Vnesheconombank’s Chairman Interview to TV Channel Russia 24
TV Channel Russia 24
Host Evelina Zakamskaya
HOST: Good evening Vladimir Alexandrovich.
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: Good evening.
HOST: How and to what extent did Vnesheconombank participate in the development of Russia’s real economy in the outgoing year?
Vladimir DMITRIEV: In the outgoing year, Vnesheconombank participated above all in investment projects being implemented by Russian companies in the real economy. We have been building our loan portfolio dynamically. It increased by forty percent. And Vnesheconombank’s loan portfolio as a bank for development is now close to 500 billion rubles. As before, we gave top priority to key economic sectors, especially to those five sectors that correspond to five main lines of modernization, namely, energy efficiency, space, supercomputers, public health care. We also financed projects that are being implemented in such basic economic sectors as aircraft construction, petrochemestry, auto industry and a whole number of other sectors including agriculture.
HOST: These sectors are strategically important for the country’s development but were they cost-effective for the Bank?
Vladimir DMITRIEV: You asked a very good question about cost effectiveness. In our activity we are guided by the Law on the Bank for Development and it stipulates that all the Bank’s projects must be breakeven. And at the same time our activity’s main aim should not be to generate profits. So, we balance between these main indicators or criteria of our activity.
And in this sense, Olympic facilities are good examples. On the one hand they are important for implementing this ambitious project aimed at creating comfortable conditions for holding the Olympic Games and for accommodating Olympic participants and spectators in the Sochi Winter Olympics and on the other hand all these projects are on the verge of profitability. And unfortunately, we have to state that some of them are predictably unprofitable projects and here the state and Vnesheconombank assume a large share of responsibility for their further future because we should view these projects not only in terms of staging the Sochi Olympics but also in terms of Olympic facilities’ operation after the Olympics. So, payback periods go beyond the year 2014. So, on the one hand this is a very interesting socio-political project and it’s very important in terms of Russia’s international image but on the other hand in terms of normal banking logic it’s obviously not attractive. Hence, it’s Vnesheconombank that participates in such kind of projects rather than commercial banks.
On the other hand there are projects that are rather acceptable in terms of profitability although interest rates are significantly lower than market rates. But in terms of their real contribution to certain economic sectors these projects are pretty important. I would like to single out among them such projects as the Ford-Sollers project aimed at setting up a joint venture between Sollers and Ford to manufacture cars, commercial automobiles and engines for Russia’s automotive industry.
This is also the Tobolsk Polymer project which is nearing the end of its final investment phase. A large-scale and maybe the largest propylene production facility in Russia and in the former Soviet Union based on associated petroleum gas utilization is being built in Tobolsk. We’ll continue to implement our project in Kaluga. We established the Kaluga Region Development Corporation. We created massive infrastructure together with the local government and the local authorities in order to build a serious auto cluster on its basis. There are also a number of other projects in key sectors of the Russian economy.
HOST: What are the terms on which credits are extended and how do you differentiate credits with regard to specific sectors?
Vladimir DMITRIEV: Of course, we see to it that credits extended by Vnesheconombank for this kind of projects are affordable for project initiators, for investors. We lend at market or lower than market rates. But the most tangible difference is seen when we finance small and medium-sized enterprises because here interest rates offered by Vnesheconombank above all in sectors associated with innovation technologies are substantially lower than standard market rates.
HOST: What rates do you offer?
Vladimir DMITRIEV: If we talk about innovations and modernization, rates amount to about ten percent. And here we shouldn’t overlook the fact that up until now, small and medium-sized enterprises have taken credits at rates of about 15 and even 20 per cent. So, innovations sectors and innovative small and medium-sized enterprises are provided with serious privileges.
HOST: Ten per cent for what period of time?
Vladimir DMITRIEV: Most credits (you know that we are implementing this program through SME Bank) are extended for a period of more than three years. So, our services differ greatly from mid-market ones because most credits are extended to small and medium-sized businesses operating above all in the trade sector with short payback periods.
HOST: And if we talk about innovation sectors, they normally need long-term credits there. What’s the maximum credit tenor?
Vladimir DMITRIEV: Our maximum tenor of credit is fifteen years. And eighty per cent of Vnesheconombank’s loan portfolio accounts for credit resources extended for a period of more than five years.
HOST: Are you going to change interest rates upward, given economic conditions abroad?
Vladimir DMITRIEV: It goes without saying that we respond to the general situation on the market, to borrowing costs. As opposed to commercial banks our sources of funding, our transactions are limited. These sources above all include contributions to our capital and the market. Unlike commercial markets, which extend credits through using great amounts of natural and legal persons’ deposits in their accounts we are limited in raising such deposits. We simply do not have the right to take deposits from individuals. So a bank margin generated by Vnesheconombank differs substantially from that of ordinary commercial banks. A margin is the difference in borrowing and lending rates. Our average margin is a bit more than two per cent, while large commercial banks with state participation have a margin of five – seven percent. So, our capabilities to generate profits are also limited.
HOST: Is the interest rate on credits for businesses going to increase next year?
Vladimir DMITRIEV: It is bound to increase, given the fact that we raise funds on the market. So, if the market responds negatively to Vnesheconombank’s and other financial institutions’ risk exposures, borrowing rates are sure to increase and we can’t help responding to it by increasing lending rates.
HOST: On the other hand, Vnesheconombank has a good international standing and reputation. Will it help you to raise funds abroad on international markets? The foreign capital market is completely closed for commercial banks.
