July 2, 2007

Vremya Novostei (Russia), N113

Krasnoyarsk Region Governor Alexandr Khloponin’s interview with Vremya Novostei

- In terms of the number and scope of investment projects being implemented and discussed the Krasnoyarsk Region is the leader in the country with the exception of capital regions. What projects would you like to single out?

- Today major investment projects worth more than 20 billion dollars are being carried out in the region. These projects include the development of the Vankorsk oil and gas field on the border with Taimyr, the construction of an aviation hub on the basis of the Krasnoyarsk airport as well as projects in the power engineering, metallurgy and timber- processing complex.

The main investment project underway in the region is the Lower Angara Area Comprehensive Development project aimed at building a new powerful industrial district on the basis of its richest resource potential. The project includes the completion of the Boguchan hydropower station and the construction of a number of major power-intensive production facilities, above all, the Boguchan aluminum plant, the Boguchan pulp and paper integrated plant as well as oil & gas processing, petrochemical, gasochemical, metallurgical facilities and a cement factory.

- In what way do the state and business participate in these projects, what is the amount of their participation?

- At the first stage – up to 2010, the investment fund allocated 34.4 billion rubles for infrastructure development under the Lower Angara Development project. At the first stage, private investments would amount to 180 billion rubles and this is more than five times as much as budget appropriations for infrastructure development. In terms of the project’s contribution to the Krasnoyarsk region’s economic development it will increase the Domestic Regional Product (DRP) by up to 20% and the region’s budget by more than 10%. Generally speaking, in our region, we aim to get each ruble of government investments to generate 3-7 rubles of private investments in the projects. As a rule, this proportion depends on the level of infrastructure deficit on the territory where a project is carried out. The higher the deficit the larger the infrastructure shortages the Soviet power left behind and the more the state has to invest in building roads, power grids, bridges etc.

- Both as an investor and a creditor VEB takes an active part in these projects. Now it is being transformed into a Development Bank: will this influence the said cooperation, its mechanisms and scope?

- We are very happy that the Development Bank is being established on the basis of Vnesheconombank. I must say that some people appear to believe that it’s only now that VEB is being formally transformed into a Development Bank bur in our region we believe that it has been de facto as such for several years. VEB is the shareholder of the Krasnoyarsk Region Development Corporation, our main financial consultant, our investor in designing and construction of timber processing facilities in the Lower Angara Area.

Now that the Bank has a new status, a new range of instruments and new opportunities we would like to expand our cooperation in launching new major projects with the participation and support of the Development Bank.

As you know the Krasnoyarsk region is among the five Russian regions with the highest major investment project implementation ratio and this means that tens of billions of dollars will be invested in the industrial sector in the coming five-ten years. And all this money could be the subject of our cooperation with the Development Bank – somewhere they need infrastructure, somewhere they have problem attracting strategic investor, somewhere they need assistance in raising money for financing or in designing, somewhere they can’t carry out a project without guarantees, somewhere they need to put together a pool of financial investors. We are very optimistic about the establishment of Development Bank in Russia as a flexible tool for achieving investment objectives.

- What do you think about the emergence of such state development institution as a whole and in terms of regional development in particular?

- Creating and promoting investment instruments and institutions of public and private partnership (PPP) such the investment fund, the Development Bank, the Russian Venture Company, Special Economic Zones is a great stride forward for Russia as a country where the state and business are pursuing common cause. This is a positive development, and I am glad that our economic policy is moving in this direction. Now we can already rate the performance of the Russian Investment Fund. Tens of very important top-quality investment projects including regional stand a chance of being carried out. A year after the first meeting of the investment commission the first projects it approved are being implemented. For example, as far as the Lower Angara Comprehensive Development and the railway construction in the Chita region are concerned, investment agreements have already been signed and the funding and construction have started. Following the Government resolutions on allocating investment fund resources for the construction of the Western High-speed Diameter an international concession tender has been declared. And each ruble of government investments generates 3-6 rubles of private investments in line with established practice.

