Investment Projects Play Snakes and Ladders
Published: December 12, 2012 (Issue # 1739)
The new passenger terminal at Pulkovo Airport has been built, and work is now underway on the terminal’s interior.
While 2012 has been a rather conservative year for the launch of new investment projects in St. Petersburg, the city’s three largest ongoing investment developments enjoyed differing fortunes, analysts said.
“It’s hard to say that 2012 was particularly successful for the city’s new investment developments,” said Dmitry Kumanovsky, head of the analysis department at the LMS investment company.
“After the changes in the city’s administration, investors preferred to take a pause to figure out the business priorities of the current authorities. For instance, after the new city government said it would give priority to the major current projects, a number of investors switched their plans to new projects in the Leningrad Oblast. The difficult situation on the financial markets also hindered investors from plunging into new projects,” Kumanovsky said.
Among the successfully developing major investment projects in the city, experts unanimously named the expansion of Pulkovo Airport, the ongoing construction of the Western High-Speed Diameter toll highway and the continuing enlargement of local car manufacturing plants.
Experts said the freezing of some of the city’s large-scale investment projects, such as the Orlov Tunnel and the Novo-Admiralteisky Bridge, which were suspended by the new city government, though initially seen as discouraging news, was in reality a pragmatic decision.
“In the current situation, when the city needs to complete huge and important projects such as the construction of the Zenit soccer stadium, the Lakhta Center business complex and the development of roads, the new city administration realizes that significant financial outlay will be required in the upcoming decade,” said Kumanovsky. “Therefore it was a pragmatic decision to freeze projects such as the Orlov Tunnel, the Novo-Admiralteisky Bridge and a modern tram network, which sounded popular but would not be effective economically.”
The never-ending, increasingly expensive construction of the city’s Zenit soccer stadium, due to be a FIFA World Cup venue in 2018, continued to plague the city in 2012. The date for the completion of the sports venue has already been deferred about a dozen times, from the initial deadline of 2009 to the current one of 2014-2015.
The construction of the second stage of the Mariinsky Theater faced similar difficulties.
Meanwhile, the biggest surprise of the year regarding investment plans was the termination of VTB Bank’s high-profile European Embankment project, a planned multi-functional complex on the Petrograd Side. The project was canceled this fall due to the state’s decision to relocate the Russian Supreme and Supreme Arbitration Courts from Moscow to St. Petersburg. They will reportedly occupy the area meant for the European Embankment project.
“The change of project won’t affect the area from an economic point of view. However, the possibility of such abrupt changes in the situation also makes other investors cautious,” Kumanovsky said.
St. Petersburg’s automotive cluster, which has given rise to the city’s label of the Russian Detroit, already numbers at least four major car manufacturing plants — GM, Nissan, Toyota and Hyundai — and is also continuing to expand.
Other important investment and development projects in the city, both private and public, include the redevelopment of the historical New Holland district; the construction of the Lakhta Center business complex; the construction of the Baltic Pearl district and Yuzhny satellite town residential areas; the Morozova industrial park outside the city, and land reclamation projects on Vasilyevsky Island and near the town of Sestroretsk.
On Nov. 29 this year, the Northern Capital Gateway consortium held a ceremony to mark the completion of the exterior of the new centralized passenger terminal of Pulkovo Airport. The new terminal now awaits interior fitting.
The main construction of the terminal was completed exactly two years after the laying of the first stone in November 2010. In December 2013, the company plans to put the new terminal complex into operation.
The new premises on the airport’s landside area, including a 200-room hotel, a business center, a multi-level parking lot for 560 cars and an open parking lot for 1,200 cars, are also to be launched in December next year.
The airport expansion project’s budget totals 47 billion rubles ($1.5 billion).
Sergei Emdin, general director of Northern Capital Gateway, said the airport development project was “strategic for St. Petersburg.”
“It is coming to fruition thanks to the active participation of the city administration, for only our synergy will allow us to finish the reconstruction of the airport in time. In turn we are going all out to have the new terminal open its doors to passengers next year,” Emdin said at the Nov. 29 ceremony.
Kumanovsky said the successful development of the Pulkovo hub was to a large extent a result of the project’s “initially clear concept and business model,” which didn’t require any revision, unlike the new Zenit stadium and the Mariinsky Theater’s new stage.
“It was the right decision to allow foreigners into the project and to implement foreign ideas in the new hub,” Kumanovsky said.
The city acknowledged that it was necessary to expand Pulkovo Airport when it became obvious that the capacity of its current facilities was not sufficient during peak times. In accordance with traffic forecasts, Pulkovo Airport is likely to process more than 17.3 million passengers by 2025 and has the potential to reach 40 million passengers by 2039.
It is against this background that the existing terminal configuration is constraining potential for long-term growth. This is due to the lack of a physical connection between Terminals 1 and 2: Pulkovo I, which serves domestic flights, is located some 6 kilometers away from the international terminal, Pulkovo II.
A new combined international and domestic terminal is now under construction in the midfield between the two independent runways. The development will involve integrating the existing Pulkovo I into the new terminal complex, so that sufficient facilities for all domestic and international operations can be accessed under one roof, enabling centralized access. The existing international terminal is expected to become a private airport.
Pulkovo authorities say that having split operations in two terminals is proving to be inefficient. Nowadays, neither of the existing Pulkovo terminals is able to accommodate the increasing demands of aviation security and handling procedures, due to the buildings’ outdated design. In addition, the current apron layout provides only 47 operational aircraft stands, instead of the 100 stands that will be required for future operations. Terminal capacity is limited by having 43 registration desks in both terminals, instead of the 98 needed.
Modern technology services will be implemented in the new terminal to help facilitate the forecasted growth.
In fact, as the only international airport in northwest Russia, Pulkovo is vying to position itself as an international hub by 2025, capable of competing with the Moscow airports.
