Vnesheconombank Deputy Chairman Anatoly Tikhonov’s Interview to Rossiiskaya Gazeta
Federal issue № 4858
February 27, 2009
Vnesheconombank is now tasked both with financing sports facilities and exercising control over their construction
State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’has assumed new functions. It will be responsible not only for financing Olympic facilities but also for inspecting work progress at construction sites.
VEB’s Management Board Member, Vnesheconombank First Deputy Chairman Anatoly Tikhonov told Rossiiskaya Gazeta about why this decision was taken and what was going to happen to the Bank’s other projects.
Rossiiskaya Gazeta: New functions with regard to the Olympics have been transferred to VEB quite recently. Earlier, expenses on the 2014 Olympics were supposed to be divided equally between the state and business. Is now the state going to incur all expenses?
Anatoly Tikhonov: In fact, the state’s role in the Olympic construction is on the rise. But the private public partnership scheme is still in place. So, Vnesheconombank is not supposed to replace private investors, it is becoming their investor. As a result of the world financial crisis, many investors came up against objective difficulties. As early as a year ago, all Olympic projects were seen optimistically and many banks were happy to lend companies. But today these projects do not look as attractive as they did before and, above all, because of long payback periods. That was the reason why a decision was made to include Vnesheconombank into the Olympic scheme.
But our participation is provided for by certain terms and conditions. First, the Bank is to extend credits (from its own and raised funds) only for projects of national significance. We are not to finance commercial-only projects – building of entertainment or shopping malls and hotels. Second, we have to observe the following proportion: 70 percent of Vnesheconombank’s borrowed funds, 30 percent of investors’ funds. And finally, VEB will control not only financial flows but also physical construction volumes. We should be well aware that earmarked money would make it possible to meet deadlines set by the Olympic calendar and won’t, figuratively speaking, go down the drain. Basically, we are going to perform functions that used to be performed in the Soviet times by Promstroibank. In the history of modern Russia this is the first case when financing and inspection functions are performed by one and the same institution.
Rossiiskaya Gazeta: Have you already determined the amount of your “Olympic portfolio” and loan rate?
Tikhonov: This year, financing amount for Olympic facilities is expected to be 29 billion rubles. For the most part this is transport, power engineering infrastructure, sports facilities, for example such facilities as the Roza Khutor Alpine Ski Complex, a port in Imeretin, the Sochi airport. As far as a loan rate is concerned, in each case it will be set on an individual basis with due regard to specifics and significance of a project. Our principle is that a project should be beak-even and the Bank’s operational margin will be minimal.
Rossiiskaya Gazeta: It was not only investors who came up against problems. What’s the future of the Investment Fund’s projects in which VEB participates, did some investors refuse to participate in them?
Tikhonov: We haven’t had such precedents so far and we hope we won’t have them. Nevertheless, in some cases the situation forces us to reschedule dates of projects implementation. For example, the program of the Lower Angara Area Development provides for the construction of an aluminium factory. But aluminium prices fell and it makes no sense to speed up the construction of the factory. A decision was made to move its commissioning dates from 2010 to 2012 although its construction is not to be frozen. The Orlov tunnel in Saint Petersburg is also to be commissioned later than planned; this tunnel is to be built on concession principles. The project’s financing is to begin in 2011 rather than in 2009.
At the end of the last year, we inventoried 21 projects of the Investment Fund, which had already been approved by the Government. We don’t have any doubts about 15 projects. They are sure to be implemented in 2009. They will carry on implementing projects where construction work has already begun and investors have confirmed their obligations. These are, above all, infrastructure projects that besides purely economic objectives also address employment problems. For example, the implementation of the selected projects will make it possible to create up to 20 thousand jobs for a period of construction. And ten out of these projects will be implemented in the regions where the situation on the labor market has already deteriorated.
All this does not mean that other projects won’t be implemented. They are very important and work on them is in progress. But the current situation makes us reconsider their formats. We have to reconfigure each of these projects, reschedule their construction and commissioning date in order to leave financial burden till later without sacrificing the main objective.
