Investors cool on Siberian Coin amid poor infrastructure, illegal operations

Published in: Latest Intelligence Siberia has ambitious plans for Russia’s biggest casino complex, combining gambling with eco-tourism, but international investors are showing little enthusiasm for the project amid concern about poor infrastructure and illegal gambling
Mikhail Shchetinin, the Minister of Economy of the Altai Territory, the first casino in the zone, known as Siberian Coin, hopes to start operations by the end of 2013. The opening was originally slated for 2010 and has been postponed at least three times.
The gambling zone envisages 15 casinos and 30 hotels, with a capacity to host 3,000 visitors by 2020. Michael Boettcher, president of Storm International said earlier this year that the transformation of Altai into a gambling Mecca would cost about $50 billion, but Russian officials and local authorities hope they can reduce that cost to as little as $1 billion.
Nicholas Burmistrov, executive director of the Russian hotel and leisure company Alti, which is one of the investors in the project, has said that Alti’s modern four-storey resort in the region would “be the largest and most beautiful in Russia.”
Gambling has been banned across Russia since 2007 except in four specific zones: Azov (Krasnodar), Yantarnaya (Kaliningrad), Primorye (Far East) and Siberian Coin (Altai).
Given its unique location at the meeting point between Europe and Asia, along with its proximity to China, Kazakhstan and Mongolia, industry analysts estimate there will be an annual influx of three million tourists to Altai by 2025, more than double the 1.2 million visitors last year.
What differentiates Siberian Coin from the other three gambling zones is the concept of coupling casinos with eco-tourism. With a total area of 2,304.2 hectares, Siberian Coin shares a border with Sky-blue Katun, Russia’s second-biggest Special Economic Zone designated for recreation and tourism, with a total area of 3,326 hectares.
It’s hard to say, however, how the SEZ designed to attract hikers and thrill-seekers will help to attract gamblers with deep pockets to its neighbour.
Sky-blue Katun boasts a much larger number of resident investors at 17 than the Siberian Coin, with total investments of close to 10 billion roubles ($300 million). The “gambling paradise” has only two confirmed investors – Alti and Energy-M, which are both owned by local companies. Alti plans to invest more than 420 million rubles ($13 million) in the gambling zone. Energia M has not revealed the amount of its investment. Other names that have been linked to the project include Casinos Austria, Emperor Group, Xinjiang Electric Power Research Institute, The Hit Company and Royal Time Group.
“We have seen the region at Altai some years ago. For us, the real difficulty appeared in the lack of necessary infrastructure and we have had no contact for years with the relevant people of the project Siberian Coin,” Richard Lehrner, senior adviser to the board of Casinos Austria told Asia Gambling Brief.
There are also infrastructure issues that threaten this project. First, energy supply is limited. Secondly, transportation infrastructure is poor with an absence of international connections at the nearest airport.
Yuri Zakharov, head of the Altai Krai Department of Development of Tourism and Recreation, told local press at the beginning of summer that land auctions for several lots on the Siberian Coin site would be held in July and August and that potential investors had shown interest. However, no land auctions have been held since this announcement.
Another major problem, seen as a deterrent to investment, is illegal gambling. Fifty-four cases of illegal gambling were uncovered in the Altai region this year in the period to August. On August 1, Russia’s Interior Ministry found an illegal gambling operation that brought in daily earnings of 50 million rubles ($1.5 million).
Vladimir Zhuravkov, general director of Alti, said that the country’s anti-gambling law was proving difficult to implement and has lots of loopholes.
“As long as there are illegal casinos, there will be gamblers. As long as the law is not observed, the gaming zones [in Russia] will stay empty. When we run our casino, people will go to us, but there will not be many of them. We need to stop illegal gambling in all major cities.”
Although regional authorities pro-actively promote the idea of the “Golden Ring of Altai” — a route that runs through Altai, Mongolia and Kazakhstan — there is also scepticism about the market potential of the two neighbours.
Kazakhstani citizens are restricted as to the amount they can take out of the country, with a cap of $10,000. And even though Mongolia has a fast growing economy, its poverty rate is still high. According to the World Bank, 27.4 percent of Mongolians live in extreme poverty, with a daily income of less than $0.40, and overall poverty rates have remained stagnant for decades.
It’s worth noting that both Kazakhstan and Mongolia created gambling zones of their own targeting Chinese tourists, but failed to attract them because of poor infrastructure.
Even the Governor of the Altai Territory, Alexander Karlin, has sent out mixed signals about the zone. He said, “from the very beginning we did not pin our hopes on this project, in particular, that we can settle all the questions in the Altai region through gambling… I hope that this project will not be unprofitable for the Altai region, I mean, not only in terms of financial and economic aspects, but even reputation.”
 

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