MOSCOW

Moscow authorities and the Federation Council this week approved a plan to more than double the size of the Russian capital and looked at establishing a long-awaited international financial district west of the city. The plans have raised questions, however, about how the project will be financed.

Proposals for the rapid expansion of Europe’s biggest city were presented by Moscow Mayor Sergei Sobyanin and Moscow Region Governor Boris Gromov in response to ideas outlined by President Dmitry Medvedev at the St. Petersburg International Economic Forum last month.

Preliminary plans, which lack cost and financing details, would see a pizza slice-shaped wedge of land in the southwest between the Varshavskoye Shosse and Kievskoye Shosse incorporated into the city, giving it a lopsided shuttlecock look.

A second, and likely more short-term project, would establish Moscow’s international finance hub in the western Rublyovo-Arkhangelskoye district, a favorite dwelling place of the capital’s ultra-rich.

Medvedev also wants to see federal government agencies moved outside the center, although Sobyanin said it was still unclear where they might be relocated to.

‘Up to 20 years’

City Hall reported Tuesday that the project to develop an extra 144,000 hectares of Moscow land would take about 20 years. It said the details of the development would be formalized in a development plan through 2025.

Under the plans, the overall area of the city would grow 2.4 times to cover an area of 251,000 hectares, instead of the current 107,000 hectares.

Experts say that while the project seems ambitious, expansion of the rapidly developing city is inevitable.

“The project is a natural development as Moscow is currently very compact and severely needs extra territory,” said Denis Sokolov, head of research at Cushman and Wakefield real estate firm. “There is currently no room to construct new residential and office complexes.”

He said that as more and more people are now living in the Moscow region and commuting to work in the center, the virtual boundaries of the city have already expanded by themselves. Deputy Mayor Marat Khusnullin told journalists Wednesday that the area had been chosen because it is the least populated and developed plot of land adjacent to the capital.

“Other areas of the Moscow region adjacent to the capital are much more populated,” RIA Novosti quoted Khusnullin as saying. “To build a modern city, which could accommodate federal agencies and an international financial center, you need free land.”

The marked-out area could provide some 60 million square meters of housing and 45 million square meters of office space, City Hall said in a statement Monday. This could provide housing for 2 million Muscovites and potentially create 1 million jobs.The developments will be carried out simultaneously with steps to turn Moscow into a new federal district, City Duma chairman Vladimir Platonov said Tuesday, RIA-Novosti reported.

Public-private funding?

But one area that remains hazy is how the city authorities plan to finance such a mammoth development project.

“The country’s current economic situation is far from rosy, so it is unlikely that the government would fund such a big project,” said Ivan Tchakarov, chief economist at Renaissance Capital. “I envisage a high level of participation from the private sector.”

He suggested that the government might consider using public-private partnership programs, successfully implemented in other emerging markets, such as India. Such an agreement would allow the government to retain a small stake in developments and full possession of them after a set period of time.

The plan to relocate government offices is likely to be less costly. Finance Minister Alexei Kudrin said last month that the entire project would be funded by revenues generated by the sale of offices currently occupied by the government in downtown Moscow. Some officials in the mayor’s office have already hinted that the buildings could be turned into hotels, which there is a serious shortage of in Moscow. Sokolov, of Cushman and Wakefield, suggested that the government may even profit from the relocation as the offices occupy vast buildings in prime locations.

Better infrastructure

Apart from providing space for Moscow’s rapidly expanding population, the main aim of the project is to improve the capital’s poor infrastructure by creating a second center to share the burden of traffic in a city with a population of well over 10 million.

Moscow’s infrastructure, defined by its bottlenecks and lengthy traffic jams, has been rated by the World Bank as below the global average and worse than big cities in other BRIC countries.

Establishing the financial center in the Rublyovo-Arkhangelskoye district is a logical move, since many of the people who would be working there already live in the area. But Sokolov, of Cushman and Wakefield, said that as the financial center would only encompass around 10 percent of the city’s workforce, the impact on transport networks was unlikely to be very big.And the establishment of three central hubs means that city authorities will in effect triple the volume of transport infrastructure to be constructed and maintained. The Rublyovo-Arkhangelskoye district and the area southwest of the city lack strong transport connections to downtown Moscow.

Will investors come?

But there remain other question marks over the plans. Even if the city’s expansion is a success, it is unclear how far the financial district will go toward putting Moscow on the map as a global financial center on a par with the likes of London or New York. Poor infrastructure is just one factor deterring foreign investment, and expanding Moscow will not necessarily solve the capital’s other major problems, such as weak institutions and rampant corruption, experts said.