Vnesheconombank Chairman Vladimir Dmitriev’s Interview to Russian Information Channel Vesti
The Vesti TV Channel, INTERVIEW, 29.12.2008
Host - Ekaterina Grinchevskaya
HOST: Despite a complicated economic situation, the amount of support for small and medium-sized business in the current year will exceed the planned 9 billion rubles. Next year, this sector won’t be left without support either. Vnesheconombank Chairman Vladimir Dmitriev told about this and many other things in his interview to our television channel.
Correspondent - Evelina Zakamskaya
CORR: Vladimir Alexandrovich, good afternoon. Thank you very much for finding time for us. Over the last months, Vnesheconombank has had to make strenuous efforts to stabilize the financial system but basically Vnesheconombank is a development institution responsible for major investment projects. Please tell us how you manage to perform all these functions and how would you assess the outgoing year?
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: Of course, in the outgoing 2008, we had more positive things and the main positive thing is that in the current year our Bank as the Bank for Development and the largest financial institution owned by the state started to operate in a format set forth by the Law on the Bank for Development and the Memorandum on our Financial Policies. The Supervisory Board of our Bank did a lot to consider and make specific decisions on major investment projects and our Bank started to finance a number of them this year.
CORR: What projects do you mean?
Vladimir DMITRIEV: These are important infrastructural projects in line with Vnesheconombank’s core activity as a development institution including those in communal and housing services infrastructure. Suffice it to say about a project to fundamentally modernize the water supply and drainage systems and to construct sewage treatment facilities in the Rostov region. The project would make it possible to provide housing to 150 thousand people through building new housing. As a whole, these are also efforts to modernize sewage treatment facilities, which are now in critical condition in the South of Russia (Novorossiisk, Anapa, Gelendjik). These are also projects in the microelectronics sector.
Of course, I must mention a project worth several hundreds of millions of euros. The project is aimed at building a major production facility outside Moscow in Zelenograd to manufacture microelectronic components with a nanometer resolution of about 10 nanometers. Nowadays, none of Russian companies manufacture components with such resolution and quality characteristics of products to be manufactured are planned to be improved.
This is Sheremetjevo infrastructure, the construction of the third terminal. This is also power engineering. Our Bank participates in InterRAO’s investment projects. InterRao is one of the largest Russian companies operating both in Russia and abroad. This is also export promotion, delivery of aircraft to Cuba. This is the support for prospective exports; the Sukhoi Company and here I mean our cooperation with the Sukhoi Company in manufacturing and further export of Sukhoi-Superjets 100, mid-range passenger aircraft. And a variety of other projects.
All in all, we are involved in projects worth 750 billion rubles.
CORR: What additional powers does Vnesheconombank need today, what should be done to increase Vnesheconombank’s charter capital? This, in my opinion, would make certain funds available and increase your institution’s leverage.
Vladimir DMITRIEV: In fact, we are considering an issue of Vnesheconombank’s additional capitalization with the Ministry of Economic Development, the Finance Ministry and with the RF Government Office. First, a decision was made and implemented on allocating 75 billion rubles to Vnesheconombank this year. The funds are to be used to support financial sustainability including that of Russian commercial banks. A decision was also made to contribute 30 billion rubles to Vnesheconombank’s capital to be used to carry out programs of supporting small and medium-sized business. And we hope we’ll be able to make this happen because there aren’t any technical problems in this respect and this will help us minimize problems emerging in our balance sheet. This situation is associated with the reduction in the Bank’s capital due to conducting transactions in extending subordinated loans, building up reserves under the program of refinancing Russian companies’ and banks’ foreign debts and operations on the stock market. We can minimize the negative impacts of the above said either through delegating some of the functions using a trust management mechanism or through the State’s guarantees mechanism. Now, we are close to adopting an agreed stance that if the Bank’s capital is increased it will be increased by an amount which is needed for implementing projects on which decisions have been already made and which can’t be postponed, as well as on projects that the Bank has started to finance. Given the liquidity crunch both on Russian and foreign borrowing markets, we are not in a position to close this gap using foreign borrowing sources.
CORR: I’d like to get one thing straight. Does Vnesheconombank need a formal decision on increasing its capital?
Vladimir DMITRIEV: Yes, of course, because it is supposed to go through required procedures including budgetary ones.
CORR: Would you tell us in more detail about Vnesheconombank’s support for small and medium-sized business.
