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Vekselberg Discusses Future Skolkovo Infrastructure

Vekselberg said the city?€™s generous regulations would for the first time give Russian companies the right to fail. Maxim Stulov

The future innovation city in Skolkovo will have a special legal regime, its own special police force and will be run by a fund rather than a mayor, Viktor Vekselberg, who will be president of the fund, told Vedomosti.

"We wanted the police force that will serve in the innovative city to be a little different from that in the rest of the country," Vekselberg said, referring to the future organization of Skolkovo.

The city, which has come to be referred to as an innograd, will also have a tax regime that is not typical.

"Companies that have the status of 'resident' will be freed from profit and property taxes and will have lower rates for social expenditures," Vekselberg said. "Tempers are high in the discussions. The most painful discussions are those with the Finance Ministry on tax preferences."

The innograd will be run by a nonprofit foundation that will be managed by Vekselberg and established by the Russian Academy of Sciences, Rosnano, Vneshekonombank, Russian Venture Company, the Small Business Research Development Foundation, the Housing Assistance Foundation and several nonprofit organizations that will found universities, including Bauman Moscow State Technical University.

"If we manage to reach an agreement, there will also be foreigners among the founders," Vekselberg said. Nobel Laureate Roger Kornberg, a biochemist, may become co-chairman of the city's scientific council along with physicist Zhores Alferov, also a Nobel Laureate.

The foundation will build the innograd for 25,000 people to 30,000 people and organize its vital activities. The first residents will move in within 3 1/3 years. Scientific research premises will be built, as will graduate schools, laboratories, housing, offices, kindergartens, schools and hospitals. Highway infrastructure will be built within four years.

For such a territory (380 hectares) and population, it will be more effective to build low-rise apartment buildings and townhouses, said Konstantin Popov, chairman of Inkom. This would mean approximately 1.5 million square meters of real estate (1 million for housing and the rest for social infrastructure), he said.

The minimum necessary investment for such an undertaking is about $2 billion, he said. "Without the scientific and research components, this looks more like a typical construction megaproject for low-rise apartments in the Moscow region."

There will be no skyscrapers, Vekselberg said. The construction focus will instead be on environmental factors and energy efficiency.

Financing the first stage (technical assignments, architectural plans, tenders, analyses) will cost 4.6 billion rubles, which was earmarked by the government's commission for modernization this year.

The project will get its own assignation in the federal budget next year, Vekselberg said. It may receive 50 billion rubles to 60 billion rubles over the next 2 1/2 years. Investment from the co-founders will be minimal, and most of the funds will come from the state budget.

The foundation will establish a managing company that will be responsible for the innograd's housing. There will be no local authorities, and the foundation itself will take care of lighting, plumbing and street naming, Vekselberg said.

This is an exception to the law on local governance, said Vyacheslav Timchenko, head of the State Duma's Local Administration Committee, but to develop an innovative economy it is necessary to make exceptions.

The foundation will provide grants for several projects. Companies whose projects are selected will receive the status of participants and will be able to rent facilities nearly at cost. They will also get breaks on taxes and tariffs, as well as other subsidies.

A separate law is being prepared for the innograd, which will establish a special legal regime that will allow it to fully concentrate on science and research without being hampered by bureaucracy and formalities. The Economic Development Ministry will develop the law, and Elvira Nabiullina, the ministry's head, will report on the legislation at the next meeting of the presidential commission on modernization.

The ministry's framework document, a copy of which was obtained by Vedomosti, requires that nine laws and codes be changed, including the Tax Code, the Town Planning Code and the Land Code.

The status of "participant" will be given for 10 years and can't be revoked before then, for example, for non-core activities. Housing will be rented to personnel, Vekselberg said, and all land plots will stay owned by the foundation.

The ministry's framework discusses two possibilities for a preferential customs regime. Participants will either receive the right to import equipment without tariffs or subsidies to compensate for the tariffs. A representative of the customs service told Vedomosti that the service is prepared to for both options.

According the ministry's project, the tax breaks will be given directly to the foundation, its subsidiaries and participants, either for 10 years or until its yearly revenues reach 3 billion rubles. Profit, property, land, transport and value-added taxes will all be repealed. Mandatory insurance premiums will be 14 percent.

The Interior Ministry, the Federal Migration Service, the Federal Tax Service, the Emergency Situations Ministry and the Federal Consumer Protection Service will all have special departments in Skolkovo that will be independent of local authorities and will report directly to the head office.

An official in the Economic Development Ministry said there is a proposal for such a scheme, but he didn't know if it had been agreed upon yet.

A Finance Ministry spokesman declined to comment on the tax proposals.

An Interior Ministry employee said the ministry's operations in Skolkovo might be analogous to the police forces in Russia's closed cities. While the department that supervises such police forces is currently inactive, they will be subject to regional branches, and their independence, which allows such police forces to take into account the specifics of such territories, will be retained.

A simplified and expedited procedure will allow land to be transferred, advertisements to be placed and buildings to be constructed without permits from the authorities.

Imports of foreign goods and the use of new domestic products will be allowed without a conformity assessment: Risks and responsibility for the safety will be taken by the foundation.

Individual projects won't have specific performance requirements, Vekselberg said. For the first time in Russian practice there will be a right to fail. In the West, only two out of every 10 startups are successful, he said.

The 10-year tax holidays are unprecedented, said Dmitry Chernik, president of the Tax Consultants Chamber. Typically, someone will do something and then ask for a year of tax subsidies and then, not having done anything, will ask for another 10 years.

A five-year tax holiday was considered in 2007 for residents of the special tourists' zone in Krasnodar region, but that was only for land, property and transportation taxes, while profit taxes were lowered 4 percent.

This will just be a variation of a state corporation, i.e. a sinecure, said Sergei Mitrokhin, leader of the Yabloko party. In the absence of a local government, its activities will be completely beyond control.

The legislative field was already plowed up with the creation of state corporations, said Igor Nikolayev, of consulting firm FBK. The form of such entities is unclear, nontransparent and contradictory for investors, he said.

As in the case of state corporations, in two to three years they start to ask whether or not this was a good idea after all, he said. But while you can reorganize a state corporation, it's not clear what you do with a city.

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