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'Russia and France deepen co-operation in North Caucasus'

copied from the 10/05/2011 issue of the CACI Analyst


By Olof Staaf (10/05/2011 issue of the CACI Analyst)

Over the course of three days, from September 16 to September 18, the tenth annual International Investment Forum was held in Sochi on Russia’s Black Sea coast. This year, the forum was primarily devoted to projects related to the 2014 Winter Olympics, but the signing of a new agreement concerning Moscow’s ambitious ski resort project in the North Caucasus also attracted some attention. At the first day of the forum, state owned French financial institution Caisse des Dépôts et Consignations and Russian state company Resorts of the North Caucasus agreed on a new framework for their joint venture assigned to the realization of the resort project. The French party committed to provide more than US$ 14 billion within one year and in the optimistic final draft for the 2012 federal budget that was presented on September 20, an additional US$ 1 billion was allotted to the company Resorts of the North Caucasus.

Since the creation of the North Caucasus Federal District in January 2010, representatives of the Russian government have consistently portrayed the promotion of economic development as key to stabilizing the situation in the region. One of the most prominent features of Moscow’s strategy for achieving socio-economic improvements has been the plan to construct world class ski resorts in five of the region’s republics. This grandiose project was first unveiled in the summer of 2010 and in January 2011, President Dmitri Medvedev presented it to foreign investors at the World Economic Forum in Davos. At that time, the total cost of the project was estimated to US$ 15 billion. US$ 13 billion were supposed to be raised from private investors, which is less than the stipulated French investment. As a result of the much improved relations between France and Russia, President Nicolas Sarkozy and Prime Minister Vladimir Putin announced their intentions of co-operating in the North Caucasus at the G8 Summit in May 2011. At the same meeting, the two countries announced that negotiations on the sale of French Mistral amphibious assault ships to Moscow had been finalized. One month later, they signed a preliminary agreement defining the framework for co-operation in the Caucasus.

According to Russian daily Kommersant, the new agreement that was signed in Sochi will give Resorts of the North Caucasus 51 percent of the shares in the joint venture. France Caucase, which is a subsidiary of Caisse des Dépôts et Consignations, will own the remaining 49 percent of the new Russian-French company. However, a number of conditions are attached to the French investment. Apart from various tax benefits, the French investors have obtained government guarantees postulating that they will be compensated in case of force majeure. Moreover, France Caucase will own all of the real estate while the Russian Resorts of the North Caucasus will own the infrastructure, and the French investors required that all contractors involved in the construction of the real estate must be French. Another foreign company attending the forum and expressing interest in the project was Korea Electric Power Corporation. The Koreans stated that they would invest US$ 1 billion in the construction of five hydroelectric plants if Russia would offer them government guarantees. Furthermore, Resorts of the North Caucasus signed a memorandum of understanding regarding future investments with the Anglo-German consortium Astor Dress & Sommer Consortium.

The five original resort locations included in the project are situated in Kabardino-Balkaria, Karachaevo-Cherkessia, Adygea, Dagestan and North Ossetia. The resorts are set to be completed in 2019 and then they will have a total of 179 ski lifts, 90,000 hotel rooms, and the ability to accommodate 150 000 guests per day. From the very onset of the project, Ingushetia and Chechnya wanted to participate and now a number of locations in Dagestan and Ingushetia are reportedly under way to become part of the cluster. Chechen President Ramzan Kadyrov has stated that Chechnya will build its own ski resort not far from the Georgian border. Despite the opportunities these resorts provide for local leaders and inhabitants, this ambitious project has already met significant criticism. Skeptics have not only raised doubts about the socio-economic benefits of the construction of luxurious resorts. They have also directed criticism towards the overconfidence in economic development as a stabilizing factor, which is displayed in statements by Russian government officials. In addition to this, some observers have expressed concerns about Caisse des Dépôts et Consignations’s ability to raise the promised US$ 14.2 billion, as well as Moscow’s seeming reluctance towards including the local population in the project. Finally, the capacity of federal and local leaders to uphold security as well as their ability to make the resorts profitable has been questioned, and environmental organizations have raised objections regarding ecological issues.