Investors enter the travel industry
Mikhail Sheldunov
Туризм.РФ’s Director of the department for interaction with the authorities

Investors enter the travel industry

More than 38,000 new hotel rooms will appear in Russia by 2030 thanks to the implementation of the national project Tourism and Hospitality Industry. To support investors, the state corporation Туризм.РФ (Tourism.RF) was established in Russia in 2020. In an interview with Mikhail Sheldunov, Туризм.РФ’s Director of the department for interaction with the authorities, he tells whether investors are ready to enter the travel industry today, how much money they plan to spend, and what support they will get.

- First of all, I would like to start with a question that is in the air. Will there be investments in the tourism industry or not?

- Sure, there will be investments in the tourism industry. Let’s look at the practice in the country. Panic about whether it is worth setting up new resorts, building new facilities, developing the existing ones, was in the investment market back in 2014. But look at the Sochi alpine tourism cluster. The professionalism and competence of the teams that worked there made it possible to keep on developing the mountain tourism complexes, even under the Western sanctions imposed. What has happened over the years? The number of tourists increased exponentially. Along with the continuous development of the basic infrastructure like ski facilities, the tourism product line has expanded very much, resorts are no longer dependent on seasons, demand has grown, and this all is the result of the work of those teams that believe that it is necessary to keep on moving forward steadily, creating powerful tourism products regardless of the situation.

- Туризм.РФ corporation was established to support investors and develop the tourism industry. You have been working for more than a year, are there any encouraging results?

- We see that the Russian government is putting in place unprecedented efforts to develop the tourism infrastructure. The national projects under which we are working are aimed at providing 38,000 new hotel rooms by 2030. We have been working for a little over a year, but our portfolio already includes the projects for 25,000 hotel rooms, which means that over 300 new tourism infrastructure facilities will appear. I would like to note that support is provided not only for the construction of new facilities, but also for the expansion, reconstruction and modernization of the existing tourism infrastructure facilities. This will create 23,000 new jobs throughout the country that are greatly important in a crisis. But the most important thing is that investors - quite competent people understanding macroeconomic and political issues - continue to invest in the tourism industry. About 500 bn roubles will be raised as part of the current portfolio of projects aimed at developing the tourism infrastructure. This is a huge amount of money and the state will support investors who are now developing and creating the tourism infrastructure facilities and provide a large number of tools to help them implement their projects.

- Private investors are ready to invest about half a trillion roubles, what will be the role of the state?

- The corporation always acts as a minority shareholder, our share in the authorized capital is 49 percent, the investor as a majority shareholder has 51 percent. Together, these funds make about 30 percent of the capital, the rest of the funds required are borrowed, investors can use now such a convenient product as a preferential rate of 3-5 percent. Each project is unique, but the figures are discussed on a specific basis because debt financing is involved. It is necessary to understand how to spend public money most efficiently. Our task is to help every investor, but at the same time, to support more projects. All the money can’t be spent to support one project only. The corporation ensures the comprehensive development of a tourism facility, inclusion in the so-called ‘orchestration’ programme when programmes and tools are synchronized so that the investors could see and choose the best options that they can use to implement the project. If we are now sufficiently active and find out what the state is offering, the projects can be implemented faster. In some cases, the project profitability increases by 30 percent, project implementation time is halved, and tangible specific instruments are used for the investor to reduce a financial burden. First of all, the state should create a supporting infrastructure, including transport and external backbone networks that must be provided for the facility, and this our task, which we perform together with colleagues from the Ministry of Construction. Inside the tourism area, investors are willing to build roads, cable cars, hotels, but ‘external’ infrastructure is a problem the travel industry has faced for many years. Now, a national project has been established to solve this problem. And this is one of the most demanded measures, it is among the most effective ones for investors. When the ‘external’ infrastructure facilities are provided so that the project can be developed ‘inside’, investors are more willing to invest money to develop the area, because the ‘external’ financial burden is resolved.

- How does the corporation support the implementation of projects?

- In fact, we are very flexible to investors’ proposals. For example, it was revealed at the start that a large number of projects had restrictions in submitting their concepts, developing a business plan, sometimes investors do not have sufficient competencies to create a product to substantiate their projects. Now, we make efforts to accelerate the investment projects, as well as show standards, methodology, and provide data access, in fact, become the owner of big data, arrays of information in the tourism industry. And now, an opportunity is opening up for investors to develop the project at the stage of zero state, the pre-investment phase, when it is possible to adjust parameters and a financial model, as well as to predict the risks that can be during the project implementation. We are currently developing one more product. In a number of projects, the corporation can act as a majority shareholder - where it is required and relevant - for the period when it is necessary to stretch a helping hand to investors as they cannot act as majority shareholders at the pre-investment stage. At further stages, investors get on their feet and can buy out their share. We also help in providing new financial instruments, which are now being added and allow us to accelerate the project at the pre-investment stage, for example, to develop the project documentation and conduct surveys.

