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Russia bets on its Pacific Vegas
December 14, 2012 Mark Galeotti
The planned new gambling complex near Vladivostok could be a key to diversifying the Russian Far East economy.
While President Barack Obama has spoken often of the United States pivot toward Asia, this has been a central plank of Russian geopolitics since Putins rise to power in 1999.
Amidst summits, multi-billion dollar energy deals and growing security cooperation with Beijing, a significant role may also be played by plans to establish a Las Vegas-style gambling complex outside Vladivostok.
The proposals date back to 2009, when Putins government banned organized gambling throughout the country, except for four particular regions: Vladivostok in the Russian Far Eastern Maritime Region, the Kaliningrad exclave to the west, Azov City in the southwestern Rostov region and Altai in Central Asia.
They were strategically chosen as being both well placed for current or potential markets and also needing further diversification and development. It is no accident that they are all on or close to Russias borders, as the expectation is that these will become magnets for foreign tourism and investment.
The hope is that Kaliningrad can become a European leisure center, while Azov City looks to Ukraine and the Middle East. The Altai Republic, between Kazakhstan and Mongolia, is envisaged more as a scenic tourist destination with added gambling, and one which in due course could appeal to the moneyed elites of both China and Central Asia.
Asian gambling tourism
However, priority is being given Vladivostok, chosen to cater for an Asian gaming market worth $34.3 billion in 2010 and growing fast. After all, while the Maritime Region is under-populated, it is close to China: an estimated 400 million people live within a one-hour flight.
With Japan, Korea, Taiwan and Vietnam all also becoming increasingly important sources of gambling tourism, Vladivostoks new international airport there are direct flights from some 20 Asian cities also assumes a new importance.
The plan is that the first five casino hotels will have been built by 2016 at the new Ussuri Bay Resort at Muravyinaya Bay, near Artyom, northeast of Vladivostok itself. By 2022, there are to be 16 new hotels, a yacht club, shopping malls, golf links, artificial beaches and all the other glitzy accessories of a new Pacific Vegas.
Some $2 billion are to be spent on this, with $625 million in investment capital reportedly already raised.
State-led project
For the moment, this is very definitely a state-led project. Nash Dom-Primorye, the Maritime Regions housing and development corporation, is the primary developer. Generous tax breaks are promised to help lure international casino groups and five have already expressed an interest in joining the project.
This is unlikely to be as smooth or easy a process as policymakers in Moscow and Vladivostok seem to assume. Already there has been some scaling back; initial plans appeared to envisage 12 casino hotels being ready by 2016, instead of the five now being discussed.
Besides which, Russias track record with major civic projects is scarcely impressive. Indeed, the construction for the APEC summit in Vladivostok in September 2012 saw some $470 million misused, according to the Audit Chamber. Likewise, two luxury hotels and a new opera house that were to be ready for the summit were delayed.
Spinoff developments
Nonetheless, there are many players with a strong interest in getting this new project up and running. To the Maritime Regions leadership, it is a prestige project that could help diversify the local economy away from its current dependence on energy, fishing and industry.
According to some projections, it could eventually be worth $5.2 billion a year, and Governor Vladimir Miklushevsky is banking on spinoffs. He has noted that in the modern tourism business, income from the gambling zone itself accounts for 30 to 40 percent of all tourism revenues. The rest comes from other sources, such as amusement parks and shopping centers.
He hopes that the project will in due course attract 10 million tourists a year, mainly from abroad, around one-quarter of the number who visit Las Vegas. This could stimulate wider development. If, for example, just one in 10 is induced to also undertake some local travel in the Maritime Region, that would provide sufficient business to turn around its unprofitable and subsidized short-haul air transport.
However, the project is especially important to Moscow. Aware that the Russian Far East continues to suffer serious problems of under-population, Chinese competition and high food and energy prices, this offers the chance of generating new forms of economic activity. Moscow wants not only to be able to scale down the federal subsidies it provides, but also to create its own economic hub on the Pacific.
Looking toward Asia
The Ussuri Bay Resort may seem relatively insignificant compared with such initiatives as the $13 billion liquefied natural gas plant and export terminal to be built at Vladivostok, and Rosnefts $6 billion refinery at Nakhodka, to the east. However, it should instead be seen as part of an overall strategy to remodel not just the economy of the Russian Far East but its image and place in Asia.
