Pskov Resort No Holiday for German Investor

MTIrina Yeliseyeva sitting with her husband, Nikolai, on the front steps of their cabin at Chudskoye Podvorye in the Pskov region as their son Sergei chops wood.
SPITSINO, Pskov Region -- Heiner Berr was inspired to start a resort on Chudskoye Lake, a sprawling body of water in northwest Russia, when a local official showed him the site and promised to support the project.

"Very naively, we agreed and started," the German businessman said in an interview. "In the first years, there was only trouble."

Sitting in a wooden cabin, Berr described how he turned a beautiful but barren stretch of land into a European-style resort called Chudskoye Podvorye, which now has 43 cabins amid a landscape of sand dunes and forests.

Located 250 kilometers southwest of St. Petersburg, the resort is often full on summer and holiday weekends. Most visitors come from St. Petersburg, braving a bumpy, 2 1/2-hour car ride to enjoy the fishing, hiking and swimming opportunities, as well as amenities like a restaurant, massages, horse rides and a petting zoo.

"We wanted to get away from the city noise," said Irina Yeliseyeva, a St. Petersburg nurse, as she sat next to her husband Nikolai on the front steps of their cabin, while their son Sergei chopped firewood.

Berr, a native of Bavaria, and two fellow German investors started building the resort in 2002 with a business plan aimed at the St. Petersburg middle class and pledges of support from local and regional officials.

But the years afterward could hardly be described as a model of German efficiency.

Instead, Berr and his partners clashed with a Gogolesque world of drunken villagers, inept construction crews and a local mayor who is under investigation for selling valuable lakeside property at knockdown prices to his friends and family.

Despite such hardships, Chudskoye Podvorye started breaking even two years ago. Berr said he and his partners had invested a total of 2 million euros, or $3.1 million, in the project -- plus a lot of sweat, tears and exertion.

"The main question when you start such a project in Russia is not the money you must invest," Berr said. "You must invest time and a lot of nerves."

When he started building the resort, Berr was a consultant who had seen much of Russia but had no prior experience in the tourism sector.

Berr started his career in the early 1990s working for the Treuhand agency, which handled privatization in the former East Germany. He moved on to Russia and in 1995 co-founded Ost-Euro, a consulting firm that works with regional and municipal governments throughout Russia. He is still the firm's managing director.

In 2000 and 2001, Ost-Euro oversaw a contest in which the municipal governments of the Pskov region tried to come up with the best local development plan. One of the three winners was Gdov, a town on the shores of Chudskoye Lake, which drafted a plan focused on developing lakeside tourism.

Covering more than 3,500 square kilometers, Chudskoye Lake is the fifth-largest lake in Europe and straddles the border between Russia and Estonia. Known to Estonians as Lake Peipsi, it has a reputation for being ecologically clean and is a popular destination for fishermen.

Many Russians know Chudskoye Lake as the site of the Battle on the Ice, a clash between Teutonic Knights and Russian forces led by Alexander Nevsky in 1242. According to Russian legend, the battle ended when the armor-clad Germans broke through the ice and drowned in the freezing water.


Alexander Osipovich / MT
German investor Heiner Berr posing near goats at his resort's petting zoo.


Nowadays, the lake is much more peaceful, although it is patrolled by federal border guards who watch the Russian-Estonian border.

Berr first saw the lake in 2001, when he toured it with Gdov's then-mayor, Vladimir Konyakhin. In a discussion about Konyakhin's development plan, Berr showed him photographs of similar resorts in Scandinavia. But the mayor replied that he didn't want a consultant's advice; he wanted investors and foreign managers, and he surprised Berr by asking him to build and manage the resort himself.

"We never planned to have our own investment project in Russia," Berr said. "It happened only by accident."

Berr found two co-investors with construction experience and broke ground on the project in 2002. His ties to local and regional officials paid off when he needed to get an array of licenses to start operations. Several years into the project, for example, a deputy governor of the Pskov region organized a televised ceremony to break through a bureaucratic logjam that Berr and his partners were facing, Berr recalled. The deputy governor came to the resort with teams of officials from Pskov and Gdov, as well as camera crews from a regional television station, and within hours Berr had 12 of the 15 signatures he needed, he said.

Berr conceded that it only happened because Chudskoye Podvorye was a high-profile project with the support of the regional government. "Usually you go from one office to another and it's problems, problems, problems," he said.

The project experienced new bureaucratic hassles after Konyakhin, the Gdov mayor, left office in 2003. Konyakhin was replaced in an election by Nikolai Mironov, whom Berr described as much less supportive.

"The mayor before invited us [and] did everything to catch us," Berr said. "And then the new one came and tried to make problems."

One such problem, Berr said, was the bureaucratic wall he hit while trying to buy the land underneath his resort. He and his partners have a 49-year lease on the land, and they want to buy it before investing more money.

But the Gdov administration has blocked their attempts to buy the land, refusing to answer repeated letters, Berr said. The resort has even sued the municipality in order to force a response, but nobody from the Gdov administration showed up at a recent court hearing, he said.

Not everybody has had such problems buying land in the Gdov district.

In July 2007, Pskov regional prosecutors opened a criminal investigation into Mironov on charges that he had illegally sold real estate to his friends and family on the cheap, costing the government more than 4.5 million rubles, or about $200,000, according to regional media reports.

In one deal, Mironov sold 20,000 square meters of land to his own son for just 1 ruble per square meter, prosecutors said.

Mironov's assistant said by telephone that he was too busy to speak to a reporter and referred questions to another official in the Gdov government, who did not answer repeated calls.

Berr said he had never bribed officials for favors. "If they know that they can get money from these Germans, they will never leave us alone," he said.

When asked what advice he had for other foreign investors working in the regions, Berr said a key ingredient was hiring a trustworthy, well-connected local as general director.

"At the top, you need a general director who can manage staff and network and who knows whom to contact if problems appear," Berr said.

Now that the resort is up and running, many of its problems involve employees rather than bureaucrats. Early on, the investors decided to use locals for construction rather than professional builders from Pskov or other countries. That saved money but often resulted in shoddy work, Berr said.

"In Germany you build something and it's OK for 30 years," he said. "Here, one year later you have to start repairs. You can invite professional building companies, you can take these boys from the village, and it's all the same."

Even if locals seem promising at first, they sometimes disappear on drinking binges for several days at a time, Berr added.

Berr complained that he even had trouble finding someone to take care of the horses and the animals in the zoo. At first, he tried hiring boys from the local villages. "For one week it worked," he said. "And then they stopped taking out the [manure], and the horses stayed inside all day. They could not even be responsible for animals."

The resort's first pony was stolen, Berr said. Finally, the resort hired a man from Azerbaijan who now oversees the resort's small contingent of chickens, geese, goats and horses.

Berr believes he has succeeded in providing quality, Western-style service despite the difficulty of finding good workers. The resort also has a eye-catching Russian-language web site, www.chudskoe.ru.

Berr boasts that Chudskoye Podvorye is better than another, more famous tourist destination -- the Black Sea port of Sochi, which is undergoing a multibillion-dollar facelift as it prepares to host the Winter Olympics in 2014.

"To guarantee good service is a big challenge every day," he said. "But I was in Sochi some weeks ago, and our service is better than in Sochi. It is more expensive there, but we have better service."