Risks Lurk in $16Bln Caucasus Ski Resorts

ST. PETERSBURG — Spectacular natural beauty and Caucasus hospitality are just two selling points for the Kremlin's 500 billion ruble ($16 billion) initiative to build a cluster of ski resorts in the North Caucasus.

But land-usage questions and an ongoing low-intensity civil war in the region could scare off investors from a project that the government hopes will boost the region's troubled local economy.

The chain of five resorts, peppered throughout the Caucasus Mountains, will cover 5,000 square kilometers and offer 800 kilometers of ski slopes — all of which will be accessible through a single ski pass, Akhmed Bilalov, who heads a working group for the project on behalf of the presidential administration and the Economic Development Ministry, said at the St. Petersburg International Economic Forum.

Bilalov said the cluster could attract as many as 10 million tourists annually, doubling the region's gross domestic product and employing as many as 100,000 locals.

In addition to Dagestan, resorts are planned for the republics of Adygeya, North Ossetia, Kabardino-Balkaria and Karachayevo-Cherkessia.

A panel of government officials and heads of state banks discussed the project Friday, aiming to lure investors present at the forum with promises to lower taxes, cut red tape and build transport and utilities infrastructure.

President Dmitry Medvedev demonstrated his support for the project with an impromptu visit to the roundtable at the forum on Friday. "This is a very interesting project,” Medvedev said after watching the presentation from the front row, where he was seated between Magomedsalam Magomedov and Yunus-Bek Yevkurov, presidents of Dagestan and Ingushetia, respectively, currently the two most violent republics in the region.

"People that live in the Caucasus are very hospitable and are inclined toward providing all kinds of different services," Medvedev said, adding that the idea for the tourist cluster came to him when he was skiing in Krasnaya Polyana, a ski resort near Sochi.

The resorts are expected to cost 495.3 billion rubles, according to the panel presentation. Of that figure, the state will provide 60 billion rubles for infrastructure projects. Private investors will provide another 191.8 billion rubles in direct financing and 199.6 in loan financing.

An additional 22.7 billion rubles of the price tag includes infrastructure projects funded through the federal target program for developing the regional economy, while the final 21.2 billion rubles will come from infrastructure firms.

The project will boost GDP in the region by 178.5 percent to a total of 1.38 trillion rubles by 2020, according to the presentation.

"The importance of this project for the region is difficult to overstate," said Deputy Prime Minister Alexander Khloponin, also a presidential envoy to the region. He added that creating jobs is the No. 1 priority for bringing stability to the troubled republics.

Khloponin said investors would find a useful ally in the federal government, which will provide "tremendous help" to investors in cutting through the red tape of the bureaucratic process in the region.

"We constantly get letters from interested international financial institutions and strategic investors," Bilalov said, naming Deutsche Bank, Credit Suisse, Doppelmayr, Vladimir Potanin's Interros and Dmitry Pumpyansky's TMK as companies that have shown interest.

Deutsche Bank confirmed its interest in the project, though it declined to give any details.

"We are particularly encouraged by the strong government support which makes these projects possible," Joerg Bongartz, chairman of Deutsche Bank Russia's board of directors, said in a statement.

Deputy State Duma Speaker Svetlana Zhurova said making the project a reality would require a number of new laws, including new legislation on public-private partnerships and territorial development, as well as a law simplifying the seizure of private land under eminent domain.

In addition, changes will need to be made to the Forest Code and the Land Code to allow for construction that will affect the nature reserves in the region, a prospect meeting stiff resistance from environmentalists.

"Federal reserve land is categorized as protected and is not part of the state land fund," which makes utilization extremely difficult, said Suren Gazaryan, a member of Environmental Watch on North Caucasus.

The environmental organization, based in Adygeya, says the planned resorts will impact four strictly protected federal nature reserves and two national parks. While there are provisions in the law allowing for recreational activity in national parks, land classified as a federal nature reserve, or zapovednik, is completely off-limits for development.

While the government may be ready to bend national law to open federal nature reserves to development, it will also have to deal with the international community, since one of the resorts, the Lago-Naki, overlaps with a UNESCO World Heritage Site.

Undertaking a massive development project in the heart of internationally protected territory would cause a scandal, Gazaryan said.

"It's extremely hard to change World Heritage status when we're talking about more than 10 percent of the area, and the Lago-Naki resort will include 20 percent to 30 percent of the World Heritage Site," he said.

UNESCO already has issued several warnings regarding existing threats to the part of the site in Adygeya. The organization's world heritage committee is scheduled to convene next month in Brazil, where the condition of Russia’s sites will be addressed.

Bilalov, who was born in Dagestan near the future location of one of the resorts, told The Moscow Times that the project would not be built on territories under environmental protection, but he added that some "national park land would be impacted."

In addition to the environmental concerns, security is also a major issue in the North Caucasus, especially Ingushetia and Dagestan, where dozens of people had been killed in bombing attacks and other terrorist activity this year.

"There is practically a civil war in the making in the Caucasus, with no attempt to regulate it," said Enver Kisriyev, who heads a Caucasus sector at the Russian Academy of Sciences' Center for Civilization and Regional Research.

"Modern tourism needs honest competition, but regional clans have taken all potential tourist attractions under their control," he said. "Additional capital is not what is needed — there is already money and initiative in the Caucasus — but one cannot engage in honest private business since the government cannot protect people from bandits," he said.

Ingushetia's Yevkurov lamented the fact that his republic was not included in the project. "If you come to our republic, I promise to take you in a helicopter, a donkey — anything," he said at the panel, presumably addressing potential investors.

Yevkurov was not the only regional leader left out of the resort bonanza: Chechen President Ramzan Kadyrov was nowhere to be seen at the discussion, although he has recently mentioned his desire to develop tourism. "These are tourist areas where there were never any bandits, there is no place for them there," he told Russian News Service radio last week.

Bilalov said Chechnya and Ingushetia were not included in the resort project because they did not provide their proposals on time.