Vladimir Dmitriev: The Far East becomes attractive for investors

TV CNANNEL RUSSIA 24,
INTERVIEW,
04.09.2015

HOST: And now we’re returning to the Island Russky where the First East Economic Forum is under way. Nailya Asker-Zade is working in our studio there, her guest today Vnesheconombank Chairman Vladimir Dmitriev. Good morning Nailya, go ahead.

HOST Nailya Asker-Zade

HOST: Roman, good morning. The Far East Economic Forum keeps on going and now we’ll talk about the most topical questions under discussion at plenary sessions with Vnesheconombank Chairman Vladimir Dmitriev. Vladimir Alexandrovich, good morning.

Vladimir DMITRIEV, Vnesheconombank Chairman: Good morning.

HOST: We have just listened to Vladimir Putin’s address and he said that the Far East had a great potential for development and could compete with the world’s economic centers. What should be done to make this happen?

Vladimir DMITRIEV: The state has approved a program to develop the Far East and the Baikal region to make this region attractive both for Russian and foreign investors. And for it to compete on equal terms with global players, major economic centers of the Asian-Pacific region countries it needs above all infrastructure. And in this sense, creating a territory of outrunning development is a right step in this direction because the state undertakes to form an appropriate infrastructure for investors, drastically reduce administrative barriers and create required mechanisms for providing economic support to investors by reducing taxes and insurance payments. All these measures play a key role when investors decide where to invest their capital. And we can see that many agreements have already been signed as part of the East Economic Forum, now we can see an interest of investors from the Asian-Pacific region countries, above all, our close neighbors – China, Japan, South Korea and a number of other states. I am sure that the Far East is a very promising region in terms of its economic appeal. Some days ago, we held talks with our Chinese partners and could see that they are increasingly interested in cooperating with us on the territory of the Russian Far East.

HOST: Let’s talk about the Far East Development Fund’s operation. What important projects have been already funded from this source?

Vladimir DMITRIEV: As far as the Far East Development Fund is concerned, I’d like in the first place stress a significant change in its investment declaration which allows the Fund to enter into capital, be engaged in pre-project activity, fund pre-project work, train personnel and extend financial resources at below-market interest rates. Naturally, this creates conditions for raising foreign capital to fund projects that are important for the Far East and the Baikal Region Development Fund. Of the projects nearing completion I would like above all single out such major infrastructure projects as the development of the Khabarovsk airport as a regional hub and the construction of a bridge crossing over the Amur river between Russia and China. The Chinese side has already done a lot of work and we hope that in the near future work will start at a quickened pace on the Russian territory and we’ll be able to launch this major infrastructure project. The Far East and the Baikal Region Development Fund focuses also on agricultural complex, aquaculture and a number of industrial facilities. And we’re glad that Russian President Vladimir Putin stressed the importance of the Far East and the Baikal Region Development Fund as well as the Direct Investment Fund – subsidiaries of Vnesheconombank - when he was speaking about this region’s development. He also expressed the hope that the Far East Development Fund would be additionally capitalized to carry out tasks set by the President. The Direct Investment Fund will be also additionally capitalized to be able to get down to implementing projects that are of primary importance for the region’s development and for raising more and more foreign funds with the assistance of our Fund.

HOST: In the course of Vladimir Putin’s visit to China an agreement was signed in your presence. Could you tell about it in more detail.

Vladimir DMITRIEV: We signed two agreements in China: the first one - with the Eximbank of China. It provides for funding a major industrial project "the Bystrinsky mining and processing complex". It will manufacture copper concentrate and a number of other products intended above all for exports to China. This project is attractive because it will be funded in yuans. There are some problems here related to currency swaps but we are working with our central bank and our Chinese partners are working with the Bank of China in order to create acceptable terms with regard to currency swaps - the ruble and the yuan. Another agreement that we signed is a quadruple agreement between our subsidiary – the Russian Export Center, Vnesheconombank, one of the largest Chinese province and Sinotrans & CSC Group. The agreement provides for supporting Russian exports and building a logistics hub, which will offer preferential terms for products being imported from Russia to be further distributed on the Chinese market and the Asian-Pacific region countries’ markets. And in this sense, this agreement fits fully into the Russian Export Center’s strategy. The Center comprises The Russian-Export-Import Bank and the Export Insurance Agency of Russia. And with Vnesheconombank’s assistance we’ll create appropriate infrastructure for increasing freight traffic from Russia to China to reexport these products to the Asian-Pacific region countries.

HOST: You’ve already mentioned that there are some obstacles to using national currencies in mutual payments between Russia and China. And what should be done to remove them?

Vladimir DMITRIEV: Now, the mechanism for currency swaps applies only to short-term operations related for the most part to trade business, with a period of operations being no more than one year. But in case of funding long-term projects there is a need for an arrangement between the national banks of China and Russia for swaps for a longer period of time. Our talks and contacts with our Central Bank and our Chinese partners’ contacts with their regulator show that there is a will to set up a reliable swapping mechanism for investment transactions funded in national currencies (yuans and rubles).

HOST:You met President Putin not long ago and discussed export credits. Now the portfolio of loans extended by Vnesheconombank for funding, for supporting exports is already about 350 billion rubles and you are working over issues of loans for an amount of 550 billion rubles. What kind of projects could they be?

