Money Growing: On Greater Life of Cultural Heritage

The famous monument of history, culture and architecture – the resplendent Taj Mahal mausoleum in India, recognized as part of the world’s heritage, has been run by a private investor – Indian Hotels Company – for two years now, PricewaterhouseCoopers reports. The government retains ownership in this outstanding monument but the task of preserving it in a worthy state is entrusted to entrepreneurs. Berlin’s famous landmark – the Victory Column – is also run by a privately-owned company Monumentals. The company carries out routine repairs and adjusts it to various uses. The federally-owned monument is built on a plot owned by the federal government. Belvedere Palace on Pfingstberg in Potsdam is owned by the foundation for Prussian Palaces and Gardens in Berlin & Brandenburg. The building is rented by a not-for-profit organization Foerderverein Pfingstberg, which oversees capital and day-to-day repairs and operation of the palace. German Technical Cooperation, officially known as Deutsche Gesellschaft f?r Technische Zusammenarbeit (GTZ) GmbH, reports that businesses have already donated over 8 million for Belvedere.

Many well-known sites of historic and architectural heritage across the globe are operated by commercial companies. In some cases investors are also granted leaseholds or even freeholds of those properties. Those schemes for operation of sites of high historic and cultural values are described as Public Private Partnerships. A conference focusing on PPPs in culture held here in February agreed that this form of cooperation between businesses and the state is quite wide spread nowadays.

Things Get Moving…

In early 2007 Russia witnessed yet another turning-point in what concerns protection of the nation's heritage. The federal law No 258-FZ, introducing changes to federal laws with a view to a more clear-cut delimitation of powers, partially eliminated gaps in legislation governing protection of historic monuments. The new law examines a number of legal provisions dealing with monuments of historic and cultural value. Amended provisions are to come into force in 2007 through 2008. The key achievement of the new law is perhaps the move to lift the ban on sale of federally-owned monuments to private owners. Hitherto, private investors were allowed to acquire historic estates, palaces, mansions and other valuable properties of municipal or regional significance. The second important novelty is the move to compile a full list of valuable properties, federally-, regionally- or municipally-owned.

Businesses and charity groups were excited at the government’s plans. The idea of creating PPPs for the purpose of protection cultural heritage sites was put forward immediately both by market participants and state officials. Kirill Androsov, deputy minister for economic development and trade, is seen as one of the advocates of the scheme in Russia. However, the PPP model, as one can clearly see, builds on the foreign experience. The key issue discussed at the conference convened on the news from the lawmakers in late February was whether PPPs would take root in Russia. Officials stepped up their campaign urging businesses to put up cash for cultural heritage and pledging market-based rules of the game to them.

Boris Boyarskov, head of Rosokhrankultura, the government agency for conservation of historic and cultural monuments, believes that in view of the lack of cash PPPs are the only solution. Acting in tandem with businessmen, the government offers them an opportunity for further growth, provides administrative support and either rents properties out to or commits them to trust of private investors.

In previous years the government behaved itself regarding historic monuments placed under federal protection as the dog in the manger. While properties fell into decay government bodies had no cash to repair them; at the same time officials were afraid to entrust private investors with operating them or take over ownership in them. While officials lingered Moscow has lost its historic landmarks such as the buildings of Voyentorg department store or Moskva Hotel. Manezh caught fire, but it was not before the blaze erupted that officials admitted that the building had not been insured. The federal law No. 258 contains a provision on insurance of historic monuments. Not long ago a historic smithy in Oruzheiny Pereulok [side-street] was pulled down. It was dismantled by a developer raising a shopping center on the site. In a move that proved to be entirely unexpected for the public historic vending stalls near Red Square have been destroyed, too. Other sites are falling into decay. Suffice it to cast a glance at the temple of Holy Martyr Kliment near Tretiakovskaya metro station. For many years the edifice has been falling into ruin.

Russia is losing its monuments as a result not only of evil intentions of certain investors but also due to normal wear and tear.

