VEB.RF and Russian Export Centre Launch a New System to Support Russian Exports, with a Pilot Project in China
State Corporation VEB.RF and the Russian Export Centre have opened in China the Hua No E San Russian Trade Company. This commercial structure will help Russian companies to integrate effectively into the local market and very soon begin exporting their products to China. A unique distinguishing feature of the Russian Trade Company is the principle of “payment for results,” meaning it will only receive payment for its services if the applying Russian company successfully enters the local market. The Russian Trade Company in China will breathe new life into the Russian export support system. If it is successful, VEB.RF and the Russian Export Centre will create similar structures in other states.
Practical work concerning the launch of the Russian Trade Company has been delegated to VEB.RF’s subsidiaries: VEB Asia Limited, which develops VEB.RF’s projects in Asia and the Pacific, and the Russian Export Centre. The Chairman of the Board of Directors is the General Director of VEB Asia Limited and General Representative of the Russian Export Centre in Asia, Artem Sharov.
The management structure of the Russian Trade Company in China is Hua No E San LLC (华诺俄翔贸易有限公司), which translates as “Russia soars in harmony with China.” The name adheres to Chinese principles of naming, and an expanded version is interpreted as follows: “Russia soars above all the world in harmony with prosperous China.”
“The Russian Trade Company aims to become a reliable inter-industry platform for the conclusion of foreign trade deals between the Russian manufacturer and the Chinese consumer, by taking on itself some of the risks of the foreign economic activity of both parties, and receiving payment for this to compensate expenses,” said Artem Sharov. “Payment for services is for us a practical measure of the value of the service itself, and an acknowledgement of the effectiveness of our work, and the principle of payment only upon success is an honest and riskless format for the exporter.”
In accordance with Chinese law, the Russian Trade Company has the right to: conduct trading and import-export operations; consult on a wide range of questions; act as an agent for partner enterprises, with a view to solving certain tasks in the organisation of business in China; make equity investments in other companies; participate in the mechanism of providing guarantees for Chinese enterprises importing Russian goods; develop logistics delivery schemes; and act as a freight-forwarding service agent, with a view to reducing risks and costs for both parties of a foreign trade deal.
The Russian Export Centre will act as the Company’s head office in Russia, collaborating with Russian exporters on a “one-stop shop” basis. The Company is connected to the Russian-Export-Centre-developed information system for Russian export-oriented enterprises, in order to have the opportunity to select prospective stakeholders to fulfill the demand of the Chinese market. There are provisional collaboration arrangements with a range of Russian suppliers and Chinese importers in Beijing and Shanghai, and the Guangdong, Heilongjiang, Shandong and Sichuan provinces.
VEB.RF’s management has given the Trade Company the task of taking an active part in implementing agreements between the Russian President Vladimir Putin and the President of the PRC Xi Jinping, concerning an increase of bilateral trade volumes to $200 billion, and we intend to make a sizable contribution to this important common cause,” added Artem Sharov.
Global Financial Institutions Urge Governments to Turn Their Attention to PPP Contingent Budgetary Commitments due to Pandemic
On 29 June, on the initiative of the Russian Ministry of Finance and the French Ministry of the Economy and Finance, and supported by VEB.RF and the International Monetary Fund, The Liability Side of PPP and the COVID-19 virtual workshop was held. The workshop was moderated by Artem Volodkin, Managing Director of the National PPP Centre.
Participants discussed the importance of evaluating financial risks in infrastructure projects, including those delivered on PPP principles, in the context of the COVID-19 pandemic, as well as the necessity to develop a management system for the contingent liabilities of public partners.
An opening address was given by Vladimir Tsibanov, Director of the Russian Ministry of Finance’s Department of Budgetary Policy and Strategic Planning, and Ronan Venetz, Director of the French Ministry of the Economy and Finance’s Department of Bilateral Relations. They stressed the importance of risk management in the sphere of PPP. “The pandemic may become a good stress test for PPP-project risk-control systems, which will bring to light the best practices for their evaluation and minimisation, to provide budgetary sustainability,” stressed Tsibanov. France already has practical models to evaluate such risks, aside from which, PPP projects throughout the European Union undergo strict risk and liability assessments.
