VEB is to Finance Projects Implemented by the United Shipbuilding Corporation
N 201, October 29, 2008
Vnesheconombank is to finance the United Shipbuilding Corporation’s (the USC) projects in defense orders and military-technical cooperation. “Together with the Corporation we have to determine the amount of financial resources needed for implementing envisaged projects’, said VEB Chairman Vladimir Dmitiev at a news conference yesterday. As far as defense orders are concerned, investments would amount to hundreds of millions of dollars in the ruble equivalent. “But I am sure that the amount would much greater”, added Vnesheconombank’s Chairman. Yesterday, the Bank and the United Shipbuilding Corporation signed a Memorandum on Cooperation. The investment projects are aimed at retooling, modernizing and creating new shipbuilding and auxiliary production facilities, purchasing advanced core assets and technologies as well as using leasing for building and selling shipbuilding products. Mr. Dmitriev also said that the shipbuilding sector was an industrial priority of VEB’s investment activity.
VEB’s Press Office also said that the Bank was considering 11 applications for implementing investment projects worth more than 75 billion rubles in the civil shipbuilding. USC President Vladimir Pakhomov said that the Corporation’s main objective was to consolidate assets, which were passed over to it when it was founded. The USC expects Vnesheconombank to assist it in acquiring core assets. The USC was registered in 2007 with a charter capital of 1 billion rubles. The company is a 100% state-owned company. In September, the Company’s charter capital was reported to have increased about threefold to 2.8 billion rubles. The USC’s formation is to be completed till April 1, 2009, with a number of Federal State Unitary Enterprises to be converted into joint stock companies including Sevmashenterprise, Admiralty Shipyards, the Zvesdochka Shipyard, the Khabarovsk Shipbuilding Yard, with transferring 100% minus 1 share to the USC later on. The USC is also to receive government stakes in Sevrnaya Shipyard (20.96%), Krasnoye Sormovo (33.53%), Yantar (51%), the Amur Shipbuilding Yard (20%), Dalzavod (20%), the Nikolaevsk-on-Amur Shipbuilding Yard (20%). The Corporation’s volume of orders is 12 billion dollars.
Vnesheconombank Chairman V.A. Dmitriev’s OpeningAddress at the Conference “Public Private Partnership: New opportunities for Countries with Transition Economies”
More than 600 people got registered at the Conference. There are many renowned persons among the Conference participants. I would like to greet you all. And I would also like to thank you for your attention to this important line of Vnesheconombank’s activity, that is, the development of the PPP market in Russia. We decided to hold this conference about a year ago. It is well known that the European Economic Commission of the United Nations has been studying and summing up intellectual capital in PPP. International business experience is of especial interest to us. It was for this reason we wanted to discuss with you an issue of PPP development in our country.
Half a year ago Vnesheconombank’s Supervisory Board approved the Bank’s Development Strategy for a period of five years. Under this strategy the share of PPP projects in our loan portfolio is to be no less than 30%. And the Bank is prepared to finance up to 30 % of these projects’ value.
We believe that a PPP mechanism is the only one and the best one in implementing infrastructural projects. In our country, government and municipal authorities are responsible for developing infrastructure, transport, municipal facilities and social services. These infrastructural facilities’ development is always costly. In any case, regional and city budgets do not have sufficient funds to finance infrastructure development. Nevertheless, we have to address these problems because infrastructure development secures economic growth. And there is also a problem associated with the quality of public services offered. So, in order to address their problems authorities draw private business in and establish partnership with it. Businessmen benefit from partnership with the authorities as it results in reduced long-term risks of doing business.
In my opinion, this emphasis on partnership proved to be justifiable. In 2008, Vnesheconombank management bodies made a decision to finance 70 investment projects totaling 720 billion rubles, with he Bank’s participation share being more than 400 billion rubles. About half of them, to be more exact, 42% are infrastructural projects in transport, power engineering and communal services. Judging by our negotiations, business in has a stake in these projects and is ready to integrate into them. Besides infrastructure, Vneshconombank started to implement projects aimed at developing and rebuilding such industries as aircraft construction, shipbuilding, timber-processing industry. All of them are are usually called system forming.
And now I’d like to say a few words about the financial crisis and PPP. Now they talk and write a lot that the current financial crisis forces us to scale down investment programs. But the crisis does not eliminate demand for infrastructure development. And more to it, I am convinced that the need to expand and use PPP is bound to increase in the future. Of course, we can’t rule out the crisis’ impact on PPP projects altogether. We don’t know what form this impact is going to take. Priorities are most likely to change. Projects to reconstruct and upgrade the already existing infrastructural facilities are coming to the foreground. But we can’t meet demand for infrastructure using budgetary funds alone. As a matter of fact, PPP instruments were developed and are now being upgraded in order to raise extrabudgetary funds for financing. I would like to say it once more that in the situation of the crisis sustainable demand of the state is an essential tool for reducing risks of investments and boosting credit institutions’ confidence. Thus, PPP projects prove to be competitive in terms of drawing in private investors. Effective government and municipal authorities may for the first time have a chance to win competition for private business’ investments.
In order to take his chance, we have to optimize PPP instruments. Here I would like to single out three principal objectives:
Upon selecting a PPP project, government and municipal authorities should boost their capabilities and here I mean efforts aimed at developing a project and holding a tender for selecting a reliable private partner.
We have to develop contractual models as well as guarantee and insurance instruments and amend applicable legislation, above all, at a regional level. All these measures should secure acceptable risks of private investments in the public infrastructure. And to this end, the state would have to properly fulfill all its contractual obligations.
We have to use human potential to the full. Top priority should be given to improving professional skills of state workers involved in managing investments. Equally important is to take full advantage of professional PPP market makers’ potential.
In order to participate in all these efforts we established a PPP Center in Vnesheconombank. It acts as an agent for government and municipal authorities in organizing PPP projects. Assisted by the PPP Center local administrations form competent regional management bodies. They are tasked with organizing PPP projects. Vnesheconombank cooperates with colleges and universities in retraining executives responsible for. PPP.
In conclusion, I hope that discussions at this Conference would be meaningful and fruitful. It is important for this Conference to identify problems on the PPP projects market, define objectives of developing this market and show its enormous potential. And we’ll do our utmost to apply best business practices as soon as possible.