Vladimir DMITRIEV: Unfortunately, it’s common knowledge that we are in the same situation. Foreign investors’ and creditors’ approach to Vnesheconombank does not differ much from their approach to other Russian banks. Nevertheless, I’m happy to say that Vnesheconombank credibility and risks are perceived adequately. Our ratings are in line with sovereign ones. Transactions on the interbank lending market and on capital markets this year demonstrated a minimum interest rate compared with other Russian banks at which Vnesheconombank raised funds. Here I also mean our debut loan at the beginning of this year worth more than five hundred million francs where the interest rate was minimal compared with other Russian borrowers that borrowed in francs. We raised a large syndicated loan worth almost two and a half billion dollars at an interest rate that was minimal among similar level banks.
In fact, we do not overindulge in foreign borrowings as we extend ruble-denominates credits to Russian companies and avoid foreign exchange risks by raising funds on the Russian market as well. This year we have placed two loans in the total amount of about thirty billion rubles for a period of ten years at interest rates of 7.9 and 8.5 per cent – very good indicators for the Russian market.
This year end has seen a significant volatility and an unstable situation both on capital markets and on interbank lending markets. So, it’s not a secret that we decided not to place a bond issue for this reason. Nevertheless, we are still planning to enter into markets next year. I don’t rule out the possibility for raising funds on foreign markets. Of course, markets should calm down and the situation should stabilize and undoubtedly a lot depends on political decisions in the euro zone. But to be honest, I’m not very optimistic. But let’s see how the situation will develop. We’ll wait till February. I think that the situation isn’t going to change dramatically in January. And we’ll discuss this issue again in February.
HOST: As you have already mentioned, Vnesheconombank gives high priority to small and medium-sized enterprises. And when I talk to small and medium-sized businessmen they always say that it’s very difficult to get insight into various support programs. Where should businessmen turn to? Should they turn to RUSNANO, there is also the Russian Venture Company, there is Vnesheconombank.
Vladimir DMITRIEV: A year ago we agreed to closely coordinate with key development institutions that provide support for SMEs operating in the innovative sector. A relevant agreement was signed between Vnesheconombank, RUSNANO, the Russian Venture Company and the Fund for Supporting Entrepreneurship in the Innovation Sphere.
HOST: You mean all the development institutions.
Vladimir DMITRIEV: In fact, all the development institutions. Recently the Skolkovo Fund has joined the program. Factually, all important development institutions providing support for small and medium-sized enterprises that focus on assisting innovative development and modernization are united by the said agreement. We have been already involved in coordination efforts for a bit more than a year. We have already more than a hundred projects which otherwise would have never been started for the reason you’ve mentioned. People simply didn’t know where to turn to for money.
HOST: If I came up with an idea to start a nano or some other business, where I should turn to?
Vladimir DMITRIEV: Fortunately, they now know where to turn to.
HOST: Is this a principle of “single window”?
Vladimir DMITRIEV: You are absolutely right. If they turn either to the Russian Venture Company or the Bortnik Fund or to RUSNANO they are sure to receive an answer. This means that there are many windows but all this is channeled through one and the same mechanism. If they turn to us for credits in this or that field they we’ll say to them: come on guys, we are ready to provide you with money but you should go to Chubais or to the Russian Venture Company, because we already know quite well thanks to such a close coordination where a given customer can promptly and quickly receive required quality assistance with minimum administrative costs.
HOST: We must stress that all this involves innovative products.
Vladimir DMITRIEV: There’s no doubt about it. It would look pretty strange, if a florist would turn for support to RUSNANO or to our Bank. We are working only with small and medium-sized enterprises involved in innovation business.
HOST: How did the Bank perform this year in terms of managing pension savings funds of Russians?
Vladimir DMITRIEV: To my mind, we performed pretty well, especially compared with private non-government management companies. There’s of course room for improvement. The amount of funded portion of savings pension funds under the management of the state management company is a bit less than one and a half trillion rubles. Huge funds that we should use (we have been trying to do it for a long time) in the real economy. Fortunately, we managed to do a lot in this line of activity. But I’d like to say once more that there’s still a lot that can be done. You know that our investment declaration has been expanded. Now we can invest in the bonds of reliable borrowers, that is, bonds backed by state guarantees and in mortgage-backed bonds. By the way, the requirement for guarantees was cancelled. We can invest in debt instruments of international financial institutions. But unfortunately, on the one hand, the system of issuing this sort of instruments is not perfect and on the other hand we obtained a large package of government bonds and we can’t withdraw from it because of markets’ volatility without placing bonds on a balance of losses. Nevertheless, our figures for this year, at least for the first three quarters are 5.7-5.8 per cent (depending on the loan portfolio). On average, they are better than those of non-government management companies. Of course, they fall short of inflation rate but we believe that we performed well in the current situation.
HOST: Pending the second wave of the crisis and in some experts’ opinion it has already started – there is more talk about new additional assistance to various economic sectors, specifically, to the banking sector. Is Vnesheconombank ready to lend a helping hand as it did in 2008 to Russian banks? Will there be such a need for it?
Vladimir DMITRIEV: We are ready. We are quite experienced in it. You remember that in 2008-2009 seventeen banks received more than four hundred billion from Vnesheconombank, from the National Wealth Fund.
HOST: Have they already repaid these credits?
