Foreigners  Prepare for  Business After Luzhkov

(Иностранцы Готовятся к Бизнесу После Лужкова)

 Business life in Moscow is
 expected to slow down for
the next few weeks or longer.
 
    By Nikolaus von Twickel
     and Justin Lifflander
       THE MOSCOW TIMES
 
 
  Mayor Yury Luzhkov's departure won't deal a body blow to the country's economy, but foreign company executives and analysts said business in the capital is facing harrowing uncertainty that will result in a temporary slump, especially in the real estate sector.
  Luzhkov and his team have been linked to rampant corruption, but the political machine they built has provided predictability for businesses over the years, people interviewed for this article said.
   Now all connections with City Hall — a key ingredient to doing business in Moscow — are up in the air after President Dmitry Medvedev fired Luzhkov on Tuesday.
   "We've  spent years  working with the various authorities — fire, health — to satisfy their capricious demands. Now I guess we'll have to start all over again, and this will take time and money," said the  head of a leading European service-industry company's Russian operations.
   City Hall officials seem "very nervous and worried, waiting to see what happens," the executive said in an interview in his office.
   The businessman, like other foreigners interviewed for this story, requested anonymity  in order not to jeopardize their companies' work.
  The head of a major U.S. company's Russian operations expressed fear that the coming weeks, if not months, would see a standstill at best and a power struggle at worst in City Hall.
  "It looks like all [City Hall] officials will now be busy focusing on their positions, and therefore not a lot of productive  activity can be expected," he said.
  The U.S. executive expressed fears that Luzhkov's ouster might result in open  warfare. "Since there is so much money involved, things could even get ugly," he said.
  Clearly, the stakes are high. Moscow is both Russia's political center and its financial heart. About 80 percent of the country's finances flow through the city,
and one-fifth of its gross domestic product is  generated here, making the question of who is in charge of the capital and its population of more than 10 million a question of national importance.
  While City Hall has little say in how the country's economy is run, it has a quasi-monopoly over one of the city's key wealth-generating sectors: real estate.
  Luzhkov's wife, Yelena Baturina, has been accused of amassing an estimated $2.9 billion fortune at her real estate company Inteko through her ties to the mayor.
  While some observers said Inteko's main asset was its ability to have a final say over who participated in construction projects in Moscow, Baturina has denied getting any special treatment. Luzhkov has said she would be even wealthier if she had not married him close friend of Luzhkov and spent hours with the mayor after his dismissal Tuesday.
   Kobzon said he did not know which court Luzhkov would appeal to, but lawyers quoted in news reports said the Supreme Court would be the arbitrator
of such a lawsuit.
   But The New Times, citing an interview with Luzhkov that will be published Monday, said the former mayor would not complain to the Supreme Court. It did not elaborate.
   Analysts said Luzhkov's time in politics was over.
   "There is no place for him in the existing parties and no time to set up a new one. The best thing he can do now is become a pensioner," said Alexei Mukhin,
an analyst with the  Center for Political Information.
   Federal investigators promised Wednesday to pursue corruption investigations involving City Hall officials that were opened in recent months. But Investigative Committee spokesman Vladimir Markin denied  reports  that new investigations had been opened since Luzhkov's ouster, RIA-Novosti reported.
   Acting Mayor Resin said a deputy mayor accused of corruption had resigned and that he had halted a controversial construction project near the Kremlin.
   Deputy Mayor Alexander Ryabinin "tendered his resignation  for personal reasons, and I approved  this," Resin said, Interfax reported.
   Ryabinin, who was responsible for construction and land issues, was under investigation on suspicion that he pressured a businessman into handing a retail property over to his own daughter.
   Ryabinin was the most senior Moscow official to be targeted  by investiga­tors in what analysts said was part of a Kremlin campaign to unseat Luzhkov.
   Resin also announced the halt of construction of a Kremlin museum annex on Borovitskaya Ploshchad.
   The project has come under fire from architectural preservationists, who say the new building will ruin views of both the Kremlin and Pashkov House,
a historical palace located on the same square, which is part of a UNESCO world heritage site.
   Resin said he made his decision after seeing television coverage that criticized Luzhkov over the project.
   He said, though, that Luzhkov had nothing to do with the construction because it was overseen by the federal government. "I withdrew the building permit to have it discussed by the architectural council.
Let specialists have their say," he said, adding that City Hall would  seek compromises in disputes with preservationists.       
   KonstantinMikhailov, an activist with the Arkhnadzor preservation group, said he hoped that the decision marked the start of a policy change. "Many other scandalous projects in this city are continuing, and I would like to see them being reconsidered, too," he told The Moscow Times.
   But in a typical Catch-22, the Kremlin museum said it would ignore Resin's decision. Museum director Yelena Gagarina told RIA-Novosti that she was not  subject to City Hall and that construction could only be halted by the Culture Ministry or Prime Minister Vladimir Putin.
   Also, city authorities for the first time ever have sanctioned a gay rights rally, an activist said. The city's central district prefecture has allowed the rally to go ahead this Friday, Nikolai Alexeyev, the organizer of repeated attempts to hold gay pride marches, wrote on his blog.
   Under Luzhkov, who called homosexuals "satanic," City Hall regularly banned gay rallies, leading to violent clashes with activists.
   Protesters will gather outside the offices of Swiss International Air Lines to call for a boycott of the airline, Alexeyev said.
   He has threatened to sue the air carrier for breach of contract  after it did not stop police from hauling him out of a Geneva-bound plane before takeoff at
Domodedovo Airport on Sept. 15.
   Resin, however, made it clear that City Hall's stance on gay rallies would not change under him.
   "I have not heard about [Friday's rally], but I will tell you: I treat everybody equally, but I do not support this," he said, referring to gay rallies.
   Resin, 74, was one of Luzhkov's closest allies and has also been linked to corruption after overseeing the city's vast construction sector. He is  widely believed to be a transitional figure before a Kremlin-chosen successor takes over.
   The ruling United Russia party, which controls a two-thirds majority in the Moscow City Duma, began consultations Wednesday about possible candidates. United Russia has two weeks to present a list of candidates to Medvedev.
   Meanwhile, NTV television announced another damning report about Luzhkov. A report titled "Moscow. The Bells Toll" will be shown on the "Russian Sensations" program Saturday night, according to a trailer released on the show's web site. Speaking about Luzhkov, the trailer says, "He was thought to be infallible, but it turned out that he was shortsighted."
   NTV initiated the media attacks on Luzhkov on Sept. 10 with a report called "The Cap Affair."
   Inteko has won only one city building tender during Luzhkov's 18 years in power and was forced to abandon it because local authorities did not meet
their obligations, Baturina said in an interview with The New Times magazine last week. She said all of Inteko's other deals involved the federal government
or private people.
   Foreign projects account for less than 10 percent of Inteko's business, company spokesman Gennady Terebkov said in a statement.
   Now, many expect that Inteko will face a serious challenge under the city's new management.
   "They will have to form a relationship with the new city leadership like everybody else," said Chris Weafer, chief strategist at UralSib.
   Inteko might even face a "Yukos lite," Stanislav Belkovsky, a Kremlin insider during Vladimir Putin's presidency, said, referring to the oil firm that went bankrupt after its former CEO Mikhail Khodorkovsky was jailed on politically tinged charges.
   "They will probably just bar Inteko from access to administrative resources," Belkovsky added, referring to the belief that Inteko had a say in who worked in Moscow's real estate market.
   Inteko on Monday denied a French media report that Baturina has moved most of her assets, managed through Beneco, a Vienna-based family trust, outside Russia.
   While Luzhkov's dismissal puts a question mark over Moscow's property market, industry insiders said they hoped that things would change for the better.
   "There is a lot that can be done in order to improve the general situation in Moscow, and many people hope that the change in the administration will start such processes," said Denis Sothe change in the administration will start such processes," said Denis Sokolov, head of research at Cushman & Wakefield Stiles & Riabokobylko.
   Vladimir Krivchenko, sales director for Prime Realty, another leading realtor, predicted that life after Luzhkov would be better for consumers, saying his departure would accelerate a fall in prices. "If the near monopoly over cement and land is broken, there is a chance for real competition, leading to better availability and better prices," he said.
   Krivchenko said the market has been at a standstill for two years because many sellers remain under the delusion that the pre-crisis price of $6,000 per square meter for residential space will come back.
   "By spring, I think they will have realized it isn't going to happen, and prices should fall to a nearly reasonable $3,000. It is already happening in the regions," he said.
  ПЕРЕВОД: Владимир Кривченко, директор по продажам в Prime-realty, другой ведущий агент по продаже недвижимости, предсказывает, что жизнь после Лужкова будет лучше для покупателей, говоря, что его уход ускорит падение цен. "Если  монополия на цемент и землю разбиваются, то есть шанс для реальной конкуренции, что приводит к лучшей доступности и лучшим ценам, " сказал он.
   Кривченко заявил, что рынок не менялся в течение двух лет, так как многие продавцы остаются в заблуждении, что докризисные цены $ 6000 за квадратный метр жилой площади еще вернутся.
   "К весне, я думаю, они поймут, что это не произойдет, и цены должны падать до разумного, почти $ 3000. Это уже происходит в регионах ", сказал он.