Vladimir DMITRIEV: It is safe to say that this year we have implemented projects aimed at supporting small and medium-sized business in the amount far in excess of 9 billion rubles which were made available through the Russian Development Bank.
CORR: In excess of how much?
Vladimir DMITRIEV: By a factor of times. The fact is that by law we are not entitled to work directly with small and medium-sized businesses but it is our aim to create infrastructure to support small and medium-sized business. That is why we are implementing a major infrastructural project using our credit resources – the construction of technopark and business incubator in the Nagatino flood plain.
CORR: What is meant by this infrastructure, what is it comprised of?
Vladimir DMITRIEV: By this infrastructure we mean the said technoparks, business incubators, which provide jobs and, more important, provide the system with support infrastructure. These are buildings, telecommunications and administration facilities, that is, everything that small and medium-sized businessmen need to start operating locally and it is of overriding importance, otherwise we have to turn to leasing or to buyout. Here I mean the so-called one-window system – he comes, he gets registered, he works.
CORR: Is he supposed to get a place of employment?
Vladimir DMITRIEV: He gets a place of employment and he is offered preferential terms with respect to rental payments and a number of other preferences which otherwise would be difficult to find on the market.
CORR: Is the amount of financing these projects going to remain intact next year?
Vladimir DMITRIEV: First, the amount of support provided through the Russian Development Bank and now through a number of Vnesheconombank’s subsidiary banks, which we had to support on the Government’s instructions, is to be increased. Instead of 9 billion rubles we hope to spend 30 billion rubles due to an increase in our charter capital. But it is safe to say that this amount is going to be much greater as it is this year.
CORR: What sectors is Vnesheconombank giving top priority to? To my best knowledge, Vnesheconombank is getting an opportunity to finance agro-industrial complex, to be more exact, agro-industrial complex is getting an opportunity to obtain credits from Vnesheconombank.
Vladimir DMITRIEV: You are absolutely right. And I’d like to add that agro-industrial complex has become a sort of testing ground that the Government is using to test joint actions taken by state-owned and commercial banks. As early as a month ago, a program was adopted (we met with first vice premier Victor Zubkov, held meetings with agroindustrialists, representatives of the agroindustrial complex association), we agreed upon measures for supporting agroindustrial complex through the banking system for the next year in the amount of about 800 billion rubles. The participants here are Rosselkhozbank, Bank VTB, Sberbank, Gazprombank, MDM and, of course, Vnesheconombank. Moreover, at the end of the current year the Government passed a resolution to introduce changes to our financial declaration or the memorandum on our financial policies. Agroindustrial complex is now included in our sectoral priorities.
CORR: This is happening at a time that regional banks are scaling down their credit lines in agroindustrial complex. Does this mean that working directly with major institutions agrarians will be able to obtain credits at lower loan rates?
Vladimir DMITRIEV: We lend not only the agricultural but also the real sector of the economy as a whole at rates, which are in line with our credit policy and this policy specifies that Vnesheconombank is not an institution designed to generate profits. We operate at a small margin of profit, which makes it possible to cover our administrative costs, taking into account, of course, borrower risk. But as a whole, Vnesheconombank’s loan rates are lower than commercial ones and here you shouldn’t overlook the fact that by law Vnesheconombank is exempt from profit tax.
CORR: Vladimir Alexandrovich, let’s talk about the now so-called system-forming enterprises. Under the Government’s resolution 1.5 thousand enterprises are planned to be supported, so far 500 enterprises. What role is Vnesheconombank going to play to provide support to these enterprises?
Vladimir DMITRIEV: We are directly participating in the program of supporting system-forming enterprises, the more so; we have already established strong ties with many of them. They are our borrowers and they implement their investment projects through us. And senior executives of three major state banks, namely, Sberban, Bank VTB and Vnesheconombank are incorporated into the commission headed by Ivan Shuvalov. It is within the framework of this commission that we are working out measures for supporting system-forming enterprises. Undoubtedly, our mission should be limited (and we have agreed upon this approach) to those enterprises and projects, which are in line with activities provided for by Vnesheconombank’s charter. These are investment projects whose termination or freeze could have negative impacts on both enterprises and industries in terms of macroeconomic effect. By the way, other state banks, for example, Gazprombank and a number of commercial banks are also involved in implementing measures for supporting system-forming enterprises because all these enterprises are as a rule customers of major commercial and also state banks and maybe, above all, of state banks. We are operating on the basis of consolidated approach, that is, everyone identifies his own specific niche agreed upon with all others. If there is a need for helping hand other banks are ready to do it. But I can tell you confidently that we are in a good and creative mood. We work with the Ministry of Economic Development and they are our good partners.
