Vnesheconombank Chairman V.A. Dmitriev’s Interview to the TV Channel Russia 24
TV Channel Russia 24,
HOST: The 10th annual Economic Forum is progressing in Krasnoyarsk. My colleague Irina Matyushenko talked about the Forum’s first results and prospects for the Russian economy with Vnesheconombank Chairman Vladimir Dmitriev.
CORR.: Here in Krasnoyarsk, the Forum is taking place under the slogan “Russia: A Map of Changes.” What changes does Russia need for its economy to advance energetically and for us to achieve growth rates of 5 percent and accomplish objectives set?
Vladimir DMITRIEV, Vnesheconombank Chairman: In my opinion, changes that Russia needs result from our Government’s plans and their implementation. By implementing them we’ll be able to achieve economic growth targets, increase labor productivity, build infrastructure and make structural changes that we have been talking about for a long time. I’m sure we are implementing these plans pretty dynamically.
CORR: In what economic sectors is Vnesheconombank going to invest in the first place in 2013?
Vladimir DMITRIEV: We’ll continue to fund economic sectors that are of primary importance for us. These are above all sectors related to manufacturing high technology products: power engineering, transport, aviation, automotive industry. We’ll commit significant financial resources to fund infrastructure, we’ll go on financing Olympic projects, the more so because there is less than one year left before the Sochi Olympics and we’ll go on funding small and medium-sized enterprises. And taking into account successful activities of our subsidiary institutions namely the Export Credit Agency of Russia, the Russian Direct Investment Fund we’ll give high priority to raising foreign investments, creating a positive investment image of Russia and promoting Russian exports.
CORR.: You’ve mentioned infrastructure. Dmitry Medvedev said at the Forum today that one of the most important objectives was to develop infrastructure including transport infrastructure. Ambitious targets have been set. For example, freight transportations are to be increased by 40 percent and passenger transportations - by 1.8 times in five years’ time. These are very serious ambitious tasks. Are they realistic? Will there be enough money for this?
Vladimir DMITRIEV: If you mean budget, we are not likely to have enough money but we should withdraw from this old paradigm and look for extra budgetary financing sources.
CORR.: You mean private investments?
Vladimir DMITRIEV: Private investments. But private investments will be channeled to infrastructure only in the case that we determine and enact rights and liabilities of participants in this process, that is, the state, private investors and financing institutions. Here we have a lot of examples: concession agreements on the construction of toll motorway Moscow Saint-Petersburg, the North-Western High Speed Diameter, the Odintsovo Bypass. We have done a lot in this respect and if we move ahead in this direction everything is sure to work out well.
CORR.: In 2014, VEB’s authority to manage pension funds of the so-called “undecideds” expires. And lately there’s been much talk about the need to withdraw this authority from Vnesheconombank. What do you think should be done?
Vladimir DMITRIEV: I think we are performing our functions pretty well. Last year, Vnesheconombank produced the best results in managing the funded portion of pension funds. We believe that the first infrastructure bonds funded through pension savings funds will be launched this year. The amount of these bonds might reach 200-300 billion rubles. We have already invested about 100 billion rubles in corporate bonds of highly reliable issuers. So, we are performing this function pretty well. If a new institution comes into being and if this institution is capable of managing pension funds and using them for the needs of real sectors of the Russian economy as efficiently as our Bank, we’ll share all our experience with this new institution. But I think here we have a case when the best is the enemy of the good.
CORR.: There’s a lot of talk at the Forum about the need to improve Russia’s investment climate and investment image. You’re a member of the working group on improving investment climate in Russia. But even here at the Forum foreign participants admit that Russia’s image is negative rather than positive. What should we do in this situation?
Vladimir DMITRIEV: I think that in this situation we must work as hard as the leadership of the Kaluga region, Tatarstan and a number of other Russian regions do. They do not hire foreign consultants but they are open for foreign investments. Having created an attractive investment climate in these regions they demonstrate that they can raise both foreign and Russian investments. So, the most important thing is to work hard. Investors won’t come to a region where its leaders are not interested in engaging foreign investors and do not know how to do it. The example I have given shows that regional leaders are involved in creating an attractive investment climate. Regional leaders know foreign languages, do appropriate training courses, work with investors on a regular basis and their mobile phone numbers are available to all who want to invest in their regions. This is the way we should work with investors. And in this respect, both Vnesheconombank and its subsidiary companies are ready to provide support for those regions which need it.
CORR.: There is a lot of talk at the Forum about the so-called “green economy.” A case in point is the situation in the Baikal pulp-and-paper mill. Vnesheconombank became a controlling creditor by buying out debts from Alfa-Bank. By the way, the Greens and ecologists say that the mill should be closed down as soon as possible because it’s very harmful for environment. Are you going to close it down?