In its own way, it is a strategic project to match the creation of a new campus on Russky Island for the consolidated Far Eastern Federal University. Both are explicitly looking toward Asia. At least 10 percent of the universitys 25,000 students are to be drawn from Asian countries, for example. Both are also investments in new kinds of activity for the Russian Far East, ones based on knowledge, creativity and recreation.
Underworld interest
Ironically, this is a project which can even enthuse the underworld. Such major developments inevitably offer organized crime numerous lucrative opportunities.
Embezzlement and fraud in the construction process can give way to laundering money in the casinos, loan-sharking to desperate gamblers and selling sex and drugs to visitors on the side. There have already been contacts between Russian gangs and their counterparts in Las Vegas largely devoted to learning how best to manage such underworld economies.
However, the gangs of the Russian Far East have had a singular lack of success in talking to the Chinese gangs that dominate Macao, the Ussuri Bay Resorts most immediate competitor. Macao has overtaken Las Vegas as the worlds capital of gaming it brought in $33.5 billion in 2011 and is jealously seeking to protect its current status. Its gangsters are likewise reluctant to share their best practice with new competitors.
This is, in a way, a microcosm of the new economic and political relationships in Pacific Asia. Russia increasingly obviously sees the massive opportunities in the East and wants to redefine itself as an Asian nation as much as a European one.
This will inevitably connect it to dynamic and expanding economies, and potentially win Moscow something it has lacked for a long time, soft power and economic credibility in Asia. Inevitably, though, in the process it will find itself competing with interests who may be threatened by its successes. Putins administration is just as much a gambler in the Russian Far East as the punters he hopes will flock to the new Pacific Vegas.
Melco: plans for a casino in Russia “market speculation”
July 4, 2013 Dan Pototsky, RBTH Asia Pacific
The Chinese casino company Melco Crown Entertainment has refused to confirm plans of investing in a new casino in the Primorye gambling zone in the Russian Far East.
"We're aware of the news reports," said Maggie Ma, head of Melco corporate communications. "It is market speculation and thus, we will not provide any comment," she told RBTH Asia Pacific.
However, the press service of the Russian Primorye (Maritime) territory has told the Russian media that an investment agreement has already been reached.
According to Andrey Aksenov, head of the Primorye territory inward investment agency, the investment agreement is in place, although the precise dollar figure is not being discussed as yet.
"It is already clear that the value of the investments can be even higher than previously expected because the concept of gambling zones includes the creation of the entire infrastructure of this tourism cluster from scratch," Aksenov told the Rossiyskaya Gazeta daily.
The Macau-based Melco Crown Entertainment is owned by Lawrence Ho Yau Lung, son of the gambling tycoon Stanley Ho.
Why Vladivostok?
The Ho gambling empire's projects in other countries mostly aim to attract Chinese clientele. Vladivostok could therefore be a very good location for a new casino because of its territorial proximity to China.
The flight between Beijing and Vladivostok is only 2.5 hours, compared to the 3 hours and 45 minutes it takes to get from the Chinese capital to Macau.
The flight between Harbin and Vladivostok is even shorter, 1 hour and 20 minutes; the distance from the Vladivostok airport to the gambling zone itself is a mere 25 km.
Investing in the Russian gambling zone could turn out to be even more profitable than in Macau for the Chinese tycoon.
Macau taxes all the earnings made by casinos at 39 per cent. According to Gambling Market Advisors, the tax rate in the Primorye territory could be as low as 3 to 7 per cent.
"Many people still don’t realize that Vladivostok has a great Asian potential for casinos," Dean Macomber, president of the consultancy Macomber International, told the Wall Street Journal
Searching for investors
There are currently four gambling zones in Russia: Azov City in Krasnodar Territory (southern Russia); Yantarnaya in Kaliningrad Region; Siberian Coin in Altay Territory; and Primorskaya in the Far East. According to a federal law that has been in force since 1 July 2009, these four zones are the only places in Russia where casinos are allowed to operate.
Under Russian law, the gambling companies resident in these zones must build all the attendant infrastructure.
The value of investment in the Primorye zone is estimated at 1.763bn dollars. According to a study by Gambling Market Advisors, revenues estimated at 1.2bn dollars, with a potential to increase to 5.2bn.
The management of the Primorye zone says there has been interest from Chinese, American, Australian and Japanese investors.
In 2012 seven companies were granted licences to develop several blocks within the zone. In December the management chose the companies that will develop the territory's business concept.
Talks with investors were held during the APEC summit in Vladivostok. In mid-June the Primorye territory governor, Vladimir Miklushevsky, held several meetings with representatives of the gambling industry in Macau.
