Card games worth more than Olympic ones
The “Commersant” obtained financial and economic grounds for the gaming zone development projects sent to the Ministry of Finance by the governments of four RF regions. The overall cost of the “gaming reservation” projects accounted for 727.5bn rubles ($31.2bn). It is twice as much as Sochi Olympics-2014 will cost Russia. While the regions are unsuccessfully waiting for private investors for 80% of this amount, gambling operators are trying to launch negotiations of the Russian Manufacturers and Entrepreneurs` Association (RMEA) and the Ministry of Finance on the adjustment of the law. The situation may be settled this summer, at the meeting with Vice Premier Alexey Kudrin – if the Ministry of Finance refuses to allot budget funds for the zones, the term for the gambling prohibition to come into effect may change (and according to the current law it will be effective as of January 1st, 2009).
As the law on the state regulation of activities involved in gambling organization and arrangement, which was passed at the end of 2006, does not provide for the zone development to be financed from the federal budget, the projects have not had any financial and economic feasibility (FEF) evaluation yet. The Ministry of Finance, which is responsible for the gambling regulation, has made the regions solely in charge of the projects – during 2007 the state agency only prepared the government`s statements which specified the borders of three zones and approved their names (“Azov City” on the border of Rostov and Krasnodar regions, “Yantarnaya” in Kaliningrad region and “Sibirskaya Moneta” in Altay region). The statement on the fourth zone which is to be located in Primorie region has not been made yet.
The “Commersant” received preliminary FEF evaluation for the four territories “assigned” to be gambling centres. According to these data, “Azov City” is bound to be the most expensive project. The amount of the planned investments (both state and private) is estimated as 415.9 bn rubles, the Kaliningrad project is worth 270.9 bn rubles, the Altay project – 28.18 bn rubles, the Primorie project – 12.88 bn rubles. All in all it is 727.5 bn rubles, or $31.2 bn. From this amount, 101 bn rubles, according to the calculation of the four governors, must be the money from the federal budget (for the infrastructure), the rest – funds of regions and investors. Be reminded that within “Development of Sochi as a mountain climate resort till 2014” federal target program, it is planned to spend 314 bn rubles in the city to prepare for the Olympic Games. According to FEF evaluation of the gaming projects, their total estimated attendance shall be 9.45 mn people (of which 6.7 mn people shall visit “Azov City”). Another figure: the turnover of gambling facilities in the zones shall be $17.5 bn (of which $11.2 bn shall be generated by “Azov City” and $5.7 bn – by “Yantarnaya” ).
The market participants turn out to be at a loss due to these project evaluations. “It is generally not feasible to raise the investment amounts mentioned,” the “Commersant” was told by Executive Director of Gambling Operators` Association (GOA) Valeriy Milov). He also said that the expected headcount of visitors to the gaming zones was “taken out of nowhere”. “According to our polls, no more than 2% of gamblers would o to the zones, and the overall headcount of gamblers in the country is estimated as 3.5 million people (5% of the labour force, based on the international experience), i.e. about 70 thousand people. And there will be no foreign tourists as the zones are remote,” said Mr Milov. As for the $17 bn turnover of the facilities, the GOA representative stated that even in the best years of operation the turnover of the legal gaming business in the RF reached $6 bn”. The representative of the industry believes that FEF figures are so far away from the actual economy because the regional officials are willing to get the federal financing at any rate.
However, their hopes will hardly ever come true. No perspective documents of the Ministry of Finance provide for the funds for the zones. And there are no investors for whom the regions have hoped. President of Storm International holding Michael Boettcher says that “as well as other representatives of the industry, he does not consider the zones as prospectively attractive for business operations at present”. The only foreign investor which displayed interest in one of the gaming zones, Austrian company Casino Austria, according to the data received by the “Commersant”, has already ceased to negotiate with the Altay regional authorities.
Under these circumstances the federal government will probably have to adjust the gambling law. According to the “Commersant”`s information, the ministries have received an instruction from President Putin to submit their suggestions on resolving the situation to the Ministry of Finance, and early in the second half of this year in Alexey Kudrin`s agency a meeting of ministers shall be arranged with regards to it. “Should the Ministry of Finance refuse to allot funds for the zones, the law might be reviewed. Gambling facilities may either stay where they are or be relocated to areas with better infrastructure,” the Commersant” was told by a source in the government.
Indirectly, this scenario is confirmed by the actions o such experienced lobbyists as President of RMEA Alexandr Shokhin and a State Duma deputy Valery Draganov (an author of the present gambling law). In February, Mr Shokhin sent Alexey Kudrin a letter with a proposal to refuse from relocating the gaming industry to the zones and to link it with the tourism industry – i.e. to allow casino at hotels. Yesterday Alexey Shokhin told the “Commersant” that there is another option possible: to maintain the concept of the zones but to set them up in the developed infrastructure – of the Russky Island once the APEC summit finishes there and in Sochi once the Olympics are over. “We are waiting for the Ministry of Finance to agree to start the discussion of the problem,” remarked President of RMEA. Valeriy Draganov, who believes that when the law was being implemented, “a number of Presidential Administration officials were forced by the governors willing to get zones in their hands,” announced yesterday that he is ready to review the law to avoid non-compliance with it and not to push gaming business underground.
Vadim Ú-Visloguzov
The “Commersant” newspaper ¹ 60(3877) of 10.04.2008