Interview with the Rossiya 24, Rossiya 1 (Vesti-Moskva programme) and Moskva 24 television channels

29 May 2015

Maria Rybakova: Hello, Mr Sobyanin. Thank you for taking the time to meet with us today. I’d like to start by talking about the Moskva River. Unfortunately, right now, most of the areas next to the river are occupied by undeveloped properties – industrial estates and production facilities. However, the company that won the design contest to develop the areas has promised to turn them into eco-friendly, green spaces with pedestrian precincts. How can these challenges be effectively addressed, and how long will this project take?

Sergei Sobyanin: Of all the areas near the Moskva, there are plans to expand the embankment opposite the Zaryadye Park; we want to create a space where people can go for a walk, have a cup of coffee and unwind. This is probably the only project where we decided to shift the road a bit. Historically, roads approach the river on virtually all the embankments.

The second iteration envisages the development of parks, which will be further improved, and the creation of park areas with access to the water, as well as beaches and recreation areas. This is the routine work that we do.

And you are right. There is a third area of concern – the industrial estates that were built close to the Moskva to facilitate deliveries of materials and shipments of finished products. Many of them have turned into decrepit and gloomy sites. Mikhail and I visited the Likhachov Plant and noted that a new embankment area was being developed on that same territory. We are currently in phase one of the design cycle – tenders have been held, and we already have investors. In fact, we met with them today to discuss the design of the embankment, the plans for its development and deadlines for its completion. We have set ourselves the target of completing the project by the end of 2017.

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Yuri Bogdanov: How have the sanctions affected the situation in the city? How bad has the downturn been? And have you made adjustments to any of the plans?

Sergei Sobyanin: I would be lying if I said that we haven’t felt the effects of the sanctions, that everything is great and there are no problems whatsoever. Of course we have felt the effects – the manufacturing sector and construction sectors have slumped slightly, for example. But not drastically, not enough to bring down the city’s economy. The housing completion rate is close to the record levels that we saw in the first quarter of 2014. As for investments in the city, we have not seen any negative changes yet. But this is primarily because the majority of investments were made before the sanctions were put in place.   The purchasing power of the Muscovites has decreased, but we need to remember the base for comparison – 2014, when we observed the enormous demand for goods, flats and just about anything you can think of, because people sought to invest in real assets following exchange rate fluctuations.

Yuri Bogdanov: As I remember, you passed an anti-crisis plan for Moscow in February. How is the plan being implemented?

Sergei Sobyanin: The main elements of the anti-crisis plan have been implemented, including the instalment payment plans for land under construction, frozen lease rates for small businesses that rent property from the city, and many other arrangements. However, the main anti-crisis measure is the preservation of all city programmes: social security, building and road construction, infrastructure and housing. On the one hand, this is a serious economic driver for Moscow. On the other hand, we are showing investors that we are not giving up; we are moving forward and developing the city. This is also very important.

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Yuri Bogdanov: About investments – how significant has the drop-off been, if at all? Is foreign money coming to the city? If it is, then what are the most attractive sectors?

Sergei Sobyanin: In terms of investment volume and dynamics, Moscow is a global leader among major cities. We may be second only to Beijing. According to a number of indicators, such as the construction of retail facilities, offices and city roads, Moscow is in first place. Capital investments are an important driver for the development of the city, paving the way for the construction sector as a whole by creating a huge number of new jobs in the steel industry, furniture making, etc. Therefore, investment inflows are significant not only for Moscow, but also for the entire country. Of course, there has been a decline in some investment areas, such as the construction of commercial and office properties; however, when it comes to housing construction, I believe the volume and dynamics of investments will be preserved.

As for infrastructure development, as I already stated, we will maintain current volumes for the construction of underground railway lines, roads and engineering networks in order to ensure further development and investments.

Yuri Bogdanov: In order words, any decline we can see is for the most part associated with the general economic environment, rather than the investment pressures?

Sergei Sobyanin: No, of course not. As I was saying, it is all about demand and supply – consumer demand, including the demand for property in Moscow, is considerably weaker this year than in 2014. However, if we compare it with 2012, it is almost the same.

