Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24
The TV Channel Russia 24
HOST: Good evening! Our guest today is Vnesheconombank Chairman Vladimir Dmitriev. Good evening Vladimir Alexandrovich!
Vladimir DMITRIEV, Vnesheconombank Chairman: Good evening!
HOST: This Forum is not the first for you. Vnesheconombank invests actively in this sort of events. What’s new, what contracts have you concluded this year?
Vladimir DMITRIEV: You are right, the Kuban International Economic Forum, which is going to mark its anniversary next year, gives us a unique chance to talk with our partners, sum up the results of cooperation and map out plans for the future. And this Forum isn’t an exception. We have signed a whole range of agreements including general ones on cooperation as well as specific ones concerning specific projects. To my mind, the Forum, at least its first full day, proved to be successful. I like the first event organized by Sberbank and devoted to providing support for small and medium-sized enterprises. And of course, today’s plenary meeting was memorable and important as it confirmed that the Forum is a Prime-Minister level gathering. Today, the Prime Minister described the current state of the Russian economy, gave us reasons for optimism, and the most important thing was that answering a ten-year-old question about what kind of Russia he would like to see he said that he would like to see a happy Russia. And I think that in this respect, we are all happy about Russia’s development dynamics in the past ten years. This forum is in essence an international event. There are a lot of foreign guests, including our partners, Vnesheconombank’s partners. They participate in plenary meetings and we hold talks with them on the sidelines of the Forum.
HOST: Vladimir Alexandrovich, you invest heavily, as I’ve already mentioned, in this region. I know that you you’ve signed several agreements today. Could you tell us a few words about them?
Vladimir DMITRIEV: As far as our involvement in the Krasnodar region and in the region as a whole is concerned, it’s worth mentioning the fact that yesterday a ceremony of opening of the Sochi International Airport was held in Sochi. It was Vnesheconombank that financed the construction and modernization of the Sochi Airport and it was our first project as part of Vnesheconombank’s participation in funding the construction of Olympic facilities. We discussed this line of our activity in the course of talks and it was also partially reflected in the agreements we have signed today. What is really important is Vnesheconombank’s increased cooperation with North-Caucasus republics. You know there is an order by both the President and the Prime Minister to establish a North-Caucasus Development Corporation. I think it will start operating in November. And today’s agreements on building the Arkhyz tourist cluster in the Karachaevo-Cherkessia, development of agro-industrial complex in Kabardino-Balkaria, supporting the construction materials manufacturing sector in Dagestan are witness to the fact that the region’s potential is pretty large. And I think that Vnesheconombank and other banks including those with state’s participation have all the chances of making large investments in the region thus improving the socio-economic situation here dramatically.
HOST: Vladimir Alexandrovich, what amounts of money do you mean? Do you mean tens of billions of rubles?
Vladimir DMITRIEV: If we mean a tourist recreational cluster in the Northern Caucasus, it includes almost all republics of the Northern Caucasus, it’s a matter of 450 billion rubles. The cluster is comprised of mountain ski resorts and infrastructure. It’s important that these projects are being implemented on the principles of public private partnership. The important thing is that the Investment Fund, special economic zones, private investors and, of course, Vnesheconombank participate in these projects. Vnesheconombank is glad that Sberbank of Russia would and not for the first time participate in these projects. So, the sums are pretty impressive. And if we mean Sochi, about 150 billion rubles are earmarked for Olympic facilities alone, with Vnesheconombank’s participation being 80 billion rubles. We’ve already started to fund 6 projects worth 15 billion rubles. And in general, comparable amounts of investments may be channeled to the republics of the North-Caucasus Federal District.
HOST: And now about another line of Vnesheconombank’s activity. In particular, you are actively supporting small and medium-sized enterprises. This issue has been also given much attention today. And it’s not a secret that there are some problems in this sector. What’s Vnesheconombank doing to support SMEs?
Vladimir DMITRIEV: We believe and today’s morning discussion confirms it that both Kuban and the North Caucasus are quite promising for developing small and medium-sized enterprises on a large scale, given Russian commercial banks’ and Vnesheconombank’s support. This, of course requires using the region’s potential to the full. The region is a breadbasket and a health center.
HOST: And a talent foundry.