Rossiiskaya Gazeta: Has the crisis changed principles VEB adheres to in working with the Investment Fund
Tikhonov: Up until now Vnesheconombank has participated in some of the Investment Fund’s projects as an investor and consultant. Lately a decision has been made that in order to support business within the Investment Fund, we can also use a scheme similar to the Olympic one, under which Vnesheconombank lends investors. But in this case, a total amount of funds of the Bank and the Investment Fund should not exceed 75 percent. I think this is a reasonable limitation. Otherwise we’ll have “public-public” partnership rather than private-public partnership.
I’d like to remind you that at the end of the last year Vnesheconombank was appointed as a consultant to the Government on the Investment Fund’s projects. We are responsible for examining and monitoring how investors fulfill their obligations. Besides, a decision was made that all investors should open their accounts intended for financing projects with Vnesheconombank. On the basis of data on cash flow in investors’ settlement accounts we’ll be responsible for monitoring the spending of money and submit financial statements to the Ministry of Regional Development. This decision, by the way, is not related to the crisis, it was made to secure transparent relations between the state and business.
Rosiiskaya Gazeta: Has the crisis had a considerable impact on Vnesheconombank’s loan portfolio?
Tikhonov: Our loan portfolio was planned to amount to 270 billion rubles by the beginning of 2009. The crisis made it more difficult for us to operate but now we are close to this amount. More than 70% of our loan portfolio accounts for mid and long-term credits and most of them are intended for the development of innovations and infrastructure. Unfortunately, we had to leave some projects till better times but at the same we made a decision to expand some programs and introduce new lines of activity.
Our brand new line of activity is to provide support for agriculture. At the moment, we are considering projects worth more than 100 billion rubles and the amount needed to finance them in the year 2009 is 60 billion rubles. We have already started to finance some of them and we are going to start financing other projects in the near future. These projects are based on advanced technologies with long payback periods. They provide for creating a single processing flow from manufacturing products to their final processing.
Rossiiskaya Gazeta: Traditionally, Vnesheconombank cooperates with foreign banks. Has the crisis closed this niche?
Tikhonov: Even today we maintain partner relations with foreign financial institutions. At the end of the last year we entered into an agreement with a number of leading international banks on raising a syndicated loan of 335 million euros. Japanese banks expressed their readiness to lend the construction of mineral fertilizers manufacturing complex in Tatarstan worth 800 million dollars. We have also signed an agreement with the China State Development Bank and the German Bank KfW. This sort of cooperation allows us to raise not only money but also receive new technologies and equipment, which have no analogs in Russia.
We are also starting to work with international financial institutions including a group from the World Bank. We hope that they will help us to raise “long” money for regions to finance water supple, energy efficiency, ecology and waste recycling projects.
Rosiiskaya Gazeta: An economic forum opens today in Krasnoyarsk. Its participant will, among other things, will look for an answer to the following question: who and how are we supposed to rescue with the help of the state’s money. How would you answer this question?
Tikhonov: We should stake on promoting new projects and new sectors and on highly efficient companies. It’s very important today that anti-crisis measures should not hinder development. The Bank should not finance “catching up” projects. We’ll give top priority to unique, niche projects that would allow us to make a real breakthrough. And we can find them in virtually all economic sectors.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to Russian Information Channel Vesti
The Vesti TV Channel, INTERVIEW, 29.12.2008
Host - Ekaterina Grinchevskaya
HOST: Despite a complicated economic situation, the amount of support for small and medium-sized business in the current year will exceed the planned 9 billion rubles. Next year, this sector won’t be left without support either. Vnesheconombank Chairman Vladimir Dmitriev told about this and many other things in his interview to our television channel.
Correspondent - Evelina Zakamskaya
CORR: Vladimir Alexandrovich, good afternoon. Thank you very much for finding time for us. Over the last months, Vnesheconombank has had to make strenuous efforts to stabilize the financial system but basically Vnesheconombank is a development institution responsible for major investment projects. Please tell us how you manage to perform all these functions and how would you assess the outgoing year?