Isabel Rial, an International Monetary Fund representative, and Clive Harris of the World Bank, spoke of the systematic evaluation of financial risks, including contingent liabilities, in PPP projects. Together with the IMF, the World Bank has developed a suitable model (PFRAM), which can be used to evaluate the effect of contingent liabilities accepted by public PPP-project partners on budgetary sustainability. A separate platform, created by international development banks (SOURCE), contains various tools for working with infrastructure projects, including the possibility of evaluating their risks. Christophe Dossarps, General Director of the Sustainable Infrastructure Foundation, spoke about the operating procedure of the platform.
Evgenii Dombrovsky, Deputy Director of the Russian Ministry of Finance’s Department of Budgetary Policy and Strategic Planning, and Maxim Merkulov, Managing Director of VEB.RF and Member of the Board of the National PPP Centre, used their speeches to highlight the situation on the Russian PPP market, and the prospects of creating an integrated management system for contingent liabilities in Russia. According to data from the ROSINFRA platform for the support of infrastructure projects, 3,425 PPP projects are realised in Russia for $60 billion, of which 2,684 projects are within the framework of concession agreements, and direct budgetary liabilities for them are valued at $10 billion. Maxim Merkulov underlined that the situation with COVID-19 demands that the Government pays close attention to budgetary stability and risk monitoring.
According to Evgenii Dombrovsky, the Ministry’s chief goals in this regard are: regular evaluation of direct and contingent government liabilities; development of a methodological framework for evaluating contingent liabilities in PPP projects; assessment of risks and liabilities under agreements; and consolidation of information on direct and contingent liabilities.
An important element in identifying and evaluating liabilities is their record in state financial statistics. The particularities of reporting budget liabilities in PPP projects, which are applied to PPP agreements in the European Union according to Eurostat regulations, were disclosed by Luca Ascoli, head of Unit for EDP statistic in Eurostat. He stressed that for statistics, it is the “economic,” rather than the legal, owner of an asset, accounting for risk sharing between parties, which is important.
With a view to informing on international approaches to evaluation, forecast and management of contingent liabilities, VEB.RF and the National PPP Centre, supported by the Russian Ministry of Finance, have prepared a research paper, “Management of Contingent Budgetary Liabilities in PPP Projects.”
VEB.RF has won awards in a competition organised by the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP), in the Corporate Social Responsibility category, for realising a SIB project in education in Yakutia.
The SIB project on Improving Educational Results in the Republic of Sakha (Yakutia) was initiated by VEB.RF and supported by the Government of the Republic of Sakha (Yakutia). The project began in June 2019, and is just one enterprise working towards the aims of the Education project, which involves approximately 5,000 students and over 700 teachers from 27 schools in the Khangalassky Municipal District.
In accordance with the Russian Government resolution, VEB.RF will be coordinating SIB projects in Russia for the duration of their pilot stage, until 2024.
“The mechanism of SIB projects combines private initiative, attracting non-budgetary investment and, most importantly, striving for a specific result – new technologies for solving socially significant tasks. The educational project in Yakutia is the first SIB project in Russia, and its goal is a 10% increase in the educational results of students, as well as results in all-Russia inter-school Olympiads. We anticipate active involvement from the regions in the implementation of similar projects, and by 2024 expect to launch at least 30 SIB projects in various spheres, with a commitment from private investors totaling 3 billion roubles. In implementing social projects, it is not the mere fact of providing services that is important, but the specific changes and social effects achieved,” said Svetlana Yachevskaya, Deputy Chairperson of VEB.RF.
The contractor for the project is the Higher School of Economics National Research University, the leading experts of which, alongside working on the project, additionally train management teams and teachers (both on-site and distance-learning), enabling the creation of communities of professional training schools, and the development of a data-driven management culture. Not only students, teachers, and heads of schools and municipal education facilities, but also parents and the local community are involved in the project.
An important condition of the project is the creation of a model such that, upon its completion, local teachers and administrators can develop their education systems by themselves, drawing on their own experience and non-local innovations. Thus, reliance on the local workforce is one of the project’s chief principles. The enterprise is being realised in close cooperation with the best specialists and centres of excellence in the Khangalassky Municipal District and the Republic of Sakha (Yakutia).
