People In The Know: Balancing the Center

Regardless of the existing difficulties arising from the compact planning and acute shortage of vacant space, the Central District has always been closely watched by investors. Which companies are most active in the district today?

There are number of companies – Glavmoststroiinvest, Ingeokom, Krost, Masterok, Barkli-Stroi, Sotsialnyye Investitsii (Social Investments), Stroiinkom K. I would like to highlight Kapital Grupp for their serious and thought-out approach and high quality of construction. Many of their projects have received approval from the public town-planning committee under the Mayor of Moscow.

Mayor Yuri Luzhkov said Kapital Grupp would secure the best land plot for implementing one of its most widely publicized projects – the construction of the Russky Avangard residential, retail and office complex. Has the Mayor’s office decided on the location?

That issue is currently being considered. It is quite likely that the company will receive a plot in the vicinity of Krymskaya Naberezhnaya [embankment], whereupon the Russky Avangard project will once again be examined by the town-planning council – this time in connection with a concrete location. The project is very attractive and requires a highly responsible approach, which means no errors.

The Inteko construction company (owned by Yelena Baturina, wife of Yuri Luzhkov) has been very active in Moscow lately. What are your views on that?

I would not say that this company secures most of the development projects in the city center. Inteko owns a number of projects, which it has been awarded at investment tenders. It does a good job and the development of the Sretenka area proves that.

There were certain problems regarding the development of that area, but Inteko, together with the Glavmoststroi construction company, has worked out a solution whereby all the households in the district have kept their apartments. We welcome that kind of approach.

Apart from Sretenka, what other sites in the city center belong to Inteko?

Until recently the company held the rights to the Khoroshevsky market. But, as far as I know, the company has ceded its rights to that project to another investor.

Of the investors you mentioned that are active in the city center, few have received construction sites at city tenders. How do they secure the right to construction?

There are two key options for investors seeking access to construction sites. The first option is an investment agreement that can be implemented by real estate owners or by those who have a share in an enterprise occupying the territory concerned.

In this case no tender is being held, as the owner of the estate is the investor himself, who is initiating the expansion of his property. There is no way we can invite bids for someone else’s property! This is how dozens of investment agreements are fulfilled.

Another option is for those who hold no ownership in an enterprise or real estate. In this case investors can only secure development rights at tenders or auctions in line with the Moscow government decree [No.255-PP of 27 April 2004 “On the procedure of holding tenders and auctions for selecting investors for the implementation of investment projects”].

The city tender commission and district commissions, including the Central Administrative District commission, oversee the procedure in the capital today. It is quite another matter that investment agreements signed after tenders are not always successful.

The first contract was signed in the district in 1993, when the city still had no clear-cut procedure and no experience in this sphere. Hence, development projects were largely ineffective as barely more than 2 or 3 agreements out of the dozens signed were actually implemented.

Moreover, the period of 1998-2000 even saw a situation where the city center was hit by an acute shortage not of construction sites – so scarce nowadays – but of investors willing to develop those sites. Unwilling to get mixed up with providing local residents with new apartments, they sought free sites, devoid of any burdens.

Moreover, even upon securing such a site, they used to keep it in ‘on hold’ for a long time without either vacating or developing it. These days we can no longer afford such a luxury. That is why in 2001 the district carried out an inventory of all the previously signed agreements.

What were the results of the inventory?

As many as 157 agreements were canceled in 2001. That work was of colossal significance as it considerably revived investment not only in the city center but also throughout Moscow – investors rejoiced. In 2003 17 agreements were cancelled; so far this year there have been as many as 15. On average, some 20 to 25 deals are cancelled each year, either through the courts or by mutual consent of the parties.

It is incredible that investors readily part with the rights to the district’s ‘golden’ sites…

Of course, that is not the case. Arbitration proceedings on investment agreements signed ages ago still continue. At the same time, many deals fell apart by themselves with investors moving out of the market or giving their consent to cancel the deal. In 1993-1994 obligations were often assumed in haste, without thorough preliminary work, and quite often without being able to afford the costs of construction or even being willing to build something.

How many investment projects are currently being implemented in the city center?

275 investment projects – ranging from the construction of buildings of 120-150 sqm to the development of properties of several dozen hectares – have been signed and officially registered. And, of course, given the substantial changes introduced to legislation governing relations between the city and investors, there are unlikely to be many failures to honor those agreements. Investment projects today are being implemented in two stages.

The initial stage includes choosing an investor for the project, determining the size of the site to be developed, preparing permission documents and a business plan. Only afterwards is an order issued outlining the method of implementing the investment deal and, correspondingly, relations between the parties, their shares in the project, etc.

How many sites do the district authorities plan to put up for tender in the near future?

The district plans to invite bids for the development of 62 sites, of which 24 are to be put up for tender by the end of this year. Another 38 will be offered in early 2005.

Do the new rules of signing deals with investors relieve the city of the need to control their implementation, or are such checks carried out on a regular basis?