The strategy for hub status involves attracting new airlines that would operate regular long-haul flights to St. Petersburg from Japan, the U.S., Asia Pacific and the Middle East.
THE ROAD TO SUCCESS
The completion of the Western High-Speed Diameter, a 47-kilometer toll highway under construction, is also expected in 2013-2014.
The road will connect different parts of the city with the aim of easing congestion. A section of the highway is already open for traffic.
Kumanovsky said the construction of the road, which will also connect St. Petersburg’s port to other highways, would ultimately lead to “an increase in goods traffic and a decrease in time and cost for goods delivery.”
THE RUSSIAN DETROIT
The development of the city’s automotive cluster has been boosted by GM, Toyota and Nissan’s plans to expand their existing facilities.
The MAN plant, run by German automobile concern MAN Truck and Bus, is to begin production of trucks in St. Petersburg in 2013. Investment into the project will come to around 25 million euros ($32.3 million), according to Regnum news agency.
Maria Chernobrovkina, executive director at St. Peterburg’s American Chamber of Commerce, said construction of the MAN plant was “a good example of successful foreign investment projects in the city,” along with the opening in the city this summer of a washing machine plant by BSH Bosch und Siemens Hausgerate.
Although plans to expand the cluster next year with another plant to produce the ambitious Yo-Mobile, a Russian-made hybrid electric car that can run both on gasoline and natural gas as well as an electric motor, have been postponed, the car will still be put into production in a couple of years, Motor.ru reported.
The Yo-Mobile is the product of a joint venture between Yarovit, a producer of trucks based in St. Petersburg, and the Onexim investment group headed by Russian oligarch Mikhail Prokhorov, who is the financier and head of the project. Prokhorov plans to invest about 150 million euros ($200 million) in the venture and intends the vehicle to “break the stereotype that Russia can’t produce good cars.”
The 32 billion-ruble ($1 billion) plans of the Fiat-Chrysler concern to build a modern full-cycle plant in St. Petersburg’s suburb of Pushkin have also been reportedly terminated due to the difficult times the alliance is going through in Europe.
It seems the only remaining hope that the endless saga of the construction of the city’s Zenit-Arena soccer stadium will be resolved is the FIFA World Cup in 2018. Russia has won the right to host the tournament, at which the stadium is due to hold important matches.
Sports Minister Vitaly Mutko said recently that the authorities of St. Petersburg should impose their will and ensure the stadium is finished by 2017, when it is to host the matches of the Confederation Cup, a tournament traditionally held a year before the World Cup.
The construction of the new stadium, located at the western tip of Krestovsky Island, began in 2007. However, due to soaring project costs, construction has been repeatedly interrupted.
On Nov. 19, the city’s Legislative Assembly announced the latest estimated cost of the project to be 37.7 billion rubles ($1.2 billion), making it one of the most expensive stadiums in the world. The stadium will be able to seat more than 60,000 visitors and will eventually be a huge covered arena with a retractable roof.
Mutko said this month that the cities to host the Confederation Cup in 2017 should first be approved by FIFA, after which the international soccer body will closely follow the construction of the arena in St. Petersburg, RIA Novosti reported.
Kumanovsky, who referred to the stadium project as “the most scandalous and difficult” project in the city, said the organizers had missed a great opportunity in 2008.
“The project was begun in 2006, then during the financial crisis of 2008 they had a chance to buy cheaper construction materials, but instead they were busy revising costs at that time. A while later, prices for construction materials went up again and the organizers again had to spend time on new revisions,” Kumanovsky said.
Mutko said the construction of the stadium was the responsibility of the city, which chose the project and contractor and began the construction. Mutko said the only state interference concerned the recommendation to increase the capacity of the stadium following Russia’s victory in its bid to host the 2018 FIFA World Cup.
SHOCK OF THE YEAR
October’s abrupt cancelation of the long-discussed project for the construction of the European Embankment residential and commercial complex on the bank of the Malaya Neva River in the city center was one of the surprises of the year.
The project’s main investor, Russia’s VTB Bank, which had planned to construct a business and cultural complex surrounded by an attractive new pedestrian zone on the chemically contaminated land where the State Institute of Applied Chemistry was formerly located, suddenly and without comment terminated the 47 billion-ruble ($1.5 billion) project, which was already underway and in which nine billion rubles had already been invested.
Shortly afterwards, state plans to relocate the Supreme Court and the Supreme Arbitration Court to St. Petersburg were announced, and Kommersant daily reported that the site of the European Embankment project had been earmarked for the courts.
According to the new plan, the territory is to house the buildings of the courts and residential buildings for the courts’ employees.
The whole process of the courts’ move to St. Petersburg will cost about 50 billion rubles ($1.6 billion) and take up to four years, Anton Ivanov, chairman of the Supreme Arbitration Court, said during his visit to the city at the end of November.
The Boris Eifman Dance Palace, which was planned to be built as part of the European Embankment project, will still be built in the area. However, it is now to be constructed not using funds from the state budget but through private investment, Viktor Khrekov, a representative of the presidential administration, was cited by Vedomosti daily as saying.
Khrekov said a tender for the construction of the courts and residential buildings is due to be announced.
Meanwhile, the presidential administration is studying VTB’s documentation relating to the European Embankment project in order to determine the conditions of the company’s withdrawal, Alexander Rotshtein, a representative of VTB Development, said. Rotshtein said that if VTB were offered a role in the construction of the courts it would consider such an offer, Vedomosti reported.
The move of the Supreme and Supreme Arbitration courts to St. Petersburg appears to be part of a concerted attempt to concentrate the country’s three upper courts in one location. The Russian Constitutional Court has been based in St. Petersburg since 2008 after its relocation from Moscow.