Russia eyes resorts to bring peace to North Caucasus

ARKHYZ, Russia Wed Sep 21, 2011 10:57am EDT

1 of 3. Models are on display at a construction site on the territory of a future resort near the village of Arkhyz in Karachay-Cherkessia region in Russia's North Caucasus August 29, 2011. The $20-billion plan, touted as the country's biggest tourism infrastructure project, will offer visitors hundreds of miles of ski trails across the stark, almost vertical mountain peaks, many of which are crowned year-round with powdery snow. Picture taken August 29, 2011.

Credit: Reuters/Kazbek Basayev

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ARKHYZ, Russia (Reuters) - It's not easy for Sanzhar Shamshiyev to imagine his native Russian mountains in the North Caucasus dotted with luxury ski resorts and foreign holidaymakers.

But the five state-of-the-art tourism complexes that Russia plans to build near his home may create jobs that would help stop Shamshiyev and others from fleeing the region to find work and cut support for an insurgency fueled by the region's grinding poverty.

"Decisions are difficult to make here. There is anger at the poverty, the lack of jobs. Many deal with the problem simply by leaving," said the 23-year-old, standing on a street corner in Cherkessk, the quiet capital of Karachay-Cherkessia province.

"I would stay for a chance to work," he said.

The mainly Muslim provinces of the North Caucasus stretch along predominantly Orthodox Christian Russia's southern borders with Georgia and Azerbaijan, reaching from the Black to the Caspian Sea.

Rebels wage daily violence in an attempt to turn the region into an Islamist state. Russia's most wanted man, Doku Umarov, who fought Russian soldiers in two separatist wars in his native Chechnya since 1994, leads the insurgency.

Last year violence in the region killed some 750 people, analysts estimate.

The rebels have vowed to disrupt the 2014 Winter Olympics in the Black Sea coast town of Sochi, which lies on the same mountain chain, though the Sochi area has yet to see the same level of violence as the provinces surrounding Chechnya, like Dagestan and Ingushetia.

With the Games looming and only months to go before a parliamentary election in December and a presidential poll in March, Moscow is guarding against more major militant attacks, aimed at exposing Russian security weaknesses.

The $20-billion plan, touted as the country's biggest tourism infrastructure project, will offer visitors hundreds of miles of ski trails across the stark, almost vertical mountain peaks, many of which are crowned year-round with powdery snow.

Moscow says that only a massive project like this can end the cycle of poverty and violence at the center of the insurgency, which analysts say is exacerbated by heavy-handed tactics by law enforcement agencies and unemployment rates of near 50 percent in some areas.

Critics say Moscow is not addressing the region's poverty so much as flooding the North Caucasus with billions of dollars of state subsidies and grand projects in order to keep regional leaders loyal.

"The plan will go forward and it may bring jobs, but the causes of the insurgency are far greater than what this plan conceives," said Andrei Piontkovsky, a political analyst at the Russian Academy of Science.

"Moscow is using this money to make sure local authorities stay on their side," he said. "Moscow is spending for political purposes, nothing more."

GLITZY HOTELS

Nestled in the tree-lined slopes near the village of Arkhyz, the first resort is planned in Karachay-Cherkessia, some 200 km (120 miles) west of Chechnya, where federal forces drove a rebel government from power over a decade ago.

The only signs of construction so far are the concrete foundations for chairlifts. When the resort opens for business at the end of this year, the mountains are expected to provide the winter setting for three ski slopes and two hotels.

Eventually 11 hotels will open and the resort will be able to handle traffic of 500,000 tourists per year.

But locals say investment is not enough.

"There will still be extremism here after the resorts, and it's hard to get rid of that," said Vitaly Yusenko, 39, a resident of Cherkessk. "Israel has tourism too, more than we will ever have, but it still has terrorism."

Though violence is rare in Karachay-Cherkessia, Shamshiyev says he hears stories of young men in nearby regions "taking to the mountains," a euphemism used by locals to describe those who would rather fight against authorities than work with them.

Moscow started the company spearheading the project, Resorts of the North Caucasus (RNC), last year with capital of 60 billion roubles ($1.98 billion).

"Right now we are formulating our investment plan with small, medium and large investors," said RNC General Director Alexey Nevsky.

"We expect that issue to be decided by the end of the first quarter of next year," he said, adding total investment may reach $20 billion, above a previous estimate of $15 billion.

Last week RNC said it signed an agreement to create a 10-billion-euro ($13.6 billion) joint venture with a unit of the French state-owned holding company Caisse des Depots et Consignations, due to be finalized in November.

While growth potential in the region is huge, a government guarantee on investments limits the risks involved.

"The project is still in its early stages, but it would be attractive to foreign investors for sure, as they're talking about quite ambitious targets," said Takouhi Tchertchian, manager of Renaissance Asset Manager's $160-million equities infrastructure fund.

Economists say any investment would go a long way in the region, but that many questions remain.

"There are a lot of factors implied including the political situation and the continued willingness to see the projects through," said Maxim Oreshkin, senior analyst at Credit Agricole in Moscow.

SAFETY PRIMARY CONCERN

In villages surrounding the planned resorts, residents ramble in Soviet-era tractors through the fields they sow to feed themselves and their families, attesting to the region's place as one of the poorest areas in Russia.

The other resorts are planned in coming years in North Ossetia in the central North Caucasus, Adygea in the west and the eastern province of Dagestan, which has become the epicenter of violent attacks.

President Dmitry Medvedev presented the plan to investors at Davos earlier this year, but the sales pitch was overshadowed by a suicide bomber's attack days earlier on Moscow's Domodedovo Airport in which 37 people were killed.

Umarov said he had ordered the bombing.

A month later suspected North Caucasus rebels shot dead three tourists from Moscow heading to the twin peaks of Mt. Elbrus, Europe's tallest mountain, the planned site for another luxury resort.

The United States has offered a reward of up to $5 million for information leading to Umarov's capture.

In an attempt to assuage fears of violence in and around the resorts, RNC is carrying out consultations with security firms like Israeli company ElbitSecurity Systems and French company Thales.

Plans are still sketchy, but the options under consideration include video monitoring and the deployment of private security firms to ensure the safety of holiday-goers.

For a region that came under Russian Imperial domination in the 19th century through a series of wars, local leaders backed by Moscow say the project's time has come.

"This is one of the most serious projects that has ever come from Moscow," said the chief of Karachay-Cherkessia, Rashid Temrezov, looking up into the mountains of Arkhyz.

"If a person knows they can work and feed their family, they won't be drawn to violence, to terrorism," he said. ($1 = 30.234 Russian Roubles) ($1 = 0.735 Euros)

(Editing by Sonya Hepinstall)

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