Sergey Levkin: Clearly defined urban development rules is one of the key points in investment appeal of construction industry

01.04.2016

Interview with Sergey Levkin, head of the Moscow Department of urban policy and construction, to the Portal of Information Center of the Moscow Government.

During 5 years we witness major changes in Moscow, speeding up construction projects in key strategic areas of the capital. What is done by the Moscow government for urban management? As much as we know, any legislation must comply with the existing realities and needs.

Urban development of cities around the world is an inevitable process of globalization. Moscow manages to meet the modern needs of our society, step by step we are transforming the capital into a comfortable city suit for life, work and leisure.

A leap forward in many areas is illustrated by the figures, voiced this winter by the Moscow Mayor Sergey Sobyanin at the meeting with Prime Minister of Russia Dmitry Medvedev. The volume of investments into fixed capital in Moscow has not decreased and even slightly increased, the amount of commissioned real estate exceeded nine million square meters, the amount of commissioned industrial and social facilities increased by almost half. “We are witnessing changes in urban planning, aimed at focusing on creating comfort public space and modern social services,” said the Mayor of Moscow Sergey Sobyanin.

The effort of the Moscow government on improvement of investment climate seems to me no less important. It is important to understand that urban development is a long-term process: in order to enter a project you need to predict the situation, calculate the costs of at least 10 years ahead. Therefore, one of the most important components of the investment climate in construction industry is the stability of regulation of urban development activities and the absence of major changes in this regulation.

Plentiful passion for legislation reforms may have a negative impact on investment and construction activities. Therefore, the Government of Moscow and the Construction Complex now focuses on the changes of administrative and managerial nature: first of all, the transfer of all possible procedures to electronic format and optimization of their implementation, and also inducement of business by the means of various benefits, including tax incentives.

Here is an example: in order to prepare the project documentation of capital construction facility, a lot of effort is usually spent to collect information on all town planning conditions and limitations of the land plot, including the possibility of connecting to utility networks, which are available within the boundaries of this land plot. To get this information you need to interact with the utility companies and Mosgorgeotrest (Moscow Geological and Geodesic Department).

Herewith, there is the mandatory procedure, provided by the Construction Code of the Russian Federation – obtaining of development plan of the land plot (GPZU;  Moskomarchitektura). A developer needs it for the development of project documentation and obtaining a construction permit. Each of these procedures takes time and requires interaction with a large number of participants of the process. It results in considerable time spending, administrative expenses and transport costs on collection of information during the initial pre-construction phase.

In order to reduce administrative burden and expenses for developers, the Construction Complex decided to introduce innovative solutions in the spirit of best international management practices of construction sector. It was decided to complete the GPZU (Development Plan of a Land Plot) with information on underground communications and facilities, as well as on preliminary technical conditions of connection to water supply and sewage networks. This solution has already received approval from the Ministry of Construction of Russia, Ministry of Economic Development of Russia and the Agency for Strategic Initiatives.

I’d like to make a point of the fact that there is no practice of providing free information on the underground networks in other regions of Russia. In Moscow, it will be possible as the result of creation of the Consolidated Plan of underground networks and communications. Even on a global level, creating information resources of this kind is considered as the best practice. There are few examples of such resources in the most developed countries such as the Netherlands, Switzerland and Germany.

The pilot project on simultaneous issuing of GPZU and technical conditions for connecting to water supply and sewerage networks will be implemented before the end of April. The measures taken will of course reduce the expenses of developers on the initial pre-construction phase and serve to save time for design and construction works.

Facilitation of procedures in construction sector allows reducing time and money costs. Though it is clear how to use saved time, what can be done with money? Funds can be reinvested without loss due to inflation. Can you estimate the amount of money saved?

It is not easy to measure the results of reduction of administrative barriers. Annual assessment of the quality of business regulation and its implementation in construction sector is done by the World Bank experts in 187 countries of the world. To ensure the comparability of the results, they estimate the internal procedures of each country participating in the ranking on the example of a reference object. Characteristics of the reference object (according to the World Bank’s methodology) refer to the kind of facilities, for which the Construction Code of the Russian Federation provides simplified regulation rules. The costs for administrative procedures for this kind of facilities in Moscow have decreased from 4.2% of construction costs in 2010, to 1.7% in 2015. This is equivalent to 990 and 400 thousand rubles respectively.

In addition to reducing financial costs, the number of procedures reduced by 2.5 times – from 48 to 19, and the timing of them decreased by 1.7 times – from 452 to 244 days. It has a positive effect on projects payback. The logic is simple – as a result of reduction of number of different approvals a developer can enter a construction site faster than before, accordingly he can complete the project and make profit faster, spending less on interest payments of financial loans.

The positive effect of the reforms is confirmed by developers. Since administrative barriers restrict competition and reduce the efficiency of investment and construction sector, leading to a deterioration of business climate, the reforms aimed at reducing them are profitable not only for construction market participants but also for the city (via tax revenues).

What’s your the forecast for the near future concerning the place in the ranking of the World Bank?

The line in the ranking is not a goal in itself; it serves as one of the implementation indicators of the program to reduce administrative barriers. I can answer in terms of “Dealing with construction permits” index, which estimates the work of the Construction Complex. In 2018, we plan to hit the 34th position in the ranking of the World Bank.

The city has converted to electronic format most of the procedures in construction industry. Today Moscow provides 14 state services in the field of investment and construction activities, 12 of which are available online. The state services for construction industry are thoroughly regulated; administrative regulations were approved for the majority of them. These regulations set the time and expenses for their completing, the grounds for refusal, and an exhaustive list of mandatory documents.

Despite this, achievement of our goals can be affected by different factors, and not all of them are under our control. For example, a “delayed effect” of reforms, which results in a few years’ lag between the moment of adoption of innovations and wide use of it. That is a usual reason for underestimation of the results.

There are difficulties with the methodology of the World Bank ranking. Let me explain: the bank estimates the number of procedures, the cost and the timing of their passing using an example of construction of a so called reference object: 2-storey warehouse 1300 sq. m constructed on a plot of 929 square meters by the owner of it, without employment of any contractors. It covers only the connection to water supply and sewage networks. Most of developers have no experience with such kind of projects. They usually work with objects of average risk class, which involve more sophisticated procedures to control the quality and safety of construction works.

As a result, the World Bank survey records procedures which are not carried out for projects similar to “reference object” construction. For example, the procedures related to the state construction supervision or approval of architectural and urban planning solutions.

In turn, we are doing our best. The work does not require huge financial costs, but a lot of effort is spent on the modification of existing schemes of work, both for government agencies and developers.

Portal of Information Center of the Moscow Government

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