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Viewing cable 07MOSCOW5924, RUSSIA'S LATEST STATE CORPORATION: HOUSING

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Reference ID Created Released Classification Origin
07MOSCOW5924 2007-12-21 14:31 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow
VZCZCXRO7910
RR RUEHLN RUEHVK RUEHYG
DE RUEHMO #5924/01 3551431
ZNR UUUUU ZZH
R 211431Z DEC 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 5978
INFO RUEHLN/AMCONSUL ST PETERSBURG 4715
RUEHVK/AMCONSUL VLADIVOSTOK 2575
RUEHYG/AMCONSUL YEKATERINBURG 2914
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC
UNCLAS SECTION 01 OF 02 MOSCOW 005924 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/RUS WATSON, PATTERSON 
NSC FOR WARLICK 
 
E.O. 12958: N/A 
TAGS: ECON PGOV SOCI RS
SUBJECT: RUSSIA'S LATEST STATE CORPORATION: HOUSING 
MAINTENANCE FUND 
 
REF: MOSCOW 00510 
 
1.  (SBU) Summary.  In an effort to revitalize Russia's 
housing, President Putin on July 27 signed the law creating 
the Fund to Assist Housing Maintenance.  Minister of Regional 
Development Kozak will head the Fund's supervisory board and 
his protg, Konstantin Tsitsin, a Federal Council member, 
will head the Fund.  With a budget of 240 billion rubles (USD 
$9.6 billion), the Fund will finance projects to upgrade 
dilapidated housing and resettle people from uninhabitable 
homes to better ones.  The GOR hopes the Fund will also 
encourage development of a market for repair companies and 
jump start the formation of homeowners associations.  While 
most experts consider the Fund well-targeted, they express 
concern over its small size, the potential for corruption, 
and its ability to attract investors into the home repair 
market.  End summary. 
 
----------------------- 
Crumbling Housing Stock 
----------------------- 
 
2.  (SBU) Russia's dilapidated housing stock has been ignored 
since privatization in the 90s, as the GOR passed 
responsibility for maintenance and repair onto first-time 
homeowners who were unaccustomed to such responsibility and 
lacked sufficient financing to carry the new burden.  Most 
urban Russians live in apartment buildings where they own the 
individual apartments.  The rise of a do-it-yourself culture 
has led to improvements in individual dwellings, but weak 
homeowners associations have left maintenance of the building 
infrastructure, including elevators, communal spaces, and 
utility systems in disarray. 
 
-------------------- 
The Fund Takes Shape 
-------------------- 
 
3.  (SBU) The Fund is the latest in a series of state 
corporations that the GOR has created to address the 
country's economic problems.  Money has been allocated in the 
2008 federal budget and beginning January 1, regional and 
municipal governments can receive 500 million to eight 
billion rubles (USD $20-320 million) in assistance.  Sixty 
percent will finance the repair of existing housing and 40 
percent will finance resettlement into better homes.  Kozak 
will head the Fund's supervisory board, which will consist of 
17 members representing the Presidential Administration, 
State Duma, Federation Council, and Public Chamber. 
Konstantin Tsitsin, a Federal Council Member, will direct the 
Fund.  According to Tsitsin, board members will not receive 
salaries and staff employees (100 have been named so far) 
will receive wages somewhere between public and private 
sector averages -- meaning a pay hike for government workers 
moving to the Fund.  While Tsitsin is reported to be Kozak's 
protg, some experts have expressed concern over his lack of 
experience in the sector. 
 
4.  (SBU) According to Tsitsin, the regional and municipal 
governments must agree to 12 criteria -- three of which have 
generated the most attention and criticism.  First, the 
regional government must ensure that 25 percent of the 
service companies doing home repair in its region are 
privatized by January 1, 2009, and 80 percent by 2011. 
Second, the regional government must guarantee that five 
percent of apartment buildings in their region will form 
homeowners associations or cooperatives by January 1, 2009, 
rising to 10 percent in 2010 and 20 percent in 2011. Such 
associations would be responsible for choosing and overseeing 
companies repairing their building. Finally, the regional 
government, together with the Fund, would finance 95 percent 
of the total cost of repair, but homeowners must finance the 
remaining five percent. According to Tsitsin, 70 regions are 
ready to file the necessary applications to receive funding. 
 
------------------------- 
Resistance in the Regions 
------------------------- 
 
5. (SBU)  Regional and municipal authorities have objected to 
these last two criteria.  They claim homeowners associations 
are developing, but slowly.  Citizens are reluctant to take 
 
MOSCOW 00005924  002 OF 002 
 
 
control of their own buildings for fear of being saddled with 
huge costs and instead are waiting for local governments to 
finance repairs.  In addition, they argued that homeowners 
would balk at paying even five percent of the total repair 
cost.  According to recent press reports, authorities in 67 
cities have lobbied Duma and GOR officials to relax the 
requirements.  Duma deputies from the "A Just Russia" party 
have take up their cause and submitted amendments to the law 
for the Duma's consideration in spring 2008.  However, 
Tsitsin and Kozak have strongly opposed changes to the Fund's 
 
SIPDIS 
criteria. 
 
---------------------------------- 
Fund's Idle Capital to be Invested 
---------------------------------- 
 
6.  (SBU) The Fund's budget will not be entirely spent in its 
first year and up to 80 billion rubles (USD $3.2 billion) 
will be invested in federal, regional and OECD-country 
government obligations.  Further diversification will be 
considered later and could include investment in Russian and 
OECD-country stocks and mortgage obligations.  While the GOR 
wants to keep the money safe in low-yield investments, some 
experts believe that the only way to expand the Fund's 
capital -- or to simply keep up with inflation -- is to 
invest it in stocks, instead of low-yield securities. 
 
------------------------------ 
Good Idea, But Rising Concerns 
------------------------------ 
 
7.  (SBU) While most experts and officials support the idea 
of the Fund, there are concerns about opportunities for 
corruption in the distribution of the money and the small 
size of the Fund in comparison to the scope of the problem. 
Sergey Sivaev, Director of Municipal Economy at the Institute 
of Urban Economics, said that the Fund is too small to 
address the vast amount of repairs needed and would only 
provide 10 percent of what is necessary.  He added that 
attracting private capital would be key to any program 
seeking to improve the situation.  He also suggested changing 
current banking policies to allow homeowners to use 
apartments as collateral when applying for bank loans could 
spur more home improvement projects. 
 
8.  (SBU) Andrey Shirokov, Head of Real Estate and Urban 
Infrastructure Management at the Moscow Institute of State 
and Corporate Governance, reiterated that the Fund is just 
too small.  He said that up to two-thirds of Russia's 
housing, or 3.8 billion square meters, is in need of repair 
and requires 5-10 trillion rubles (USD $200-400 billion) to 
fix -- 20-40 times greater than Fund's budget.  Remir 
Mukumov, Head of Territorial Development at the MEDT and one 
of law's authors, argued that the Fund must start somewhere. 
 
9.  (SBU) Comment.  The Housing Maintenance Fund has the 
potential to jump-start the stalled National Priority Project 
in Affordable Housing, which has led to little improvement in 
the housing situation (reftel).  The Fund tackles a 
fundamental problem that the National Project, with its focus 
on construction and mortgages, has not addressed.  Targeting 
capital repairs fills this void and while initial monies may 
be low, positive results could spur additional funding. 
However, like other GOR projects, it is a waiting game to see 
if the Fund will reach those Russians in most need or if it 
will be hindered by corruption, inadequate funding and an 
inability to attract private investment.  End comment. 
BURNS