Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24
TV Channel Russia 24,
HOST: A lot is being done in order to promote public private partnership and raise investments for the Russian economy, for example, legal framework is being upgraded, and monetary funds are allocated. But the state and businessmen are not competent enough as to how they should cooperate, believes Vnesheconombank Chairman Vladimir Dmitriev. In his interview with my colleague Evelina Zakamskaya VEB’s Chairman told her how to optimize cooperation between the state and businessmen, what measures for boosting Russia’s investment appeal were being implemented.
CORR.: Good morning, Vladimir Alexandrovich. Thank you for finding time for us. A key condition for a new, advanced modernized economy is public private partnership, that is, partner-based parity cooperation between the state and business. Vnesheconombank is an institution that is supposed to act as an intermediary between the state and business in implementing various projects. What’s in your opinion the current status of public private partnership and what conditions are needed for its development?
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: I believe that a lot has been done recently in terms of establishing legislative infrastructure to get public private partnership to work in our country. It goes without saying that legislative initiatives alone at both federal and regional level are not enough for implementing PPP projects. We have been making strenuous efforts for several years at Vnesheconombank to encourage public private partnership. We have established a Public Private Partnership Center and this Center does not limit its activity to searching for projects that could be implemented on PPP principles, it also maintains close ties with regional, municipal authorities, cooperates with private business, runs various educational programs and introduces products to train participants in PPP projects in order to close the apparent incompetence gap in implementing projects.
CORR.: Who is more incompetent the state or the business community?
Vladimir DMITRIEV: I think to an equal extent, they don’t have a clear idea as to what they should be doing to insure a project’s budgetary efficiency on the one hand and to make it attractive for private business on the other. All these painful efforts made us understand that we should form national competences in public private partnership.
CORR.: This means that you should learn, learn and learn.
Vladimir DMITRIEV: We should learn and put into effect expertise we acquire.
CORR.: Where and how do you expect to do it?
Vladimir DMITRIEV: Originally, we hoped that we could accomplish this serious objective on our own. We organized TV conferences, ran workshops on the basis of Vnesheconombank, the Russian Civil Service Academy, the Finance University, we held road show conferences in the regions and staged interregional conferences. This is a very labor-consuming and labor intensive process. And in the long run we arrived at a conclusion that the Financial University under the Russian Government should become our natural partner in terms of forming scientific base and professional competences. We signed a supplement to the already existing agreement on cooperation between the Financial University and State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’. It provides for opening a public private partnership department at the Finance University to train representatives of both government institutions and private business.
CORR.: Thus, you raise professional level of those you are going to cooperate with in the future?
Vladimir DMITRIEV: Undoubtedly, this process is of great importance for our practical activity. It should be noted that being aware of the need to support regional and municipal infrastructure projects, the Bank’s Supervisory Board made a number of important decisions. Vnesheconombank is to allocate annually 2 billion rubles to be used to support regional and municipal infrastructure projects by way of funding engineering companies operating at a pre-project stage of forming projects that could be publicly put up for tenders to raise private investments. Besides these 2 billion rubles, 900 million rubles are to be allocated to Moscow for doing pre-project work and forming projects that could be of interest for private business in Moscow’s infrastructure.
CORR.: Vladimir Alexandrovich, what else is important for developing PPP? Maybe legislative initiatives because legislative gaps still exist? And we don’t know many examples of successful public private partnership. What examples can you cite?
Vladimir DMITRIEV: To my mind, we have good legislation and basis allowing us to push projects in public private partnership. Here I mean the law on concessions, the investment fund and our development institutions that are supposed to operate in the PPP field. We have pretty advanced legislation directly related to public private partnership in Saint Petersburg, Khanta-Mansiisk. In more than 30 regions appropriate regional laws were approved. They allow business and the state to cooperate on PPP principles. Unfortunately, out of a hundred projects which could be implemented most projects are wishful thinking ones. These are inferior projects, they can’t be publicly put up for tenders, and they are not attractive for private business. And that is why the role of the PPP department and development institutions is to prepare both private business and authorities for being able to form projects at various levels in a competent and professional way, as well as to upgrade legislation.
CORR.: By the way, I think you should name sectors that could be of interest for public private partnership and tell us about the PPP projects that are being implemented now including those being carried out in partnership with Vnesheconombank, here I mean infrastructure projects.
