Vnesheconombank Deputy Chairman Mikhail Poluboyarinov’s Interview to TV Channel Russia 24

TV Channel Russia 24,
INTERVIEW,
25.04.2012, 18:40

HOST: Our guest in the seventh studio today is Vnesheconombank Deputy Chairman Mikhail Poluboyarinov. Good evening Mikhail Igorevich.

Mikhail POLUBOYARINOV: Good evening.

HOST: I’d like to discuss business development as a whole and Vnesheconombank’s role. I’d better start with official current events because on Monday Vladimir Putin who is Chairman of Vnesheconombank’s Supervisory Board said that development institutions responsible for business development should be more accessible to business itself, so I have the following questions: aren’t these institutions doing enough in this respect? And what is VEB doing to this end?

Mikhail POLUBOYARINOV, Vnesheconombank Deputy Chairman: Basically, Vnesheconombank is rather a conservative development institution under its Memorandum. But in the spirit of latest developments and the time we are trying to be closer to business as Vladimir Putin emphasized. And Vnesheconombank Group is stepping up its efforts to lend small and medium-sized enterprises through SME Bank. Not long ago an Export Credit Agency of Russia (EXIAR) was established and it is for the most part designed to extend credits to small and medium-sized enterprises. We are now a pivotal bank in supporting the Strategic Initiatives Agency’s projects. This Agency is also focused on SMEs. At its meeting on April 2, VEB’s Supervisory Board approved conceptual approaches to setting up an Energy Finance Agency, which Vnesheconombank wants to establish jointly with the Energy Ministry. This Agency is to provide guarantee support for projects in energy efficiency.

HOST: A road map?

Mikhail Poluboyarinov: Yes, we are placing great emphasis on energy efficiency so that these initiators could turn to any commercial bank for financing thus raising non-budgetary funds in the development of energy efficiency. This isVEB’s current wide range of activities.

HOST: To more specific, Vnesheconombank tends to fund projects with long payback periods as well as difficult to implement projects as some call them. Do you think it’s a right approach? Doesn’t VEB think about recovering the funds? Actually, this is also government money and you need to look for a sort of balance or is ours a time of such long-term and difficult to implement projects?

Mikhail POLUBOYARINOV: Basically, Vnesheconombank is designed to remove infrastructure restrictions on the country’s development.

HOST: Is it the Bank’s main function?

Mikhail POPLUBOYARINOV: In my opinion it’s one of VEB’s main functions and it is specified in our Memorandum. Hence, Vnesheconombank is after all a project finance bank. The Bank concentrates its efforts and funds on large-scale, major infrastructure projects and this is a key line of VEB’s activity and it’s really difficult.

HOST: Then I’d like to ask you about criteria for selecting projects because sometimes mainstream audience finds it difficult to understand VEB’s functions and decisions taken at Supervisory Board meetings.

Mikhail POLUBOYARINOV: Alexei, main criteria for selecting projects are posted on Vnesheconombank’s site and you can read them there.

HOST: It would be interesting to read them.

Mikhail POLUBOYARINOV: Projects are to be worth no less than 2 billion rubles with a payback period of no less than 5 years and are to be in line with well-defined criteria of our Memorandum and the Bank’s lines of investment activity. At the same time, another key criterion to my mind is payback. In other words, the Bank is not designed to generate some super profits; it is designed to invest its funds, be able to recover them and ensure that projects are paid back. I think that these are key criteria. So when we consider these complex, major projects, they are to be structured in such a way as to be self-payback projects and guarantee recoverability of monetary funds for the Bank. And in this case, our Bank as a development institution tries to extend credit for a long period of time and at the most favorable interest rate with regard to a specific project.

HOST: There are several institutions responsible for business development in Russia. VEB is involved in funding complex, large-scale projects. We also have the Russian Direct Investment Fund which raises funds of major Western investors for a strategic sector. We also have the Strategic Initiatives Agency which helps to find adequate solutions for business to operate efficiently. What about SMEs? Are you focusing on large-scale projects alone?

Mikhail POLUBOYARINOV: Undoubtedly under our Memorandum we are focusing on large-scale projects. In the energy efficiency sector we consider projects not only in terms of their scale because energy efficiency projects are not that large. So, the Agency makes it possible to support medium-size projects worth less than 2 billion rubles but nevertheless we are going to fund them. What else can I say here? When we consider large-scale projects we try to find something interesting in each of them. We focus on our main lines of activity that are determined by the Government and the President but they also include such projects as for example a project with Nord Hydro Company. This project is in the mini hydro generation sector. On the one hand this project is worth less than 2 billion rubles and on the other hand it is a pilot project in the field of green tariffs – a combination of large monetary funds, energy efficiency elements and innovations. Another example is funding of the Skolkovo project – the construction of an innovation cluster. This major infrastructure project is highly instrumental in developing innovations.

HOST: The trend is clear. Now I’d like to ask a question about another major project, here I mean the construction of Olympic facilities. What role does Vnesheconombank play in this project? Maybe there is a need for making some adjustments, we know that there are certain problems and successes in Olympic project but I’d like to discuss difficulties.

Mikhail POLUBOYARINOV: What’s the connection between Vnesheconombank and the Sochi Olympics? Vnesheconombank is a principal creditor of Olympic facilities’ commercial part. So, as of today, we have stated and signed credit lines worth more than 150 billion rubles in our portfolio. All the projects are developing differently but as a whole all of them are developing at high rates and are being funded sufficiently. One major project is Roza Khutor where test competitions were held, it is a flagman now and it is being funded without fail. At its meeting on April 2, Vnesheconombank’s Supervisory Board considered an issue of leverage ratio and went along with investors on this issue. The proportions were specified and approved as a general rule for all in 2009. The financing proportion was 30 to 70: 30% - investors’ own funds and 70% - the Bank’s funds. By force of various circumstances, investors appealed to the Russian Government to reduce their proportion of funds and the Government went along with them. Investors who want to reduce the proportion of their own funds in a project can do it now, they have a chance to finish a project, go on implementing it but against certain guarantees and as a whole it’s pretty fair.

HOST: Are new facilities appearing?

Mikhail PLUBOYARINOV: As of today, we are funding about 14 facilities. So far, this list has been rather limited. And I think there won’t be any new facilities because final completion dates are nearing – by mid 2013 many facilities are to be commissioned and tested, so we are working with these projects, with these facilities. We believe that everything is going well.

HOST: In general, one of the most important Russian strategic projects is being implemented on schedule, in any case in so far as it relates to financing.

Mikhail POLUBOYARINOV: Yes, it is.

HOIST: Mikhail Igorevich, thank you very much for finding time to answer our questions.

Mikhail POLUBOYARINOV: Thank you.