The Northern Caucasus is expecting large-scale investment projects – VEB’s Chairman

RIA Novosti
15:42 11/07/2011

State Corporation ‘Vnesheconombank (VEB)’ got down to funding projects in the Northern Caucasus in 2010 by setting up the Northern Caucasus Development Corporation. Since that time VEB has already started implementing projects worth several tens of billions of rubles in Kabardino-Balkaria, Karachaeyvo-Cherkessia, Dagestan and Chechnya. In his interview to RIA Novosti, VEB Chairman Vladimir Dmitriev told about business outlook and plans for improving and expanding the investment environment in this federal district.

-Vladimir Alexandrovich, would you tell us about the projects Vnesheconombank is implementing in the Northern Caucasian Federal District. What is the status of these projects and when can we see real results of the state’s efforts to develop the region?

-Vnesheconombank’s primary objective in the Northern Caucasus is to be a major source of financing the most promising and the most needed projects and assist in raising large-scale investments for the region. Factually, we are responsible for the government strategy of developing the Northern Caucasian Federal District aimed at boosting local production facilities, encouraging socio-economic development and integrating the region into the country’s economic and humanitarian space and in the long run at improving the people’s quality of life in the region.

To achieve these objectives we have several instruments. I’d like to single out three key instruments. In pursuance of the Russian Government’s instruction we created a subsidiary institution – the Northern Caucasus Development Corporation designed to undertake active practical activity in the region. Second, we opened Vnesheconombank’s representative office in the city of Pyatigorsk. It operates in all constituent entities of the Northern Caucasian Federal District. And finally, the Bank acted as a co-founder of the Northern Caucasian Resorts Company that was set up to build a tourist cluster.

VEB’s regional institutions are focusing on establishing close cooperation with local administrations and investors, evaluating socio-economic effect of implementing investment projects as well as monitoring them by using the Bank’s financial and expert potential.

I’d like to give you several examples of projects that are being implemented with the use of Vnesheconombank’s resources: In the city of Tyrnyauz (Kabardino-Balkaria) VEB is funding the transformation of the silex brick factory into a factory to manufacture gypsum binders and products based on them. The project’s value is 6.8 billion rubles, with Vnesheconombank’s participation share being 4.6 billion rubles. In Karachaevo-Cherkessia we are funding a project to retool the sugar mill. We have a very interesting project in Dagestan. This project is aimed at building a float-glass plant. This glass is used to manufacture quality double-pane units for modern buildings and etc. Products to be manufactures will have better characteristics including good energy saving qualities. There are plans to sell these products in the future not only inside Russia but on foreign markets as well. Vnesheconombank’s participation share in this project is 6.9 billion rubles. We have started financing a project to build a large-scale agro-industrial complex in the Chechen Republic. The project is being implemented by OJSC Chechenagroholding. 2.25 billion rubles will be provided to implement this project. The project provides for developing meat stock farming, crop rising, agricultural products processing. This is a very important project for the Republic as it is designed to ensure food security and combat unemployment in Chechnya.

-Not long ago Vnesheconombank opened its representative office in the city of Pyatigorsk. What are its objectives and plans?

-We opened our representative office for it to help to look for and select quality investment projects in line with the Bank’s Memorandum on Financial Policies in the Northern Caucasian Federal District. We also believe that the representative office should provide consulting services to projects’ potential participants in preparing a package of documents required to conduct expert’s examination and evaluate socio-economic effect of projects. We often come up against the following problem: there is a potentially very interesting, important and needed project but unfortunately it is not prepared properly. Our representative office will help project initiators to bring their projects up to the mark.

Despite the fact that the representative office has been operating for less than a year it has done a lot. It has set up working groups responsible for selecting high-priority projects. These groups are working together with administrations of all constituent entities of the Federal District. Vnesheconombank holds conferences, workshops and meetings with government executive authorities to boost the efficiency of preparing investment projects and form human resources.

Here’s one of the latest examples. A meeting in Kislovodsk held in April of 2011 was devoted to studying potential investment projects in the Northern Caucasian Federal District as well as to mechanisms for preparing projects in line with Vnesheconombank’s requirements.

The Federal District’s representatives made presentations of investment projects. They presented projects in tourist infrastructure, agro-industrial complex and construction materials manufacturing. Vnesheconombank’s specialists conducted consultations on preparing business-plans and project financial models with due regard to the specifics of the region and the said sectors.

At present, the representative office is rendering assistance in preparing documents to about 60 initiators of investment projects. Their total value is 350 billion rubles and Vnesheconombank’s expected participation share is 300 billion rubles.