Vladimir DMITRIEV: The first two large-scale PPP projects are infrastructure projects, namely, the toll highway Moscow - Saint Petersburg project, the Odintsovo Bypass project, healthcare and educational projects that are to be implemented soon in Khanty-Mansiisk, infrastructure projects in Saint Petersburg – the Orlov Tunnel project, the North-Western Diameter project. This is also a large-scale project being implemented in Rostov-on Don – Rostov Water project, in which the investment fund, regional authorities and private investors participate. That project involves water treatment plant, water supply and water drainage systems. And in the final analysis it will make it possible to build a whole micro district on the best principles of private public partnership and international practices.
CORR.: Significant funds are required to implement all those projects. Besides allocating all these funds, Vnesheconombank also makes borrowings. In this respect, you set several precedents; I mean a record syndicated loan worth about 2.5 billion dollars and a ruble-denominated credit raised abroad by the English HSBC Bank in the amount of 160 million euros. What did you make the borrowings for? Did you run out of your own money? How are you going to repay loans, what are these loans intended for?
Vladimir DMITRIEV: Regrettably, this is established international practice. Development institutions tend to use either their charter capital or borrowed funds to finance investment projects. Vnesheconombank’s liabilities do not include customers’ inexpensive funds as opposed to other banks with the state participation. So, we have to pay for any resource and we have to pay at market rates, that is why, the borrowings you mentioned exemplify the Bank’s work with its customers. The syndicated loan worth 2 billion 450 million dollars is a three–year loan and as far as its financial terms are concerned, it is unprecedented for the Russian market both in terms of its amount and its loan rate – this is Libor plus 130 basis points. Russian borrowers have never had such favorable terms. The funds will be used to finance our projects including PPP projects and of course large-scale projects in various sectors of the economy.
CORR.: Have you made a list of specific projects to be financed with these funds?
Vladimir DMITRIEV: The fact is that all these funds flow into a general cash account and budget and I can’t tell you what specific projects will be financed with these funds. But our total investment capital is rather big – more than a trillion rubles. And we’ll start financing some projects as early as this year. Another project you mentioned is a 160 million-euro loan. In total, the project is worth 600 million euros. The above-mentioned 160 million euros were raised in rubles. This is the first transaction of this kind when a foreign bank, here I mean HSBC Bank, supported by a Danish insurance agency, and Vnesheconombank signed an agreement. We signed this agreement during Russian Prime Minister Vladimir Putin’s visit to Denmark. This is the first unique project and the funds will be used to finance the construction of a large cement plant with a capacity of more than 3 million tons in the Kaluga region.
CORR.: Is it profitable for foreign partners to extend credits in rubles as the ruble strengthens?
Vladimir DMITRIEV: I think it is. If banks have ruble liquidity they are willing to extend credits in rubles. But this transaction is very important because favorable conditions are created in the new segment of the borrowing market for a wider use of the ruble in our relationship with foreign banks to fund projects inside the country. This is only a part of our work on establishing an international financial center in Moscow, a regional financial center and transforming the ruble into a regional accounting currency.
CORR.: As to the syndicated loan, three years are a short period of time after all. How are you going to repay it?
Vladimir DMITRIEV: As syndication requires many foreign partners, credit periods do not tend to be more than 3 years, 5 years at most. You can obtain long-term credit on capital markets where investors are ready to invest long-term. Last year we placed 5- and 7- and 15-year bonds and this shows that investors are ready to invest on a long-term basis.
CORR.: Let’s get back to the issue of boosting Russia’s investment appeal. How is the idea of setting up an Export Credits and Investment Insurance Agency coming?
Vladimir DMITRIEV: The Government introduced a bill to the State Duma on introducing amendments to the Law “On the Bank for Development” to set up an Export Credits and Investments Insurance Agency in the form of Vnesheconombank’s one hundred-percent subsidiary. In this case, we mean export credits and investments intended for promoting Russian industrial exports and supporting Russian companies’ investment aspirations abroad. A State Duma sectoral committee discussed the bill and we hope that in the coming days it will be approved on the first reading. To my mind, all the participants in the process at least as far as I know from my conversations and contacts in the State Duma and the Federation Council want the bill to be approved on all readings in the spring session and submitted to the President for signature.
CORR.: Vladimir Alexandrovich, when a Direct Investments Fund is supposed to be set up?