Vladimir DMITRIEV: No, they haven’t. These credits remain to be on the balance of commercial banks as a subordinated debt. As far as some banks are concerned they are exploring the opportunity for transferring subordinated debt to first-tier capital. But I don’t think it’s a form of support in a crisis situation, I view it as a need for increasing capital, above all, in order to expand the funding of the Russian economy. I’d like to say it once more that we are ready to help if the state deems it necessary to provide such support to banks and corporations. But from my point of view, such mechanisms that were set in motion as the Finance Ministry’s auctions, deposits that can be raised from the Central Bank, mutual bank guarantees than can be used as a security instrument upon obtaining credits from the Central Bank are fully sufficient for securing the banking system’s liquidity. Nevertheless, the problem remains and it is associated not only with the current volatile and uncertain situation. The main problem is long money. And banks should address this problem only together with monetary and financial authorities. The country needs long money. To be more exact, the economy needs long money. And such money is available. There are pension funds and funds of insurance companies. And thank goodness, the first infrastructure projects have emerged where these funds are involved. These are the projects being implemented on the principles of public private partnership: Moscow-Saint-Petersburg, the Odyntsovo Bypass. In general, these are the first projects that got off to a good start.
VEB to Help Belarus to Build Nuclear Power Plant (NPP) and Host the 2014 Ice Hockey World Championship
Belvnesheconombank’s project number one is to participate in funding the construction of a nuclear power station in Belarus. Moreover, the Bank will become an active and interested player in the retail service market. The Bank also plans to participate in Minsk’s preparations for the 2014 World Ice Hockey Championship.
In his interview to the Interfax-West News Agency Vnesheconombank Chairman Vladimir Dmitriev told about Belvnesheconombank’s performance and ambitious plans of VEB’s subsidiary bank.
-How does the core shareholder assess the preliminary performance of its subsidiary bank in Belarus for this year and for the past years in terms of qualitative and quantitative indicators?
-We view them as pretty successful. Despite well-known rather complicated macroeconomic conditions, this year Belvnesheconombank retained the position of a leader in the banking sector of Belarus in terms of its performance dynamics.
For example, in terms of authorized fund amount the Bank retained third place among Belarusian banks and sixth place – in terms of assets and customers’ credits. And in terms of capital adequacy ratio moved from 4th top 3d place and in terms of equity capital – from 6th to 5th place.
From January to October 2011, Belvnesheconombank’s assets increased by 2.5 times, its loan portfolio – by 3.4 times, capital adequacy ratio by 1.5 times. The Bank’s equity capital rose due to internal sources (profits and the Bank’s funds) as well as due to the subscription to additional shares conducted in August with Vnesheconombank’s direct participation. The subscription increased the authorized fund by 25% or by 154 billion Belarusian rubles. I’d like to say that only few Belarusian banks managed to increase their authorized fund.
As far as Belvnesheconombank’s qualitative indicators are concerned, during January-October the Bank increased its profits by 1.6 times from the same period last year.
Since its inception Belvnesheconombank has been one of the largest banks in the Republic servicing the real economy and specializing in servicing foreign economic activity of private and government economic entities. The Bank’s performance allows us to arrive at a conclusion that the fact that Vnesheconombank became its strategic investor provided Belvnesheconombank with an additional impetus for development. For a pretty short period of time Vnesheconombank participated in three subscriptions to the Bank’s shares and contributed 307 million US dollars to the Bank’s authorized fund which was highly instrumental in increasing it by 31 times.
-Does Belvnesheconombank meet forecast parameters provided for by its development strategy? Has this strategy been adjusted?
-OJSC Belvnesheconombank’s development strategy was developed for 2011-2015 and was approved by the Bank’s Supervisory Board in February of 2011. Actual performance indicators (as of October 1, 2011 and those projected for January 1, 2012 demonstrate that all the forecast parameters provided for by the Bank’s development strategy for the current year were met taking into account the devaluation of the Belarusian ruble.
Nevertheless, Vnesheconombank’s and Belvnesheconombank’s specialists are developing Belvnesheconombank’s development strategy for a period of up to 2015 taking into account changes that took place in the Republic’s economy and monetary sector. The concept sets forth the Bank’s development goals, key lines of its strategy implementation including competitive activity, business management, cooperation with subsidiary banks of Vnesheconombank’s Group, development of Russian-Belarusian integration ties. The concept also identifies means to achieve the set goals.
-What main risks have emerged this year and what measures has Vnesheconombank taken to reduce them?
-This year a rather complicated situation has developed in the Belarusian economy. Belvnesheconombank together with Vnesheconombank’s specialists are assessing and stress testing main risks of the Belarusian Bank with due regard to the emerging macroeconomic situation. They include credit, interest-rate, currency and liquidity loss risks. Their mutual influence on capital adequacy ratio is also being assessed.
So, integration of risk management into business processes became one of Belvnesheconombank’s main lines of activity in 2011.
As of now we can pinpoint the following competitive advantages of Belvnesheconombank:
- stable positions in the banking system;
- extensive network of territorial subdivisions:
- extensive correspondent network: more than 600 banks in 77 countries;
- application of advanced banking information technologies;
- top-quality loan portfolio: problem loans accounted for only 0.1% as of 01.11.2011.
We are considering the possibility of increasing the share of state-run enterprises in the customer base and developing retail business as potential lines of the Bank’s further development and growth.
-What prospects for Belvnesheconombank’s development does the Russian investor see?
-Belvnesheconombank and Vnesheconombank are planning to play a key role in implementing joint projects of Belarus and Russia. These projects provide for exports of Russian and Belarusian industrial equipment, products and services, development of communications and electro-energy and transport sectors of Belarus, modernization of the road network, creation of logistics centers etc. The projects are also designed to help raise foreign investments for the Republic of Belarus.
Prospects for Belvnesheconombank’s development should be to position the Bank as Vnesheconombank’s partner in implementing interstate and other projects of Belarus and Russia funded through Vnesheconombank and position it as an expert in analyzing project proposals and in funding these projects together with Vnesheconombank. The Bank’s activity in promoting Belarusian-Russian economic cooperation is designed to reduce costs of both sides and boost financial investments efficiency. The Bank is to act as a consultant to Vneasheconombank in the course of privatization.