Today I believe the time has come for a new wave of inventory-taking of investment deals. And we are now setting up a group within our prefecture that will look into them not just for the purpose of canceling some of them, but also for analyzing the responsibility of parties, their mutual obligations.

Not only the investors but the city authorities, too, used to assume certain obligations, which they failed to honor later on. And I am convinced that today, as we are aiming at building a partnership relationship with investors, we must repay our ‘debts’ to them. At the same time we are set to protect the city’s interests – the city’s share in the project has to be secured and duly registered by the city property department, and, definitely has to bring revenues to Moscow’s budget.

But ideally, of course, we should switch from occasional inventories of deals, carried out once every 3 or 4 years, to permanent monitoring. It would be better to avoid such situations where a certain site remains idle for as long as a year or two, and as soon as there is a delay in construction, investors should be offered the chance to cancel the agreement either by mutual consent or in court, so as not to waste time and not to let the city and the investors suffer.

Moscow is clearing new sites for construction mainly by moving industrial zones out of the city. What is the situation like in the Central District?

The program to rehabilitate industrial territories was launched in 1999. Such zones occupy a little over 600 hectares of central Moscow, or 10 per cent of the Central District’s territory. Over 300 enterprises are involved in the project, and the fate of many of them has already been decided. Some have undergone reforms, some have been moved to a new location.

Since 2001, when the plan for the development of the Central Administrative District was adopted – the main focus of our work – some 80 hectares of industrial zones have undergone rehabilitation. In line with the plan, by 2020 some 300 hectares of industrial estates are to undergo rehabilitation, which is more than half of these types of zones in the city center. Our first task – for the years 2001-2005 – is to free 150 hectares, of which some 128 hectares have already been rehabilitated. And I think, we will not only fulfill that plan, we will overachieve.

The withdrawal of industrial estates from the city center is fraught with many conflicts, as investors need somewhere to build, the city seeks to preserve jobs, and enterprises want to retain their business. Is it possible to preserve a balance of interests?

There is no, and there cannot be any, general scheme. Each case is considered individually as the state of affairs differs greatly from one enterprise to another. The main problem is unfriendly acquisitions of enterprises. As to the history of conflicts, they are rooted in the early 90s era of privatization. It was then that many of them opted for the path that was substantiated at that time – they began selling themselves to various companies.

They sold out their premises, establishing joint-stock companies. And today major investment companies interested in the development of new sites use every opportunity to secure rights to an enterprise and to close it down afterwards. As a result of such acquisitions hundreds of workers lose their jobs. The city’s task is to examine each case thoroughly, to establish whether the enterprise in question is viable and how it can be moved, to calculate the cost of its withdrawal to the outer limits of the city, where it can be offered modern workshops and normal labor conditions.

Who represents the city authorities in relations with the enterprises?

In the Central Administrative District it is the GUP Tsentr (a state-owned unitary enterprise). Tsentr carries out technical cooperation with the enterprises, calculates costs, oversees all the necessary paperwork.

How long does it take to determine the fate of an enterprise?

Two to three years, at best. But quite often it takes longer, especially now that we have assumed a comprehensive approach towards examining the prospects of entire residential areas, such as the Presnya, Basmannyi, and Zamoskvorechye districts.

Are the industrial territories vacated for housing or the construction of infrastructure subject to rehabilitation and re-registration?

Without a doubt, the regulations governing the use of industrial zones and residential areas differ. By withdrawing enterprises from the city we either carry out rehabilitation work, soil included, or preserve certain non-hazardous production units, like the First Watch-making Plant situated next to the headquarters of the district prefecture.

How many enterprises have actually been moved to new locations, or were most of them merely closed down?

Among those moved to new locations are the Proletarsky Trud plant, the No.5 Trolleybus Depot, the Moskars plant, the ZiL car-making plant. A special example is the Krasny Oktyabr confectionery plant, co-owned by the Guta group of companies.

The area that enterprise occupies is to become a part of the Golden Ring tourism and entertainment zone, and its fate was examined a number of times at the city commission for withdrawal, liquidation and reform of industrial enterprises.

It was decided that all the production facilities would be moved to the Babayev factory in the Krasnoselsky district. As a result, to the benefit of all the parties concerned, jobs have been preserved, the Babayev factory’s production facilities were overhauled, and at the same time, a site has been vacated in the very center of the city, on the embankment. That’s a reasonable outcome, isn’t it?

But it took a long time to settle all the disputes. The Guta group had wanted to erect a top-class residential estate on the site vacated by Krasny Oktyabr, which ran counter to the Moscow government’s plans.

The territory occupied by the Krasny Oktyabr factory is a pearl in Moscow’s Golden Ring tourism zone. And, despite the obvious advantages of constructing top-class housing, it is necessary to develop retail and entertainment facilities on that territory. That is why we need to observe the balance of interests of land owners and the city. Today much is being done to coordinate the efforts of all the proprietors and investors of the Golden Island zone.

