INTERVIEW: Big plans for Moscow

By bne IntelliNews April 18, 2012

Ben Aris in Moscow -

Since Yuri Luzhkov was ousted as Moscow mayor in 2010, the development of Moscow has been on hold. No new construction permits have been issued and real estate prices climbed slowly as a result. But the new administration under Mayor Sergey Sobyanin is busily working on a new plan and in the next six months Moscow City Hall will go into action. Muscovites, used to ignoring traffic rules, parking on pavements or condemned to hours-long commutes on the trolley bus, are going to be in for a shock if half of the new measures work.

The changes put in place by the new team have already paid dividends. Moscow jumped up six places in AT Kearney's "2012 Global Cities Index", the biggest increase of any city in the world. New York, London and Paris stay at the top three places respectively, but Moscow moved up to 19th place from 25th last year out of a total of 66 cities surveyed. Beijing took 14th place overall, up one rung from 2010, while Sao Palo was ranked behind Moscow in 33rd place, up two places from the last survey. Mumbai was ranked in 45th place.

Expect further improvements in next year's ranking after Moscow's new development plan is approved this September. At the end of 2011, City Hall put out a tender to private firms to draw up a new development plan for the city and more than 200 firms - Russia and foreign - bid. The city has awarded 10 contracts to companies from around the world, with some local representatives, to work out the details. "The strategy will be ready in September, which has to be then presented to the city government. But the main conclusions are already apparent," Moscow's deputy mayor, Andrei Sharonov, tells bne in an exclusive interview. "There are both risks and opportunities. The biggest risk is the gap between the economic opportunities the city offers as one of the globe's 10 biggest metropolises. But the risk is the quality of life is still mired in the 70s or 80s. The quality of life is too low for a city of this size."

Four key areas

Many real estate participants have been buoyed by Sharonov's appointment and credit him as the force behind the slowly emerging changes to Moscow. With his short cropped, greying hair and a no-nonsense, down-to-business manner, Sharonov is very different to his predecessors. Under Luzhkov the deputy mayors were cut from the classic "red director" cloth and clearly spent more time enriching themselves than worrying about clogged-up roads, dilapidated city services or the total absence of parking at the Moscow City development that is home to many of Russia's biggest banks.

Sharonov identifies four key areas where the city needs to be brought into the 21st century: traffic, tourism infrastructure, environment, and heath and education. "Moscow used to be one of the greenest cities in the world, a third of the territory was forest and parks. But today many of these areas have decayed and are unavailable for the people to use," Sharonov says in his clipped English, starting with the environmental problems.

But fixing Moscow's problems - with 15m inhabitants, easily the largest city in Europe - means having to clean out the Aegean stables. One famous example of the problems is the cost of building a road. In Germany it costs about $5m per kilometre to build a road, but the same road costs $50 per kilometre in Moscow to construct. The difference is not corruption (well, not just corruption), but the main cost comes from the higgledy-piggledy way the city was developed under Luzhkov. "We have to deal with the poor heritage, as there is no complete set of information on how the city was developed until now," says Sharonov, who tactfully refrains from blaming the old team directly. "We have started the process, but there are so many problems lying underneath the streets. The main part of the $50/km cost is the law requires you to rebuild any infrastructure assets that you discover in the course of construction."

In a survey in May 2011, Muscovites named the poor state of healthcare as their top concern along with the high cost of living (but ahead of corruption), and on this score the federal government has been very active. But more than anywhere else, the new team has to make a dent in Moscow's horrendous traffic problems if it is to win the public's confidence.

Sharonov says the city has rejected the idea of a congestion charge and instead is going to impose stiffer fines combined with economic incentives to leave cars at home to tackle the issue. From July, parking fines will soar from RUB300 ($10) to RUB3,000. More importantly, the traffic police's power to collect these fines (which they usually just pocket) will end. "Police cars will be equipped with cameras that will automatically send their data through the internet and offenders will receive the bill. The police will have nothing to do with the process," says Sharonov.

At the same time, large car parks will be created in the suburbs next to metro stations and suburban residents encouraged to take the metro or trains into the centre. "The problem with Moscow is the planning was mainly done in the 19th century. The road network was built to cope with the assumption of a density of three cars per 100 people. Today we already have 30 cars per 100 people and this number is still climbing," he explains.

The low density of roads in Moscow - one of the lowest of any major capital - means that it only takes 450,000 cars to bring the city to a standstill. With total car ownership in the city of 3.5m, the road transport system collapses regularly. "It is impossible to develop the road network to meet the needs of so many cars," says Sharonov. "Every year another 300,000-400,000 cars are added to the existing pool, so the priority is to develop the metro and rail network."

Another way to ease the pressure on the centre is to expand the metro and rail network. Stalin, who opened the first 11-km stretch with 13 stations in 1935, oversaw the original construction of Moscow's metro. As of 2011, it is the fastest metro in the world, carrying some 8m people to work everyday through 185 stations and over 305 km of track. Sharonov says as the metro already accounts for 40% of the volume of commuters, it is already overloaded. Nevertheless, the city intends to build 75 km of new lines over the next five years and add a few more stations as part of the new development plan.

One of the easiest developments the city can do is make more use of the rail network. The length of the rail and metro track in the capital is about the same, but trains only carry 2% of the total traffic each day. There are even plans for a light railway that could be built on the basis of the limited tram network that still operates in the capital.

Industrial parks

While traffic is the most obvious of Moscow's problems, in the long term City Hall will also have to develop the local economy, even though the capital is already the richest city in the country. Under Russian law, companies have to pay corporate taxes where their headquarters, not their production, are located. And as every self-respecting company has its main office in Moscow, the capital collects some 85% of all corporate taxes.

The Moscow city budget revenues of $38bn in 2011 (about half of New York's revenues of $64bn) would make it the 38th largest country in the world, on a par with Ghana, and bigger than many Commonwealth of Independent countries, but a large part of this money is ultimately from raw material extraction going on in the hinterland.

The city is holding 209 industrial zones covering 7.7m hectares in reserve, which it wants to develop together with private developers and entrepreneurs. The city will promote these developments by setting up various technology and industrial parks around the city that sport lower property taxes and cheaper land. From the 7.7m reserves, a survey last year found about a tenth of this land was devoid of buildings, used for open-air markets or otherwise undeveloped, and the city is proposing converting those hectares into industrial and innovation development zones.

One of the most obvious projects promoted by the previous administration is Moscow City, the Russian equivalent of London's Canary Wharf. However, Sharonov says the city has no plans to continue promoting a financial district. "We don't see the need to concentrate the financial district all in one place. It will be up to the banks where they want to have their headquarters and this could be spread out over the city. If the developers want to build more buildings at Moscow City, then this should be a commercial decision, not something dictated by the City government," he says.

Much more ambitious is the plan to develop a new corridor into the city's southwest into the Moscow oblast and create a second centre at the heart of this corridor. Many of the government buildings will be moved to act as "seeds" for the development that will bring in workers and new businesses. Moscow will get an additional 144,000 ha of land in the southwest starting July 1, compared with its current 107,000 ha, after outgoing Russian President Dmitry Medvedev initiated the project to expand the city boundaries last year. "This will be a strategic reserve for the city that will serve for decades to come. It will also hopefully develop into a second centre and so take the pressure off the traditional centre," says Sharonov.

Moscow is flourishing, but accommodation in the centre is in short supply: Sharonov says 10% of the centre is residential space, but 40% of the city's work places are located there. On the other hand there are large regions of the city in the suburbs that have no work places at all (statistically speaking), so the result is millions of Muscovites are forced to commute to the centre every day.

INTERVIEW: Big plans for Moscow

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