There are plans to expand Belvnesheconombank’s role as an agent bank for the Belarusian Government in raising and implementing investment projects funded against government guarantees through using foreign banks’ credits including those of Vnesheconombank. Belvnesheconombank is supposed to help raise foreign investments for the Republic of Belarus.
For a long time Belvnesheconombank was seen as a bank for servicing corporate sector. Do you favor Belvnesheconombank’s plans to expand retail and small and medium-sized enterprises segments?
-Earlier Belvnesheconombank focused on supporting the country’s basic industries although it was called a universal bank. But given the changing market conditions, you have to diversify your business and offer what customers need at any given moment. And this involves not only corporate customers.
I’d like to remind you that Vnesheconombank participates in providing financial support for small and medium-sized enterprises through funding credit institutions and legal entities involved in supporting small and medium-sized enterprises.
We support Belvnesheconombank’s plans to expand its activity in this sector and excellent prospects for enhancing small and medium-sized enterprises in the Republic. Belvenesheconombank is developing a product line for small and medium-sized enterprises and natural entities.
Since Vnesheconombank became majority shareholder, Belvnesheconombank has been transforming into an active and interested player in the retail service market. And it has all it needs to achieve this goal: a network of territorial subdivisions and self-service terminals, highly qualified personnel, a wide range of retail services on offer including payments with the use of bank cards.
The Bank views its activity in the retail service market as a way to efficiently raise and place financial resources, diversify its income base and banking risks. In our opinion Belvnesheconombank’s main line of developing retail business in the coming years will be to move from offering individual banking products and services to customers to forming a comprehensive model of servicing customers. It will make it possible to meet most of their needs for financial services and to service a significant share of transactions.
The outrunning growth of retail markets and the use of new competitive advantages would create conditions for increasing retail business share in Belvnesheconombank’s active-passive transactions and bring this share closer to that of transactions with corporate customers.
-Is Vnesheconombank ready to support large-scale projects in the Belarusian economy and does it consider the possibility of providing resource support for the Belarusian government?
-As I’ve already mentioned Belvneshecnombank jointly with Vnesheconombank are planning to play a key role in implementing joint projects in Belarus and Russia. As far as large-sale projects are concerned strategic sectoral priorities for 2011-2015 have been identified. They include railway and air transport, power engineering, network facilities and smelting industry.
The railway sector is funded under the Government Program of Developing Railway Transport of Belarus for 2011-2015.
The projects in the aerospace industry include a project of the State Enterprise National Airport aimed at building the second runway and a passenger terminal worth 600 million US dollars, with Belvnesheconombank’s share being 48 million US dollars. As part of the project Belvnesheonombank offered to act as an agent for the Belarusian Government in servicing credits extended by the China Eximbank which is to fund the remaining cost of the project.
The Bank is exploring the possibility of its participation in setting up a joint venture on modernizing IL-76 aircraft between OJSC Airline Transaviaexport and Russia’s OJSC Ilyushin Aviation Complex in order to create a technical maintenance and repair center for IL-76 planes in the city of Minsk. The project is estimated at 250-300 million US dollars.
Moreover, Belvnesheconombank has offered to fund the purchase of short-haul planes by the National Airline Belavia in 2013-2015 and the technical re-equipment of the aero navigation and communications systems of Belaeronavigation State Enterprise.
The Bank is to carry on funding the investment project “the Construction of a Production Building to Assemble and Test Space Systems” at OJSC Peleng.
In the Belarusian power facilities sector the Bank’s project number one is to participate in implementing the project to construct a nuclear power station. OJSC Atomstroiexport was appointed as general contractor under the project.
Financing the network facilities including Minskenergo’s project on the comprehensive construction of substations and cable lines is inextricably linked to the energy saving program. The Bank expresses its readiness to provide funds worth about 40 million US dollars to Minskenergo.
Under the development program of the UN and the Global Ecological Fund “Removing Obstacles to Increasing Energy Efficiency at Belarusian State Sector Enterprises” the Bank participated in establishing an International Energy Center with a 52% stake in the authorized fund. As a principal shareholder the Bank plans to commit 120 million US dollars to fund energy saving projects including 75 million US dollars directly through the International Energy Center.
Under Minsk’s Investment Program for 2011, Belvnesheconombank participates in the preparations for the 2014 World Ice Hockey Championship in Minsk. The Bank is funding the construction of engineering transport facilities and provision of urban amenities by Gordorstroi.
Belvnesheconombank expressed interest in funding the purchase of underground carriages by the Minsk Metropolitan in 2012 in the amount of about 1 029.2 million Russian rubles.
Is VEB determined to recapitalize Belvnesheconombank taking into account that its capital decreased because of the devaluation?
For a period of 2007-2011 Vnesheconombank’s financial support in the form of contributions to the charter capital and credit lines exceeded 900 million US dollars including 130 million US dollars in 2011. In 2011, Vnesheconombank purchased shares of Belvnesheconombank’s additional issue for an amount of 30 million US dollars. The amount of documentary transactions with Vnesheconombank reached 250 million US dollars in 2011.
The concept of Belvnesheconombank’s development up to the year 2015 provides for increasing the bank’s charter capital in 2012 and 2014 by another by 70 million US dollars as well as for extending a subordinated loan to the Bank in 2015. Nevertheless, upon updating the concept these figures will be adjusted upwards.