But the Development Bank is perhaps more important for the real economy of most regions than the investment fund. The investment fund is a major institution designed to deal with projects of national significance. For us investment fund is associated with major national projects. But the Development Bank’s methods of selecting projects and its range of instruments are lot more sophisticated and this allows the Bank to deal with a more diversified range of projects involving small business, innovations, startups, and service sector and these are the things our economy needs so much. It’s very important that the Bank’s procedures for selecting projects, its standardized lines of business should be transparent and clear for business and regions, that is, for applicants; for the Bank not to overlook the country’s project potential. It is very important to the country’s economy that the Bank with such a large authorized capital should realize its full potential in its all stated lines of business.

- There’s much talk about the so-called private and public partnership, you’ve mentioned it too. But its mechanisms haven’t been clear so far. To what extent the projects underway in the Krasnoyarsk region can used as model for this kind of partnership? 

- I don’t agree with you that PPP mechanisms are still not clear. Russia embarked on the path of providing public and private partnership with a modern range of instruments as early as three-four years ago. Nevertheless, as of today Russia is an advanced jurisdiction in terms of its range of sophisticated investment instruments and investment policies. We have three types of Special Economic Zones; port zones are in the pipeline, we have our investment fund and the Venture Company, we still have our target programs and they have become even more transparent and comfortable for business and regions. And now a new huge Development Bank has come into being. And it’s only a federal range of institutions and instruments. And we also have a varied range of investment instruments of regional level  - from regional tax allowances to project monitoring.

Now we are faced with a different kind of problem - our business’ experience in doing investment business in cooperation with the state in the last 15 years has been traumatic and now business is not fully aware of all new opportunities to secure the state support.

You are right that for the most part PPP projects carried out in the Krasnoyarsk region are pilot federal projects. The Lower Angara Development project was the investment fund’s pilot project, and now territory development projects in other regions are modeled upon our pilot projects and we are very happy about it. The PPP project aimed t building the Krasnoyarsk aviation hub is also a pilot one. The Krasnoyarsk Region Development Corporation was established with the participation of Vnesheconombank on a pilot basis too. And now the practice of establishing special territory and region development companies is gathering momentum in the country as a whole. As to the Development Bank’s lines of business, the Bank should engage in spreading best PPP practices across the country and exchanging business experience.

- Don’t you think that once such large development institutions have been established our government investment policy should be changed? What sort of role should the investment fund play in this new system? What sort of mechanism for investing funds should it have? Do we need it at all?

- Investment policy in any country is changing constantly if it is working in practice. New projects are launched, new procedures and instruments emerge. This is a living organism.  New instruments complement each other rather than duplicate.

For example, we can have a look at the Lower Angara Development Project. In order to launch this new industrial district with the investment worth more than 10 billion dollars an absolutely unique design of investment instruments of all levels has been worked out. The investment fund builds motorways, railways, power grids and a bridge. Under the Federal Target Investment Program they build a flooded zone of the Boguchan hydropower station. Under the unique joint project BEMO carried out by RAO Unified Energy Systems and RUSAL they build the Boguchan hydropower station and an aluminum plant. VEB raised funds to fund the designing and construction of the Boguchan pulp and paper integrated plant where, I think, we can also establish a JV with foreign specialists. One way or the other, we have to raise our region’s funds, attract investors and the Federal Target Investment Program to develop social and communal infrastructure in this area. I think that it would be possible to create Special Economic Zones in the Lower Angara Area. These will be Special Economic Zones of production type at the high-technology process stages and they can be used to build a modern chemical park on the basis of processing oil and gas resources from Sobinsk and Yrubcheno-Tokhomsky group of fields.

So I can see that there is a great amount of work for the Development Bank to do. So far, various instruments have only complemented each other. We have a huge investment- intensive country with a great number of restrictions on investments and here the Development Bank can be of real help to us. It remains to be seen if we have to change anything in the existing lineup of instruments, given the emergence of the Development Bank.

- What are we supposed to do now with other government investment programs?

- I’d like to hope that all of them would evolve towards greater efficiency. As we are a fast growing region, with investment growth indicator being twice-thrice as much as the average indicator in the country we speak out for replacing old investment instruments with new ones as soon as possible. We are in favor of development rather than levelling.  But we should keep in mind that in our country few territories have such growth potential as ours that is why the social function of government investment is here to stay. This function is considered very important in all countries. But if our country’s economy grows as fast as our region’s our government investment policy will move towards creating instruments of development minimizing levelling transfers.