Development of certain areas, such as public gardens and embankments, which are to be included in the Golden Island zone, is of little interest to those who hold rights to the land plots, since those areas cannot be used for commercial purposes. Will this burden be placed on investors?

Investors who own property in this zone are not burdened with obligations to finance unprofitable projects. The program is financed from two sources, i.e. by investors and by the city in line with the government investment plan. For instance, the city will finance construction of a low embankment, whereas a pedestrian area with interests in a parking lot, shops and infrastructure will be part of an investment project.

How many unfinished projects are there in the city and how will their future be decided?

Most unfinished buildings in our district are federally-owned. For example, 22, Ulyanovskaya Naberezhnaya [embankment] is by no means an investment project. It has been annoying just looking at that unfinished building for years. We applied to the Property Ministry and the Defense Ministry several times, urging them to take care of the site. At first they assured us that the Health Ministry had raised funds, but then the site was unexpectedly transferred to the Defense Ministry. It still has not been commissioned.

Why don’t the city authorities purchase unfinished buildings from the federal government? The Property Ministry has already removed dozens of similar projects from its balance by selling them to investors.

The Moscow mayor also suggested that solution, but as far as I know the buy-out procedure has not yet been established. As long as there is a will, there is a way of dealing with unfinished projects that are of interest to investors.

But what is to be done with the numerous properties occupied by federal governmental agencies where nothing is done to maintain and conserve buildings? For example, the Razumovskys manor in Basmannyi District.

That unique, historic manor, which requires serious restoration, is currently occupied by the Federal Sports Agency. Another example is the Armo industrial zone and plant. The federal authorities don’t have the funds to maintain their properties.

It has been said more than once that to establish a party responsible for a certain territory a delimitation of land between the regions – members of the Russian Federation – must be carried out. Then Moscow will have its territories with the relevant rights and duties, and the federal authorities will have theirs. Incidentally, most of the territory of the Central Administrative District may actually be federally owned, according to preliminary estimates.

Commenting on the size of federally-owned territories in the city center means pouring extra fuel on the flames of disputes that the parties are already involved in. There are commissions on monuments, on land; they have achieved certain results in their work. Some issues remain unsettled but I think a solution will be found. This work is a continuous process.

The Central Administrative District is a construction site for numerous commercial real estate projects, such as shopping and business centers. Apartment buildings erected here are top-class residential estates only. Has there been a decrease in the population?

The population in the center is not decreasing, and within two or three years it may even grow by 10-15 per cent. No one is set to evict people from the center. We have been and will continue implementing socially important projects, building skating rinks, stadiums, and not for the ‘privileged’ but with free admission and open to all. Why would we spend budget funds on such projects if the city planned to curtail residential areas in the district?

Has there been a drop in housing construction lately?

Annually we commission 300,000 sqm of residential space, of which 70,000 to 80,000 sqm is financed from the budget. In a year or two that share will be even higher, some 130,000 sqm.

Which territories are to be used to expand the construction of municipally-owned residential space?

This year we will present the mayor with a suggested program for the building of new residential houses on the territories occupied with 5-storied houses that are not subject to dismantling.

We have prepared a plan enabling the city to carry out construction not at the expense of investors, who show little interest in it, but at the expense solely of the budget revenues from the sale of individual residential estates in expensive areas of the city. We have calculated that implementation of that program would enable us to increase the available residential space by 2.5 to 3 times.

This will be enough to ensure that all the residents of houses subject to dismantling remain in their native micro-districts instead of being forced to move out of the city center. Apartments in newly-built houses will also be offered to the residents of dilapidated houses in the city center where expensive residential estates are being erected. As an example I can cite Rogozhskaya Street in Tagansky District, where not a single dispute flared up and no lawsuit was filed after the residents of houses subject to dismantling had to leave their apartments as they only had to cross the road to their new flats.

What, in your opinion, brought about the resignation of your predecessor, Gennady Degtev, as the district prefect?

I do not think this could possibly be connected to a poor performance by Gennady Valentinovich. He is a very strong manager, and for me he is, in fact, a teacher. Besides, in a sense, he has been promoted, because he has been appointed to the city tender committee, which in many respects defines the policy and ideology of relations between investors and the authorities. I cannot say what prompted the mayor to move Degtev to another post, and I will not and cannot discuss any of the rumors circulating in the city about some personal conflicts my predecessor was allegedly embroiled in.

Extra information

Sergei Baidakov was born in 1965 in the town of Balashikha near Moscow. He graduated from the Moscow Energy Institute and the Moscow State Academy of Law. Baidakov has been working in government structures since 1993. In 2002-2003 he held the post of the first deputy head of the Central Administrative District. In December 2003 Baidakov was appointed prefect of the Central Administrative District.

Sergei Baidakov: “Nowadays the center of the capital is developing rapidly, and, indeed, the interests of investors and those of the Moscow born and bred collide. Those who were born here are not willing to move out, but protecting and taking investors’ interests into consideration is no less important. They seek to secure sites in the center for their investments to bring higher profits. That is why it is necessary to observe the balance of interests.”