Primorsky bets $1.2bn on a roll of the dice

28 Jul '10
Oleg Kouzbit, Online News Managing Editor

Russia’s Primorsky region has announced a $1-1.2bn gambling zone outside Vladivostok. By 2012 regional officials expect the ‘Primorsky Vegas’ to become eye candy for APEC summit guests and by 2025 a must destination for Asian gamblers. Zone-skeptics argue that all the project will achieve is to expose the weaknesses of the RF’s national four-zone gambling program and divert funding from more important long-term regional development.

Russia’s Primorsky region in the Far East, the country’s fourth special gambling zone, has announced the winner for its open tender to build out the area—Nash Dom – Primorye, a government-owned mortgage lender. The deal includes 15-year rent of a 263-ha land site where the Primorye gambling zone is expected to break ground.

A Far East Las Vegas, and then some

Planned for the Bay of Muravyinaya 23km from the Vladivostok airport and 70km away from the city itself, the zone will cost the developer at least $1-1.2bn, regional officials said. By 2025 the prospective ‘Primorsky Vegas’ is supposed to have four five-star, seven four-star and five three-star hotels, ten-to-twelve guest villas, a yacht club, shopping mall, mountain-skiing resort, golf club and other all-year-round recreational facilities complementing a reported 2,580 gambling tables and machines.

By the end of this year the general contractor reportedly expects to finalize preparation for a tender to seek investors for individual construction projects.

Nash Dom – Primorye CEO Marina Lomakina told media that she expects to launch the first stage of the big-ticket project by 2012 when Vladivostok hosts an APEC summit. According to her, a number of “core facilities” to be completed by then will include gambling venues; but recreational and sports amenities will be a focus for a later stage. She stopped short of explaining, though, if “core” also includes hotels.

The extensive project is expected to create about 3,500 new jobs in the region, officials said.

Legislating gamblers’ heavens

The history of Russia’s ‘gamblers’ heavens’ dates back to January 2008 when the RF government issued a decree restricting any gambling in Russia from July 1, 2009 to four exclusive gambling zones.

The $2bn gambling zone in southern Russia, an enclave on the border between the Krasnodar and Rostov regions dubbed Azov-City, was the first to break ground. The other three are Siberian Coin in Southern Siberia (Altay), Yantarnaya (Amber) in the North-Western region of Kaliningrad, and Primorye. The price tags to complete these heavens range from about $1bn for the Altay zone to a staggering $9bn for Kaliningrad.

RIA Novosti reported earlier this year that the Primorsky zone would cost a modest $440m. Some analysts feel that the new budget only proves that the actual plans for Primorye are still raw and the real figure could be even more stratospheric.

Dreaming of easy money…

When the RF first announced the gambling zones in late 2008, officials in the selected regions were upbeat about the ‘ritz and glitz’ of their multibillion prospects and hailed them as “successful challengers of Vegas, Macao or Atlantic City” capable of drawing “millions and millions of tourists a year.”

Gambling operators and hotel managers were less sanguine, though, pointing out the lack of proper planning by the RF and the weak response from investors. Other commentators expressed concern that very few Russian gamblers would be willing to travel thousands of miles to try their luck after a lifetime of being able to do it around the corner.

Many pundits still grumble that the whole idea of ‘home-bred Monacos’ simply makes no sense, given Russian economic and legal realities.

…and facing hard reality

Even hard-core program supporters have little to cheer about. In the Azov gambling zone, the country’s first, the official July 1, 2009 ‘opening day’ was an embarrassment as city officials raced just to bring in water, gas, electricity, some water treatment and complete a few kilometers of roads.

With so much still up in the air some investors had to throw in the towel and bow out.

Altay stirs, Kaliningrad sleeps

Russia’s first legal casino in Azov didn’t open until January 30 this year. But on the bright side, however, a second casino with an estimated price tag of $6m is expected to open for business in September.

In Altay earlier this month regional officials announced joint efforts with the U.S.’ Holding V to realize the Siberian Coin project. The Las Vegas company is reportedly expected to take on promotion and search for investors.

The Altay administration has pledged to have its first hotel with a casino launched by the end of this year. Four more hotels with casinos are reportedly on the drawing board to open by 2013. No infrastructure is available as yet, though, so when actual construction starts is still in the balance.

Kaliningrad looks altogether dormant. More than a year into the planning process, Russia’s westernmost exclave virtually has nothing of what officials ballyhooed in 2008 and 2009 as a 480-ha “world-class Yantarnaya complex” with 15 casinos and 21 hotels. What the city does have is illegal gambling thriving under the guise of ‘sport bars.’

Snake eyes for Primorsky too?

Nash Dom – Primorye CEO Marina Lomakina is still upbeat. The region is focusing its marketing efforts on gamblers from Japan, China and Korea. The CEO recently told journalists that investors “are notably interested in the Primorye gambling zone.” Authorities believe more contractors will follow the firm to develop the rest of the 620-ha zone.

But regional sector experts are pretty skeptical. Vladivostok University’s Alexander Latkin points out that since no external investors showed any real interest in the recent tender, the government awarded the contract to a local, government-owned mortgage firm. Now the region, already under pressure to complete its APEC-2012 preparations, may have to siphon off existing program funds to finance the sprawling behemoth.

He is also not a believer that “millions and millions of tourists a year” will come to the region to gamble. “The Chinese are likely to prefer Macao where the climate is better and corruption is less,” the economist said.

With numbers in hand he argues that if in 2004 the region received 170,000 tourists from China alone, the total of all foreign tourists last year were just 53,000.

The Primorsky Gambling Business Association’s Sergei Chunaev also doubts there will be any regional investors to readily come and build the facilities. “After gambling was outlawed on July 1, 2009 the Primorsky gambling business ceased to exist,” he said.

When comparing Primorye to Azov-City, the most developed of the four zones, Azov-City seems to be a bit ahead at this stage, but it’s hard not to see the parallels—little investor confidence and no firm start dates for construction.

So far Russia’s roll of the dice in 2008 is still coming up snake eyes.
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