Tver Experiments

Regional authorities welcomed the federal government’s move to lift the ban on sale of federally-owned monuments, as in the long run that means they may secure ownership in some of them. For the provinces historic sights mean prestige and a boost to travel industry, and partially, to their economy growth. Tver Region has proved to be the first to encourage PPPs in that sector. Addressing officials and business consultants attending the conference at the Tretyakov Gallery in Moscow Tver governor Dmitry Zelenin reported on the progress of preparations for the mass sale of monuments in his province. “It is essential to use the economic potential of our historic heritage; in recent years we are building a tourism infrastructure in our region and look for efficient operators for historic properties," Zelenin said. Tver Region has over 10,000 heritage sites, excluding 14 historic towns, he said. The government being unable to maintain that wealth, some of those monuments have gradually fallen into ruin. But for two years now the regional government has practiced various schemes of trust management for such properties.

Operators are entitled to remuneration and reimbursement of costs – at the expense of proceeds from commercial uses of properties. For example, the pilot project by Tver officials and the National Center for Heritage Trust envisages transfer of a complex of buildings of Catherine II's Putevoi Dvorets (Travel Palace) in central Torzhok to trust of private businesses. The objective is to regenerate territories of the part of the city, as well as maintenance of the historic edifice proper. Market experts believe that the example of the Putevoi Palace in Torzhok is rather an exception to the rule. For the time being Russia still has no laws governing trust management of historic monuments.

Authorities in Tver have even launched a far-reaching program for revival of Tver manor houses and a project aimed at preserving wooden architecture. The Tver branch of the State Slavic Culture Academy is set to establish a department that will train managers for conservation of historic and cultural heritage.

The essence of PPPs, in Zelenin’s opinion, is cash and efficient managerial decisions made by businesses, transparent regulations, clear-cut rules of the game and administrative decisions on the part of the government. The core is in mutual benefits for all the parties. For the time being all rental proceeds from state-owned properties go to the budget. But private businesses need incentives. The forms of partnerships may vary from case to case, the most favorable options being management, letting or ownership.

Disadvantages Remain

The government bodies, it appears, are ready to cooperate but they are still reluctant to let investors make money on cultural heritage. “We are not afraid but we have misgivings about giving those properties away because we are aware of implications the sale might have,” Boris Boyarskov admits. “Monuments do not suffer when they fall in the hands of someone who cares." Most importantly, all obligations undertaken by investors must be included in sale agreement and measures must be taken to ensure effective inspection of management and operation of historic buildings up to the seizure of the property and reinstatement of the government’s right to them. Many towns and provinces in Russia still have no specialized services in charge of conservation of historic monuments.

That is precisely what the Public Chamber of the Russian Federation tried to warn the federal government about before the federal law No. 258 came into force. The gaps in legislation governing obligations of government bodies and private investors in connection with conservation of historic and cultural monuments still remain. It is also crucial to make sure that temples and manor houses are not used as recreation facilities, as was often the case during the Soviet era. Moreover, no sale is possible until the list of all monuments in all categories is compiled. Russia still has no comprehensive "inventory" of its heritage.

Article 48 of the federal law No. 258 says that under the terms of conditions of sale the new owner of a historic property undertakes to preserve it, which constitutes a limitation of title to the given property and is stated in a special paper – the conservation order. This paper is issued by government bodies in charge of conservation of monuments. Those are the Culture Ministry, Roskultura and Rosokhrankultura. The same document also spells out requirements for maintenance and conservation. The law contains a provision on delisting monuments which entails cancellation of the conservation order. But as long as there is no such list there is nothing to delist. The criteria for inclusion of properties in the list of heritage are also unclear. In other words, it transpires that for the time being there is nothing to protect in this country.