December 14, 2012 Mark Galeotti
The planned new gambling complex near Vladivostok could be a key to diversifying the Russian Far East economy.
While President Barack Obama has spoken often of the United States pivot toward Asia, this has been a central plank of Russian geopolitics since Putins rise to power in 1999.
Amidst summits, multi-billion dollar energy deals and growing security cooperation with Beijing, a significant role may also be played by plans to establish a Las Vegas-style gambling complex outside Vladivostok.
The proposals date back to 2009, when Putins government banned organized gambling throughout the country, except for four particular regions: Vladivostok in the Russian Far Eastern Maritime Region, the Kaliningrad exclave to the west, Azov City in the southwestern Rostov region and Altai in Central Asia.
They were strategically chosen as being both well placed for current or potential markets and also needing further diversification and development. It is no accident that they are all on or close to Russias borders, as the expectation is that these will become magnets for foreign tourism and investment.
The hope is that Kaliningrad can become a European leisure center, while Azov City looks to Ukraine and the Middle East. The Altai Republic, between Kazakhstan and Mongolia, is envisaged more as a scenic tourist destination with added gambling, and one which in due course could appeal to the moneyed elites of both China and Central Asia.
Asian gambling tourism
However, priority is being given Vladivostok, chosen to cater for an Asian gaming market worth $34.3 billion in 2010 and growing fast. After all, while the Maritime Region is under-populated, it is close to China: an estimated 400 million people live within a one-hour flight.
With Japan, Korea, Taiwan and Vietnam all also becoming increasingly important sources of gambling tourism, Vladivostoks new international airport there are direct flights from some 20 Asian cities also assumes a new importance.
The plan is that the first five casino hotels will have been built by 2016 at the new Ussuri Bay Resort at Muravyinaya Bay, near Artyom, northeast of Vladivostok itself. By 2022, there are to be 16 new hotels, a yacht club, shopping malls, golf links, artificial beaches and all the other glitzy accessories of a new Pacific Vegas.
Some $2 billion are to be spent on this, with $625 million in investment capital reportedly already raised.
State-led project
For the moment, this is very definitely a state-led project. Nash Dom-Primorye, the Maritime Regions housing and development corporation, is the primary developer. Generous tax breaks are promised to help lure international casino groups and five have already expressed an interest in joining the project.
This is unlikely to be as smooth or easy a process as policymakers in Moscow and Vladivostok seem to assume. Already there has been some scaling back; initial plans appeared to envisage 12 casino hotels being ready by 2016, instead of the five now being discussed.
Besides which, Russias track record with major civic projects is scarcely impressive. Indeed, the construction for the APEC summit in Vladivostok in September 2012 saw some $470 million misused, according to the Audit Chamber. Likewise, two luxury hotels and a new opera house that were to be ready for the summit were delayed.
Spinoff developments
Nonetheless, there are many players with a strong interest in getting this new project up and running. To the Maritime Regions leadership, it is a prestige project that could help diversify the local economy away from its current dependence on energy, fishing and industry.
According to some projections, it could eventually be worth $5.2 billion a year, and Governor Vladimir Miklushevsky is banking on spinoffs. He has noted that in the modern tourism business, income from the gambling zone itself accounts for 30 to 40 percent of all tourism revenues. The rest comes from other sources, such as amusement parks and shopping centers.
He hopes that the project will in due course attract 10 million tourists a year, mainly from abroad, around one-quarter of the number who visit Las Vegas. This could stimulate wider development. If, for example, just one in 10 is induced to also undertake some local travel in the Maritime Region, that would provide sufficient business to turn around its unprofitable and subsidized short-haul air transport.
However, the project is especially important to Moscow. Aware that the Russian Far East continues to suffer serious problems of under-population, Chinese competition and high food and energy prices, this offers the chance of generating new forms of economic activity. Moscow wants not only to be able to scale down the federal subsidies it provides, but also to create its own economic hub on the Pacific.
Looking toward Asia
The Ussuri Bay Resort may seem relatively insignificant compared with such initiatives as the $13 billion liquefied natural gas plant and export terminal to be built at Vladivostok, and Rosnefts $6 billion refinery at Nakhodka, to the east. However, it should instead be seen as part of an overall strategy to remodel not just the economy of the Russian Far East but its image and place in Asia.
