We haven’t been relieved of a task to develop Russia’s economy

26.08.2015, 09:28
Semen Mikhailov

Vnesheconombank First Deputy Chairman – Member of the Board tells about working with Chinese financing institutions, new foreign exchange payments, selection andimplementation of investment projects and the current economic situation.

Photo: Denis Vyshinsky/TASS

-In the coming days, Putin is to visit China and Vnesheconombank’s team will be included in the Russian delegation. What prospects can you see for the Bank itself and for your Chinese partners?

-The scale of VEB’s interaction with the Celestial Empire financing institutionsis vividly seen from the following fact: we raised 10.7 billion dollars from Chinese banks from 2005 to 2014. We maintain correspondent relations with a whole range of Chinese banks, with our main partners being the China Development Bank (CDB) and the Export-Import Bank of China. As to CDB’s customers,our Bank is one of the largest Russianborrowers among Russian financing institutions.

-What projects do you fund with this money?

-I’ll mention the largest ones.In 2009, we concluded a funding credit agreement and we used credit facilities from it to fund the construction of a cement plant in the city of Slantsy in the Leningrad region. VEB funded more than a half of the project’s cost - 237.3 million euros from the total value of 442.2 million euros. In 2011, the plant started to manufacturea trial consignment of products and now its capacity is 1.86 million tons of cement a year.

In autumn of 2013, VEB and CDB signed a credit agreement worth more than 400 million dollars to fund the construction of the third power unit of Ekibastuz HPS-2 of the Pavlodar region in Kazakhstan. The project will meet Kazakhstan’s growing needs for electrical energy and electrical capacity and will close the energy gap in the Russian regions of the South Urals, West Siberia and Altai. At the moment, 400 specialists are working thereand by the time of launching the power unit in 2017, 1.2 thousand people will work there.

Last year, Russian VEB and Gazprombank, China’s CDB and the Yamal LNG Company signed a Memorandum on organizing funding for the construction an LNG plant with a capacity of 16.5 million tons of LNG per year on the resource base of the Tambey gas field in the Yamal-Nenetsk district. Credits of Chinese banks are to be raised to fund theproject and VEB is to issue a banking guarantee worth 3 billion dollars.

VEB funded the construction of a timber processing integrated facility to manufacture chipboards and sawn timber in the Vanino district of the Khabarovsk Territory. VEB provided 277 million euros funding a part of the project with a total value of 415 million euros.

-For the projects you’ve listed, the Bank raised for the most part American currency. In which currency are you funding now?

-This spring VEB signed a breakthrough agreement with the Eximbank of China in yuans. It opens up new opportunities not only for trade but also for investment cooperation. It is for the first time when VEB raises credit facilities in Chinese yuans to implement an investment project in Russia.

We also signed in May a framework credit agreement with CDB for a total amount, which is equivalent to 8 billion dollars. Under the agreement, funding can be made in any currency except for American one and above all in yuans of course.

Switching to ruble and yuan payments will make it possible for us to reduce the amount of payments between Russian and Chinese companies in US dollars and will help to increase the amount of trade turnover and mutual investments. This move is sure to give additional impetus for strengthening economic cooperation between Russia and China

Why are you so optimistic about prospects for ruble yuan payments?

The process of a large scale switching to payments in our national currencies is hindered by a small amount of the yuan-ruble market and the absence of a long-term currency risks hedging. But our regulators are making certain steps in this respect. For example, in 2014 the Russian Central Bank and the People’s Bank of China entered into an agreement on the currency swap in national currencies worth 150 billion yuans.

Now, this agreement allows us to conduct currency swaps for a period of up to a year and only as part of trade agreements. And this is not enough taking into account the scale of potential cooperationbetween Russian and Chinese companies. So, we have to create conditions for concluding longer-term swap agreements for periods of at least three and even five years. And in the future we should increase periods up to ten years. This would help to raise long-term investments for Russia.

-A recently signed agreement with CDB, which is equivalent to 8 billion dollars focuses above all on the development of the Far East. Is there already a list of potential assets for investing?

-We are now making strenuous efforts to search for and select projects that could be funded as part of this agreement.

-Speaking about Russian-Chinese partnership we have also to recall the recent BRICS and SCO summit in the city of Ufa and the New Development Bank (NDB) where Russia and China will be actively represented.

-In the city of Ufa in summer, heads of banks – participants in the BRICS Interbank Cooperation Mechanism entered into a Memorandum of Intent on Cooperation with NDB. Head of the New Development BankKundapurVaman Kamath said: NDB can extend the first credit as early as in the second quarter of 2016, (a total amount of funding from NDB is 400 billon dollars – Gazeta.Ru).

Now, work is underway to prepare documentation on regulating NDB’s activity and determining criteria for selecting projects. Requirements for projects are not formalized now but we believe that high priority will be given to infrastructure and sustainable development in line with principles of green economy, energy efficiency that yield positive socio-economic effect

Upon defining the degree of projects attractiveness for NDB, they’ll take into account the number of the BRICS countries interested in their implementation as well as the possibility of co-financing projects by other investors including the BRICS development institutions. It is these financing institutions that will be able to provide NDBat the first stage with well-prepared projects with clear prospects.

-Could there be any other formats of cooperation between Vnesheconombank and its Chinese partners?

-In September of 2014, under the auspices of the Extended Tumangan Initiative (ETI)for (a regionalprogramme to render assistance to North-East Asia countries approved by the UN, Russia joined it in 1995 – Gazeta.Ru) a framework agreement of the North-East Asia Export-Import Banks Association (VEB and the Eximbank of China joined it) an agreement was signed in the Chinese city of Yangtze. It provides for a cooperation mechanism of the parties in implementing projects under ETI auspices, a procedure for approving potential projects to be funded within the association and sharing information on projects. There are already 18 projects in the Association’s project pool from member countries and we are happy to say that one of the first projects being considered as a pilot one is a Russian project on the construction of the Zarubino Port in the Primorsky Territory 18 kilometers from China.

Another future joint plan is to create either a bilateral Russian-Chinese rating agency or multilateral rating agencies within BRICS and SCO independent of individual state’s political will or economic interests of large corporations. It might be a matter of forming a whole network of specialized rating agencies within associations whose members are Russia and China. In Russian experts’ opinion this move would be instrumental in creating a single and transparent that might rating area that might be open in the future for other states which do not want to be hostage to an opinion about the so called Big Three international rating agencies

-How is the creation of a Russian-Chinese rating agency coming along?

-There is some progress here but unfortunately it isn’t so big as we would like it to bedespite Russian institutions’’ interest. The most difficult thing here is to form a legislative framework and get a Law “On Rating Agencies”passed. A draft law itself has been already submitted to the State Duma and we hope that our lawmakers won’t delay its consideration.

-Many fear that Chinese capital expansion would be so great as to result in the Russian economy’s dependence on China.

-We see no problem in Chinese companies’ participation in joint projects being implemented in our country. It’s not a secretthat until quite recentlymost projects being implemented jointly with foreign partners focused above all on western companies’ participation.

A share of Chinese companies’ participation in projects on the Russian territory is extremely small, so we welcome Asian companies’ participation in joint projects in Russia. This makes it possible for our country to build up more balanced economic relations.

-In what projects on the territory of the Silk Road Economic Belt is VEB interested to participate?

- We haven’t been relieved of a task to develop Russia’s economy, so we are interested in any project that contributes to economic development and creating new jobs and new production facilities. As far as projects being implemented in the Silk Road Economic Belt are concerned we give top priority to projects aimed at developing all types of infrastructure and creating high value added production facilities.