It is all about the comparison base. I hope that this year’s completion rate will be roughly the same as last year’s, but the reserve for the future will be somewhat lower, because they are trying to complete facilities that had been started earlier, that are already above the ground level and take far fewer resources to finish. We are aware of these facilities, we monitor them, and we are certain that they will be completed. In the following years, in 2016–2017, the volume of completed construction facilities may decrease. However, I am positive that it will rebound after that. As a city, we are doing everything in our power to facilitate these projects: we have reduced the time it takes to issue permits and accelerated the process whereby we deal with the development of site designs. In addition to this, we have approximately 70–80 million square meters of potential development sites, which is a serious reserve not only for the next few years, but also for the medium term.

Maria Rybakova: What about the real economy? You recently launched an initiative offering a 75% discount on property tax rates for R&D organizations. Do you think that such government support is necessary given the rather challenging situation?

Sergei Sobyanin: I do. Of course, from the very beginning we understood that properties associated with production facilities, such as administration buildings at manufacturing companies, should not be taxed at the same rate retail and office properties. So we made adjustments ensuring that these high taxes did not apply to the real economy – the manufacturing sector, innovations, and even the hospitality industry. We decided that if most of the areas in a hotel are used for retail and offices, it should be taxed as a commercial property based on its cadastral value. However, if it is a purely hotel business, it should pay totally different tax rates.

Yuri Bogdanov: Mr Sobyanin, I’d like to clarify the issue of sales charges. Has the approach to these taxes changed?

Sergei Sobyanin: Sales taxes are not an additional burden, but a mechanism to legalise shadow businesses. How does this scheme work? You pay what is essentially a down payment, which is credited to you when you pay income tax. As long as you make a profit, no matter how small, this charge will not affect your economic activities. However, if you have failed to make a profit, meaning that nothing works and you have incurred losses, you are subject to taxation, albeit very small – just 50 roubles per square metre per quarter. This is an insignificant amount for Moscow.

We held lots of consultations, talked to businesspeople and listened to their proposals. In the end, we chose those proposals that offered minimum payments and maximum benefits, and approved them.

Maria Rybakova: Let’s go underground now to see what is happening there. In mid-May, the Moscow Metro celebrated its 80th anniversary. It is clear that a number of changes have been implemented, with the rolling stock being upgraded and new stations appearing. Can you tell us more about future plans and changes?

Sergei Sobyanin: First off, in 2017, we are planning to start supplying new generation cars to the metro. These are cars that have never been produced in Russia before. In fact, you can only find them in a couple of other cities around the world. We have signed the contract, and I believe large supplies of this new rolling stock will begin in 2017. The initiative is important for us to renew our out-of-date stock. However, we don’t want to get cars that are used but not old. We want to have state-of-the-art products, products that give an impetus to design, development, engineering, innovation, etc.

Yuri Bogdanov: As I understand, these cars will be made in Russia?

Sergei Sobyanin: They are. The original condition of the tender was to have most of the spare parts and components produced and assembled in Russia. These are competitive products, which is why they are used to renew the rolling stock.

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Sergei Sobyanin: Developing railways transport alongside the metro is actually a very important issue. Railway transport is deeply integrated with the metro. And this is why those involved consider it to be a single integrated project, because the Moscow Little Ring Railway that we are building and developing in collaboration with Russian Railways is essentially the second interchange circuit of the Moscow Metro. In addition to being another transfer hub for the metro, it is also a transfer hub for suburban radial routes. There has never been such a hub before. It is extremely important to enable people to change from one line to another. On the other hand, it is important to integrate all modes of transport within these hubs. This is a megaproject that we will complete far earlier than the Third Ring Road. I hope we will be able to complete the main activities there within a year or two.

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Yuri Bogdanov: Let’s talk about some major construction projects, first of all, the reorganisation of industrial areas. The programme comprises about ten projects, if I’m not mistaken…

Sergei Sobyanin: In terms of construction, ten projects are currently underway. But there are many more.

Yuri Bogdanov: What about those projects under development? Is there enough money to carry them out? What are the attitudes of investors towards them? And what terms are they being offered?