In its own way, it is a strategic project to match the creation of a new campus on Russky Island for the consolidated Far Eastern Federal University. Both are explicitly looking toward Asia. At least 10 percent of the universitys 25,000 students are to be drawn from Asian countries, for example. Both are also investments in new kinds of activity for the Russian Far East, ones based on knowledge, creativity and recreation.
Underworld interest
Ironically, this is a project which can even enthuse the underworld. Such major developments inevitably offer organized crime numerous lucrative opportunities.
Embezzlement and fraud in the construction process can give way to laundering money in the casinos, loan-sharking to desperate gamblers and selling sex and drugs to visitors on the side. There have already been contacts between Russian gangs and their counterparts in Las Vegas largely devoted to learning how best to manage such underworld economies.
However, the gangs of the Russian Far East have had a singular lack of success in talking to the Chinese gangs that dominate Macao, the Ussuri Bay Resorts most immediate competitor. Macao has overtaken Las Vegas as the worlds capital of gaming it brought in $33.5 billion in 2011 and is jealously seeking to protect its current status. Its gangsters are likewise reluctant to share their best practice with new competitors.
This is, in a way, a microcosm of the new economic and political relationships in Pacific Asia. Russia increasingly obviously sees the massive opportunities in the East and wants to redefine itself as an Asian nation as much as a European one.
This will inevitably connect it to dynamic and expanding economies, and potentially win Moscow something it has lacked for a long time, soft power and economic credibility in Asia. Inevitably, though, in the process it will find itself competing with interests who may be threatened by its successes. Putins administration is just as much a gambler in the Russian Far East as the punters he hopes will flock to the new Pacific Vegas.
Melco: plans for a casino in Russia “market speculation”
July 4, 2013 Dan Pototsky, RBTH Asia Pacific
The Chinese casino company Melco Crown Entertainment has refused to confirm plans of investing in a new casino in the Primorye gambling zone in the Russian Far East.
"We're aware of the news reports," said Maggie Ma, head of Melco corporate communications. "It is market speculation and thus, we will not provide any comment," she told RBTH Asia Pacific.
However, the press service of the Russian Primorye (Maritime) territory has told the Russian media that an investment agreement has already been reached.
According to Andrey Aksenov, head of the Primorye territory inward investment agency, the investment agreement is in place, although the precise dollar figure is not being discussed as yet.
"It is already clear that the value of the investments can be even higher than previously expected because the concept of gambling zones includes the creation of the entire infrastructure of this tourism cluster from scratch," Aksenov told the Rossiyskaya Gazeta daily.
The Macau-based Melco Crown Entertainment is owned by Lawrence Ho Yau Lung, son of the gambling tycoon Stanley Ho.
Why Vladivostok?
The Ho gambling empire's projects in other countries mostly aim to attract Chinese clientele. Vladivostok could therefore be a very good location for a new casino because of its territorial proximity to China.
The flight between Beijing and Vladivostok is only 2.5 hours, compared to the 3 hours and 45 minutes it takes to get from the Chinese capital to Macau.
The flight between Harbin and Vladivostok is even shorter, 1 hour and 20 minutes; the distance from the Vladivostok airport to the gambling zone itself is a mere 25 km.
Investing in the Russian gambling zone could turn out to be even more profitable than in Macau for the Chinese tycoon.
Macau taxes all the earnings made by casinos at 39 per cent. According to Gambling Market Advisors, the tax rate in the Primorye territory could be as low as 3 to 7 per cent.
"Many people still don’t realize that Vladivostok has a great Asian potential for casinos," Dean Macomber, president of the consultancy Macomber International, told the Wall Street Journal
Searching for investors
There are currently four gambling zones in Russia: Azov City in Krasnodar Territory (southern Russia); Yantarnaya in Kaliningrad Region; Siberian Coin in Altay Territory; and Primorskaya in the Far East. According to a federal law that has been in force since 1 July 2009, these four zones are the only places in Russia where casinos are allowed to operate.
Under Russian law, the gambling companies resident in these zones must build all the attendant infrastructure.
The value of investment in the Primorye zone is estimated at 1.763bn dollars. According to a study by Gambling Market Advisors, revenues estimated at 1.2bn dollars, with a potential to increase to 5.2bn.
The management of the Primorye zone says there has been interest from Chinese, American, Australian and Japanese investors.
In 2012 seven companies were granted licences to develop several blocks within the zone. In December the management chose the companies that will develop the territory's business concept.
Talks with investors were held during the APEC summit in Vladivostok. In mid-June the Primorye territory governor, Vladimir Miklushevsky, held several meetings with representatives of the gambling industry in Macau.