OJSC Avtodiesel (the Yaroslavl Engine Plant) incorporated in GAZ Group (The Russian Machines Corporation) is launching a batch production of a new family of medium-class diesel engines in line with ecological standards of Euro-4 and Euro-5 with a life cycle of at least 20-25 years. Vnesheconombank provided credit resources for developing and manufacturing YAMZ-530 engines. In his interview Deputy Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’, Executive Secretary of the Commission on Investments and Technical Retooling of Mechanical Engineering Enterprises and Related Industries of the Union of Russian Machine-Builders told us about specifics of the project and the Bank’s participation in supporting Russian auto engine building.
The project aims to develop a new competitive family of YAMZ-530 diesel engines using the world’s best practice in developing and testing engines as well as to build a new plant as well as to start up a production of YAMZ-530 engines in line with Euro-4 and Euro-5 standards. The project provides for purchasing new imported equipment from leading foreign manufacturers. Medium-class diesel engines of YAMZ-530 family will be manufactured at a new production facility. The engines were developed by the Yaroslavl engine plant’s designers with the participation of the world’s leading engineering company - AVL-List (Austria). The new family is comprised of row diesel engines with four and six cylinders and with a swept volume of 1.1 liters per a cylinder and a capacity from 120 to 315 horse powers with a life cycle of no less than 25 years. The project’s unique feature: the project provides for the construction of the first plant to manufacture engines in the past 30 years. It will be the most technologically advanced engine-building production facility in Russia with an operations automation level of more than 80%. The project’s innovativeness: the project provides for developing and manufacturing a new medium-class diesel engine with the use of the world’s best practice which meets the requirements of Russia’s automotive industry, the engine is in line with ecological euro-4 and euro-5 standards, has an extended mileage of 700-900 thousand kilometers. Socio-economic effect from implementing the project: the number of jobs to be created is 1250.
- Why did VEB decide to fund the Yaroslavl project?
- An answer is pretty simple. At a time that we started to consider this project in 2008 there were few projects in the automotive industry aimed at building new enterprises initiated by automakers themselves. And there is a rationale for this: it makes sense to build plants that manufacture new innovative products but this is rather expensive and requires significant investments in purchasing know-how and licenses. It took a long time for automotive enterprises to understand it but at some point relevant decisions were taken. We started to fund two pretty similar projects almost simultaneously: building an engine manufacturing facility under the license of Cummins Company at KAMAZ plant in Naberezhnye Chelny and creating a new production faculty at the Yaroslavl engine plant to manufacture YAMZ engines. In terms of sectoral priorities these are number one projects. In all mechanical engineering sectors engine manufacturing is the most high technological production and in actual fact engine building and research and development associated with it are a driving force of mechanical engineering; they use the most advanced materials and technologies. The engine is the heart of any machine.
- How are you going to market new engines? What categories of consumers are they intended for?
- All the latest models of KAMAZ vehicles are equipped with Cummins engines manufactured by KAMAZ plant under Cummins’ license. This is a pretty advanced production facility and the whole model line of KAMAZ is to be equipped with Cummins engines. As far as YAM-530 engines are concerned the product line of these engines will be intended for auto models manufactured by GAZ Group (Russian Machines Corporation) and this is a wide range of such trucks as URAL, Sadko, and buses ( PAZ, KAVZ, LiAZ and GolAZ), road building machines and others. By the way, Yaroslavl’s engines can be installed on KAMAZ vehicles.
- Can YAMZ-530 engines compete with its foreign analogs?
- When you praise something or somebody it always looks like advertising. But the Yaroslavl engines are fully in line with the world’s best models in terms of specific horse power, torque and fuel consumption. And the price of these engines is their serious competitive edge over foreign products.
- What’s the project’s value? How much money has been made available? What’s the structure of investments?
- The project’s total budget set forth in the business plan and discussed by Vnesheconombank is almost 10 billion rubles. Vnesheconombank’s participation share is 5.8 billion rubles; this is more than comfortable own/borrowed funds ratio for us. This ratio evolved historically as originally Russian Machines Company planned to implement the project on its own but the crisis changed the situation and when the Company turned to Vnesheconombank, a significant part of funds had been already invested in the project including R&D, which the Company was doing together with Austria’s AVL Company to develop engine models and adapt them to the Russian market.
- What were the tenure and cost of the credit?
- The credit tenure is 10 years; its investment phase is 3 years. The funding was opened up in early 2010 and now the investment phase is coming to an end. As of today, 4 billion rubles out of the credit line worth 5.8 billion rubles were already used up. The production facility is scheduled to be opened till the year-end. But as in the case of any project in the mechanical engineering additional investments will be needed for a pretty long period of time, at best it will take a year to achieve rated capacity.
- What can you tell about the project’s recoupment?
- Project recoupment is one of the key criteria we are guided by when examining investment projects. Unprofitable, money-losing projects can’t be funded under Vnesheconombank’s requirements. By preliminary estimates the project’s payback period for the investor is about 15 years and is naturally longer that our credit’s tenure. We believe that rather comfortable and acceptable conditions were set for this new engine manufacturing project unprecedented for Russia. The project might prove to be very effective.
- What other advantages for the Russian automotive industry the Avtodiesel project can give?
- I think it should be noted that another result from implementing the new project of GAZ Group is that it can accelerate the creation of Russia’s component base which is an objective of the Russian Automotive industry development strategy for a period of up to 2020. The strategy was approved by the Russian Government. The project’s implementation will make it possible to bring localization level to 60-70% set forth in the business plan upon achieving a rated capacity of up to 50 thousand engines per year.
- Recently, the Government announced that it would put off dates for moving to euro-3 and euro-4 fuels on a mandatory basis. To what extent is this decision painful for automakers that invested in the development of new generation engines?