CORR: And what niche does Vnesheconombank prefer?
Vladimir DMITRIEV: As a matter of fact, we don’t have any preferences here with the exception of those set forth by law and the memorandum on our financial policies.
CORR: Do you have any plans to support the domestic infrastructure with pension funds?
Vladimir DMITRIEV: Now a bill has been introduced into the State Duma supplementing our financial declaration and expanding the101st law on the state trust management company. In accordance with these amendments we’ll be able to invest funds in sub-federal bonds, corporate and mortgage securities without the state’s guarantees. That is why if the state supports bonds issued to finance specific projects including infrastructural ones, it would make it possible for a state trust management company and Vnesheconombank is such a company to move these funds back into the economy as agreed upon with the Government.
CORR: And to what extent is a conservative policy of managing pension funds justifiable? Tell us about the results of the year and pension funds’ rate of return?
Vladimir DMITRIEV: Fortunately, these year’s results show that we happened to be among few trust management companies out of 60 ones responsible for managing the funded portion of pensions which ended 9 months or 3-d quarter of this year with positive results. Our rate of margin is rather small but I’d like to stress it once more that given the fact that our rate of return is about 2 percent, most trust management companies showed negative results. In such crisis periods, that is, periods of sharp fluctuations in stock market quotations, a conservative approach justifies itself.
CORR: Vnesheconombank intends to continue its policy of supporting the stock market, to what extent is this policy appropriate and don’t you think that it might be better for the stock market to hit the bottom?
Vladimir DMITRIEV: In fact, this is not our super objective. Our single objective is to manage the National Wealth Fund. The Bank’s function to manage financial resources of the National Wealth Fund through placing them on the Russian stock market was basically limited to diversifying the portfolio, withdrawing it from abroad and place on the stock market, among other things, to support quotations of Russian blue chips. During certain periods the bank’s presence was tangible and had a positive impact not only on blue chips’ quotations but also on investors’ mood and the situation on the stock market as a whole. To this end, 175 billion rubles are envisaged to be allocated. We have already placed the bulk of these funds on the stock market. We believe that these stock market transactions would increase the National Wealth Fund. A rate of return is going to be appropriate and the amount of funds to be returned to the National Wealth Fund would exceed the one we are entitled to place on the stock market.
CORR: Do you have a forecast about how long you should support quotations?
Vladimir DMITRIEV: We are also pursuing a pretty conservative policy here and are not engaged in stock market speculations. 175 billion rubles have been made available to us and they were made available at a critical moment when a stock market crash was a real threat. Fortunately, we are not the only player on this market and the market responds not only to the presence of a serious player but also to a macroeconomic situation, oil prices, the dollar’s exchange rate and etc. So far, no decisions have been made on increasing this amount from the National Wealth Fund. I think that all actions would be adequate to a situation that is going to develop next year.
CORR: Vladimir Alexandrovich, is there any cure for the crisis?
Vladimir DMITRIEV: Yes, there is. It’s a New Year.
CORR: And if joking apart?
Vladimir DMITRIEV: The most important thing is to have a good and enjoyable holiday and then start to address new objectives and problems with new strength.
CORR: Are you sure that everything is going to work out well?
Vladimir DMITRIEV: At least historical experience shows that sooner or later all managed, to a different extent, to overcome crises and some used them to fundamentally overhaul their economies and undertake institutional reforms.
CORR: A Happy New Year to you!
Vladimir DMITRIEV: Thank you. The same to you. All the best to you.
CORR: Thank you.
It is topical to assign ratings to projects and identify their priority
Gazeta, N 247
December 26, 2008
- In the conditions of the financial crisis Vnesheconombank’s active involvement in implementing measures for supporting Russia’s financial system can’t help influencing the Bank’s activity as a development institution. How would you assess VEB’s performance?
- I find it difficult to assess our Bank’s performance. Even before Vnesheconombank was transformed into the Bank for Development, it placed much emphasis on supporting investment projects aimed at developing the most important sectors of the Russian economy. I hope we succeeded in establishing ourselves as a development institution, that is, an efficient instrument for supporting projects of high priority for the Russian economy.