Vladimir DMITRIEV: These are projects related above all to supporting industrial exports. The geography of these exports are wide and we are restoring former ties, which our enterprises used to have in the Soviet times with their foreign partners rendering assistance in building large-scale energy facilities supplying industrial products and high value-added products. Now we are focusing on aviation industry, energy mechanical engineering, and transport mechanical engineering, nuclear power industry as well as agriculture. It should be stressed that the geography is expanding and includes Latin America, CIS countries China, of course, the South-East Asia countries. Besides providing support for the export of Sukhoi Superjet 100 to Mexico we also support the sale of the rolling stock to Azerbaijan by UralVagonZavod, we also support Silovye Mashiny in their exports of products to Latin American counties. Here I mean energy mechanical engineering. for example we participate in funding a project on the construction of the Chiuido Hydropower station in Argentina and Sylovye Mashiny Company is expected to supply its equipment there. I’d like also to mention our cooperation with Mongolia in the construction of a thermal power station. We are glad that a single window system has been put in operation as part of which the Russian Export Center, I’ve already mentioned about, offers a range of services to Russian exporters including mechanisms for guarantee support, insurance support and assistance rendered to small and medium-sized enterprises in finding foreign partners through the Russian Export Center and exporting their products through this Center. It should be noted that such mechanisms of the state support as subsidizing interest rates are in full compliance with the rules applied in the member countries of the Organization for Economic Cooperation. We are not backing down on best international practices and now we can compete with foreign companies that enter the same markets on equal terms.

HOST: Vnesheconombank also operates through a mechanism of state guarantees and its first guarantee was issued through a simplified procedure VEB extended under Transaero’s credits in the amount of 9 billion rubles. How do you assess risks associated with this guarantee?

In its capacity of the agent for the Government in issuing state guarantees, Vnesheconombank is obliged to see to economic status of a principal company. In this case, a guarantee was issued in favor of VTB, it acted as a beneficiary. The situation with Transaero is familiar to everybody but it is rather complicated. We can see that it was Aeroflot that lent its shoulder. In this case, default is out of question and we are monitoring the situation although it’s clear that without the state’s assistance one of our largest air carrier won’t be able to overcome the difficulties that have emerged lately. We welcome the steps that have been taken by the state to get the company out of the pre-default situation. As Vnesheconombank provided financial support for Transaero through its subsidiary VEB-Leasing in the amount of 55 billion rubles we care about how Transaero’s problems will dealt with. Naturally, we want the state not to overlook potential problems of leasing companies that provided significant financial support for the air carrier while addressing Transaero’s problems. I think we’ll be resolving these problems together with the government institutions and now with Aeroflot. But the situation is rather complicated and we should look for a way out of it on the basis of a compromise between the air carrier, banks that extended credits and leasing companies that provided the air carrier with airliners.

HOST: Do you think that Aeroflot lent a strong shoulder and the company is going to survive or only Aeroflot will benefit from the situation and the company will be…?

Vladimir DMITRIEV: Of course, we hope that Aeroflot with its competence, serious financial resources, partner ties with the largest Russian banks and leasing companies without detriment to its own commercial and financial activity will be able to resolve the situation and we intend to help our leasing companies to address their problems.

HOST: How long will the ruble go on falling?

Vladimir DMITRIEV: If I knew an exact answer, I might be given a Nobel Prize or at least a prize for the best prediction.

HOST: Could we expect an exchange rate to be 100 rubles to the dollar?

Vladimir DMITRIEV: Unfortunately, we have to acknowledge again that the ruble exchange rate depends directly on oil price and oil price depends directly on the general economic situation – on the demand for oil products, on the sustainability of developing countries’ economies, on the dynamics of China’s economic development. Although the Chinese leader said reassuringly yesterday at the Meeting of Russia’s and China’s leaders that an expected economic growth would amount to about 7 percent this year - the best indicator not only among developing economies but also in the world, the latest developments on the Chinese stock markets, deceleration in economic growth as a whole do not make us optimistic about increased oil prices. Getting back to your first question about the Far East, I’d like to say that it is important for Russia to go on making structural transformations in our economy, developing infrastructure. This is the only way to overcome notorious dependence on energy resources, kick the oil curse and create additional synergy for developing major industrial sectors through forming a reliable infrastructure both here, in the Far East region, and in the country as a whole. And the projects being implemented now I mean high-speed motorways, highway junctions, the Central Circular Road, toll motorways are of course the right steps in the right direction. Let’s be optimistic, roll up our sleeves and start implementing structural reforms in our country.

HOST: But China like Kazakhstan devalued their currencies voluntarily. And what countries can follow suit?

Vladimir DMITRIEV: I can’t give you an exact answer to this question – all depends on the current economic conditions. And it would be wrong for me to name specific countries that would ask me harrowing questions through certain channels. As we live in a global world where countries depend on each other seriously and their economies are interrelated, everything will depend on global behavior and we can’t rule out anything.

HOST: And now my last question. Did VEB adapt to operating under conditions of sanctions?

Vladimir DMITRIEV: Firstly, in fact, sanctions proved to be a serious test for us but given the latest decisions and the fact that we rely on the state’s support and we are feeling comfortable. For example, our Bank was additionally capitalized and the capitalization was associated with the need to be in line with capital adequacy ratios because our loan portfolio is increasing and therefore capital should increase for capital adequacy ratios to be in line with the Memorandum on Vnesheconombank’s Financial policies. Only economic growth, forming reliable infrastructure and funding major industrial projects will allow us to diversify our economy and balance its development. We rely on the strategy that remains unchanged. It was approved last year. This strategy provides above all for increasing the loan portfolio, entering into capital, providing support for our subsidiaries, above all companies that are designed to participate on their own in investment projects and raise foreign investments. They include the Far East Development Fund, the Russian Direct Investment Fund, the North Caucasus Development Corporation. Answering your question I can say that we managed to adapt, we are developing, we are developing with our country and as a state development institution, we fully rely on the state’s support.

HOST: Thank you Vladimir Alexandrovich.

Vladimir DMITRIEV: Thank you.