Sergei Sobyanin: For our part, we are trying not to finance such projects – it is up to investors. Most of the projects are making progress. Last year, we commissioned 2 million square metres of properties within industrial zones. Before that, we said that we would be reconstructing and reorganising industrial estates, and we are loyal to our word. Now we can see the real result: of approximately 9 million square metres, these 2 million square metres of properties are located within industrial sites, and about 3 million square metres are new Moscow areas. This is a significant proportion that I am sure will keep increasing.

Yuri Bogdanov: What about investors? Are they not saying: “This is a pretty uncertain time for the economy; let’s put it off a bit, let’s freeze a project or two”?

Sergei Sobyanin: Naturally, this applies to all areas, including industrial zones. But as I was saying, housing construction will hardly be frozen. The construction of office, retail and other commercial properties may slow, including within industrial sites. I think that housing construction will remain strong because of the high demand. The volume of housing under construction is quite modest considering Moscow’s population, which is currently 12 million people. We build about 3 million square meters of housing per year, which is not enough to sell to Muscovites, let alone investors that come from other regions.

Yuri Bogdanov: In other words, although consumer demand is weaker, you are saying that no amendments will be made to the development of industrial sites?

Sergei Sobyanin: It is all about the price. If they want to build something and get a 300% margin, then this is simply impossible.

Yuri Bogdanov: The same goes for wages, they always want more.

Sergei Sobyanin: Yes, but if they have a reasonable investment project with reasonable rates and reasonable offers for investors, I’m certain they will find their consumers.

Yuri Bogdanov: Do you think raising private money for socially significant projects, such as the Ice Sports Palace at the Likhachov Plant site is an effective initiative?

Sergei Sobyanin: In general, we have a feeling that the majority of projects such as this one are implemented using investors’ money. Everyone knows about such megaprojects. Spartak Stadium is an excellent venue, and it was built using entirely private money, and the same holds for Dynamo Stadium, which is under construction, and CSKA Stadium in Khodynka, which is very close to completion – I think most of these construction projects will be finished by the end of the year. Legends Arena is a major ice sports venue, and a centre for synchronised swimming and water sports is being built next to it. These are the largest projects that are being implemented using private money.

Yuri Bogdanov: Are investors eager to finance them? You are never going to have a 300% margin here, either.

Sergei Sobyanin: I wouldn’t say they are begging us to give them a site to build a large sports centre. This is long and hard work with investors, but it yields results. In addition to such major projects, they also build many sports and recreation centres, kindergartens and schools. I guess this year the number of kindergartens built by the city and private investors will be roughly the same. Therefore, serious work in underway with investors, which saves money for the budget and provides incentives to all sectors, which may otherwise be short of budget funds to build such major facilities.

Yuri Bogdanov: Again, there is social responsibility of businesses.

Sergei Sobyanin: Of course, this is part of social work for business. We also have certain requirements. We demand that they develop the entire area if they build housing – kindergartens, schools and, where possible, sports and recreation facilities, retail, roads, etc. to have a package product rather than blocks standing in a field with nothing around them. We used to have such projects, and there used to be many of them.

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Sergei Sobyanin: Thank you. I wish you every success and hope you all have a great summer.

Mikhail Zelensky: Thank you, Mr Sobyanin.

 

Source: The website of the Mayor and the Government of Moscow

See also
Vladimir Efimov
16 August 2017
The city has created all the necessary conditions for investors to operate successfully
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Minister of the Moscow City Government, the Head of Department of Economic Policy and Development of Moscow
Natalya Sergunina
02 November 2015
Natalya Sergunina on why Moscow does not fear the crisis and what the city’s government is betting on
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Deputy Moscow Mayor in the Moscow Government of Economic Policy, Property and Land Relations
S.S. Sobyanin
24 September 2015
Sergei Sobyanin’s interview with Moscow FM radio station
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Mayor of Moscow
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Interview with TV-Centre
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Moscow Mayor’s commentary for TV Centre television
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Sobyanin interviewed for Vesti-Moskva on Rossiya-1
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Mayor of Moscow
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An interview to the TV Tsentr network
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Mayor of Moscow