 However, others argued that the change of power would result in higher prices — at least initially — because of a reduction in development activity.
   "Prices will probably go up at least in the medium term because supply will slump," said Holger Mtiller, managing director of UFG real estate.
   While much depends on who succeeds Luzhkov, the real estate market had anticipated his departure and fundamental improvements to Moscow's highly regulated real estate market are highly unlikely, said Darrell Stanaford, managing director of the CB Richard Ellis realtor.
   "All of the smart developers have already been planning for his departure," Stanford said. "The process of real estate development will be disrupted for up to two years. But it is hard to imagine it getting much slower or more difficult."
   City policy practically rules out private land ownership and forces developers to lease plots under "investment contracts" that often give a share to the city.
   "The main problem for Moscow real estate is that there is no land market," said Igor Vasilyev, an analyst with Troika Dialog.
   "It is very unlikely that the new administration will write new rules from scratch, said Sokolov of Cushman & Wakefield. "The federal government will not let that happen."
   The skepticism was echoed by Sergei Mitrokhin, leader of the opposition Yabloko party and a long-time Moscow City Duma deputy.
   He said Luzhkov was not ousted because of corruption but only because he had dared to criticize the Kremlin.
   "He just got into a political battle with other political clans," Mitrokhin told The Moscow Times.
   Nobody will reform the system, where corruption is endemic, he added. "Some will lose their interests," he said, "and others will step into their places."