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Economist, banker, investor Ballo Anatoly Borisovich was born in April 18, 1961 in Moscow. In 1983 he graduated from the Moscow Finance Institute, his specialty was International Economic Relations. In 1983-1991 – economist, researcher, Research Institute of Scientific and Technical Information and Construction Materials Industry Management, USSR Construction Materials Ministry. In 1991 - 1992 – lead expert, Gosbank of the USSR. In 1992 – chief expert, the Central Bank of Russia. In 1992-2000 – lead expert, manager, executive of the board, executive director, financial director, Russian Project Financing Bank (from 2000 – Small Business Lending Bank). In 2000-2002 – consultant to Vnesheconombank of the USSR. In 2002-2005 – deputy department head, Foreign Trade Bank (JSC). In 2005-2007 – department director, directorate director, Vnesheconombank of the USSR. From 2007 – Management Board Member, State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’, Deputy Chairman, Vnesheconombank |
- Vnesheconombank’s loan portfolio under the Federal Law “On the Bank for Development” amounted to about 255 billion rubles, with more than 80% of credits being mid and long-term ones (for the most part they are long-term credits with a tenor of more than three years). But for the crisis, we would not only have achieved our loan portfolio planned target of 270 billion rubles but we would also have far surpassed this figure.
Since the establishment of the Bank for Development a year and a half ago more than 70 investment projects worth about 750 billon rubles with the Bank’s participation share in excess of 400 billion rubles have undergone expert’s examination and have been approved by Vnesheconombank for financing. Investment projects account for a better part of these projects. They are designed to enhance the development of innovations and infrastructure (more than 80%). They include OJSC Terminal’s project to construct the Sheremetjevo 3 air-terminal complex, OJSC RZHD’s project to develop the infrastructure of the Kuzbass-Far Eastern Transport Hub, OJSC the Kaluga Region Development Corporation’s project aimed at building infrastructure of industrial parks: forming a cluster to manufacture automobiles and auto components. Vnesheconombank also participates in carrying out investment programs of OJSC Inter RAO EES and OJSC United Aircraft Building Company.
With our Bank’s support, OJSC Angstrem-T is building the first Russian production facility to manufacture sub-micron semiconductor components and OJSC Helicopters of Russia has launched serial production of the Ka-226T helicopter.
- How are you searching for new projects?
Our Bank is not a customer-oriented but a project- oriented bank and we are not searching for customers on the market. Business experience shows that companies interested in implementing projects tend to turn for help to regional authorities and to core ministries. We are working with regions especially with those where regional development institutions are in place and these institutions are responsible for generating projects and submitting the most interesting and well-prepared ones to us for consideration. If a regional administration is interested in implementing a project and invests funds in its preparation, then everything is going fast and well. The best example is the Kaluga region.
- What are the most interesting newly approved projects, which are not well-known so far?
In my opinion, the project to construct the Roza Khutor complex is very demonstrative. Under this project a sports and tourist complex is to be built in the Krasnaya Polyana district. This complex is going to be one of the most important facilities at the 2014 Winter Olympics. This Alpine ski resort is to be built and operated on public private partnership principles under the program of building Olympic facilities and developing Sochi as a mountain and climate resort. The total value of the project is about 38.5 billion rubles. Vnesheconombank intends to make credit resources available within the established limit of 21 billion rubles for a period of 15 years and the remaining amount of investments is to be financed by a private investor.
Another interesting project is to build a gasochemical production facility in Tatarstan. In mid October Tatarstan’s President Mintimer Shaimiev and Vnesheconombank’s Chairman Vladimir Dmitriev encased a capsule in the foundation stone of a unique for Russia mineral fertilizer integrated production complex worth 1.5 billion US dollars in the city of Mendeleevsk. The production facility is planned to be built for 36 months and launched into production in the first quarter of the year 2012. The project’s payback period is 6-7 years. The gasochemical complex will be the first modern production facility in the past 25 years to manufacture ammonia in Russia and the CIS. A distinguishing feature of the factory is that there will be no carbon dioxide emissions and that carbon dioxide will be entirely utilized to manufacture carbamite and methanol. Japan’s company Mitsubishi Heavy Industries has been selected as a contractor and another Japan’s company Sojitz Corporation has been selected as the project’s coordinator. Tatarstan’s government represented by the Investment – Venture Fund and Vnesheconombank act as the project’s investors. Under the project, debt financing is to amount to 870 million US dollars, which will be entirely refinanced in the conditions of the crisis by a syndicate of Japanese banks.