In the first year of the project implementation, over 900 people took part in academic and educational events, including parents, school students from years 7 and 9, directors and teachers. Students’ individual academic progress in Russian language and mathematics was monitored; students of years 4, 6, 7 and 8 were tested; all teachers and students were provided with recommendations for improving educational results; and all teachers were tested. An analytical School Passport was developed.
The project organiser is the Far East and Arctic Development Fund (a member of VEB.RF Group), which has provided the contractor (the Higher School of Economics National Research University) with at least 60 million roubles for the project. If the result is achieved by 2022, the project originator (the Republic of Sakha (Yakutia) Ministry of Education and Science) will pay the project organiser a grant in the form of a subsidy to reimburse expenses.
This year VEB.RF won awards in two categories at ADFIAP. Aside from the Corporate Social Responsibility category, VEB.RF won the Territorial Economic Development category for developing, in collaboration with the Monotowns Development Fund, the Focal Point project.
"Every city must have its focal point: a street, square or embankment, which teems with life in all seasons, attracting locals and tourists. A place where you want to spend your free time with your friends. Our task is to help towns create such places. Which is why the Fund, together with VEB.RF, launched the Focal Point project in monotowns. We attract to these places small business, which today has access to 27 franchises on favourable terms, help keep them busy, and develop concepts of improvement. Implementing the project allows for a comprehensive approach to the development of urban spaces, the pooling of resources and the creation of modern, comfortable areas for people to relax, and the development of small and medium-sized businesses and the non-profit sector. Together we want to energise the streets of our monotowns! And I am glad that such initiatives are being supported at international level,” said Irina Makieva, Deputy Chairperson of VEB.RF and General Director of the “MONOGORODA.RF” Fund.
So VEB.RF now has six ADFIAP awards. In 2016 a special diploma For Outstanding Achievements in Implementing Sustainable Development Principles in the Working Practices of the Organisation was presented to VEB for designing a Roadmap for Sustainable Development. In May 2016 VEB won in the Infrastructure Development category for its participation in the project to build the Boguchany Hydropower Plant. In 2014 VEB was awarded a diploma The Best Project in the Sphere of Industry and Infrastructure on Sustainable Development Principles for participating in the construction and rehabilitation of small hydroelectric plants in Karelia. And the VEB Group report on sustainable development for 2011 won the ADFIAP award in the Best Report in the Sphere of Sustainable Development category.
The Association of Development Financing Institutions in Asia and the Pacific was established in 1976. Today it is one of the largest international associations of development institutions, numbering 131 organisations from 45 countries. VEB.RF has been a full-fledged member of ADFIAP since January 2013, and is on the ADFIAP Board of Directors. The work of the Association is focused on coordinating the actions of financial development institutions, with a view to the social and economic development of the countries of the region.
VEB.RF Invests RUB378.40bn in the Russian Economy during the COVID-19 Lockdown
In the first two months of lockdown, VEB.RF invested 378.40 billion roubles in the Russian economy. This facilitated the continued realisation of priority projects in industries such as pharmaceuticals, gas-to-chemicals, infrastructure, municipal solid waste processing, and digital economy.
“While restrictions were imposed, VEB.RF did not stop financing a single project. The work of the Project Financing Factory also continued. In partnership with commercial banks, VEB.RF provided an inflow of investments to the economy, fulfilling its commitments to partners and clients. We are also actively putting into place governmental measures to support enterprises, providing surety bonds to guarantee soft loans to retain jobs and resume activity. As a development institution, it is important for us to help enterprises navigate the most acute phase of reduced demand, and quickly reach a stage of recovery and development,” said VEB.RF Chairman Igor Shuvalov.
Among the projects that VEB.RF financed during the lockdown are:
- The construction of four plants for the processing of municipal solid waste (Energy from Waste) in line with the completion of a comprehensive waste treatment system in the Moscow region. During the period in question, VEB.RF provided 11 billion roubles. A banking syndicate involving VEB.RF minimalised risks for the investment stage of the project, providing credit facilities for conversion into hard currency to pay for foreign long-lead technological equipment, which will prevent cost overrun in case of future exchange-rate changes.