Vladimir DMITRIEV: I think that regional authorities, specialists and federal authorities tend to believe that the life pattern of this mono-city should be radically changed and the mill should be closed. There are no technologies in the world that would ensure closed production cycle without harming environment. We are not talking about closing down the mill immediately because the mill is equipped with slime ponds and treatment facilities. So, we should invest significant funds to close down the mill and realign this zone without harming environment.
CORR.: Are you going to invest?
Vladimir DMITRIEV: Realignment must aim to maximally use Baikal’s cleanest water and the region’s favorable ecological situation. And one of potential projects is to create a tourist-recreational zone and bottle and sell Baikal’s water adding to it appropriate minerals. We should make this area attractive for foreigners through creating a tourist-recreational special zone. So, there are many plans. And we are ready to invest in these projects relying on the state’s support because this line of activity is one of our priorities.
CORR.: Thank you very much for your interview Vladimir Alexandrovich.
Vladimir DMITRIEV: Thank you.
Vnesheconombank Chairman V.A. Dmitriev’s Interview to the TV Channel Russia 24
TV Channel Russia 24,
HOST: What are the results of managing the funded portion of pensions, how is the investment climate developing in the Far East, how long will the program of stimulating mortgage lending last, how is the program of supporting automotive and other sectors coming along? Vnesheconombank Chairman Vladimir Dmitriev answered these and other questions in his exclusive interview to our TV channel.
Host Evelina Zakamskaya
HOST: Good afternoon Vladimir Alexandrovich.
Vladimir DMITRIEV, Vnesheconombank Chairman: Good afternoon.
HOST: Vnesheconombank’s scope of activities is Russia’s entire economy – almost all its sectors. What did the outgoing year show? What were the top-priority lines of activity? How many projects did you manage to fund?
Vladimir DMITRIEV: Our priorities are specified by law and the Memorandum on Vnesheconombank’s Financial Policies. And the number of top priority lines of activity is constantly on the rise. Quite recently, new changes have been introduced. They deal with lending to medium-sized enterprises and above all projects in multi-profile entities, mono-cities where a lending limit was reduced to half a billion rubles provided that a project is worth no less than one billion rubles, whereas we fund projects that are worth no less than two billion rubles and the Bank’s own participation share is a billion rubles. We still regard infrastructure in all sectors as our top priority; here I mean transport, energy, communal services and social infrastructure. And a whole number of infrastructure projects are already being implemented on the principles of public private partnership. Other top priority sectors are mechanical engineering, transport and aviation industries. We are actively funding such automakers as Ford Sollers, AvtoVAZ and KAMAZ. You know that at one of its recent meetings the Bank’s Supervisory Board approved a program of supporting AvtoVAZ investment activity in the amount of 60 billion rubles. We are also working actively with such aircraft manufacturers as Sukhoi and Irkut and Komsomolsk-on-Amur. It’s important that we provide support for aircraft manufacturers at a R&D stage. This was the case with the Sukhoi-35 advanced military plane. We provide support for Russia’s civil aviation industry. And we started to provide comprehensive support for exports of Russian aircraft abroad. We give top priority to comprehensive development of territories, creating
territorial-production clusters. We also make significant contribution to developing agriculture. These are the key lines of our activity including providing support for small and medium-sized enterprises through our subsidiary SME Bank.
HOST: Infrastructure projects should be advanced with the help of long-term money. And this money is in short supply in the Russian economy and their amount will decrease as the Government made a decision to reduce allocations to the funded portion of pensions. What does this mean for Vnesheconombank?
Vladimir DMITRIEV: Vnesheconombank is also a state managing company responsible for managing the funded portion of pension funds. There are about a trillion and a half rubles under our management. Unfortunately, sixty percent of these funds are invested in government bonds and only 17 percent is invested in the real economy here I mean investments in Russian issuers’ bonds. And these issuers are not numerous. And some funds – about 15 percent are placed on deposits in Russian banks. We can say that this money is also working for the economy although this is short-term money; we extend this money to banks for a period of one year. The fact that most of pension funds are invested in government bonds and that we can’t sell them at a good profit because of the market volatility and channel them to the real sector of the economy limits our maneuverability. But on the other hand we can invest our liquid resources in Russian issuers’ bonds. We realize that changes in contributions to the funded portion of pensions from six to two percent will significantly influence the amount of resources which Vnesheconombank and also nongovernmental pension funds and managing companies will be able to invest in the real sectors of the economy. We hope that people will make decisions in favor of forming long-term ruble resources which will be invested in the real sector of the economy. Working with nongovernmental pension funds we intend to mould mentality of our people. People should understand that it makes sense to make a decision in favor of six-percent contributions to the funded portion of pensions and that this money will be invested in the real sector of the economy.