Vladimir DMITRIEV: If we mean a talent foundry, we should say that training specialists is a very important task. We need specialists for hotel and tourist business, we also need them for sports clusters. They are also needed in the agriculture sector. Unfortunately, we have lost competence in some sectors and we have never had one in several others. Here I mean mountain ski resorts. So we have a lot of work to do in this respect. There are many major production facilities and commercial entities in the region. The main thing in supporting SMEs is not just establish them from scratch but to rely on the existing industrial and agricultural infrastructure. This is what we are supposed to do. And a large-scale program we have launched through the Russian Development Bank relies among other things on the potential of Kuban and the North Caucasus.
HOST: Vladimir Alexandrovich, I’d like to ask you a few questions not related to the Forum. What’s the situation with regard to the creation of a Postal Bank? Are there any changes in your position on this issue?
Vladimir DMITRIEV: Our position hasn’t changed at all. We are doing our best in this respect. On September 15, two candidate banks, namely Nomos Bank a Russian Standard Bank submitted financial plans updated in accordance with Vnesheconombank’s and Svyaz-Bank’s requirements as well as business-plans and business-models. We’ve got enough time to examine them thoroughly once more and if, required, we are ready to hold talks on adjusting them. We are keeping to schedule and hope that we’ll start to rebrand Svyaz-Bank starting next year and a process of denationalizing the Post of Russia is to be also launched. Of course, an investor is also to be chosen and then we’ll be able to get down to implementing this program.
HOST: One more question. Vnesheconombank extended credits to large Russian banks at the time of crisis. Many banks have already repaid them. But there are some problems here, for example with Rusal. How is the situation with Rusal developing and what is going to happen to the mining and smelting company’s blocking stake?
Vladimir DMITRIEV: You are quite right. During the crisis Vnesheconombank relied on the state’s support, specifically on the Central Bank’s support and used funds it received from the Central Bank to refinance major Russian borrowers’ foreign debts. We used a little more than 11 billion dollars to refinance the said debts. By now, all the credits except for one extended to Rusal had been repaid. This shows that borrowers are doing well financially and can either repay credits on their own or obtain long-term credits from commercial banks and this was the main goal of the Russian Government. At the time of the crisis, both our corporate partners and Russian banks except for Vnesheconombank supported by the state were in a critical situation and they didn’t any sources to refinance those foreign debts. At present, the situation in the banking system and borrowers’ financial standing allow them to refinance the said foreign debts on the terms that are not worse compared to those of Vnesheconombank’s credits. I wouldn’t describe the situation with Rusal as problematic. It’s going according to schedule.
HOST: It’s developing normally.
Vladimir DMITRIEV: The situation is developing normally. Rusal is ready to repay the debt by way of using Sberbank’s credit resources. We held talks both with Rusal and Sberbank on working out a refinancing model acceptable for all parties. A key element in this model and in the pattern of this transaction is that the mining and smelting company’s collateral is not to be alienated from the state under no circumstances. It goes without saying that if Rusal fulfils all its obligations under a new refinancing agreement on settling the debt ,an issue of Nornickel’s blocking stake will be removed from the agenda.
HOST: Thank you, Vladimir Alexandrovich, thank you for finding time for us today. I’d like remind you that our guest was Vnesheconombank Chairman Vladimir Dmitriev
Vladimir DMITRIEV: Thank you.
We Welcome Projects where Enthusiasts Try to Retain Competitive Edge
Vnesheconombank has been energetically carrying out crisis-management measures for already two years. This, to a certain extent, slowed down the implementation of investment projects as the Bank’s employees had to perform additional functions besides their main ones. Nevertheless, VEB continued to build up its loan portfolio as a Bank for Development. Vnesheconombank Deputy Chairman Anatoly Ballo told Interfax-AFI about new investment projects financed by VEB, the BEMO project, a project to build a furniture production facility and innovations.
- Vnesheconombank has been implementing crisis-management measures for already two years. What impact did it have on its activity as a Bank for Development?
