Urban regeneration as new driver of public private partnerships in Russia.
Until recently the approach to infrastructure development in Russia has gravitated towards the key elements of infrastructure, such as roads and airports, rather than the development of territories as a whole. However, the latest trend is a move towards the complex development of territories, and the cluster approach, which is driven by the need to deal with national economic imbalances and bottlenecks at major federal hubs.
This is in line with the global trend, where new cities, urban regeneration and extension of existing cities have to be delivered in a highly-planned way to match demand, rather than through organic growth. By way of example, China alone is expected to urbanise 400 million people over the next 25 years, which equates approximately to a new Moscow being developed each year within China over that period.
In certain jurisdictions, such as England, there is a successful track record of urban regeneration, including the conversion of Liverpool from a port hub into a post-industrial cultural city with a focus on the tourism and the similar urban regeneration programmes in Manchester, Glasgow, and Cardiff.
There is also considerable successful experience of large scale urban regeneration in the USA in cities such as Boston, Baltimore and Pittsburgh. It is true to say that these projects have focussed on dealing with the consequences of economic decline at a local level often revitalising decaying industrial areas using a variety of public/private collaborative structures and taking advantage of the flexibility available to American local authorities in the ways in which they can support economic development- flexibilities that are not always available in other jurisdictions. Whilst this has meant that there can be no simple read across from ,in particular, US experience to other parts of the world, a number of very prominent North American developers and leisure operators have replicated elements of their business model in Western Europe, suggesting that in the correct legal environment these models can be transplanted.
Likewise there is substantial experience of the role that major railway stations can play in successful urban regeneration schemes. This is not without ironies as it can be argued that the stations themselves, in their original configurations , often play a role in local urban decline. High quality station redevelopment focussing not only on the station as an operational asset but also on the opportunity to create a new urban quarter with a range of economic and social activities can act as the potentiator for significant improvements in the urban environment as well as creating economic value for all affected stakeholders. This is true not only of city centre terminus stations but also, in a somewhat different context, of intermediate stations on new build rail, particularly high speed rail with the formation over time of new communities around the transport node.
Investment opportunities and legal models in Russia
There is a wide range of current projects of this type in Russia, including:
The incorporation of OJSC «Northern Caucasus Resorts» as a regional development player
Preparations for the FIFA 2017 Confederation Cup and FIFA 2018 World Cup, involving 13 cities
The federal program for the modernisation of “monocities”, relating to 335 cities
The need for urban regeneration in 130 cities that ceased being closed military facilities in 2011
City master plans for urban regeneration in Perm and some other cities
Moscow’s expansion plans, backed up by intense negotiations on infrastructure development
The scale of investments is quite significant with OJSC «Northern Caucasus Resorts» alone planning to invest approx. $31 billion in the region, in combination with state and private funding, with a number of Austrian, South Korean and French investors expressing interest in investing.
At the moment the main legal models used for such projects are:
Wholly state owned project companies or state corporations, initially capitalised through charter capital contribution, with subsequent partnerships with private investors.
Concession agreements based on the build-own-lease-transfer system.
Special economic zones.
Federal and regional programs, that envisage mixed public and private finance.
Funds accumulation in federal/regional investment funds, for further concession investment following competitive tenders.
Incorporation of private equity funds in the form of closed unit funds combining state and private unit holders.
Bonds issued by project companies, guaranteed by the Russian Federation, known as infrastructure bonds.
Traditionally, the bulk of infrastructure investments in the form of public private partnerships have been allocated to the Moscow and Saint-Petersburg regions or the transit routes between them.
However, this is changing quite rapidly and the factors contributing to it are as follows:
A Vnesheconombank program supporting regional governments through financing initial costs associated with tender documentation and planning stages of projects with an annual budget of 2 billion Roubles, allocated through OJSC «Federal Center of Project Finance»,
The allocation of federal funds to deal with the emergency upgrade of communal infrastructure, involving private public partnership requirements as a pre-condition of funding,
Development of regional legislation on public private partnerships, including over 33 regions with relevant legislation,
Large-scale projects in the Far East, relating to the APEC 2012 summit and ongoing development of infrastructure around the Sochi region, relating to the 2014 Olympic games,
Natural and technological disasters across the country necessitating urban regeneration or at least infrastructure replacement.
We expect this trend to continue parallel to the growth of regional financial and industrial groups and investment programs for poorly populated regions in Siberia and the Far East, which have good prospects.
Advantages of urban regeneration for the state, investors and communities
In the current volatile economic environment of inflationary concerns, capital market turmoil and resurgence of interest in gold as an investment vehicle, investments into urban regeneration can be presented as an alternative investment opportunity.
Last but not least, a systemic approach to urban regeneration allows the adoption of the latest energy saving technologies, such as smart grids, and can incorporate the benefits of scale of economy in comparison with limited investments into the most outdated facilities on an ad hoc basis.
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