision was a complex one because top priority was given not only to social but above all to economic issues. It should be noted here that this project reflects the state’s policy in this sector because as part of this project almost the whole economic infrastructure had been already funded under the Federal Target Program aimed at developing the South of Russia. In particular, I would like to mention Dmitry Pumpyansky’s contribution to this project (Board Chairman of TMK and Sinara Group). As late as five years ago, long before the Government announced strategic measures for developing resort in the North Caucasus he came up with an idea to create the Arkhyz resort. And he didn’t pursue any political goals and his business – smelting and pipe industry is not related to tourism at all. But he became enthusiastic about the idea and made us enthusiastic about it too. Alexandr Khloponin – Presidential Representative to the Northern Caucasus Federal District was aso highly instrumental in implementing the project. During the year he initiated a number of interdepartmental conferences that helped us to resolve problems associated with the project. It’s worth noting that we were lucky with Arkhyz project (here I mean the first stage of construction), we set the right course and now it is a pilot project on the success of which depends the future of the entire comprehensive program aimed at creating a tourist cluster in the North Caucasus. VEB together with Sberbank and the Russian Economic Development Ministry participated in setting up JSC Resorts of the North Caucasus and now is closely cooperating with it. And in accordance with the decision taken by VEB’s Supervisory Board and as part of our “expansion in the region the North Caucasus Development Corporation was also founded which acts as a co-investor in the project to develop the Arkhyz alpine ski resort.

- Usually banks’ participation share in large-scale projects is 50% and more. What’s VEB’s participation share in the project? Are there people in Russia who are interested in investing huge money in the Russian tourist industry? And what might a payback period of such a project be for business?

- I’ll start from far. An idea of developing resorts in our country did not emerge spontaneously. VEB participates in the Long-Term Investors Club whose members are development banks of almost all industrialized countries as well as Brazil and China. As a member of the Club we constantly participate in consultations, specifically, we have close contacts with France’s development bank Caisse des Depots et Consignations (CDC). Two years ago when we held regular consultations we got to know that France’s development bank is a 100% owner of Companie des Alpes. The company manages alpine ski resorts in a number of French regions. It is very indicative and important that in such country as France it is a development bank rather than a private investor that owns such an operator. In other words, it’s not our invention. And this example shows the extent of attention that is paid to such an important economic sector as tourism in industrialized countries. In our country tourism lacks attention and that is why most Russian citizens, well-to-do people, spend their leisure time and Christmas holidays abroad. And the reasons are quite clear – we failed to create a relevant infrastructure. Nevertheless, we should keep in mind that even in France investors are not ready to invest considerable amounts of money (and here I mean huge amounts of money) in creating sports component of tourism and recreation. The reason for it is that although payback periods in the hotel and service sectors are rather long – on the horizon of 10 years, payback periods for investments in the sports component are a lot longer and might amount to 15-20 years. JSC Resorts of the North Caucasus was founded to ensure the creation of the said sports component.

As far as VEB is concerned, the Bank is to fund the project aimed at the construction of the first stage in the amount of 5.1 billion rubles. VEB’s credit will cover 10% of costs on building infrastructure (alpine ski and engineering infrastructure) and – 85% of costs on commercial real property (hotels and etc).

The construction of the Arkhyz resort first stage – Romantic village has already started (through using funds of the Arkhyz-Sinara company). As early as this winter three hotels, a chair cableway and two alpine skiing tracks are to be opened.

Payback periods are directly linked to holiday prices. Prices for holidays inside Russia are rather high but as investors want their money back prices have to be further raised and demand will fall. And in this case what are you supposed to do to address this contradiction?