Olga Poleshchuk, lawyer at PricewaterhouseCoopers, says that without the list of heritage trust managers or tenants will find it hard to raise cash, such as bank loans, for example, required for maintenance and conservation of those properties because of ambiguity as to title and conditions set out in conservation orders. Denis Nozdrachyov, head of project finance at Vneshekonombank's investment banking directorate, says: "We are interested in projects for reconstruction and restoration of monuments, especially such as have clear legal basis and where land beneath those properties is privately-owned."

Heritage List Woes

One of the reasons to convene the February conference was the task regional officials and municipalities had been given under the law No. 258 to compile lists of monuments of federal significance across the country before July 1, 2007. Those lists are to be submitted to the Culture Ministry and the Russian Federal Property Fund (Rosimushchestvo) that will revise and reconcile them and send them back to regional governments, deputy minister for culture and media Dmitry Amunts explained, although as he spoke he did not care to conceal his disappointment at the adopted procedure. But the reconciliation of lists alone does not mean Russia will obtain a single register of historic properties. Unlike primary lists the register contains a detailed data on each property, included in a conservation certificate or a 'passport'. “Then we will wait for the government to issue a decree on the single register of federal cultural heritage, and nobody knows when this decree will be issued," Amunts concluded.

Data on monuments of federal significance are to be provided by regional governments along with their proposals, while the lists of properties awarded that status are compiled by federal government bodies. Specialized authorized services in the regions are entitled to decide which monuments of local significance are to be included in the final list. But the federal government still will have the final say.

Beginning July 1 delimitation of ownership is expected to begin at full pace. The authorities will also compile a list of properties which are not subject to sale at all.

Governor Zelenin has noted that the majority of historic manors in Tver are federally-owned but the title to them is not duly registered at the Federal Registrar Service, which impedes their protection, maintenance and renovation. Besides, there are no clear-cut criteria for delimitation of ownership into federal, regional or municipal ownership.

In the middle of the session a well-known conservation activist and chairman of the Russian Association of Privatized and Private Enterprises Grigory Tomchin rose from his seat. He told those in the presidium that they, i.e. government agencies would never be able to collect enough cash to afford compilation of the single register of all monuments. “And while we are working on pilot projects all our monuments will collapse,” he said. Tomchin urged the government to admit its impotence and to begin with compiling a register of the most run-down properties. The task of collecting data on each monument for the purposes of their ‘passportization’ needs to be entrusted to private investors, he continued. He also urged the government to speed up adoption of the law on trust management, introduce a number of changes to the Land Code and issue a document restricting public access to monuments in private ownership. If all those steps are taken the program will yield results sooner. The presidium welcomed Tomchin’s suggestion that a separate register should be compiled at the expense of private investors and immediately instructed him to take charge of that work.

Fundraising Fraught With Losses

Government officials believe that in the long run the market of monuments will take shape in this country. In the meantime, certain entrepreneurs are already making attempts to make money on heritage, although this is not easy. It may take a decade for such projects to pay back. Unique examples are to be found in Tver where Konkor Group, the developer of the Yakhroma winter sports park near Moscow, runs two manor houses. In Kalyazin, the group has acquired and refurbished a ramshackle city manor house and converted it into a leisure facility. The local authority reimbursed the cost of regeneration of historic properties to Konkor. Earlier Konkor announced a plan to convert the historic estate Znamenskoye-Raek – the property rented by the company – into a hotel. The estate, that is a monument of federal significance, is currently undergoing reconstruction worth several millions of dollars. The participants - pioneers of the new market – are well-known. Among them are Olga Troitskaya-Mirkovich who has set about redeveloping her family estate near Tula, or Mikhail Lermontov, descendent of the poet who has brought order to Serednikovo country estate outside Moscow, entrepreneur Ivan Sinyushkin who opened a hotel in once a derelict mansion in Rostov Veliky, Gelos Auction House and banks such as Bank of Moscow or Impexbank that provide cash for restoration of historic estates. In Moscow, investors are believed to have taken over virtually all historic properties. But there are still many manors in the province. The Russian Estate Revival Foundation, for example, has been working continuously to detect derelict historic properties.