HOST: Efficient management of pension funds will help Russians to make the right decision. What results does Vnesheconombank show?
Vladimir DMITRIEV: Vnesheconombank shows stable results above inflation. We are not so volatile as nongovernmental pension funds and managing companies. With our conservative approach to forming our investment portfolio and with most of our investments in government bonds we demonstrate stable yields above inflation. For nine months of this year the yield ratio with regard to the extended investment portfolio was 8.2 percent. And with regard to the portfolio formed from government bonds the yield ratio was also above inflation. This means that in general our yield ratios have been above inflation in the last years.
HOST: In 2012, the state acknowledged it necessary to develop the Far East as fast as possible and Vnesheconombank will take and is already taking an active part in it. You have approved the creation of agro-parks in the Far East and you intend to support infrastructure projects. Can we say that these investments are attractive? Do other investors besides Vnesheconombank show interest in them?
Vladimir DMITRIEV: I can’t tell you about other banks’ performance indicators. I know that they are actively operating in the Far East. We are already implementing projects in the Far East in the amount of about ninety billion rubles, with Vnesheconombank’s participation share in these projects being more than fifty billion rubles. Naturally, the Far East is an attractive region. But in order to ensure this region’s investment appeal for Russian and foreign investors, partners of Russian commercial banks should be convinced that the state shares or reduces their risks. And these risks can be reduced through creating infrastructure and favorable investment conditions including social ones. In this sense, it’s very important to create an appropriate institutional environment for investors. Here I mean the Far East and the Baikal Region Development Fund. We established this Fund at the end of the last year and it has already started operating. I’m also talking about the Russian Direct Investment Fund. When taking a decision to establish the Far East and the Baikal Region Development Fund we assumed that its capital would be formed in the amount of 500 million rubles and that Vnesheconombank would extend subordinated loans in the amount 70 billion rubles through using credit facilities thus engaging Russian commercial banks for investment projects in this region and making available financial resources in the total amount of 900 billion rubles. But the situation has changed fundamentally. A decision was made that the Finance Ministry would provide 15 billion rubles to the Bank’s capital to be used to capitalize the Far East and the Baikal Region Development Fund. We expect to receive these funds today. We are also working with foreign investors. And by the way, focusing on projects in the Far East and the Baikal region the Russian Direct Investment Fund has established jointly with the China Investment Corporation a Fund in the amount of two billion dollars. This Fund is designed to capitalize Russian companies in this region. So, the situation is developing dynamically and favorably.
HOST: There is another Russia trouble – the notorious housing problem. Will the state program of mortgage lending be prolonged? Vnesheconombank supported this program as not all banks can meet Vnesheconombank’s requirements and gain access to preferential financing.
Vladimir DMITRIEV: This is really the case, you are well informed. The program is advancing. We’ll have to prolong it as there is no other way out. The reason for it is that out of 50 billion rubles allocated to buy out bonds and extend credits to people, 80 % has been extended in the form of credits. But of 11 banks included in this program, only one bank, namely, VTB-24, and the Housing Mortgage Lending Agency managed to issue mortgage bonds thus securitizing the credit extended. What’s the problem? The problem is to register title to new housing.
The problem is to form a pool of homogeneous credits. The problem is to register title to housing which is built under this program and which becomes security of bonds being issued. So, we hope that the year 2013 will be a record one and we’ll have to prolong the program for a year. But the program is working and even if we have funds and do not use them to buy out bonds we extend preferential credits to commercial banks which are included in this program through using Vnesheconombank’s funds. You should remember that in 2009, when Vnesheconombank received 175 billion rubles on deposit from the National Wealth Fund to support the Russian stock market, we received a premium of 100 billion rubles. And sometimes I hear people say why the National Wealth Fund should give money to Vnesheconombank it earned a lot of money. But financial resources of the National Wealth Fund are designed for other purposes. We earned money but of 100 billion rubles we use 50 billion rubles to fund the mortgage lending program by extending credit facilities at a rate of 3% per annum. There are no such low rates on the Russian market. We used 30 billion rubles to capitalize the Export Credit Agency of Russia. We used the remaining money to support the programs aimed at supporting small and medium-sized enterprises. I think that in this sense it is appropriate to say that the state earned money thanks to professionalism of the Bank’s employees who managed to earn a lot of money in the unstable situation on the stock market and used it to achieve top-priority national objectives.
HOST: Thank you. I wish you every success.
Vladimir DMITRIEV: Thank you Evelina. All the best to you.