- There is no doubt that the decision to allow using fuels that do not meet the current ecological requirements is detrimental to the interests of those automakers who invested significant funds in the development of new engines designed to consume more qualitative types of fuel and it has a negative impact on the economics of relevant projects. But taking into account the structure of new engines’ potential consumers I wouldn’t overestimate potential damage from putting off dates for moving to Euro-4. According to Vice Premier Sergei Ivanov, oil industry’s interests and lobbying capabilities took the upper hand this time. But progress has always to beat its way through barriers. But I am hopeful because history shows that the triumph of progress is inevitable.
-Are there any other projects in the engine building sector besides the Yaroslavl project in VEB’s portfolio?
- Yes there are. Providing support for engine building is our priority number one. The auto engine building sector’s distinguishing feature is that investment cycles are very long and regrettably these cycles in the Russian mechanical engineering were interrupted for certain reasons. No investments have been made in the sector in the past 15-20 years, during these years we have lost personnel and competences and only now companies are starting making investments. We are working with almost all machine-building holdings in the aircraft construction sector, automotive industry, shipbuilding and of course in the fuel and energy sector (because engines are the heart of not only machines but also of oil and gas pipelines). We are cooperating actively with the United Engine Building Corporation, which incorporates all the surviving enterprises operating in the engine building sector in aviation, helicopter building and those working for Gazprom. For example, this July we have started to fund the project aimed at building a plant for the Klimov Company worth 6.2 billion rubles. The Company is a well-known design bureau in Saint- Petersburg. It’s a designer and manufacturer of several types of helicopter engines. A credit line opened by the Bank worth 4.95 billion rubles is intended for funding the startup of production of a new type of helicopter engines. By the way, a spillover effect of our investments is that we are addressing a task important for Saint-Petersburg as well as for other “old” Russian cities, above all, Moscow, here I mean a task of relocating production facilities from historical centers where many defense enterprises are located. The new production facility is located in the suburbs of Saint-Petersburg in the shore area far away from residential quarters thus vacating areas in the city’s center, which will be used to implement projects Saint-Petersburg needs badly as a cultural capital.
I hope that in the near future we’ll have new projects with the United Engine Building Corporation.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the Grozny Inform News Agency
Vnesheconombank Chairman Vladimir Dmitriev told journalists about projects being implemented in the North Caucasus Federal District (NCFD) specifically in the Chechen Republic
- Vladimir Alexandrovich, Vnesheconombank is actively participating in the Development of the North Caucasus, will you tell us in detail about the Bank’s activity in the region?
- In fact, VEB started to energetically support investment projects being generated in the the North Caucasus Federal District (NCFD). And in order to fulfill the task set by our country’s leadership aimed at raising large-scale investments for this region, the Bank established the North Caucasus Development Corporation. The Corporation’s main objective is to provide consulting assistance to investors for them to be able to make a balanced analysis of the economic situation in various regions, form projects and prepare appropriate documentation. All this is needed by banks to feel confident in funding investment projects. The Corporation started to operate at the end of the last year but it already has a whole number of projects in its portfolio.
We do not limit our activity in the North Caucasus Federal District to the North Caucasus Development Corporation. Vnesheconombank’s Representative Office has been operating for about a year in Pyatigorsk. The Office helped to prepare and submit to consideration by VEB documents on 7 projects with a projected amount of financing being more than 38 billion rubles. The Representative Office is working now on another 45 projects worth more than 226 billion rubles and these projects’ initiators are being provided with consulting and methodological assistance.
Moreover, our Representative Office is included in the working groups responsible for selecting top-priority investment projects on the territory of each region of the District.
Additional effective mechanisms for enhancing VEB’s cooperation with Russian regions are agreements on cooperation. Their subject-matter is to establish strategic partnership, promote long-term and effective cooperation in the investment activity. At present, Vnesheconombank have entered into such agreements with all constituent entities of the NCFD. To build on these agreements we sign protocols on cooperation in supporting public private partnership, small and medium-sized enterprises as well as agreements aimed at implementing specific investment projects in the region.
- What projects in your opinion are the most important in the North Caucasus Federal District?
- As of today, VEB has a number of serious projects in each of Caucasian republics. Out of them I’d like to single out tourist recreational business developing in line with the decisions taken by the country’s leadership. To this end, a special company, namely, the North Caucasus Resorts was established to develop major tourist centers and clusters. We started our work with discussing mountain-climatic and alpine ski resorts. One of our first projects is Arkhyz, which is generated by the Sinara Group. Vnesheconombank started to make arrangements to fund this project even before the crisis and it is now included in the list of projects to be implemented by the North Caucasus Resorts Company. The total amount of investments with regard to all resorts and the alpine ski cluster of the North Caucasus is to be 400 billion rubles plus investments in the coastland of Dagestan where we have unique opportunities to develop tourist and resort business.
In doing all this, we do not forget to develop industrial sector North Caucasus republics and we should develop and support traditional regional sectors such as agro-industrial business, light industry, manufacturing of construction materials in the Caucasus, that is, in the North Caucasus republics and in the Stavropol Territory
Another line of our Bank’s activity deals with projects aimed at supporting small and medium-sized enterprises that are very important in terms of addressing employment issues in the region. Here we are going to operate through our subsidiary SME Bank specializing in funding SMEs. In this respect, I’d like to say that last year the North Caucasus as a whole and the Chechen Republic in particular were leaders among Russian regions in terms of implementing programs of providing support for small and medium-sized enterprises.
As I have already mentioned we have a number of serious projects almost in each of Republics in the North Caucasus Federal District. Now the Chehenagroholding project is being actively implemented in the Chechen Republic. We are also involved in supporting the construction materials manufacturing sector in Kabardino-Balkaria, Dagestan and in Karachaevo-Cherkesia. As I’ve already said we started to implement the Arkhyz project. We are exploring the possibility of forming a large-scale agro-industrial cluster in the Stavropol Territory using the business experience we gained in the Rostov region where the largest Russian turkey meat production facility is being built with our participation. Now we are planning to replicate and expand these projects in other regions, specifically, in the North Caucasus.