Vladimir DMITRIEV: We hope to set up Russia’s Direct Investments Fund by the time of the Petersburg Economic Forum. To this end, the Bank’s Supervisory Board took appropriate decisions in line with Russian President Dmitry Medvedev’s instructions. These decisions are associated with a Head of this Fund’s managing company. Kirill Dmitriev is to be appointed as the Fund’s Head. He is a well-known specialist in the investment community, a professional educated abroad, he graduated from two American universities and he meets all the requirements we agreed upon with foreign investors. We agreed upon our investment declaration and submitted it and other documents required to have the Fund’s managing company registered for consideration by the Bank’s Supervisory Board so that we could establish relevant bodies of corporate governance. We believe that this Fund and to be more exact the Fund’s managing company would operate in line with the best international practices. In this respect, our foreign partners go along with us. The Fund should be isolated from any administrative influence. It should base its activity on the principles of investments reliability and investment recoupment. Its lines of activity should be in conformity with the Russian economy’s modernization and innovation development. The most important thing is that the Fund should participate in investing projects that are of interest for foreign investors and that one ruble from the Fund should raise at least 2-3 rubles from foreign funds, with an ideal proportion being 1 to 5. Whether they be sovereign or direct investments funds, the idea is supported by our potential partners. At present, representatives and executives of sovereign and direct investments funds are visiting Moscow. They are from the Persian Gulf area, South-East Asia, China, Great Britain and the United States. We use a common professional language and this makes us optimistic that the Fund would start operating efficiently as early as this year.
CORR.: And now my last question. Every year, you and other Petersburg Forum’s participants talk about Russia’s business climate and its investment appeal. How would you describe the situation, if you compare 2008 with 2011?
Vladimir DMITRIEV: Of course in June of 2008, both investors and we were aware that being a part of the global market, the global economy, global financial markets, Russia was bound to be influenced by the financial crisis already apparent for the West at that time. Now, three years later, we are sure that we are coming out of the crisis. Although the economy hasn’t recovered fully I can say that the business climate is undoubtedly coming to life. We can see an increasing number of very interesting projects.
CORR.: If you have chosen the right path, you should keep following this path. Thank you for your interview and all the best to you.
Vladimir DMITRIEV: Thank you.
Vnesheconombank Chairman V.A. Dmitriev’s Interview to the TV Channel Russia 24
TV Channel Russia 24
HOST: You’ll watch an interview with Vnesheconombank Chairman Vladimir Dmitriev about a Fund of Direct Investments scheduled to be launched as early as this summer and its functions.
Evelina Zakamskaya: Good evening Vladimir Alexandrovich, thank you for finding time for us.
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’. Good evening.
Evelina Zakamskaya: There emerged a steady trend in the dialogue between the state authorities and business: the state expects direct investments and increased business activity. What do you think the state and business could do in this respect? And how does Vnesheconombank participate in this sort of activity?
Vladimir DMITRIEV: In our activity we give top priority to boosting Russia’s investment appeal and raising investments. And in our opinion, establishing a Fund of Direct Investments is sure to increase Russia’s investment appeal. The Russian President’s initiative to create this Fund was launched last year and has been given a fresh impetus this year in Dmitry Medvedev’s address in Davos. Eventually, this initiative evolved into an instruction to Vnesheconombank, the Government and the Working Group on Establishing an International Financial Center in Russia and to the International Economic Forum in Saint Petersburg to take all necessary measures for establishing a Fund of Direct Investments. We believe that it’s quite realistic to raise significant funds of both foreign and Russian investor for the Russian economy provided that the state undertakes to share risks with private investors with a minimum proportion of 1:5. This means that for each ruble invested in a project by the Fund, foreign and Russian private business will invest 5 rubles in the economic sectors that are also of great interest for investors that is, the ones of overriding importance in terms of Russia’s modernization and innovative development.
Evelina ZAKAMSKAYA: How would respond to the criticism that the Fund is too small and very small sums are earmarked for it?
Vladimir DMITRIEV: I think that those who are skeptical about this new Fund might not know specifics of this Direct Investments Fund’s operation. The fact is that the state is ready to allocate 10 billion dollars for a period of five years to establish this Fund. And of course projects each of which is worth at least 100-150 million dollars should be prepared properly. And we won’t be able to form the so called pipeline in the near term. The pipeline that suits investors who will be ready to invest significant funds in it. Nevertheless, we hope that we’ll be able to form a Fund worth 2 billion dollars until the year-end. And we’ll start submitting appropriate proposals to consideration by an investment committee of a managing company until the year-end. When I say “we” I mean, above all, the Fund’s managerial staff, a managing company. This is because neither the state nor Vnesheconombank intend to administer this Fund. It should be structured in such a way that investors could be sure that they make decisions on their own. There will be other ways of managing this Fund too. I’ve mentioned an investment committee and we intend to offer an efficient supervisory board and an international expert council for the Fund’s activity to be transparent and understandable for private investors.
Evelina Zakamskaya: You can’t deny the fact that Vnesheconombank has a really unique status. On the one hand VEB acts as an investor and looks for projects in which it can invest money inside the country. On the other hand you raise investments from abroad. For this reason you can size up the situation thoroughly. What can you say?