- Would you tell us about Vnesheconombank’s new anti-crisis functions? To what extent did the Bank prove to be prepared to carry out anti-crisis measures?
Even a few months ago, we were not aware that any different functions other than financing of major investment projects would be assigned to us. But the government provided us with an active, to be more precise, key role in stabilizing economic and financial situation in the country, and we started to act without any delay. Our considerable experience and our employees’ professional expertise helped us to launch the process almost immediately.
I would like to remind you that the Law “On Additional Measures for Supporting the Financial System of the Russian Federation” was passed on October 13, 2008 and on the same day the procedure for implementing the measures provided by the law was published and the first monetary funds were made available as early as October 30!
And we managed to do it despite the fact that the procedure for processing applications for refinancing borrowers’ debt obligations to foreign financial institutions provides for five decision-making levels and also for numerous mandatory criteria and requirements for documents. The Bank proved to be prepared to act quickly and decisively to overcome the crisis situation in the Russian economy. To my mind, the important thing was that we were not developing the techniques of considering and examining applications from the scratch, we already had a well-proven procedure for conducting expert’s examination of investment projects. We understood general techniques and adapted the bank’s staff for addressing new challenges. Otherwise we wouldn’t have been able to develop and implement the whole system of anti-crisis measures so rapidly.
- The current crisis makes the largest Russian companies to review their investment plans. Is Vnesheconombank going to change anything in its activity in terms of priorities and selection of projects?
Yes, it is. The situation forces us into making certain corrections. Responding to the realities, we might suspend consideration of certain projects as agreed upon with core ministries and departments. In doing so, we’ll carry on performing our main functions to assist in enhancing the development of the Russian economy. All the projects that are already being financed and have passed the point of no return are bound to be implemented. But a number of projects will be suspended. Nevertheless, the number of proposals coming from companies is on the rise. And as a result, it is becoming increasingly topical to assign ratings to and identify the priority of projects. Vnesheconombank initiated to expand the list of sectoral investment projects. Agroindustrial complex has been already included in this list. Proposals to introduce changes and additions to the Memorandum on Vnesheconombank’s Financial Policies are under preparation. Their adoption would make it possible for us to engage in financing projects in the pharmaceutical and construction materials industries. We are well aware that the Bank cannot and must not operate in all economic sectors and we offer to include strategic industries in the list of our priorities. In particular, we are planning to focus on the cement industry. The Government is making strenuous efforts to involve Vnesheconombank in working out the state’s support measures including those aimed at making it possible to finance the largest investment projects in the cement industry. These are projects aimed at constructing cement factories in the Kaluga, Leningrad, Penza and Tambov regions. We have a lack of production facilities and growing prices in the construction materials industry. Many infrastructural projects can’t be implemented if there isn’t a cement or brick factory nearby. So we are facing a paradoxical situation when we are allowed to finance infrastructure but are not allowed to finance the construction of a factory needed to build this infrastructure.
In a word, we’ve got a lot of proposals for new lines of activity and we are ready to act. But financing remains to be an open-ended question. The crisis reduced Vnesheconombank’s capital significantly and there is no reason to explain why. Naturally, we had to review our loan portfolio as a part of funds were used to implement anti-crisis measures and despite the fact that at the end of October we obtained a syndicated loan of 335 billion euros from a pool of the largest world banks at a rather attractive rate, we have to forecast difficulties in raising funds on world markets in the future. To my best knowledge, this was the last syndicated loan extended to Russia’s borrower on the foreign market.
It’s quite evident that in the current situation there is a need for increasing the Bank’s capital significantly if the Bank is to continue its activity on supporting economically important and socially meaningful projects in full. At the moment, there remains a need for financing not only the projects approved by Vnesheconombank’s collegial governance bodies, which are going through a stage of executing credit documentation and are worth 300 billion rubles but also projects undergoing a complex expert examination. And here we mean 60 projects, with the Bank’s expected participation share in them being 600 billion rubles.
I would like to stress it once more that we are talking about the possibility of implementing large-scale infrastructural and innovation projects. Given this possibility, we would be able to keep private business interested in financing projects and also create preconditions for stimulating economic growth. By analyzing our foreign colleagues’ business experience, we can see that they are keen to speed up their efforts to finance infrastructure and other crucial development projects. I think that Vnesheconombank’s first-year experience as the Bank for Development testifies to the fact that we are ready and competent enough to address the most challenging problems we are facing.