- You’ve mentioned the project aimed at building an agro-industrial holding which is not only the first VEB’s large-scale project in the Chechen Republic but also the only large-scale federal investment project in Chechnya. How did the Bank approach the problem of high regional risks?
- While there is a certain regional risk you shouldn’t first overestimate it and second, if you don’t implement investment projects risks do not diminish for this reason. But as we must operate on a break-even basis we take up only break-even projects. And there are such projects in the Chechen Republic. We deem it necessary to support thoroughly prepared projects such as for example the Chechenagroholding project. It is a profitable project and it will create local competences and new jobs (we believe that more than a thousand and a half people will work in this agro-industrial integrated facility). This is the Bank’s most important pilot project whose initiator is the Government of the Chechen Republic. This is a very large production facility - about 20 thousand cattle heads, a poultry farm for 200 thousand birds, a meat processing factory, unique greenhouses operating on thermal springs and a whole number of other production facilities which are badly needed for developing food industry in the region.
We started to deal with this project in 2009 and hoped to receive a state guarantee. But the documentation process was so slow that the project was on the verge of collapse although the construction work had already started and some equipment had been ordered in hope of receiving funds from the Bank. So, in order not to shelve the project for a long time and not to run additional risks and having found out that the project was financially sustainable we found it possible to fund it. We had to use a favorable summer period for performing construction work. If we had failed to do it in May we would have lost a whole year.
As of today, about 2 billion rubles have been invested in the project’s implementation. All the facilities are in an active construction stage and are to be put into operation next year.
We still hope that the decisions on providing support for investment projects in the Chechen Republic and on the whole territory of the North Caucasus Federal District made at the highest government level will be carried out. Specifically, the Russian Government’s Decree on granting first state guarantees worth 42.5 billion rubles to implement 20 projects in the North Caucasus including granting a guarantee for the second stage of the project to build an agro-industrial complex in Chechnya aimed at developing winegrowing. Having entered into the agro-industrial complex construction project in Chechnya and having supported other projects not only in Chechnya but in the North Caucasus Federal district as a whole, Vnesheconombank is giving an example to commercial banks to participate in implementing projects in the region.
- Is there a possibility to implement any other projects besides Chechenagroholding in the Chechen Republic?
- Undoubtedly, it’s not the only project in the Republic. For example, at present, VEB is studying in detail the Veduchi project – an alpine ski complex in the mountains in the South of the Chechen Republic. The Bank is also conducting an expert examination of a project on building the Kazbek major construction materials manufacturing cluster. The North Caucasus Development Corporation will participate in it. The project aims to construct a complex of production facilities to manufacture advanced construction materials: aerated concrete, fiber cement plates, lime, dry construction mixes. This project is needed to provide not only the Chechen Republic but also other constituent entities of the North Caucasus Federal District with quality construction materials, given increasing rates of construction in the region. Moreover, we are cooperating with the Government of the Chechen Republic and the Grozny City Hall in reconstructing the city’s community facilities, which requires significant investments. We are going to offer schemes for investing these projects based on public private partnership. There are a lot of such examples in all other republics of the north Caucasus. I believe that state banks and above all VEB as a bank for development should create a normal investment climate and favorable conditions for raising capital for this region by leading the way in assessing risks adequately and participating in regional projects.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24
TV Channel Russia 24
HOST: An Investment Forum is underway in Sochi today. Our raod show studio is operating there and my colleague Alexander Kareevsky plays the master in it.
CORR: In fact we are in Sochi now. A plenary session has just finished and we are commenting on it and all other things at the Forum. Our guest today is Vnesheconombank Chairman Vladimir Dmitriev, good afternoon Vladimir Alexandrovich.
Vladimir DMITRIEV, Vnesheconombank Chairman: Good afternoon.
HOST: A plenary session has just finished. A lot has been said about the macroeconomic situation in Russia.In general it isn’t bad. But there are now a lot of problems in Europe, in America, in industrialized countries. There is a threat of recession. How would you as a banker size up the situation? Is everything as terrible as the media says?
Vladimir DMITRIEV, Vnesheconombank Chairman: In fact, the situation you are now talking about is not a creation of media, it is a reality we have to reckon with – a reality we are living in, it’s a reality we went through during the latest crisis that influenced the economic situation in Russia. Nevertheless, I believe that Russia’s safety margin is great both in terms of its gold and foreign currency reserves and in terms of its macroeconomic indicators: it’s budget deficit, and according to the prime minister this year’s budget is most likely to be deficit free, it’s an unprecedentedly low inflation rate, it’s the best among the largest countries, the largest economies debt-to-GDP ratio – less than 10% of foreign debt, in other countries debts are sometimes twice as much as gross national product. All this is pretty optimistic.
HOST: According to Mr. Putin this time we haven’t suffered a double blow, so we are already prepared. You are well aware of the situation in the banking sector. I’ve got the following question: Are our banks better prepared for the situation than they were in 2008; here I mean their financial standing?
Vladimir DMITRIEV: I think that our banks and Russian corporations have learnt serious lessons from the previous crisis. And it should be noted that the state showed serious political will and readiness to provide support for the banking sector and corporations and in this sense the instruments that were used during the crisis, Lord forbid, of course, could be mobilized if the situation worsens. The more so, this summer the state took measures to activate budget auctions – the Central Bank’s potential. And as opposed to 2008-2009 when Russian corporation and banks were hit hard by the crisis on the international markets due to their short-term debt burden, at present these debts have been restructured. And so we can say that our banking system is now better prepared for a serious financial turmoil.
