Vnesheconombank Deputy Chairman Anatoly Tikhonov’s Interview to Rossiiskaya Gazeta

Rossiiskaya Gazeta
Federal issue № 4858
February 27, 2009
Elena Kukol

Vnesheconombank is now tasked both with financing sports facilities and exercising control over their construction

State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’has assumed new functions. It will be responsible not only for financing Olympic facilities but also for inspecting work progress at construction sites.

VEB’s Management Board Member, Vnesheconombank First Deputy Chairman Anatoly Tikhonov told Rossiiskaya Gazeta about why this decision was taken and what was going to happen to the Bank’s other projects.

Rossiiskaya Gazeta: New functions with regard to the Olympics have been transferred to VEB quite recently. Earlier, expenses on the 2014 Olympics were supposed to be divided equally between the state and business. Is now the state going to incur all expenses?

Anatoly Tikhonov: In fact, the state’s role in the Olympic construction is on the rise. But the private public partnership scheme is still in place. So, Vnesheconombank is not supposed to replace private investors, it is becoming their investor. As a result of the world financial crisis, many investors came up against objective difficulties. As early as a year ago, all Olympic projects were seen optimistically and many banks were happy to lend companies. But today these projects do not look as attractive as they did before and, above all, because of long payback periods. That was the reason why a decision was made to include Vnesheconombank into the Olympic scheme.

But our participation is provided for by certain terms and conditions. First, the Bank is to extend credits (from its own and raised funds) only for projects of national significance. We are not to finance commercial-only projects – building of entertainment or shopping malls and hotels. Second, we have to observe the following proportion: 70 percent of Vnesheconombank’s borrowed funds, 30 percent of investors’ funds. And finally, VEB will control not only financial flows but also physical construction volumes. We should be well aware that earmarked money would make it possible to meet deadlines set by the Olympic calendar and won’t, figuratively speaking, go down the drain. Basically, we are going to perform functions that used to be performed in the Soviet times by Promstroibank. In the history of modern Russia this is the first case when financing and inspection functions are performed by one and the same institution.

Rossiiskaya Gazeta: Have you already determined the amount of your “Olympic portfolio” and loan rate?

Tikhonov: This year, financing amount for Olympic facilities is expected to be 29 billion rubles. For the most part this is transport, power engineering infrastructure, sports facilities, for example such facilities as the Roza Khutor Alpine Ski Complex, a port in Imeretin, the Sochi airport. As far as a loan rate is concerned, in each case it will be set on an individual basis with due regard to specifics and significance of a project. Our principle is that a project should be beak-even and the Bank’s operational margin will be minimal.

Rossiiskaya Gazeta: It was not only investors who came up against problems. What’s the future of the Investment Fund’s projects in which VEB participates, did some investors refuse to participate in them?

Tikhonov: We haven’t had such precedents so far and we hope we won’t have them. Nevertheless, in some cases the situation forces us to reschedule dates of projects implementation. For example, the program of the Lower Angara Area Development provides for the construction of an aluminium factory. But aluminium prices fell and it makes no sense to speed up the construction of the factory. A decision was made to move its commissioning dates from 2010 to 2012 although its construction is not to be frozen. The Orlov tunnel in Saint Petersburg is also to be commissioned later than planned; this tunnel is to be built on concession principles. The project’s financing is to begin in 2011 rather than in 2009.

At the end of the last year, we inventoried 21 projects of the Investment Fund, which had already been approved by the Government. We don’t have any doubts about 15 projects. They are sure to be implemented in 2009. They will carry on implementing projects where construction work has already begun and investors have confirmed their obligations. These are, above all, infrastructure projects that besides purely economic objectives also address employment problems. For example, the implementation of the selected projects will make it possible to create up to 20 thousand jobs for a period of construction. And ten out of these projects will be implemented in the regions where the situation on the labor market has already deteriorated.

All this does not mean that other projects won’t be implemented. They are very important and work on them is in progress. But the current situation makes us reconsider their formats. We have to reconfigure each of these projects, reschedule their construction and commissioning date in order to leave financial burden till later without sacrificing the main objective.

Rossiiskaya Gazeta: Has the crisis changed principles VEB adheres to in working with the Investment Fund

Tikhonov: Up until now Vnesheconombank has participated in some of the Investment Fund’s projects as an investor and consultant. Lately a decision has been made that in order to support business within the Investment Fund, we can also use a scheme similar to the Olympic one, under which Vnesheconombank lends investors. But in this case, a total amount of funds of the Bank and the Investment Fund should not exceed 75 percent. I think this is a reasonable limitation. Otherwise we’ll have “public-public” partnership rather than private-public partnership.

I’d like to remind you that at the end of the last year Vnesheconombank was appointed as a consultant to the Government on the Investment Fund’s projects. We are responsible for examining and monitoring how investors fulfill their obligations. Besides, a decision was made that all investors should open their accounts intended for financing projects with Vnesheconombank. On the basis of data on cash flow in investors’ settlement accounts we’ll be responsible for monitoring the spending of money and submit financial statements to the Ministry of Regional Development. This decision, by the way, is not related to the crisis, it was made to secure transparent relations between the state and business.

Rosiiskaya Gazeta: Has the crisis had a considerable impact on Vnesheconombank’s loan portfolio?

Tikhonov: Our loan portfolio was planned to amount to 270 billion rubles by the beginning of 2009. The crisis made it more difficult for us to operate but now we are close to this amount. More than 70% of our loan portfolio accounts for mid and long-term credits and most of them are intended for the development of innovations and infrastructure. Unfortunately, we had to leave some projects till better times but at the same we made a decision to expand some programs and introduce new lines of activity.

Our brand new line of activity is to provide support for agriculture. At the moment, we are considering projects worth more than 100 billion rubles and the amount needed to finance them in the year 2009 is 60 billion rubles. We have already started to finance some of them and we are going to start financing other projects in the near future. These projects are based on advanced technologies with long payback periods. They provide for creating a single processing flow from manufacturing products to their final processing.

Rossiiskaya Gazeta: Traditionally, Vnesheconombank cooperates with foreign banks. Has the crisis closed this niche?

Tikhonov: Even today we maintain partner relations with foreign financial institutions. At the end of the last year we entered into an agreement with a number of leading international banks on raising a syndicated loan of 335 million euros. Japanese banks expressed their readiness to lend the construction of mineral fertilizers manufacturing complex in Tatarstan worth 800 million dollars. We have also signed an agreement with the China State Development Bank and the German Bank KfW. This sort of cooperation allows us to raise not only money but also receive new technologies and equipment, which have no analogs in Russia.

We are also starting to work with international financial institutions including a group from the World Bank. We hope that they will help us to raise “long” money for regions to finance water supple, energy efficiency, ecology and waste recycling projects.

Rosiiskaya Gazeta: An economic forum opens today in Krasnoyarsk. Its participant will, among other things, will look for an answer to the following question: who and how are we supposed to rescue with the help of the state’s money. How would you answer this question?

Tikhonov: We should stake on promoting new projects and new sectors and on highly efficient companies. It’s very important today that anti-crisis measures should not hinder development. The Bank should not finance “catching up” projects. We’ll give top priority to unique, niche projects that would allow us to make a real breakthrough. And we can find them in virtually all economic sectors.