Hitherto, the main obstacle for businessmen was the government-imposed ban on sale of monuments under federal protection. But although it has been lifted other obstacles still remain. If for example Russia were able to guarantee the inviolability of ownership in such properties and succession rights, investors and developers would literally fall on that market. But for the time being investors who fund restoration works do not even enjoy any special benefits although such proposals have already been voiced by some lawmakers.

Another obstacle for revival of historic manors is the cost of development of conservation zones imposed on owners or users of properties, experts say. It transpires that having spent cash on acquisition the new owner is also obliged to pay for restriction of their rights to those territories. With such an approach it is unlikely that the government will find investors soon. The principle of delimitation of ownership in monuments of landscape architecture – gardens and water features on historic estates.

Coming to Terms

The February conference saw some debates on tax cuts. Some of the delegates spoke in favor of privileges for smart investors. Others, mostly state officials presiding over the conference, rejected the idea. In the opinion of Amunts, tax cuts are effective if introduced universally, not just in some particular segment. Or else, that would lead to emergence of offshore firms and investors would vie with each other for securing the right to those benefits. After all, it would be better if the government could guarantee investors a certain minimal rate of return from commercial uses of monument, he says.

In other countries things are simpler. In India, investors are more interested in running and renting monuments than the government. Furthermore, businesses are required to prove to the government that it would benefit from cooperating with them, PricewaterhouseCoopers India director Nitin Nagpal has reported. India has 26 properties placed on the world’s heritage list. The government bodies responsible for their conservation and maintenance are the ministries for tourism and culture and the archeological service. Market participants acting in partnership with the state are able to share their know-how and expertise as well as cash. On their part, the authorities provide loans on preferential terms, develop national standards, legal regulations and offer advertising support to investors. The most successful example of an Indian PPP is Heritage Hotel. Several major hotel operators were interested in the valuable historic building. Incidentally, hotel projects across the globe are believed to be among the most effective PPP models; there are quite a few examples of historic mansions converted into hotels.

Nitin Nagpal cited several examples of PPPs known in his country. Those are servicing or management agreements whereby investors are granted tenancy rights for the purposes of construction, maintenance or restoration of historic buildings. Another form is a concession where a property is awarded to the winner of a tender, undertaking to build or refurbish the building and operate it for a certain period for a fee, without obtaining ownership in it. Finally, investors may secure private ownership in the monument.

Partnerships are established for the purposes of preserving monuments which the government cannot afford to maintain. That was what happened to Taj Mahal. At first, the public opposed the idea of transferring the landmark building into trust of a private company. But afterwards protesters calmed down.

Foreigners Will Help Us Out

When Grigory Tomchin was given floor at the conference he recalled how he had spoken in front of a forum attended by about a hundred of German businessmen in Germany. All of them, he said, had expressed readiness to join Russian PPPs as soon as Russia eliminates gaps in its legislation.

And Germans did arrive in Russia after all. But for the time being their role here is that of consultants, not investors. The project Twinning is aimed at helping governments across the globe to preserve their cultural heritage. “The program was launched in Russia after the Ministry of Culture asked the EU for assistance in consulting PPPs being established in your country," Uwe Roediger Resident Twinning Advisor, has reported. “Germany won the competition held by the EU.”

In Russia, 50 German and local consultants joined the project. They will consult businesses and government bodies until the end of 2007, helping them to develop standards for the nascent market, attract tourists and improve legislation. Consulting services are provided at the expense of the EU, Riediger says.

Today, Twinning's experts provide consulting services to three commercial projects in Russia. Those are the international resort Yasnaya Polyana headed by Leo Tolstoy's descendant Vladimir Tolstoy, a project to establish the National Trust for operation of historic monuments proposed by the Russian Estate Revival Foundation, and the National Lermontov Center in Serednikovo, launched by a PPP already established in Russia.