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: Of course, in the outgoing 2008, we had more positive things and the main positive thing is that in the current year our Bank as the Bank for Development and the largest financial institution owned by the state started to operate in a format set forth by the Law on the Bank for Development and the Memorandum on our Financial Policies. The Supervisory Board of our Bank did a lot to consider and make specific decisions on major investment projects and our Bank started to finance a number of them this year.
CORR: What projects do you mean?
Vladimir DMITRIEV: These are important infrastructural projects in line with Vnesheconombank’s core activity as a development institution including those in communal and housing services infrastructure. Suffice it to say about a project to fundamentally modernize the water supply and drainage systems and to construct sewage treatment facilities in the Rostov region. The project would make it possible to provide housing to 150 thousand people through building new housing. As a whole, these are also efforts to modernize sewage treatment facilities, which are now in critical condition in the South of Russia (Novorossiisk, Anapa, Gelendjik). These are also projects in the microelectronics sector.
Of course, I must mention a project worth several hundreds of millions of euros. The project is aimed at building a major production facility outside Moscow in Zelenograd to manufacture microelectronic components with a nanometer resolution of about 10 nanometers. Nowadays, none of Russian companies manufacture components with such resolution and quality characteristics of products to be manufactured are planned to be improved.
This is Sheremetjevo infrastructure, the construction of the third terminal. This is also power engineering. Our Bank participates in InterRAO’s investment projects. InterRao is one of the largest Russian companies operating both in Russia and abroad. This is also export promotion, delivery of aircraft to Cuba. This is the support for prospective exports; the Sukhoi Company and here I mean our cooperation with the Sukhoi Company in manufacturing and further export of Sukhoi-Superjets 100, mid-range passenger aircraft. And a variety of other projects.
All in all, we are involved in projects worth 750 billion rubles.
CORR: What additional powers does Vnesheconombank need today, what should be done to increase Vnesheconombank’s charter capital? This, in my opinion, would make certain funds available and increase your institution’s leverage.
Vladimir DMITRIEV: In fact, we are considering an issue of Vnesheconombank’s additional capitalization with the Ministry of Economic Development, the Finance Ministry and with the RF Government Office. First, a decision was made and implemented on allocating 75 billion rubles to Vnesheconombank this year. The funds are to be used to support financial sustainability including that of Russian commercial banks. A decision was also made to contribute 30 billion rubles to Vnesheconombank’s capital to be used to carry out programs of supporting small and medium-sized business. And we hope we’ll be able to make this happen because there aren’t any technical problems in this respect and this will help us minimize problems emerging in our balance sheet. This situation is associated with the reduction in the Bank’s capital due to conducting transactions in extending subordinated loans, building up reserves under the program of refinancing Russian companies’ and banks’ foreign debts and operations on the stock market. We can minimize the negative impacts of the above said either through delegating some of the functions using a trust management mechanism or through the State’s guarantees mechanism. Now, we are close to adopting an agreed stance that if the Bank’s capital is increased it will be increased by an amount which is needed for implementing projects on which decisions have been already made and which can’t be postponed, as well as on projects that the Bank has started to finance. Given the liquidity crunch both on Russian and foreign borrowing markets, we are not in a position to close this gap using foreign borrowing sources.
CORR: I’d like to get one thing straight. Does Vnesheconombank need a formal decision on increasing its capital?
Vladimir DMITRIEV: Yes, of course, because it is supposed to go through required procedures including budgetary ones.
CORR: Would you tell us in more detail about Vnesheconombank’s support for small and medium-sized business.
Vladimir DMITRIEV: It is safe to say that this year we have implemented projects aimed at supporting small and medium-sized business in the amount far in excess of 9 billion rubles which were made available through the Russian Development Bank.
CORR: In excess of how much?
