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Business news, 13.05.2005 17:49

Matviyenko to Sign Baltic Pearl Agreement

Baltic Pearl An agreement paving the way for the $1.25-billion Baltic Pearl development is to be signed in Shanghai this weekend between a group of Chinese investment companies and Governor Valentina Matviyenko, who left for China on Thursday.

The agreement specifies investment conditions for Shanghai industrial and investment companies to develop a district in the southwest of St. Petersburg covering more than 200 hectares. When signed, it will become the most concrete step taken toward developing the project, which has been discussed by the city government and Shanghai companies since the beginning of last year.

"Construction may begin as early as the summer," said Yuguang Qiao, a representative of Shanghai Overseas Enterprises Corp., which unites the five mainly state-owned Chinese investors. "The preliminary works have been finished, now we are awaiting the signing of the agreement, after which we can proceed with the actual construction," Qiao said Wednesday in a telephone interview.

The project, which includes developing the swampy district's infrastructure and constructing 2 million square meters of residential and commercial real estate, would be divided into four stages, he said. The first and the most important step is the construction of electric lines, water and gas pipelines, as well as roads, all of which are lacking in the Krasnoselsky district.

Qiao said the investors are planning to hold a tender for interested contractors. "Mostly Russian companies will participate in the tender," he said. The tender is open to all companies wishing to participate under the Russian legislation, he said.

Although Qiao said a Russian division of the Chinese company would be established once the agreement is signed, the city's committee for investment and strategic projects said Thursday a subsidiary has already been registered.

"OOO Baltic Pearl, a 100 percent Chinese-owned company, has already been established," the committee's spokeswoman said in a telephone interview.

"The company will control the project's financing, organization and construction," she said, adding that all business decisions about the project will be made by the investor.

"The city's role in the development will involve only supervision, to make sure all investment agreements are observed and that construction is done in keeping with Russian law."

Under the terms of the agreement, the Shanghai investors will contribute $10 million to the development of city infrastructure and spend $20 million on the construction of social and communal facilities, such as schools and kindergartens, libraries and health clinics.

The considerable amount of investments, including the social and infrastructure spending, allowed Baltic Pearl to qualify for strategic investor status.

"This status allowed the company to legally avoid a tender and obtain the land plot through a specific procedure of provision of land for designated purpose," said Natalya Dyatlova, head of the real estate and utilities group at Ernst&Young via e-mail Thursday.

Although City Hall is still in the process of working out a smooth legal scheme for the realization of large-scale foreign projects, the significant steps taken by the city with regard to development of the area are a positive sign for investors, she said.

"The project will boost the attractiveness of the neighboring southwest industrial zones and may attract other investors to the area," she said.

However, the project may prove much more costly than originally planned for the Chinese investors, she said, as the absence of developed infrastructure and the lack of power capacity may cause considerable additional expenses.

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