Global Financial Institutions Urge Governments to Turn Their Attention to PPP Contingent Budgetary Commitments due to Pandemic

30 june 2020 года
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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.”

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Two VEB.RF’s Projects Win International ADFIAP Awards

29 june 2020 года
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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.

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VEB.RF Invests RUB378.40bn in the Russian Economy during the COVID-19 Lockdown

23 june 2020 года
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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.

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Cesare Ragaglini Tells EC Representatives and Businessmen About the Development of Green Economy in Russia

18 june 2020 года
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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.

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VEB.RF’s Top Managers Share Insights on Sustainable Development with the UN Global Compact Leaders’ Summit

17 june 2020 года
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On 16 June 2020, VEB.RF Deputy Chairmen Cesare Ragaglini and Alexey Miroshnichenko shared VEB.RF's successful efforts in promoting sustainable development agenda and developing a green finance system in Russia with large Russian and international businesses, expert and academic communities during the UN Global Compact Leaders’ Summit.

“Today, all the countries in the world focus their policies on measures to support economic growth after the crisis. VEB.RF, as the national development institution, directs a high proportion of its efforts to develop an especially promising investment market in Russia: the green finance and sustainable projects. We are developing national green financing guidelines and creating incentives to expand access to debt financing for Russian green projects,” Alexey Miroshnichenko said.

Cesare Ragaglini mentioned that Russia ratified the Paris Agreement and made a commitment to reduce its emissions. The commitments were incorporated to the Russian national strategy. “Russia needs 4 trillion roubles to complete the Environmental Protection national project, including 3.2 trillion from private investors. This is exactly why VEB.RF is developing the architecture of the Russian green finance system together with ministries, business and expert communities,” he said. Cesare Ragaglini additionally noted that we shall not forget the global nature of the climate change and that a close international cooperation at all levels is the only way to tackle this challenge.

VEB.RF’s representatives also noted that VEB.RF’s system of guidelines is developed as part of the international green finance system and is fully compliant with international requirements to assist Russian issuers in accessing international markets. Russia intends to approve its national green finance guidelines before the end of this year. A high proportion of VEB.RF’s portfolio is already compliant with IDFC’s requirements towards the green finance. The integration of the guidelines into VEB.RF’s lending mechanism will bring more green finance projects to its portfolio.

The UN Global Compact is the largest UN’s sustainable development and corporate social responsibility initiative established in 1992. More than 12 thousand organisation from 160 countries joined the Global Compact. The initiative is represented in Russia by the Global Compact Network Association. VEB.RF has been taking an active part in the Association for more than nine years. The discussion with VEB.RF’s representatives was moderated by Aleksandr Plakida, Chair of the Steering Committee of the Global Compact Network Association.

The participants also heard the statements on Russian sustainable development agenda by Natalya Stapran, Head of Multilateral Economic Cooperation and Special Projects Department, Ministry of Economic Development; Gregory Barker, Executive Chairman of the Board of Directors, En+ Group; Andrey Guryev, CEO, Fosagro; Daria Grigoryeva, Head of Sustainable Development, Polyus; Natalya Poppel, Head of Corporate Social Responsibility and Brand Department, Severstal; Sergey Chestnoy, Sustainable Development Advisor, RUSAL; Daria Goncharova, Sustainable Development Director, Polymetal; Natalya Dorpeko, Corporate Advisor to CEO, Tatneft, and other experts.

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