- Since 2008, Vnesheconombank has been the Government’s instrument in implementing crisis-management measures. In the last months of 2008 and in early 2009, the Bank’s priorities were shifted towards supporting the financial system and this slowed down the implementation of investment projects because the Bank’s specialists involved in examining investment projects had at the same time to be engaged in restructuring credits as part of crisis-management measures. They had to perform additional functions besides their main ones. I’d like to remind you that the amount of financial support provided by Vnesheconombank as part of crisis-management measures was 964 billion rubles. These funds were used to refinance Russian companies’ foreign debts, extend subordinated loans and reorganize Globex Bank and Svyaz-Bank. Moreover, under certain decisions made by the Bank’s Supervisory Board we rendered assistance to such system-forming companies such as OJSC Amurmetall, Tractornye Zavody Corporation and OJSC Sevmash.
- Did all this have any impact on financing investment projects? How many investment projects have appeared in VEB’s loan portfolio this year?
- Yes, to some extent, because the same specialists were responsible for implementing crisis management measures and investment projects. All the lines of activity I mentioned above were not included in our original priorities.
Nevertheless, in 2009 we participated in implementing 78 investment projects and at the beginning of 2010, the Bank’s governance bodies made decisions on participating in funding another 20 new projects. The Bank’s participation amount in them is about 144 billion rubles. And we have already started to finance some of them. The amount of funds made already available is in excess of 41 billion rubles, but we have long periods of using resources, we do not provide the whole sum at once. On the one hand one can say that 20 new projects are not many but on the other one should not forget that it often takes no less than a year to prepare a project. The amount of our investment, credit and guarantee activity is about 360 billion rubles. We have already formed a loan portfolio with regard to more than 100 projects. And more than 200 projects are at various stages of expert examination.
- These are large figures. What’s the effect on the economy?
- Operating in this field, we are playing an important institutional role because in the long run we form Russian clientele, which is seeking to implement long-term projects, for example on the principles of project financing. It can be said that VEB is not only a pioneer of classical project financing when credit resources are made available without a burden on other assets or a parent company but also an instrument for implementing public private partnership projects (for example concession projects and BOT (BUILD-Operate-Transfer) projects).
As a whole, in our estimate, tax revenues from implementing investment projects in the budgets of various levels would amount to 222billion rubles for a period of their implementation and more than 60 thousand new jobs would be created.
- By the way, BEMO project will be implemented on the principles of budget financing. In late July, VEB’s Supervisory Board made a decision to finance it while RusGidro and RusAl had been waiting for this sort of decision since March. Why did it take so much time?
- The Boguchan Hydroelectric Power Station is a unique project. This sort of projects have always been funded by way of using budgetary funds. This is the first experience of project financing in Russia in hydropower engineering. It takes about a year in any bank to examine a project of such magnitude, the more so, a project structured on the principles of project financing. We have tested the project’s financing model several times. At present, almost all the issues have been settled.
- Providing funds for this project VEB is to receive engineering companies’ shares as collateral. Are there any other forms of collateral?
- This is a project financing and the Bank is to receive engineering companies’ shares but as far as the Boguchan Hydroelectric c Power Station is concerned we are also supposed to receive RusGidro’s limited surety (in the capacity of a company responsible for constructing and operating the hydroelectric power station). It is to come into effect only if there are changes in the schedule, construction budget or in case of improper operation of the hydroelectric power station’s operation. The only reason for it is that we have never had project financing in the hydroelectric power engineering. We don’t have any surety with regard to the aluminum plant.
- What’s the total cost of building the hydroelectric power station and the aluminum plant? What amount of funds is VEB supposed to provide?
- The total cost of building the hydroelectric power station is 72.5 billion rubles out of which Vnesheconombank is to provide about 28 billion rubles. The Bank is to provide 22 billion rubles for the construction of the aluminum plant, with the total cost of the project being 33 billion rubles.
In fact, under the investment program “A Comprehensive Development of the Lower Angara Region” the Bank finances three large-scale projects. One of them is Construction of the Boguchan Integrated Timber Processing Facility. We are planning to provide 40billion rubles to build the facility. All these projects are being implemented on the principles of public private partnership. The state provides 30 billion rubles from the Investment Fund to build infrastructure while private investors together with VEB’s funds provide about 150 billion rubles.
- At what stage is the project to build the Boguchan Integrated Timber Processing Facility?
