Vnesheconombank Chairman V.A. Dmitriev Speaks Live in the Bloomberg TV Programme “Emerging Markets”
Text of the interview:
Correspondent Ellen Pinchuk
Good afternoon, Vladimir Dmitriev is now in our studio, he is the Chairman of Vnesheconombank, Russia’s Bank for Development. We’ve got a lot of things to discuss. Let’s start with the hot news – TNK-BP. How important in your opinion is this story for industrial companies in Russia?
I think that it is the right step in the right direction in terms of improving corporate governance of Russian corporations and joint stock companies. And this is proof that balanced decisions and prudence are gaining the upper hand over emotions and emotional approaches. I welcome this decision, a compromise settlement, which shareholders managed to make and enshrined in their agreement.
E.P. A period of differences lasted for about four months. What do you think about the extent of damage done to Russia’s business reputation taking into account the fact that the government was involved in the dispute with all these problems with visas, tax inspection and etc?
V.D. I don’t believe that either of the sides took some artificial action to confuse the situation and complicate the problem. I think that it’s quite natural when differences emerge among shareholders within a corporate entity. And I am completely happy that in the long run both sides reached a relevant and quite a friendly settlement.
E.P. Over the current year we have seen that Russian business suffered numerous losses, namely, a 30% percent reduction in business activity as a result of the military conflict between Russia and Georgia and BNP Paribas information that about 30 billion dollars in the form of capital investment have fled the country since the beginning of the conflict with Georgia. How would you comment on the fact that investors are scared and fleeing the country?
V.D. In general, I didn’t say that there were serious problems with Western investors in Russia in terms of hypothetical investors. And as far as capital outflow from the Russian market is concerned, it involves short-term deposits. But long-term, strategic investors are still here and I don’t see any problems associated with their work in our country as well as with their increased presence in our country.
E.P. Prime Minister Vladimir Putin has said lately that there would be no serious consequences for the Russian economy as a result of the military conflict with Georgia. Do you think that the government should intensify its efforts to persuade investors that their money is in safety?
V.D. I think that actions taken by our government, our economic and financial institutions not only but also in the past are quite adequate to convince Western investors that Russia is a very stable, steady and reliable partner for their business. As far as our government is concerned it is doing its best to create a relevant legal environment to convince investors that Investment climate in Russia is favorable. And we can see that a lot of new, strategic capital is coming into Russia, into its various economic sectors.
E.P. Let’s talk a little about the ruble. Now, the ruble exchange rate to the dollar has almost reached this year’s low, yesterday we witnessed the biggest ruble’s decline against the dollar-euro basket since 2005. What’s your long-term forecast for the ruble’s value?
V.D. A far as I can see, our financial authorities haven’t taken any special measures in this respect, as both the Central Bank and the Finance Ministry have been saying for several months that we should move to a planned inflation within which we should have a freely fluctuating exchange rate of the ruble. As to the recent trend, it can have a positive impact on Russia’s exports.
E.P. Thank you very much. Our guest was Vnesheconombank Chairman Vladimir Dmitriev.
Russia Finds Few Spots to Put Oil Wealth to Work
|By Gregory L. White|
The Wall Street Journal
(Copyright (c) 2008, Dow Jones & Company, Inc.)
MOSCOW -- Late last year, the Kremlin gave his bank $7.5 billion and a broad mandate to invest urgently in upgrading Russia's decrepit infrastructure and outdated industry.
But for the moment, Vladimir Dmitriev, chairman of state-owned Vneshekonombank, is holding on to most of his bank's money. The problem? Too few good deals to invest in.
"There aren't enough well-prepared investment projects," Mr. Dmitriev complains in an interview. After decades without major investments in Russia, he says, the basics needed to prepare big capital projects -- engineering companies, project designers -- have atrophied. "This is a big brake on implementing large projects," he says.
For now, Vneshekonombank has put about $4 billion of the oil money the government gave it last year into short-term deposits, helping the local banking system weather the global credit turmoil. Several other big state companies set up last fall to stimulate investment are similarly heavy on cash, waiting for other uses for their billions in capital.
The lack of projects is just one of several barriers Russia is facing on its drive to rebuild roads, bridges, ports and power plants. Everything from skilled managers to cement is in short supply.
The scale of the Kremlin's plans is daunting. Enriched by revenues from its oil and gas exports, Russia plans to spend $1 trillion on infrastructure over the next decade, according to government officials. With the Kremlin increasing the state's role in the economy in recent years, much of that money is coming from the government budget -- and some economists fear this is likely to strengthen the government's hand in the economy even more. Moscow's role is also raising concerns about how efficiently the money will be spent.
To help draw private investors to its projects, Vneshekonombank hopes to use public-private partnerships, putting in some of its own money to attract other capital. "The role of the bank is to put up the flag behind which private investors will follow," says Mr. Dmitriev, 54 years old, a former Soviet diplomat who worked in the finance ministry in the 1990s before moving to state-owned banks.
A novelty in Russia, the public-private partnerships are the latest fashion. Government officials tend to want the private investors to bear all the risks, without providing any assurances about returns, according to bankers.
"This is one of the most expensive ways of financing infrastructure" because of the complexity of the deals, Natasha Khanjenkova of the European Bank for Reconstruction and Development warned at a conference in Moscow this spring.
Mr. Dmitriev says his bank is working to set up a national center to develop these partnerships and that Vneshekonombank hopes to attract four to five rubles of private investment for every ruble it puts in.
Last month, Prime Minister Vladimir Putin, chairman of Vneshekonombank's advisory board, endorsed what he called the bank's "ambitious" plan to boost its lending portfolio to 850 billion rubles (about $36.3 billion) in 2012 from just over 200 billion rubles today. Mr. Dmitriev says the bank hopes to get more inflows from the government but is also planning domestic and international borrowing to fund its huge expansion.
One of its latest projects is a $1.7 billion wood-pulp plant in an underdeveloped region of Siberia near the city of Angarsk. The government is building rail and road links, as well as ensuring electric supply for what Mr. Dmitriev says is the first new pulp plant in 30 years in Russia, which has some of the world's largest forests. Until now, he notes, most of the factories processing Siberian wood were built across the border in northern China.
Mr. Dmitriev says preparatory work for the project took two years and required the creation of a special engineering company. With the project under way, he says, the bank is now looking for an outside investor to take over. So far, much of the bank's business is with state-controlled companies.
Mr. Dmitriev says his bank's board, made up of top government officials, will protect the bank from getting involved in politicized projects that could be risky.
Nonetheless, Vneshekonombank has been involved in a number of politically sensitive deals already. At the end of last year, it spent about 1 billion euros ($1.58 billion) from the government's capital infusion to buy a stake in Airbus parent European Aeronautic Defence & Space Co. from OAO VTB, a state-controlled bank.
VTB's purchase of that stake in 2006 set off alarm bells in Europe, where officials feared the Kremlin was trying to muscle in on the strategically important Franco-German company, and rebuffed Moscow's efforts to play a greater role in EADS. VTB, which unlike Vneshekonombank is publicly traded, unloaded the underperforming stake. Mr. Dmitriev says his bank plans to swap the EADS shares for a stake in the Kremlin's new aerospace company this fall.
Vneshekonombank also is tasked by the government with helping Russian companies that want to expand overseas, another key Kremlin goal. So far, the bank has lent 350 million euros to a state oil company to rebuild an oil refinery in the Serb part of Bosnia. The bank is planning to invest about 20 billion rubles for a 25% stake in OAO Inter RAO UES, a state-controlled company that is buying up electric-power assets in the former Soviet Union and elsewhere.