-It means that in the near future new large-scale projects could be launched in the Northern Caucasian District? Which of them could be started before the end of the year?

-Above all, these are the projects on creating a large-scale tourist cluster in the Northern Caucasian Federal District, the Krasnodar Territory and the Republic of Adygeya. In the most immediate future Vnesheconombank’s corporate governance bodies are to consider financing the Arkhyz All-Season Alpine Ressort Construction Project in the amount of 5.1 billion rubles. This project has in fact been already launched through using funds provided by investor – Arkhyz-Sinara and we can participate in it.

Having signed an inter-shareholder’s agreement, Vnesheconombanks acts a co-founder of the company ‘Resorts of the Northern Caucasus’. Our stake is worth 300 million rubles.

I would also like to mention another project in the Chechen Republic which is now under consideration at Vnesheconombank. This is a project on creating the first innovation construction technopark Kazbek in the Republic. The project provides for building a number of plants to manufacture the most advanced construction materials for housing construction such as building blocks and slabs from autoclaved aerated concrete, fiber-reinforced cement slabs and etc.

The Bank’s projected participation share in the project is 4.5 billion rubles. The project’s implementation would make it possible not only to increase housing construction volumes in the Republic but also provide the whole Northern Caucasus with quality and affordable construction materials manufactured on the basis of the region’s own mineral raw materials.

As far as other projects are concerned, Vnesheconombank might participate in funding  OJSC RusHydro’s investment program that provides for constructing a reservoired power station on the Avarskoe Koisu river in Dagestan as well as a cascade of Zaramag hydroelectric power stations and Zelenchuk hydroelectric power stations in Karachaevo-Cherkessia.

-What are the plans of the Northern Caucasus Development Corporation established by VEB? How is it going to participate in investment projects in the Northern Caucasian Federal District?

In April of 2011, the Corporation’s Board of Directors approved the Action Strategy of the Northern Caucasus Development Corporation up to the Year 2016. At the moment, more than 30 projects are under consideration at the Corporation. Some of them are seeking financing, others – consulting services on engaging private co-investors, debt financing from banks or the state’s support. The best prepared projects seeking the Corporation’s financing were considered by its Board of Directors this April. Now, the Corporation is preparing transactions for signing. These projects’ total budget is about 63 billion rubles, with the Corporation’s participation share being 7 billion rubles. They include the Arkhyz project I’ve already mentioned, the development of the Kizil Dere sulfide- copper deposit in Dagestan, the construction of an alpine ski resort in Chechnya. I would also like to mention the project on setting up a national aerosol cluster in Nevinnomyssk in cooperation with OJSC Arnest to manufacture aerosol packages that are now exported from abroad. Moreover, the Corporation is now preparing a project to develop the resort area of the Caucasian Mineral Waters with the participation of a major investor.

Until the end of the third quarter, the Northern Caucasian Development Corporation plans to submit another 4-6 projects to consideration by its Board of Directors, with the Corporation’s participation share being 5 billion rubles. They include the project to set up an innovation construction technopark Kazbek I’ve already mentioned. The project is fully in line with objectives of the Northern Caucasus Development Strategy and is a unique one in terms of introducing the most advanced housing construction world technologies. So, the Corporation’s participation in its implementation together with the Bank would not only in my opinion give the project a high status but, given the Corporation’s rather insignificant financial investments worth no more than 50 million rubles, expand the Corporation’s practical participation in addressing the most important issues of the Northern Caucasian socio-economic development.

-It is known that the Federal District’s regions tend to under-use funds earmarked for supporting small and medium-sized enterprises. What are the reasons for it?

-The scale of credit resources under-use in the Northern Caucasian District is in my opinion overstated. Our subsidiary MSP Bank (the former Russian Development Bank (OJSC)), which is now our main instrument for supporting small and medium-sized enterprises is renewing financing limits for regions on a regular basis. At present, the established limits for the regions of the Northern Caucasian Federal District are 6 billion rubles out of which our partner banks have already distributed 68%. And the distribution ratio in the developed North Western Federal district is 61%. In the Far East the limit distribution ratio is 48%. So, I’d like to say it once more that the problem does of course exists and the reason for it is the District’s underdeveloped banking system and the small number of large federal banks in the Northern Caucasus.

In order to address this problem and encourage banks to increase lending to small and medium-sized enterprises we have developed a credit product ‘ Refinancing – Region’ which provides for extending financing at rates that are significantly lower than the ones under the program on average .