- It’s a very difficult question. We dealt with this problem. In fact, holidays, say, in Turkey are a lot cheaper. Why? For the most part it’s a result of package holiday solution when a tour’s prices, for example, include a price of air tickets which are subsidized and maybe through using government funds. Some things have been already done in this respect in Russia. It is known that air flights from the Far East to the country’s central part are subsidized by the state and this contributes to increasing passenger flows on the said routes. So, while making first steps towards developing tourist infrastructure we are also looking to developing airport infrastructure, specifically, to the project aimed at modernizing the airport in Mineralnye Vody. In fact, for quite a long time we have been actively dealing with air terminal infrastructure and at present, we are involved in projects aimed at modernizing five large airports. The Bank views its participation in each of the projects in a broader context rather than in isolation. So, the Bank’s funding of the Sochi and the Yekaterinburg airports modernization and expansion is not only our contribution to the 2014 Winter Olympics and to preparations for the 2018 World Soccer Cup but also a step towards developing the country’s infrastructure as a whole as well as towards increasing transport availability and building advanced infrastructure of tourist business.

We have to make purpose-oriented efforts to create a whole chain of services to make a tourist and any person feel comfortable at all stages of his journey – on his coming to an airport, on a flight, on arrival at destination and on holiday at a resort. And of course one of the most important things is that air ticket prices should compete with those on flights to Turkey, Austria and etc.

- The project is really very complicated, we are for example in contact with tour operators who now take tourists to alpine ski resorts and they have their own idea of this business. What’s the Bank’s position on the issue? Could you tell us what problems one can come up against upon implementing and perhaps launching this project because it’s no secret that they don’t have highly qualified personnel and there are security problems in the region? What stumbling blocks can you encounter upon launching this project?

- There is no doubt that the project is very important for Karachaevo-Cherkessia both in terms of addressing employment problems and training personnel. Now, there is an issue on the agenda relating to opening an independent educational facility on the basis of local educational institutions to train professional personnel for a resort sector that is being created.

It is estimated that only at the first stage of the project’s implementation 700 new special jobs will be created besides the fact that construction workers and engineers will work there. As far as security is concerned, it’s quite evident that if it isn’t ensured the whole idea will be doomed to failure and the project…

- And the project will not happen?

- The whole idea will be challenged. In fact, without reference to a specific project, it’s quite evident for us that we have to make purpose-oriented efforts to persuade people to spend their holidays in their own country. In various countries they persuade people to spend holidays in their own countries as they persuade to follow the principle: “Buy American”, “Buy French” and etc. And it has nothing to do with jingoism. It’s a reasonable and economically substantiated business imperative.

Information on the Arkhyz project

- Under the program of creating a tourist cluster in the North Caucasus the Government is planning to set up six tourist-recreational economic zones in the region and in the South of Russia. 60 billion rubles are to be allocated from the federal budget to develop them. These facilities are located in Karachaevo-Cherkessia, the Krasnodar region, the Republic of Adygeya, Kabardino-Balkaria, North Ossetia and Dagestan.

The Arkhyz tourist and recreational complex in the Arkhyz gorge is to become Russia’s largest world-class alpine ski resort. Under the project the all-season alpine resort will have modern infrastructure capable of receiving 25 thousand people at any one time and it will occupy an area of 16 thousand hectares. The resort is expected to be comprised of four tourist villages connected by a transport system of 69 lifts and cableways with a capacity of 140 thousand people per hour. It will have a network of alpine skiing tracks of different complexity with a total length of 278 kilometers and a wide public catering and public amenities network, balneotherapeutic and SPA centers and fitness complexes.

The project’s value might amount to 80 billion rubles. The entire resort is to be built by 2017. The project’s implementation will make it possible to increase personal incomes and create up to 10 thousand jobs, raise substantial investments, increase tax revenues in the budget of Karachaev-Cherkessia (tax revenues in the budgets of all levels will approximately amount to 850 million rubles during the implementation of the project’s first stage alone).

Information on VEB’s projects in the North Caucasus

Vnesheconombank’s main objective in the North Caucasus is to be a major source of funding the most promising and needed projects and help to raise large-scale investments. To this end, Vnesheconombank established a subsidiary – the North Caucasus Development Corporation designed to undertake active investment activity in the region. The Bank opened its representative office in the city of Pyatigorsk operating in all constituent entities of the North Caucasian and it acted as a co-founder of the Resorts of North Caucasus company set up to build a tourist cluster. VEB’s top-priority line of activity in the North Caucasian Federal District is to fund projects aimed at creating a large-scale tourist cluster.