HOST: We’ll hope that there will be no serious crisis. So far, the old crisis might not have ended. But life is going on, although they said at the plenary session that in such times investors prefer to keep a low profile wait for better times. You are not waiting. Your corporation is a development institution. And as far as I know you are now changing your strategy. What do you want, what doesn’t suit you, what prevents you from participating in modernizing the Russian economy? How is the Bank going to look like in the coming years?
Vladimir DMITRIEV: At present, nothing prevents us from participating actively in modernizing the Russian economy, in implementing projects of national significance. These are the goals of our new strategy because the pre-crisis strategy was seriously reviewed as the crisis changed our strategic approaches. But at the moment, we are moving back at a new qualitatively new level to a strategy we failed to implement because of the crisis. So you know we were burdened with the tasks of taking crisis management measures. Now we are focusing on serious, breakthrough projects in terms of investments in infrastructure, in large scale enterprises operating in sectors we give high priority to. And of course we are placing increased emphasis on innovations and modernization. Innovation projects will account for several percent of our loan portfolio. I’ve already said that our traditional lines of activity are to provide support for small and medium-sized enterprises and industrial exports. The more so, an Export Credit and Investment Insurance Agency has been established as our subsidiary institution. All these mechanisms allow us to realize the Bank’s potential set forth in the Law on the Bank for Development and in the Memorandum on our Financial Policies.
HOST: You’ve said recently that VEB will not be funded from the budget. What’s the reason for it? Why is the Bank determined not to be funded by the state?
Vladimir DMTRIEV: In fact, we needed budget sources in order to launch the Bank for Development. And with our own funds worth 30 billion rubles in 2007 when the Bank was being established it was impossible to imagine that we could operate on a large-scale as a development institution. So, in that period we needed budgetary funds. We also needed them during the crisis to take crisis management measures and by the way to fund a whole number of projects. We should keep in mind that lending to the Olympic facilities at lower than market rates was possible through using the capital formed from budgetary funds. We now understand well that given the current budget limitations, when a lot of government socially oriented measures are being taken, we would be ashamed to ask for budgetary funds. The more so, we are operating actively on the market and our credit rating equal to a sovereign one allows us to raise inexpensive and long-term credit resources both in Russian and abroad and this is a main source to fund our credit transactions.
HOST: It is known that because of the crisis VEB became an active participant in the stock market. You’ve already mentioned that you have large stakes of shares and that you’ve sold some of them. Are you going to change your strategy on the stock market? Are you going to sell the remaining assets or purchase more stakes if market conditions worsen? And how would you assess your activity on the stock market?
Vladimir DMITRIEV: Our activity on the stock market will remain unchanged. Our Bank is a traditional stock market participant and in terms of some instruments is a market maker. Our policy and day-to-day activity on the stock market is set forth in our regulations on liquidity management. We have certain limits established by our Supervisory Board. So, there will be no serious changes in our policy and in our approach to various stock market instruments. We are pursuing a pretty conservative policy staying away from speculative trading and risky instruments. We normally or even exclusively deal with debt instruments of serious players – with blue chips and this allows us to manage liquidity and conduct transactions on an break-even basis.
HOST: Let’s come back to the Krasnodar region, to the real economy in general. Your major projects are in the real economy which is often not attractive for a usual investor or it needs a partner like you. To my best knowledge you signed quite a few new agreements at the Forum. Would you tell us about them?
Vladimir DMITRIEV: First of all a few words about the Krasnodar region. Our activity here is above all related to the preparations for the 2014 Olympics. The total value of Olympic projects funded by Vnesheconombank is 150 billion rubles and Vnesheconombank’s participation share is more than 90 billion and even close to 100 billion rubles. This is infrastructure, the Sochi airport, thermal power stations and such Olympic facilities as hotels, the Olympic village, an alpine skiing cluster, ski jumping facilities and etc. And most of our today’s agreements deal with the North Caucasus Federal District. We signed an agreement with RZHD on providing investment consulting services on modernizing a whole range of railway stations. In fact, it’s a part of a huge project we are now implementing with OJSC Russian Railways. We also signed an agreement on investment consulting services on the projects being implemented on the principles of public private partnership with Ingushetia, North Ossetia-Alania, with Kabardino-Balkaria.
HOST: Are there large-scale projects in Chechnya?
Vladimir DMITRIEV: By the way, I was in Chechnya yesterday. We inspected the projects funded by Vnesheconombank. We were very happy about investors’ efficient and rapid performance. We visited Chechen agro holding’s facilities where large-scale poultry, livestock and greenhouse production facilities are being built. We are signing an agreement with the Chechen Republic on funding a large cluster to manufacture construction materials. Today, we are also signing a credit agreement on funding the first startup complex of the Arkhyz alpine resort in Karachaevo-Cherkessia and a whole number of other agreements including the one we have signed today. This is a large credit agreement worth more than 70 billion rubles on creating automobile production plant Ford-Sollers. We had a memorandum but now we have gone beyond specific agreements on funding this project. These are three large production facilities in Vsevolozhsk, Elabuga, Naberezhnye Chelny where 350 thousands automobiles will be manufactures per year with a target level of localization of at least 60% including manufacturing of power units This is a serious, breakthrough project in the automobile industry. Traditionally, a forum in Sochi is a place where we start and in a year’s time inform each other on projects progress .
HOST: Thank you for answering our questions Vladimir Alexandrovich Good luck to you in your work.
Vladimir DMITRIEV: Thank you.