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. Last Updated: 07/27/2016

Gazprom Wades Further Into Hotel Management

For MTThe Gazprom-controlled Radisson SAS Lazurnaya began operating its third hotel, the RSL Park Hotel in Sochi, this summer.
With a history of bad business deals and money going missing, Gazprom is seldom referred to as an efficient manager in the country's natural gas sector. But that has not stopped it from giving hotel management a shot.

Indeed, the Gazprom-controlled Radisson SAS Lazurnaya -- the first Russian firm to try its hand at hotel management -- plans to become the industry's leader.

In July, RSL began operating its third hotel, the RSL Park Hotel in Sochi. RSL also manages the four-star Peak Hotel and the Lazurnaya Hotel in the Black Sea resort. Only one other firm runs as many hotels in Russia, the U.S. company International, which operates three Marriotts in Moscow. But RSL's management says it has deals in the works that will make it the country's biggest operator.

Gazprom's interest in hotels is not unusual for a company of its size. Almost all the major oil and gas firms own hotels in their regions or in resort areas. But only Gazprom has created a structure to manage them.

RSL was created in 2000 as a subsidiary of Lazurnaya, which is 78 percent owned by Gazprom, to manage Lazurnaya and Peak. RSL also runs a management school to train its own employees as well as some from other hotels.

Lazurnaya and Peak were first managed by the U.S. company Radisson Hotels Worldwide, which won that right in a tender Lazurnaya held in 1993. Radisson merged with SAS in 1994 to become Radisson SAS.

In 1999, Radisson SAS signed a master franchise agreement with Lazurnaya, giving it the right to manage hotels in southern Russia and propose expansion initiatives. The franchise passed to the newly created RSL the following year.

Radisson SAS manages the majority of its hotels directly from its headquarters.

A company official in Brussels would not say why Radisson SAS decided to sign a franchise agreement with Lazurnaya or comment on the financial arrangement.

Scott Antel, an analyst at Ernst & Young, said Radisson SAS would not need to invest much in the franchise and would therefore have lower risk. "But a hotel chain puts its name on the line when it signs a franchise agreement," he said.

Expansion Plans



RSL said it is moving to expand the number of hotels under its control and is looking beyond southern Russia.

"We're striving to become the leading hotel management company in Russia by 2005," said Boris Averyanov, Lazurnaya general director, at the Park Hotel opening in late July. "We expect to have eight hotels under our management by then."

That seems to fit well with the Brussels headquarters' plans. Company officials said they are looking to expand inside Russia in particular and the Commonwealth of Independent States in general.

Part of the Radisson SAS's strategy is to develop a mid-range hotel chain. "Three-star hotels are what the market needs, both here in Moscow and in the regions," Antel said.

Averyanov said RSL is eyeing a 50-room property that Stary Kvartal is constructing in Pskov, the seven-year-old Quality Hotel in Tyumen, the Gorizont Hotel in Sochi, a projected hotel in Krasnodar and an existing hotel in Tuapse. He did not specify which hotel in Tuapse; a Gazprom subsidiary, Zapsibgazprom, already own hotels in the area.

RSL has signed an agreement of intention with Stary Kvartal to manage the Pskov hotel upon its completion, Averyanov said. He said RSL is still negotiating with the other hotels.

Gazprom owns part of the Quality Hotel in Tyumen, but hotel officials did not state its stake. Yashar Yildirim, general director of the newly opened RSL Park Hotel, formerly managed the Tyumen Quality Hotel.

Regional Prospects



Interest in the regions is heating up, industry insiders say. There are still no hotel chains outside of Moscow, St. Petersburg and Sochi, but deals are reportedly in the works.

"There's a lot of potential in Siberia thanks to the oil and gas business," said a manager at an international hotel chain in Moscow, who asked not to be named. "I frequently ask myself why we aren't there."

Konstantin Selivanov, director of the Rosa Vetrov travel agency, which specializes in southern Russia, said another RSL hotel in Sochi would not generate much new business for the company.

But he said RSL could do well in other cities, especially those along the Black Sea.

"There are better prospects in Tuapse, Gelenzhik and the Moscow region," he said. "Russians are moving around more, and they want to find the same level of high service and comfort wherever they go."

Antel said development of the brand at Gazprom hotels on the Black Sea coast could generate economies of scale through such things as shared advertising and accounting.

Word From Above



How quickly RSL expands will depend on Gazprom management. The company got started under former Gazprom chief Rem Vyakhirev, but the new management might be cool to the idea.

"I am surprised that they are planning expansion when Gazprom has been trying to spin off its non-core assets," Aton analyst Steven Dashevsky said. "This isn't in line with their current behavior. They have been seeking ways to dispose of some of their non-core assets."

Gazprom has talked about unloading its media assets and did not participate in a recent share emission at one of its banks.

A source close to Lazurnaya said he was unaware of concrete expansion plans. He said the company is still waiting for signals from the new Gazprom management.

CentreInvest Securities analyst Alexander Blokhin said the issue to expand RSL could come down to whether the hotel management company can outperform other Gazprom assets.

Called to Perform



Lazurnaya has spent $85 million over the last decade on its various projects in Sochi, including hotel development. The company also owns a bread factory, restaurant, gas station and store in Sochi. Lazurnaya officials said their businesses were profitable but refused to provide any further information about their revenue.

Lazurnaya was created in 1991 as a joint venture between Gazprom, Turkish construction companies Gama and Enra and the Sochi city administration to complete construction of and manage the Lazurnaya Hotel, which had been sitting partially built for years on Sochi's coast. Gazprom and the Sochi administration each took a 33 percent stake in the company, while the Turkish companies split the remaining 33 percent share.

The Sochi administration later sold its share to Gazprom to pay off gas debts. Enra also got out of the deal, but Gama, which owns and manages the five-star Renaissance Hotel in Antalya, kept its 16.6 percent stake. Part of Enra's shares ended up with Gazprom. Lazurnaya officials did not say who owns the remaining 5.6 percent.

Gazprom has worked with Gama on a number of projects over the years. It tapped the Turkish firm to build its headquarters in Moscow. Gama also built the gas giant's housing units around Moscow and several of its hotels and resorts, including the Lazurnaya Hotel, the Peak Hotel, the five-star Nadezhda in Gelenzhik, the Tyumen Hotel and a hotel in Tuapse. Gama and Gazprom both own stakes in Turusgas, a joint venture formed to sell gas through the Blue Stream project to Turkey.