- The provision of over 6.4 billion roubles to finance a project to obtain and lease out modern “Moscow” trains (produced by CJSC Transmashholding) for the Moscow Metro. This is VEB.RF’s second project, supplying 768 carriages, and VEB.RF’s commitment amounts to 38.30 billion roubles, of an overall project cost estimated at 63.50 billion roubles. Previously VEB.RF had financed the supply of 664 carriages for the Moscow Metro.
The first such trains were rolled out just over three years ago, in April 2017, when a gradual replacement of old trains with modern trains began. In June of this year, renewal of the fleet of trains on the Tagansko-Krasnopresnenkaya line of the Moscow Metro was completed, and now only “Moscow” trains run on the purple line.
The “Moscow” series carriage design was customised to meet the Moscow Metro needs. The new carriages are noticeably different from their predecessors, having a walk-through connecting all the cars, improved soundproofing, interactive metro maps to plan routes, and USB-ports to charge gadgets. Each carriage has two climate-control systems with an ultraviolet air-sanitising function.
- Financing of a large project, the construction of the Amur Gas Processing Plant, totalling 2 billion roubles has begun. VEB.RF, in collaboration with a syndicate of Russian, European and Chinese creditors, signed an agreement to finance the project. VEB.RF’s commitment in the Amur GPP project has played an important role in the formation of proposals from Russian and foreign financial institutions participating in the syndicate.
Cesare Ragaglini Tells EC Representatives and Businessmen About the Development of Green Economy in Russia
On 18 June VEB.RF’s Deputy Chairman Cesare Ragaglini participated as a speaker in a round table discussion ‘European Green Deal and the EU’s Recovery Strategy: What Do They Mean for Russia?’ organised by the EU Representative Office in Russia.
Cesare Ragaglini said that the European Union and Russia had always been close and reliable partners. “Undoubtedly, the European Green Deal aimed at full decarbonisation of Europe by 2050 will also have important consequences for Russia. Russia’s and EU’s economies are interdependent, especially in the energy field, and it would be wrong trying to diminish or eliminate such interdependence, since it can adversely affect the stability in the region,” he emphasised. According to Mr. Ragaglini, strategic dialogue between Europe and Russia may include a new important area, promoting clean renewable energy, which implies good prospects for financial and technological dialogue.
Cesare Ragaglini additionally noted that businesses both in European countries and in Russia are becoming increasingly aware that investments in sustainability not only have a positive impact on the environment, but may also generate high income. Green financial instruments, especially bonds, become the main driver of the green project development agenda. In Russia, the green market is only just emerging, and it is VEB.RF which is preparing, in collaboration with public authorities, businesses and export community, Russian methodological recommendations for green projects based on the globally accepted standards. This methodology will help to develop the green market pattern in Russia and lay the groundwork for implementing environmental projects including by additional domestic and international fundraising.
Cesare Ragaglini also noted that in 2019 Russia had ratified the Paris Agreement, thus assuming obligations to tackle climate change. “However, climate change is global in scale and cannot be prevented by local efforts. It is essential that global endeavours be coordinated. The green financial market may become a key driver of the process, as long as all participants have access to it,” he said. According to Mr. Ragaglini, a dialogue on climate change must bring together all parties rather than dividing them. “Despite all political complications, coordinated action against climate change should continue,” he stressed.
Deputy Director-General in the Directorate-General for Climate Action Clara de la Torre, Deputy Head of Delegation of the European Commission to Russia Aleska Simkic, General Director of Rusal Evgeny Nikitin, President of Schneider Electric and Chairman of the AEB in Russia Johan Vanderplaetse, and Director of the Climate and Energy Programme at WWF Russia Alexey Kokorin also participated in the discussion. All the round table participants emphasised the necessity to support sustainable green development including more environmentally friendly manufacturing processes, reducing environmental pollution, developing clean transport and clean energy, improving waste management quality, developing more sustainable practices in agriculture, and preserving biodiversity of forests, the Northern Landscape and aquatic resources.
The European Green Deal is a strategic initiative adopted in December 2019 by the European Commission and involving zero-carbon energy sources and zero greenhouse gas emissions in the region by 2050. The implementation of this strategy requires EUR1tn of public and private investment in the coming ten years.