- The Kraslesinvest Company acts as this project’s investor. It’s a very complicated project because new full-cycle pulp-and-paper plants haven’t been built in our country since the Soviet times. At present, we are seeking the help of the world’s leading pulp producer, Sweden’s Company Sodra, to develop a final concept of this timber processing facility. The deep timber processing project has already been launched. The “pulp component” is to be launched next year after completing a comprehensive mechanical timber processing stage. The Bank has started to finance the project and has already provided 2 billion rubles.
- When Vnesheconombank’s Supervisory Board made a decision to fund the BEMO project it also approved refinancing of RusAl credit worth 4.5 billion dollars obtained from Vnesheconombank by Sberbank. What’s the situation with unpaid credits obtained from VEB to refinance debts to foreign creditors?
- All companies except for RusAl have repaid their debts. Our representatives have withdrawn from all borrower-companies’ boards of directors but for RusAl‘s board of directors. The aluminum company is to repay its debt until October 29, and we do not expect any problems with the debt repayment.
- Not long ago, VEB signed an agreement on extending credits worth 1.4 billion dollars to Tobolsk-Polymer. Western banks and export agencies participated in the transaction. On what terms are these funds provided? How are the credits secured?
- It took us a year to make a positive decision on this project. The polypropylene complex with a capacity of 500 thousand tons per year will become the world’s largest plant of this kind. As to this project, VEB used only raised funds and didn’t use its own capital. All the funds were made available by foreign export agencies and banks. And it should be said that in our opinion credits are extended on very good terms. Interest rates are lower than mid-market rates on short-term borrowings.
It’s important that this project comprises a number of unique subprojects. For example, special vessels are being built and docking facilities are being expanded on the Tobol river to supply equipment of non-standard sizes. Moreover, the project’s implementation will require 4.5 thousand workers at the construction stage. 3.5 thousand new jobs will be created. Tax revenues during the project’s implementation are expected to amount to 45.5 billion rubles.
- VEB is also to provide funds to Mekran company for building a furniture production facility. What are the specific features of this project? What’s the credit period?
- The Bank has already started to finance the project. The total value of the project is 5.6 billion rubles, with our participation share being 4.3 billion rubles. The credit period is more than 10 years so the company is given a chance to repay the credit through its operating activity.
It’s important for us to boost domestic producers’ competitive edge. Do you see a lot Russian-made furniture in our shops? In order to get Russian people to buy less foreign-made furniture we should launch deep timber processing. In general, we welcome projects where Russian enthusiasts try to retain competitive edge.
- The Russian Government gives high priority to the development of the Northern Caucasus. What projects is VEB planning to finance this year in this region? Did the Bank receive any investment applications from project initiators?
- The Northern Caucasus is an absolute priority for us now; we are opening our representative office in the Northern Caucasus. We have more than 10 projects at various stages of implementation, the total amount of which is in excess of 60 billion rubles.
I’d like to specially stress the project to build the Arkhyz all-season mountain-climatic resort in Karachaevo-Cherkessia, which was initiated by Sinara Company. The project’s general concept provides for the construction of four village-complexes to accommodate more than 25 thousand people and a network of 69 ski lifts and cableways. We engaged French Bank CDC for this project.
- VEB has repeatedly said that it would increase a share of innovation projects in its loan portfolio. How many innovation projects is VEB funding today? What sort of projects are they?
- Most of our projects are of innovative nature - be it a cement plant construction project or a turkey-growing industrial complex project.
To tell you the truth, it’s pretty difficult to implement high-technology projects. One of such projects was the one aimed at building a submicron semiconductor production faculty. We also planned to participate in the project aimed at manufacturing Glonass/GPS navigation receivers. M2M Telematica was responsible for implementing the project. We were ready to start financing the project, when corporate changes took place in the company. The project’s structure has changed now –it incorporated AFK Sistema. Thus, we are examining a large-scale, updated ERA Glonass project being implemented by the Navigation Innovation Systems Company. The project provides for creating Glonass/GPS navigation receivers and user terminals as well as creating an emergency urgent response system on their basis. A requested amount of financing is 3.1 billion rubles
In the near future, we are supposed to submit a project to create supercomputers to consideration by the Bank’s Supervisory Board. I wouldn’t disclose the name of the company responsible for implementing this project but I can say that it is a leading player on the Russian market.