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. Last Updated: 07/27/2016

Rent Hike Looms Over Sheremetyevo Businesses

Businesses operating at Sheremetyevo face steep rent hikes as the airport prepares to boost revenues and review contracts signed under the old management.

State-owned Sheremetyevo loses $45 million each year as a result of low rental rates and nontransparent contracts clinched by the previous regime, airport general director Sergei Belyayev said at a press conference Wednesday.

"This shouldn't happen," Belyayev, who has been in the job for six months, said. "Re-signing agreements on a new basis will help us get proceeds from companies in line with their income and under the airport's full control."

The review of contracts will begin next month, he said.

But despite the planned hike, airport spokeswoman Marianna Eneyeva insisted travelers are unlikely to be hit in the pocket.

"Prices have to stay within the limits of the market average," she said, adding that businesses at the airport will become more competitive.

In total, rental space in the two terminals generates some $258,000 per month. Belyayev says this could be boosted to at least $1 million per month.

Duty free shops, for example, currently pay $300 to $2,400 per square meter per year, but will face bills of up to $3,000 per square meter. In addition, they will also have to pay a 6 percent to 10 percent concession from their revenues.

The move is in line with the airport's agenda to increase proceeds from non-core business, which currently comprises 30 percent of its revenue.

Last year, Sheremetyevo netted a profit of $20 million on revenues of $110 million. By optimizing the airport's expenses and boosting rent payments, Belyayev expects revenues and profits to increase 18 percent and 40 percent, respectively.

"This money could be used to upgrade Sheremetyevo-1 and 2 and work more intensively on construction on Sheremetyevo-3," Belyayev said.

A review of previous agreements should not lead to legal problems with the airports' tenants, he said.

"We have a force majeure situation that is connected with the beginning of Sheremetyevo-2 modernization [in October]. This means the review of all rental agreements ... By October, the majority of businesses will be brought out into the open."

The general director of Moscow Duty Free, Mikhail Dzamashvili, said the management's intention to increase profit is correct, but has to be done in a reasonable manner.

"It's a matter of negotiation," he said.

Maxim Chekanovsky of consulting company Accenture said modernizing Sheremetyevo-2 may not be regarded as a force majeure situation unless the condition is stated in contracts.

"[Reviewing or severing contracts] has to be done correctly, within legal norms and not just under blatant pressure to avoid a blow to its business reputation," he said.

Dzamashvili said the planned increase is a considerable but manageable rise that may weed out smaller competitors. But Moscow Duty Free has an agreement with the previous management that remains active until next year and does not provide for an increase in payment.