Vladimir DMITRIEV: By a factor of times. The fact is that by law we are not entitled to work directly with small and medium-sized businesses but it is our aim to create infrastructure to support small and medium-sized business. That is why we are implementing a major infrastructural project using our credit resources – the construction of technopark and business incubator in the Nagatino flood plain.
CORR: What is meant by this infrastructure, what is it comprised of?
Vladimir DMITRIEV: By this infrastructure we mean the said technoparks, business incubators, which provide jobs and, more important, provide the system with support infrastructure. These are buildings, telecommunications and administration facilities, that is, everything that small and medium-sized businessmen need to start operating locally and it is of overriding importance, otherwise we have to turn to leasing or to buyout. Here I mean the so-called one-window system – he comes, he gets registered, he works.
CORR: Is he supposed to get a place of employment?
Vladimir DMITRIEV: He gets a place of employment and he is offered preferential terms with respect to rental payments and a number of other preferences which otherwise would be difficult to find on the market.
CORR: Is the amount of financing these projects going to remain intact next year?
Vladimir DMITRIEV: First, the amount of support provided through the Russian Development Bank and now through a number of Vnesheconombank’s subsidiary banks, which we had to support on the Government’s instructions, is to be increased. Instead of 9 billion rubles we hope to spend 30 billion rubles due to an increase in our charter capital. But it is safe to say that this amount is going to be much greater as it is this year.
CORR: What sectors is Vnesheconombank giving top priority to? To my best knowledge, Vnesheconombank is getting an opportunity to finance agro-industrial complex, to be more exact, agro-industrial complex is getting an opportunity to obtain credits from Vnesheconombank.
Vladimir DMITRIEV: You are absolutely right. And I’d like to add that agro-industrial complex has become a sort of testing ground that the Government is using to test joint actions taken by state-owned and commercial banks. As early as a month ago, a program was adopted (we met with first vice premier Victor Zubkov, held meetings with agroindustrialists, representatives of the agroindustrial complex association), we agreed upon measures for supporting agroindustrial complex through the banking system for the next year in the amount of about 800 billion rubles. The participants here are Rosselkhozbank, Bank VTB, Sberbank, Gazprombank, MDM and, of course, Vnesheconombank. Moreover, at the end of the current year the Government passed a resolution to introduce changes to our financial declaration or the memorandum on our financial policies. Agroindustrial complex is now included in our sectoral priorities.
CORR: This is happening at a time that regional banks are scaling down their credit lines in agroindustrial complex. Does this mean that working directly with major institutions agrarians will be able to obtain credits at lower loan rates?
Vladimir DMITRIEV: We lend not only the agricultural but also the real sector of the economy as a whole at rates, which are in line with our credit policy and this policy specifies that Vnesheconombank is not an institution designed to generate profits. We operate at a small margin of profit, which makes it possible to cover our administrative costs, taking into account, of course, borrower risk. But as a whole, Vnesheconombank’s loan rates are lower than commercial ones and here you shouldn’t overlook the fact that by law Vnesheconombank is exempt from profit tax.
CORR: Vladimir Alexandrovich, let’s talk about the now so-called system-forming enterprises. Under the Government’s resolution 1.5 thousand enterprises are planned to be supported, so far 500 enterprises. What role is Vnesheconombank going to play to provide support to these enterprises?
Vladimir DMITRIEV: We are directly participating in the program of supporting system-forming enterprises, the more so; we have already established strong ties with many of them. They are our borrowers and they implement their investment projects through us. And senior executives of three major state banks, namely, Sberban, Bank VTB and Vnesheconombank are incorporated into the commission headed by Ivan Shuvalov. It is within the framework of this commission that we are working out measures for supporting system-forming enterprises. Undoubtedly, our mission should be limited (and we have agreed upon this approach) to those enterprises and projects, which are in line with activities provided for by Vnesheconombank’s charter. These are investment projects whose termination or freeze could have negative impacts on both enterprises and industries in terms of macroeconomic effect. By the way, other state banks, for example, Gazprombank and a number of commercial banks are also involved in implementing measures for supporting system-forming enterprises because all these enterprises are as a rule customers of major commercial and also state banks and maybe, above all, of state banks. We are operating on the basis of consolidated approach, that is, everyone identifies his own specific niche agreed upon with all others. If there is a need for helping hand other banks are ready to do it. But I can tell you confidently that we are in a good and creative mood. We work with the Ministry of Economic Development and they are our good partners.
