May 20, 2003—With 4.7 million people, St. Petersburg is the second largest urban locale in Russia. The city, which in 2003 will celebrate the 300th anniversary of its founding by Tsar Peter the Great, was the capital of the Russian Empire until 1917. Designated by UNESCO as a World Heritage Site in 1990, it is home to some of the world's most important art treasures, and displays one of Europe's largest concentrations of eighteenth and nineteenth century civil and religious architecture. The city was, and still is, an important manufacturing center. As Russia's largest port in the West, it is also a strategic gateway for exports to, and imports from, the markets of the European Union and the Western hemisphere.

However, like other regions and cities in Russia, St. Petersburg has had to weather the fundamental structural changes brought about by the disintegration of the Soviet Union and the transition of the last decade. Its wealth of culture and art has been underutilized, and economic growth in the city is not yet at an optimal level. The recently approved St. Petersburg Economic Development Project will work to address these challenges by supporting both aspects of the city’s valuable assets: cultural and economic.

The hybrid loan is a unique combination of two components: adjustment and investment. On the adjustment side, the St. Petersburg Economic Development Loan will enhance the city's prospects for sustainable economic growth, and allow it to more fully exploit its position as Russia's "Window to the West." "This project is an attempt to support a city that is undertaking a broad range of reforms," says Russia Country Manager and Co-Task Manager for the project Richard Clifford.

Fundamentally, the project aims to improve the business climate in St. Petersburg. It will support small and medium enterprises by bringing the city into compliance with federal licensing regulations; analytical work undertaken by the city and the Bank has found that the current burdensome regulatory and licensing environment is one of the most critical obstacles to attracting new businesses. The project will also promote the development of land and real estate markets by supporting the adoption of an urban development code to bring zoning regulations to the city.

These reforms will also enable St. Petersburg to take greater advantage of its unique position as one of Russia's top centers of culture and the arts and create the basis for developing tourism as a key element of future economic growth. "The project will support St. Petersburg’s transition to an economy that is much more broadly based on services and takes advantage of the city’s status as a World Heritage site," says Clifford.

On the investment side, the project will, among other things, finance repair and rehabilitation that will help protect historical buildings of several major cultural institutions (including the Marinsky Theater, the Hermitage, and the State Russian Museum) from further physical deterioration; increase the exhibition and activities capacity of the institutions; improve the operational safety and efficiency of the facilities for both visitors and personnel; and provide higher safety for artworks on display from fire, theft or other hazards.

Many of St. Petersburg’s cultural assets have been in major disrepair as a result of years of neglect. "Security and safety at the Marinsky Theater is particularly bad," says Urban Management Specialist Jean-Jacques Soulacroup, who is the Co-Task Manager of the loan. "The fire system and electrical system are not up-to-date, and emergency exits are lacking. Every available space at the theater is used for storage, and there are historical costumes piled everywhere. If placed on display, the costumes could attract many visitors, but now they are a fire hazard. The project will reorganize the theater and rehabilitate the safety and security systems to a world-class level."

Both Clifford and Soulacroup stress that the loan helps the city address two of the key issues that will underpin growth over the next decade. The investments in the cultural assets are needed to strengthen the city’s unique strategic asset as a world renowned center for culture. Policy reforms are also needed to foster the growth of small businesses in the cultural sector and tourism infrastructure. The Bank’s unique ability to support policy reform and provide critically needed finance to preserve these cultural assets are essential elements of the support for the city.

The project also includes a Cultural Investment Facility, a competitive grant-based fund to which any cultural institution in the St. Petersburg vicinity can apply for financing. The Facility will fund small-scale activities that would help the recipients to increase their commercial revenue, improve the accessibility to cultural assets or activities to the public (such as through installation of special facilities for the handicapped), and carry out critically needed small investments for the preservation of buildings and assets including security systems, other protective equipment, and restorative emergency repair works. These grants will not exceed $200,000 in order to obtain as many proposals as possible from all eligible local cultural institutions.

For more information on the World Bank’s work in Russia, visit www.worldbank.org.ru.