- What are the regions where your projects are being implemented to create tourism infrastructure?

- Now, the projects are under implementation in 42 regions of the country, and by the end of the year, their number will grow to 45 regions. We have signed agreements with 52 regions and we are actively working with them. It is impossible to develop a business without a support from the regional authorities, municipalities; the state must develop all levels of support for investors to avoid the cases when big national projects are launched but investors do not receive support at the local level, this is not acceptable. The agreements allow us to fully involve municipalities and regional authorities in joint work with investors, this makes it possible to take advantage of all the ongoing programmes.

- When objects will be implemented first?

- It all depends on the start. Sometimes, we come to projects that require support at one stage or another; for example, the development of the design and estimate documentation has already been started or the modernization project has been launched, but financing is not sufficient and a state support is required. There are even projects where construction has already been started, but it is difficult to complete it, and the corporation helps willingly, because it is clear that these projects will be implemented faster than the so-called ‘green-field’ projects when everything is built from scratch and a number of pending questions need to be solved. Land plots are the main stumbling point in the implementation of investment projects. It takes time to go through all the legislative procedures, therefore, the first projects will appear in 2023. These objects are in Omsk and Vladimir. Considering the investment cycle, a large number of projects will be implemented by 2025, and the main effect for the tourist can be seen by this time. Our portfolio includes the projects for the integrated development of areas, three master plans have already been developed, including the Lagonaki Resort in Adygea, the Three Volcanoes in Kamchatka, and the Vasta Valley Resort in Adygea. These projects will radically change the tourism industry and our country will be proud of them.

- Three of the large-scale projects you mentioned are mountain resorts. Why is this tourism sector so attractive for investors?

- In principle, alpine tourism is the world’s key driver for the travel industry development. This is a high-tech business able to create fast attractions, and mountains as natural attractions, give a WOW effect. Providing additional service and accommodation facilities is a very powerful message to tourists. The first master plans being implemented with the participation of our corporation are the Lagonaki Ski Resort in Adygea, a wonderful resort aimed at a new segment of family vacations. The Three Volcanoes project is also in the mountains, but it is different as its main attraction is balneology. The Vasta Valley project is in Krasnaya Polyana, and despite the fact that the mountain cluster in Sochi is the best in the country, it still needs expansion as the demand is growing. Our portfolio includes a lot of projects in the alpine tourism segment and there are objective prerequisites for this. Only three to five percent of the country’s population go skiing. According to various estimates, another 16 percent of people would like to go skiing. That is, a gap is seen between those who would like to go to a mountain resort, and those who already go skiing, and it is necessary to narrow the gap. Business can provide the necessary tourism product, but a balance is needed. We have examples when several projects for the development of ski resorts are submitted from some region, but often they are not feasible. The regional authorities and business community should decide for themselves where their niche is, whether it is a regional, interregional project or a federal project able to enter the international markets. This is the balance that the corporation’s participation provides. We guide our partners, let them find their niche and a financial model, because many see successful examples of the Sochi alpine tourism cluster development and want to do the same. But each region is special in many respects, including social and economic aspects and nature, and they need to develop and offer their own tourism product.

- Should ski resorts operate year-round?

- There’s just no way around it. In operational management, it is clear that a team of top specialists formed for the winter season cannot be ‘disbanded’ in the summer. But there is no money to support them if the resort positions itself only as a ski resort. And this is not about top managers, but about front line staff providing services at any resort. They must have their jobs all year round, therefore, it is inevitable that all businesses create a year-round product, this is the only way the financial model can work. While the project can balance initially at the level of positive-negative income and have some kind of profit for the year, it will have to meet the year-round standard within 5-7 years when there are enough projects with developed infrastructure.

- Recently, the construction of a road between Sochi and Arkhyz was announced, which will give impetus to the development of tourism. Is there any understanding of the cost of this project and the increase in the future tourist flow?

- It’s too early to talk about the cost. These projects are ‘built from scratch’ when many issues need to be resolved. At the moment, only the possibility of its implementation is under consideration. Connecting the resorts by road will create a larger single ski area and allow this ski area to enter into top 10 - or maybe top 5 - largest ski resorts in the world. We understand that this is important for tourists and for the export of our services and this will give an impetus to the tourism industry. As for side effects, ensuring the logistics allows to quickly get to the resorts and connect entire new regions, and also gives a powerful social and economic benefit. The tourism industry has an effect on dozens of related industries. We consider this project to be of great importance, but a huge number of issues related to both safety and the environment protection need to be resolved.