CORR: And what niche does Vnesheconombank prefer?
Vladimir DMITRIEV: As a matter of fact, we don’t have any preferences here with the exception of those set forth by law and the memorandum on our financial policies.
CORR: Do you have any plans to support the domestic infrastructure with pension funds?
Vladimir DMITRIEV: Now a bill has been introduced into the State Duma supplementing our financial declaration and expanding the101st law on the state trust management company. In accordance with these amendments we’ll be able to invest funds in sub-federal bonds, corporate and mortgage securities without the state’s guarantees. That is why if the state supports bonds issued to finance specific projects including infrastructural ones, it would make it possible for a state trust management company and Vnesheconombank is such a company to move these funds back into the economy as agreed upon with the Government.
CORR: And to what extent is a conservative policy of managing pension funds justifiable? Tell us about the results of the year and pension funds’ rate of return?
Vladimir DMITRIEV: Fortunately, these year’s results show that we happened to be among few trust management companies out of 60 ones responsible for managing the funded portion of pensions which ended 9 months or 3-d quarter of this year with positive results. Our rate of margin is rather small but I’d like to stress it once more that given the fact that our rate of return is about 2 percent, most trust management companies showed negative results. In such crisis periods, that is, periods of sharp fluctuations in stock market quotations, a conservative approach justifies itself.
CORR: Vnesheconombank intends to continue its policy of supporting the stock market, to what extent is this policy appropriate and don’t you think that it might be better for the stock market to hit the bottom?
Vladimir DMITRIEV: In fact, this is not our super objective. Our single objective is to manage the National Wealth Fund. The Bank’s function to manage financial resources of the National Wealth Fund through placing them on the Russian stock market was basically limited to diversifying the portfolio, withdrawing it from abroad and place on the stock market, among other things, to support quotations of Russian blue chips. During certain periods the bank’s presence was tangible and had a positive impact not only on blue chips’ quotations but also on investors’ mood and the situation on the stock market as a whole. To this end, 175 billion rubles are envisaged to be allocated. We have already placed the bulk of these funds on the stock market. We believe that these stock market transactions would increase the National Wealth Fund. A rate of return is going to be appropriate and the amount of funds to be returned to the National Wealth Fund would exceed the one we are entitled to place on the stock market.
CORR: Do you have a forecast about how long you should support quotations?
Vladimir DMITRIEV: We are also pursuing a pretty conservative policy here and are not engaged in stock market speculations. 175 billion rubles have been made available to us and they were made available at a critical moment when a stock market crash was a real threat. Fortunately, we are not the only player on this market and the market responds not only to the presence of a serious player but also to a macroeconomic situation, oil prices, the dollar’s exchange rate and etc. So far, no decisions have been made on increasing this amount from the National Wealth Fund. I think that all actions would be adequate to a situation that is going to develop next year.
CORR: Vladimir Alexandrovich, is there any cure for the crisis?
Vladimir DMITRIEV: Yes, there is. It’s a New Year.
CORR: And if joking apart?
Vladimir DMITRIEV: The most important thing is to have a good and enjoyable holiday and then start to address new objectives and problems with new strength.
CORR: Are you sure that everything is going to work out well?
Vladimir DMITRIEV: At least historical experience shows that sooner or later all managed, to a different extent, to overcome crises and some used them to fundamentally overhaul their economies and undertake institutional reforms.
CORR: A Happy New Year to you!
Vladimir DMITRIEV: Thank you. The same to you. All the best to you.
CORR: Thank you.