Vladimir DMITRIEV: You’re right to a great extent. We are responsible for raising credits rather than being an investor. Although in certain cases we act also as an investor and participate in companies’ capital. Our status is really unique. But our unique status is associated with the fact that we are a state-run institution and by law our Supervisory Board is headed by the Prime Minister and it is comprised of vice premiers and ministers of line ministries and it is our Supervisory Board that formulates Vnesheconombank’s policy. And it is pursued in line with the country’s main lines of economic policy. As Vnesheconombank’s partners are foreign and Russian investors we are going to really help them in a very complicated investment environment to select top-priority projects that would suit investors and would be important for the Russian economy. We mean of course projects that would generate high incomes for investors, say, in the amount of 15-20 percent, these incomes are…
Evelina ZAKAMSKAYA: Pretty large
Vladimir DMITRIEV: Pretty large for those investing funds in the emerging markets.
Evelina ZAKAMSKAYA: Today, an issue of the state’s involvement in business is being given increased attention. I’d like to ask you about prospects and potential of public private partnership. Because it’s quite evident now that the state’ presence is a guarantee of stability for investors.
Vladimir DMITRIEV: Public private partnership is not new to us and it is one of our Bank’s main lines of activity. We have discussed this issue with you several times and you know a public private partnership center was established at VEB and in fact this center has become a quasi-federal institution responsible for assisting regional, municipal authorities in structuring, above all, infrastructure projects on the principles of public private partnership. Not long ago we expanded this line of our activity. We established a special fund to support projects implemented on the principles of public private partnership. Under VEB’s Supervisory Board decision VEB is to allocate 2 billion rubles to this end annually and these funds will be used to finance pre-project work, drawing up project and estimate documentation in order to substitute regional and municipal budgets that suffer certain budgetary constraints as well as in order to put together a project and then put it out to tender for potential investors compensating for Vnesheconombank’s expenses through further investments. We have already formed a package of the first projects in some regions. In addition to the abovementioned 2 billion rubles, 900 million rubles were allocated for Moscow for the year 2011. We are incorporated in the working group specially set up under the Moscow Government. On the whole the idea of public private partnership is slowly but rather confidently gaining momentum. We can see large-scale infrastructure projects being implemented on the principles of public private partnership. They include the Moscow-Saint Petersburg motorway project (Section 15-58 km), the Odintsovo bypass project, the Pulkovo airport project and a whole range of other projects. This is an absolutely worthwhile idea. There are numerous examples of projects that are being implemented on PPP principles abroad.
Evelina ZAKAMSKAYA: Perhaps, venture, innovation projects are perfectly suited for this form of cooperation?
Vladimir DMITRIEV: There is no doubt about it. As far as this line of our activity is concerned, I’d like to mention an agreement on cooperation with state-run and private companies operating in venture and innovation sectors. Last year Vnesheconombank, Rosnano, the Russian Venture Company, the Fund for Supporting Small and Medium-Sized Enterprises in the Innovation Sphere and a whole range of companies signed an agreement on cooperation. Several weeks ago the Skolkovo Foundation became a party to this agreement. Here we went along the same way as we did in supporting infrastructure projects on the principles of public private partnership in the regional and municipal sphere. We are going to submit a proposal to VEB’s Supervisory Board for setting up a special fund that would be responsible for supporting venture projects at pre-project stages. This stage involves preparing necessary documentation and financing drawing up project and estimate documentation in order to secure commercialization of an innovation project at a later stage. These projects are exclusively associated with Skolkovo and we believe that this sort of zero-stage support for private entrepreneurs working in the innovation sector is sure to prove extremely important.
Evelina ZAKAMSKAYA: And now my last question, Vladimir Alexandrovich. Do you believe that it makes sense to establish an International Financial Center in Moscow? It seems that Moscow has no obvious advantages over London or the Hong Kong Stock Exchange. What companies might take interest in us?
Vladimir DMITRIEV: If I didn’t believe in this idea I wouldn’t be one of its enforcers both in our country and abroad. Some of our Bank’s employees are members of the working group on establishing an International Financial Center. A lot is yet to be done. And here I mean not only transport and social aspects but also financial-economic aspects such as for example establishing a unified depository, unifying stock exchanges, creating a favorable financial-investment climate and etc. And I feel pretty comfortable in this respect because to a great extent things that we are supposed to do to establish an International Financial Center coincide with Vnesheconombank’s top-priority lines of activity.
Evelina ZAKAMSKAYA: Thank you.
Vladimir DMITRIEV: Thank you.